Tether, issued by Tether Limited, is currently the most valuable stablecoin being traded and third-most valuable cryptocurrency, following bitcoin and ethereum. Massad said there needs to be more transparency around the trading activities from companies that release stablecoins.
He added that Tether Limited transparency should go beyond the requirements that resulted from a February settlement with prosecutors in New York. Tether admitted no wrongdoing but was ordered to release disclosures surrounding its reserves every quarter. The company released its first disclosure report in March, per CNBC.
Investors would also benefit from enhanced transparency, Massad told CNBC. Massad was the head of the CFTC during the second term of the Obama administration.
“We need a better framework of regulation for tether and other stablecoins,” Massad, a senior fellow at Harvard’s Kennedy School of Government, told CNBC. “We need a better framework so that we can just be sure that there can’t be a run on something like this.”
Stablecoins are cryptocurrencies that are pegged to other assets like fiat money. Tether is supposed to be backed in a 1:1 ratio with fiat reserves.
The lawsuit against Tether Limited was filed in the U.S. District Court for the Southern District of New York on Oct. 6, 2019. The owners of Tether run the Bitfinex exchange, and the lawsuit accused the firm of executing unbacked bitcoin orders at no charge with unbacked Tether. They were accused of racketeering and knowingly defrauding investors.
A separate suit was filed in April 2019 by the Attorney General in New York, accusing the companies behind Bitfinex and Tether of losing over $850 million of clients’ money.