Former CFTC Chairman Warns : “Tether at Systemic Risk of Falling Below $1” Questions Reserve Distribution, Calls for SEC Intervention

Tether, the world’s largest stablecoin issuer, has sought to regain user trust by releasing internal financial information and third-party accounting checks after a reserve misappropriation fiasco.

Tether, the world’s largest stablecoin issuer, is trying to regain users’ trust by releasing internal financial information and third-party accounting checks after the reserve misappropriation controversy. However, the former chairman of the U.S. Commodity Futures Trading Commission has raised the potential domino effect behind Tether’s financials and called on regulators to develop relevant regulations as soon as possible.

On June 1, Timothy Massad, the former chairman of the CFTC, pointed out that Tether, the leading stable currency in the cryptocurrency market, actually has enough systemic risk to move the market. In this article, Timothy Massad, former chairman of the CFTC, points out that Tether, the leading stablecoin in the cryptocurrency market, is actually a systemic risk that could move the market.

In this column, written for Bloomberg, Massad first cites the 2008 financial crisis when the Reserve Primary Fund issued by Lehman Brothers Holdings faced a “drop below one dollar” in net value per share, which even had a domino effect on the subsequent economies.

This triggered a general run on money market funds, and the phenomenon continued until the U.S. Treasury stepped in to provide special guarantees for almost all money market fund liabilities before it gradually stopped. The incident also underscored the importance of a $1 net asset value, to investors.

Marcel de Marseille then compares the stablecoin issued by Tether to money market funds, arguing that USDt is as important and important in today’s cryptocurrency market as money market funds were back then, and referencing the stablecoin’s dollar-anchored nature.
However, according to Tether’s previously published reserve distribution data, cash, treasury bonds, and buyback agreements combined account for only about 8% of the approximately 76% of cash and cash equivalent assets, while commercial paper, which does not come with a detailed description, accounts for about 50% of the total assets.

Although Tether also released a third-party accounting audit report at the end of March, the report was only on management accounting, and after taking all the signs together, Mazard believes that Tether’s financial situation is quite risky.

According to data provided by CoinMarketCap, a crypto market monitoring platform, although the number of wallets holding USDt exceeds 3.5 million addresses, the top 10 holders hold 24% of the total USDt volume, and the top 100 holders together account for 41% of the total volume. In Massey’s eyes, that’s enough to cause market turmoil.

In the following pages, Mazard even mentions the cryptocurrency market’s dependence on Tether, suggesting that if Tether were to fail, the liquidity of the market’s trading pairs would plummet, leading to systemic risk. For this reason, Mazard called on the SEC to intervene and establish regulations for the regulation of stablecoins and to require stablecoin issuers to incorporate risk limits to ensure that the value of stablecoins is safe and secure.
Tether Controversy

After the controversial reserve case last year, Tether confessed to the illegal misappropriation of reserves and eventually settled the case by paying a fine and withdrawing from the US. Tether has since taken steps to disclose its internal financial information in hopes of regaining user trust through transparency. Despite this, the announcement last month by Coinbase, a leading North American exchange, that it was listing USDt on its website caused considerable controversy.

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