Tether may need to adjust reserves under US regulation
JPMorgan released a research report indicating that Tether , the company behind the USDT stablecoin, could face operational challenges if new U.S. regulations on stablecoins come into effect. The report suggests Tether might have to sell off some of its reserves to comply with the proposed rules.
The Senate's GENIUS Act and the House of Representatives' STABLE Act are both targeting stablecoin issuers, with the GENIUS Act focusing on federal regulation for stablecoins with a market cap over $10 billion and the STABLE Act proposing state regulation.
The STABLE Act imposes stricter reserve requirements, allowing only insured deposits, U.S. T-bills, treasury short-term repo, and central bank reserves, while the GENIUS Act also accepts money market funds and reverse repos. Both bills require high quality and liquid assets for reserves.
Tether, holding a 60% market share in the stablecoin sector and a market cap of approximately $142 billion, was reported to have reserves that are 66% compliant under the STABLE Act and 83% under the GENIUS Act. These percentages reflect a decline in compliance since mid-last year due to a surge in stablecoin supply. To align with the proposed regulations, Tether would need to replace non-compliant assets with compliant ones, potentially leading to sales of non-compliant assets like precious metals, bitcoin, corporate paper, and secured loans.
In response to the JPMorgan report, a Tether spokesperson stated that the company is actively engaging with regulators and monitoring the progress of U.S. stablecoin bills.
Speaking to The Block, Tether's CEO Paolo Ardoino dismissed the concerns raised by JPMorgan in a tweet on Thursday, claiming that the bank's analysis overlooks Tether's substantial group equity and liquid assets, which he believes would make adapting to new regulations straightforward. Ardoino also criticized the JPMorgan analysts for their assessment of Tether's reserves and regulatory challenges.
The proposed stablecoin regulations, which are expected to be enacted later this year, could present significant challenges for Tether, according to JPMorgan analysts. However, Tether remains engaged with regulatory developments and has not yet commented on whether it will need to sell bitcoin or other assets to comply with the potential new laws.
Tether currently holds a significant amount of bitcoin in its reserves, which it began purchasing as part of a profit allocation strategy announced in 2023.
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