U.S. Regulators Can Influence Tether’s Offshore Usage: JPMorgan

According to a research report by JPMorgan, U.S. regulators have the ability to influence the offshore usage of Tether, the largest stablecoin, despite its headquarters being located outside of the United States. The Office of Foreign Assets Control (OFAC), a unit of the U.S. Treasury Department, holds sway over Tether’s operations, which could impact its regulatory compliance and usage. The report highlights that forthcoming stablecoin regulations are expected to exert “indirect pressure” on Tether, making it less attractive compared to stablecoins that demonstrate greater transparency and compliance with new regulatory standards. Tether has faced mounting pressure to enhance transparency regarding its reserve holdings, but JPMorgan expressed skepticism about the adequacy of their recent disclosures. The report also suggests that stablecoin regulations will be coordinated globally, further restricting the use of unregulated stablecoins like Tether. Furthermore, JPMorgan analysts highlight the example of Tether’s association with Tornado Cash, a privacy enhancement platform, which was sanctioned by OFAC in 2022 for alleged involvement in money laundering activities. Tether initially resisted but ultimately froze its stablecoins held in crypto wallets sanctioned by OFAC. Tether CEO Paolo Ardoino responded to JPMorgan’s concerns, criticizing their comments and suggesting that they might be rooted in jealousy over Tether’s growing dominance. However, JPMorgan analysts believe that upcoming stablecoin regulations in the U.S. and Europe will impact Tether’s usage, particularly in the decentralized finance (DeFi) space. They expressed dissatisfaction with Tether’s current disclosure practices and highlighted concerns about its ability to maintain its peg to the U.S. dollar.