Tether Too Big to Fail, Crypto Experts Say, as US Probes Swirl Around Stablecoin

Cryptocurrency issuer Tether Holdings Ltd. is facing renewed scrutiny from US regulators and prosecutors over the potential use of its USDT stablecoin in illegal activities and to launder funds, people familiar with the matter told the Wall Street Journal.

The Justice Department and Treasury Department have been investigating whether USDT has been used to fund terrorism, drug trafficking and hacking, or launder the proceeds of such activities, the Journal reported on Friday, citing the people.

One line of inquiry is whether sanctioned individuals and groups have used the stablecoin to evade US government restrictions, the report said. Those include Russian arms dealers and the Palestinian militant group Hamas, which the US has designated a terrorist organization.

The Treasury Department’s Office of Foreign Assets Control has been considering sanctioning Tether because of its use by sanctioned individuals and groups, the Journal reported, adding that the move would effectively freeze Tether’s assets in the US.

If Tether were sanctioned and barred from US financial markets, it “would be devastating,” John Paul Koning, author of the blog Moneyness, wrote on X.

“And the ramifications would extend far and wide -- all the way to one of the best-known firms on Wall Street: Cantor Fitzgerald LP, which took on Tether as a client last year to handle the almost $100 billion of Treasury securities that that the company says it owns to back up the value of its stablecoin,” Koning added.

Cantor Fitzgerald did not immediately return a request for comment on the Journal’s report.

In recent months, Cantor’s Chief Executive Officer Howard Lutnick has defended the company amid lingering questions about whether Tether truly has enough reserves to fully back the $1 peg should a loss of investor confidence lead to a crush of redemp