Original | Odaily Planet Daily

Author | jk

Recently, the remarks of senior executives of Ripple once again put USDT in the spotlight. Ripple CEO Brad Garlinghouse pointed out that the US government may target Tether as the next regulatory target, which has attracted widespread attention and discussion in the market. Although Tether insists on the transparency and compliance of its USDT, doubts about its potential risks continue to arise.

USDT and Ripple's War of Words

According to the timeline, the recent war of words between Ripple and USDT can be divided into the following events:

On May 6, Ripple's Chief Technology Officer David Schwartz revealed at the XRP Las Vegas conference the company's upcoming integration plans. He introduced relevant information about the XRP Ledger, including automated market makers (AMM), lending protocols, Ripple stablecoins, and artificial intelligence, among others. Schwartz pointed out that detailed information about Ripple stablecoins will be announced at the XRPL Apex event in Amsterdam in June.

Earlier reports indicated that Ripple plans to issue a USD-backed stablecoin. The company stated that this stablecoin is expected to be issued later this year and will be 100% backed by US dollar deposits, short-term US government securities, and other cash equivalents. This stablecoin will first be deployed on Ripple's institution-focused XRP Ledger and the Ethereum blockchain, based on the Ethereum ERC-20 token standard.

On May 13, Ripple CEO Brad Garlinghouse stated in a recent interview that the next target of the US government is Tether, the stablecoin company responsible for the circulation of USDT. He believes that Tether is an important part of the cryptocurrency market system, and he is unsure how this will affect other areas of the market. Some experts believe that the statement made by the CEO of Ripple is a very significant insider information, and if it does happen, there will be significant selling pressure in the USDT stablecoin market, and the price of USDT may experience a significant decline.

On the same day, USDT CEO Paolo Ardoino publicly responded to Ripple on Twitter: "A CEO leading a company under investigation by the US Securities and Exchange Commission (SEC) is launching a competitive stablecoin, and he is spreading fear about USDT."

Subsequently, Ripple CEO Brad Garlinghouse replied, "I am not attacking Tether… The next sentence I said in the podcast is, I think Tether is a very important part of the ecosystem. My point is, the US government has made it clear that they want more control over the issuers of USD-backed stablecoins, and therefore, Tether as the largest participant is in their sights."

At the same time, an important piece of news is that on April 25, Maxine Waters, the Democratic leader of the House Financial Services Committee, predicted that she and Chairman Patrick McHenry would soon reach an agreement on stablecoin regulatory legislation. Waters stated in an interview, "We are striving to reach a stablecoin bill in the short term." She added that she had discussed stablecoins with Senate Majority Leader Chuck Schumer and Senate Banking Chairman Sherrod Brown, and that the Federal Reserve, the Treasury Department, and the White House were all involved in drafting the bill. The impact of this bill on current stablecoin issuers is not yet clear.

Will it be a flashpoint: Why does USDT use Bitcoin as a reserve asset?

According to the transparency report on the USDT official website, all reserve assets are listed: cash and cash equivalents and other short-term deposits account for 84.05% of the total reserves, including: US Treasury bonds account for 79.88%, overnight reverse repurchase agreements account for 12.2%, term reverse repurchase agreements account for 0.9%, money market funds account for 6.77%, cash and bank deposits account for 0.11%, and non-US Treasury bonds account for 0.13%. These assets have high liquidity and security, and are the core of Tether's reserves, as well as the core of major stablecoin protocols. However, Bitcoin accounts for 4.87% of the reserves, which is also a controversial point.

The core point of stablecoins should be to maintain the peg to the US dollar. In this regard, in order to maintain the stability of USDT, it seems that assets related to cryptocurrencies should not appear in the reserve assets, to isolate the correlation with USDT. If a situation similar to the FTX incident occurs, theoretically, there may be a large number of USDT redemption requests and selling demands for Bitcoin, and if there is a connection between the two, it may lead to a death spiral: problems in the market - selling Bitcoin - decline in the value of USDT's reserve assets - USDT decoupling - increased market panic, USDT run, more Bitcoin being sold. From this perspective, USDT should indeed not include Bitcoin in its reserve assets. In comparison, the reserve assets of USDC only consist of real-world assets.

The advantage is that Bitcoin can diversify reserve assets, helping to reduce the risk brought by the volatility of a single asset. The most important function is that Bitcoin can hedge against the risk of fiat currency, reducing the degree of binding to the US dollar and US Treasury bonds in reserve assets. Holding Bitcoin can protect Tether from the impact of the depreciation of fiat currency (such as the US dollar), and in some cases, Bitcoin may provide a better long-term store of value, adding an extra layer of security to Tether's overall reserves. Additionally, it aligns with the cryptocurrency ecosystem, which is one of the reasons why Tether chooses Bitcoin as a reserve asset. As a cryptocurrency, Bitcoin as a reserve asset is more in line with Tether's positioning in the cryptocurrency ecosystem.

However, Tether's excess reserves currently amount to $6,261,866,717, which is 6.02% relative to its total liabilities. In other words, even if all the Bitcoin in Tether's asset pool were to disappear overnight, theoretically, it should not cause Tether to decouple.

Pros and Cons

According to reports, Tether's net profit in the first quarter of 2024 exceeded $4.52 billion, reaching a historical high. Based on this data, analysts believe that USDT is actually the most successful project in the RWA sector of the cryptocurrency field, and it symbolizes the important influence of the US dollar in the cryptocurrency field. Therefore, the US government has no reason to trouble Tether. At the same time, this profit margin greatly reduces the view that Tether may rug: by maintaining the current profit margin, the profit space obtained will be much higher than the one-time profit from rug.

However, many KOLs also believe that since most stablecoins are currently denominated in US dollars, whether it is Tether or Circle, the status of the US dollar denomination will not change. On the contrary, KOL Mr.man stated,

"Allow me to say what Ripple cannot express directly.

Tether is not directly regulated by government agencies such as the Financial Crimes Enforcement Network (FinCEN) or the Federal Reserve. It is only registered with FinCEN for reporting, which is not equivalent to regulation. Tether operates from the British Virgin Islands, outside the jurisdiction of major financial regulatory agencies, and its reserves lack transparency and supervision.

Despite this, Tether must provide monthly proof; as required by the New York State Department of Financial Services (NYDFS), but they only provide quarterly proof. I look forward to the pressure to seize USDT."

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