If Tether is banned in New York, if it triggers a chilling effect, how will the exchange respond?
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, Original author: Zhang Shan, reproduced by Odaily with authorization.
Whether it is traditional finance or digital finance, without supervision and supervision, it is impossible to hope that these issuers will do good and not do evil. On the other hand, supervision should also step up efforts to ensure the transparency of stablecoin issuers and ensure the real existence of stablecoin collateral. Tether’s ban on trading in New York State has actually sounded a wake-up call for cryptocurrency exchanges. There must be certain risks in over-reliance on a certain stable currency. Only by making solutions and measures in advance can we calmly deal with the crisis.However, iFinex may still come under scrutiny from other state attorneys general and even the U.S. Department of Justice.
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Will Tether cause a chilling effect?In fact, New York State’s lawsuit against iFinex dates back to April 2019, when the state’s attorney general’s office accused Bitfinex of illegally using an $850 million loan from Tether to cover losses, and Tether’s reserves were “forced” in the process Therefore, it cannot meet its promise of a 1:1 peg with the US dollar.However, the state of New York should not be the only government regulator with the authority to investigate Tether and Bitfinex. As KuCoin CEO Johnny Lyu believes, although the New York State Attorney General does not have a "strong view" on future plans this time, follow-up investigations are still possible, he explained:"The issue of Tether has always been considered as the sword of Damocles hanging over the cryptocurrency industry. Although the settlement has been reached this time, it cannot be too optimistic. My understanding is that the attorneys general of other states in the United States, or other Regulators in the country are waiting to see how Tether responds to and handles the New York State Attorney General’s request in the settlement agreement, especially the request for disclosure of reserves. Take some action."Indeed, although the fine is not high this time, the key to this punishment is that Tether must disclose a lot of content on a regular basis. If you read this settlement agreement carefully, it is really difficult to determine whether Tether really "won" . So what might happen next? There is no doubt that the New York State Attorney General's office will absolutely monitor Tether very closely, because they still have regulatory power. If we read this "settlement agreement" carefully, we will find that they have listed a long list of information disclosures, which means that Tether must comply with relevant requirements. No matter when and where, as long as Tether fails to comply with the regulations, the New York State Attorney General's Office will again take additional actions.According to the analysis of Marc Boiron, general counsel of the cryptocurrency lending platform dYdX, regardless of Tether's performance in terms of information disclosure, the two most populous states in the United States-California and Texas are "very likely" to follow New York State to launch a legal agreement. Tether investigation. In Texas, local regulators have issued guidelines suggesting that Tether must obtain a license if it wants to engage in crypto activities; , but still appears to require an active partnership with government agencies.secondary title
Why is USDT so important to exchanges and the broader crypto ecosystem?In fact, since 2014, USDT has become a "valuation currency" used by most cryptocurrency exchanges. Its importance is self-evident. The value scale function of the digital currency world requires one or several media. At the beginning, before governments around the world restricted or prohibited the transactions between digital currencies and fiat currencies, digital currencies were generally denominated in sovereign currencies such as the U.S. dollar. In this case, the need to find a measure of value in the digital currency world was born. Tether, like USD in the currency world, has become the currency of digital currency.However, Tether's reserves are not stored in the exchange's bank account, so there are indeed some risks, which will also affect the stability of the cryptocurrency market. If there is a problem with Tether, the impact on the entire market may be similar to the theft of a leading cryptocurrency exchange. For centralized trading institutions, it is equivalent to "lost" USDT. The difference is that it is difficult for exchanges to be responsible, because almost all cryptocurrency exchanges are providing USDT trading pairs. Once there is a problem, it is a systemic risk. It will affect the confidence of the entire stablecoin market.Here we need to explain to you how Tether maintains a 1:1 peg to the US dollar, from which we can see why Tether is so important to exchanges and the wider encryption ecosystem.According to Tether Limited, each USDT in circulation is 100% backed by actual legal tender, and Tether Limited is a third-party legal tender custodian supporting USDT. So, how does Tether Limited control Tether? Let's take a look at the money flow process:1. Users (such as cryptocurrency exchanges) deposit fiat currency into Tether Limited's bank account;2. Tether Limited generates and credits the user's Tether account, and Tether enters the circulation market. The amount of fiat currency deposited by the user must be equal to the amount of Tether issued to the user (eg: 500 USD deposited = 500 USDT issued);3. Users conduct transactions with USDT, such as transferring, exchanging and storing USDT;5. Tether Limited destroys Tether and sends legal tender to the user's bank account.secondary title
Exchanges can't take it lightly and use other stablecoins to hedge risks?In fact, Tether’s problems did not happen overnight. The New York State Attorney General’s Office and Tether seem to have “reconciled”, but their transparency requirements have become stricter. From this perspective, cryptocurrency exchanges cannot be taken lightly, let alone put all their eggs in one basket.From the perspective of liquidity, cryptocurrency exchanges have begun to plan for a rainy day, and gradually choose other stablecoins based on fiat currency collateral, such as USDC, BUSD, PAX, TUSD, etc. Among them, Paxos Trust, the issuer of PAX, is the first to obtain from New York State Financial Services Management In terms of market share, although USDT still dominates, other stablecoins seem to have begun to exert their strength and catch up. The data will not lie, let's take a look at the issuance of stablecoins on Ethereum (data source: DeBank, data extraction time: March 1, 2021):We have seen more and more cryptocurrency exchanges begin to list other stablecoins. For example, KuCoin currently supports more than 10 stablecoins. In addition to the USDT trading zone, KuCoin has set up PAX, DAI, USDC, TUSD and other stablecoin trading zones. Not only does KuCoin support the above mainstream stablecoins, but KuCoin also launched TRON’s stablecoin USDJ and Terra’s stablecoin UST.Summarize
Generally speaking, New York State is actually a special case, because the state itself is not a friendly state to cryptocurrency, in contrast, many states in the United States are still relatively friendly to cryptocurrency and blockchain industries (such as Nevada , Wyoming, etc.), so it is unlikely that Tether will be banned on a large scale, and short-term thunderstorms are even less likely.
