Eight months after paying an $18.5 million fine to the state of New York for misleading statements about its reserves, Tether has agreed to pay another $41 million to settle charges from the U.S. Commodity Futures Trading Commission (CFTC) for the same thing. Additionally, Bitfinex accepted a $1.5 million penalty for not doing enough to keep U.S. retail customers off the exchange.
The main contention of the settlement is whether Tether had sufficient assets to back all the Tether tokens in circulation, a topic that has fueled FUD for years. According to the CFTC complaint, “the Tether Reserves were ‘fully-backed’ by fiat currency reserves held in the Tether Bank Accounts only 27.6% of the time.” Stuart Hoegner, general counsel for Bitfinex and Tether, added that “the CFTC did _not_ find that tether tokens were not fully backed at all times — simply that the reserves were not all in cash and all in a bank account titled in Tether’s name at all times.” Hoegner maintains that the reserve issues were resolved by February 2019, and that Tether tokens have been fully backed by cash equivalents and other assets ever since.
A more concerning issue is whether the CFTC should be involved in stablecoin regulation at all. The CFTC has determined that trading crypto on margin is the equivalent of an illegal commodity futures contract, but Commissioner Dawn Stump points out that the agency has never explained how an exchange might trade a contract legally. An exception would be granted if the futures contract involves the physical delivery of the commodity listed, but a stablecoin isn’t really a physical thing. The CFTC faced enough confusion over “actual delivery” with decentralized cryptocurrencies like Bitcoin. If it is physically impossible to comply with CFTC regulations, maybe the CFTC shouldn’t be regulating stablecoins at all. Commissioner Stump cites a quote from SEC Commissioner Hester Peirce: “Are we fighting for investors or are we fighting for jurisdiction?”