The US government is stepping up its regulation of Tether
In a recent episode of the World Class podcast, Ripple CEO Brad Garlinghouse said the U.S. government is increasing its oversight of Tether, the largest stablecoin issuer by market cap. Although details were scant, Garlinghouse was adamant about the government’s focused actions.

Garlinghouse’s concerns come as Ripple plans to launch a U.S. dollar stablecoin later this year, which would make them a direct competitor in the stablecoin space. This move could reshape Ripple’s position in the crypto ecosystem, depending on the consequences of any regulatory action against Tether.

Tether’s regulatory journey is winding
Tether has faced a flurry of criticism and legal scrutiny. Notably, last October, U.S. Senator Cynthia Lummis and Representative French Hill called on the Department of Justice to assess Tether’s links to possible illegal activities.

According to Bloomberg, in November 2022, U.S. Attorney Damian Williams in Manhattan took over an early investigation into Tether's alleged concealment of cryptocurrency-related funds from banks.

In addition, parent company Tether Holdings Limited has come under fire for its opaque reserve holdings. In October 2021, the U.S. Commodity Futures Trading Commission fined Tether $41 million after finding that it had repeatedly misrepresented its reserve backing for USDT between June 2016 and February 2019.

Ripple’s Response
The impact of any decisive action against Tether is complex and wide-ranging. Since Tether plays a key role in the liquidity of the crypto market, regulatory action could lead to unpredictable results. Garlinghouse expressed his concerns, stating:

In response to potential market fluctuations, Ripple is preparing to launch its own stablecoin. Chief Technology Officer David Schwartz confirmed that the stablecoin will be backed by US dollar deposits, short-term government treasury bonds and other cash equivalents. This strategic move may stabilize Ripple's position in the market, but it may also expose it to new regulatory challenges.

Continued vigilance and industry adaptation
Tether responded to regulatory pressure and said it is committed to transparency and cooperation with global regulators. The company has begun publishing quarterly audit reports to verify its USDT reserves in an attempt to restore trust among users and regulators.

As the digital currency space continues to evolve, both Ripple and Tether will need to navigate fluctuations in regulatory scrutiny while ensuring they do not alienate their user base. For investors and market observers, these developments are critical to follow as they could herald significant changes to the regulatory framework and market dynamics of the crypto industry.