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Beware of the Gold “Stablecoin”

Beware of the Gold “Stablecoin”


From the “If you can’t beat them, try to join them” department, cryptocurrency giant Tether Holdings, Ltd. is creating a gold-backed “synthetic dollar,” a so-called “stablecoin” that is supposed to provide stability for cryptocurrency investors. The company claims that the new digital coin, Tether Gold, is backed by physical gold stored in Switzerland and that it has a market capitalization of $573 million.

Investors should be aware, though, that the new “stablecoin” is no replacement for genuine gold. Indeed, Tether Holdings has a history of misleading investors and being forced to pay fines and reach settlements with securities regulators.

Tether is known for its USDT “stablecoin,” which is designed to track the U.S. dollar and is backed by U.S. Treasury bills, among other assets. But the quality and quantity of those assets was questioned by financial regulators who recognized the “stablecoin” might not be so stable in times of financial stress. Tether reached settlements with both the New York Attorney General and the Commodity Futures Trading Commission in 2021 to resolve charges that it lied about its reserves and fudged its financial books to hide losses.

“Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie,” stated New York Attorney General Leticia James. Tether was banned from trading with New York state residents and, along with trading affiliate Bitfinex, was fined $18.5 million. The Commodity Futures Trading Commission fined Tether an additional $41 million for lying about the backing of the USDT digital token.

Cryptocurrencies, including “stablecoins,” have great appeal to criminals who are able to use the digital currencies to launder their funds. In fact, the most widely used stablecoin for criminal activity in 2023 was Tether’s USDT, according to TRM Labs, which identified $19.3 billion of illegal activity involving the “stablecoin.”

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