Tensions has been high for quite some time surrounding digital assets, due to a couple key issues. Some breathing room has been afforded markets though, as this past week saw both a controversial proposal by FinCEN, and a pending lawsuit against Tether, each delayed.
In late December of 2020, the Financial Crimes Enforcement Network (FinCEN) put forth a proposal that has the potential to upend digital assets. The proposal would see new requirements enforced upon service providers in the industry to collect troves of data on clientele. More specifically, anyone transferring greater than $3,000 in digital assets to a private wallet would be subjected to heightened scrutiny and a forfeit of privacy.
“First, this proposed rule would require banks and MSBs to file a report with FinCEN containing certain information related to a customer’s CVC or LTDA transaction and counterparty (including name and physical address), and to verify the identity of their customer, if a counterparty to the transaction is using an unhosted or otherwise covered wallet and the transaction is greater than $10,000 (or the transaction is one of multiple CVC transactions involving such counterparty wallets and the customer flowing through the bank or MSB within a 24-hour period that aggregate to value in or value out of greater than $10,000). Second, this proposed rule would require banks and MSBs to keep records of a customer’s CVC or LTDA transaction and counterparty, including verifying the identity of their customer, if a counterparty is using an unhosted or otherwise covered wallet and the transaction is greater than $3,000.”
The ramifications of this proposal are huge, and as a result has seen almost 7,500 unique comments put forth from the public and companies alike. The vast majority of which are steadfast in their agreement that the rule is poorly conceived.
Those fearing what this proposal would look like if enacted have been given a short reprieve however. Mere hours into his tenure as the POTUS, Biden released a ‘Regulatory Freeze’. This was communicated in the form of a memorandum, addressed to the leads of executive departments and agencies – One such agency subject to this freeze is FinCen.
While this is only a temporary freeze, it is a promising development as it indicates that genuine consideration will be made to the efficacy of FinCEN’s proposal, and the commentary of thousands.
Tether vs. NYSAG
Stablecoins have been on a tear over the last two years. We have seen the market grow from essentially just Tether, to include many viable alternatives. The following are a just a few examples of these.
Despite this growth, Tether still dominates the stablecoin sector, with a marketcap of roughly $25 billion at time of writing. As the #3 largest digital asset, Tether finds itself pivotal to the operations of many markets and traders. As such, any negative developments surrounding the stablecoin has the potential to disrupt markets proportional to its importance.
Unfortunately for Tether, it has found itself on the receiving end of a lawsuit levied by the New York State Attorney General (NYSAG). The case filed puts forth that Tether misrepresented its holdings, indicating to investors that its tokens were backed 1:1 by USD held in bank accounts, and that it covered up the loss of nearly $1 billion worth of investor funds.
The lawsuit has now been delayed to allow Tether more time to gather documents necessary. A move agreed upon by both parties, and one that gives markets a few more weeks of breathing room before the situation continues to develop.
This looming lawsuit if perhaps a reason why stablecoin alternatives such as USDC are seeing rapid adoption, as traders migrate to its network from Tether.
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