JPMorgan: Stablecoin Regulations on the Way, U.S. Can Sanction Offshore Entities, Tether Faces Serious Challenges

The research team at J.P. Morgan reiterated in their report that with the arrival of stablecoin regulations, Tether needs to be more transparent and adhere to standards such as KYC/AML, which will significantly weaken its appeal.

Stablecoin Regulations on the Horizon, Tether Faces Challenges

According to CoinDesk, a research report released by JPMorgan on Thursday suggests that Tether's longstanding dominance is being threatened as U.S. stablecoin regulations are set to be introduced.

Earlier reports indicated that during a closed-door meeting of the House Financial Services Committee, Federal Reserve Chair Jerome Powell expressed optimism about reaching consensus on stablecoin regulation. It is reported that he stated:

"We are close to reaching an agreement on stablecoin legislation."

"Pass the Stablecoin Bill!" Federal Reserve Chair Powell Urges Congress to Expedite Stablecoin Regulation

U.S. Still Able to Sanction Offshore Entities

Although Tether is not registered in the U.S., a research team led by Nikolaos Panigirtzoglou at JPMorgan points out that regulatory authorities can still exert some control over its offshore entities through the U.S. Office of Foreign Assets Control (OFAC).

Using the example of Tornado Cash, the report highlights that the U.S. Treasury Department was able to sanction the cryptocurrency mixer Tornado Cash in August 2022, accusing it of facilitating money laundering.

The report notes:

While direct legal actions against offshore entities and decentralized companies are complex, indirect measures and international cooperation may hinder people from using Tether.

Tornado Cash Developers to Remain in Custody for Another Three Months, Public Hearing to be Held

U.S. Regulatory Pressure Will Significantly Weaken USDT's Appeal

The report reaffirms that with the arrival of stablecoin regulations, Tether will need to be more transparent and comply with standards such as KYC/AML, which will greatly diminish its appeal.

Especially as stablecoin regulations will be globally coordinated through the Financial Stability Board (FSB) targeting the G20 major industrial nations, further restricting Tether's adoption.

Despite Tether's recent efforts to release financial information, the report still believes that this information is not sufficient to dispel market concerns.

Tether's Fourth Quarter Excess Reserves Reach $5.4 Billion, Earned $6.2 Billion in 2023

This is not the first time JPMorgan's analytical team has criticized Tether.

JPMorgan: Tether's Dominance in Stablecoins Raises Concerns