As the U.S. government intensifies its legal crackdown on the crypto industry, one company has managed to evade charges - Tether, the firm behind the ubiquitous stablecoin that has become the go-to currency for a wide range of blockchain transactions. However, Tether's luck may be running out, as federal prosecutors in Manhattan are now investigating whether the company has violated money laundering and sanctions laws through its use by global criminal networks.

Uncovering Tether's Tangled Ties to Illicit Activities

Tether's Murky Backing and Regulatory Scrutiny

Tether, the stablecoin with a market cap of $120 billion, has long been the subject of intense scrutiny and controversy. The company's hazy relationship with regulation has led to ongoing questions about the exact nature of its backing and the potential use of Tether for criminal activities. Tether has faced previous probes, including by the Office of the New York Attorney General and the Commodity Futures Trading Commission, resulting in hefty fines. The latest investigation by the Department of Justice is reportedly an expansion of an existing probe into whether Tether's backers committed bank fraud.

Tether's Ties to Global Criminal Networks

Blockchain analytics firms have uncovered evidence linking Tether to global criminal networks, particularly with the version of the stablecoin issued on the Tron blockchain. A report by TRM Labs found that Tron hosted 45% of all illicit volume in 2023, with more than half of Tether's current market cap hosted on Tron. Tether has claimed to have initiatives in place to combat criminal usage and freeze addresses associated with illicit behavior, but the company's continued involvement with such activities raises serious concerns.

Tether's Dominance and the Crypto Industry's Reliance

Despite the ongoing scrutiny and allegations, Tether's growth has been astronomical, especially after its rival USDC briefly lost its $1 peg during the banking crisis of March 2023. Tether continues to dominate the stablecoin sector, even with the launch of new offerings from companies like PayPal. The company also enjoys the support of influential figures like Howard Lutnick, the CEO of Cantor Fitzgerald, who manages some of Tether's backing assets and serves as a major economic advisor to former president Donald Trump.

The Potential Impact of Charges on Tether and the Crypto Sector

The newly reported probe into Tether's business raises the risk of disruption for both the company and the crypto sector as a whole, similar to the fallout from the collapse of the fraudulent FTX exchange in November 2022. Tether is arguably more integral to the crypto industry than FTX, as its stablecoin underpins the global crypto economy. Potential charges against Tether could echo the DOJ and Treasury Department's case against Binance, which focused on money laundering and sanctions violations by the exchange due to the activity of terrorist and drug trafficking networks. The implications of such charges could be far-reaching, potentially shaking the foundations of the entire crypto ecosystem.