Tether, Circle Diverge on How to Tackle Global Patchwork of Stablecoin Rules

Circle relies on US lawmakers, while Tether takes a more proactive approach to fighting bad actors.

The introduction of traditional finance into cryptocurrency and the creation of international regulations is causing opposing reactions from Tether and Circle.

Circle expresses dissatisfaction with the inaction of American legislators and strives for greater consistency in cryptocurrency legal norms between countries.

Tether, which is more focused on developing countries, claims that it is dissatisfied with the lack of active work by law enforcement agencies in the fight against crimes related to cryptocurrencies.

The question arises:

How will Tether and Circle, the largest issuers of US dollar-denominated stablecoins, evolve and scale as rule-bound traditional finance systems are increasingly drawn into the crypto economy?

So far, these leading cryptocurrency companies are moving in different directions.

Circle, which positions itself as an optimal tool that does not contradict the law, supports the requirements of many regulatory authorities for international coordination. Tether, for its part, has adopted a fairly practical, dynamic approach, adapted to national circumstances, especially in the fight against scammers.

Stablecoin regulation should be coherent, not “balkanized,” Dante Disparte, global policy manager and chief strategy officer at Circle, emphasized in an interview.

"The point is not that countries make mistakes or do anything wrong; passive American policies are the real gap," he said, and other countries are passing laws to compensate for the discrepancy. “So this is the direction we expect: Balkanization of the industry as more countries implement their own regulations that are aimed at providing local advantages.”

According to him, the introduction of the Travel Rule on transactions with digital assets contributed to the establishment of a standard, accordingly, the final transactions of cryptocurrencies can be protected. “Now imagine if stablecoins were also subject to legislation whereby the currency on which the stablecoins are based would set minimum criteria for financial integrity, financial crime, compliance and a whole host of other rules,” Disparte said.

Tether, which does not provide services to US clients and has no plans to in the future, sees the stablecoin market as similar to the Eurodollar - dollar deposits that are held outside the US and therefore not subject to US regulation.

The company focuses on emerging markets and countries with low levels of banking services and has its own vision regarding cooperation with law enforcement agencies.

The company could argue that U.S. law enforcement has no jurisdiction over its activities, but that would be foolish, CEO Paolo Ardoino said in an interview. He added that Tether voluntarily cooperates with US authorities such as the FBI and the Department of Justice (DOJ), as well as with about 40 law enforcement agencies around the world.

“I believe that the Ministry of Finance should work proactively with stablecoins to monitor the situation in the secondary market. By the way, there is no law that obliges stablecoin issuers to be responsible for the secondary market. But I believe that it is still one of our tasks to monitor for them."

Need for fast response

Ardoyno said trying to respond quickly to crime is frustrating because law enforcement first has to go to a judge, who takes six months to make a decision, by which time the money has long been spent by the criminals and cannot be traced. "If the Department of Justice wants to seize these accounts, they can contact us," Ardoino said. But the Treasury Department adds something to OFAC's SDN list, and within a minute it's no longer on the list.

Both companies passed the test. The integrity of Tether (USDT), the largest stablecoin with a current market cap of $107 billion, has been talked about for years. Circle's USDC is a third its size and tied to the US banking system, which made Circle's stability briefly appear unstable during the collapse of Silicon Valley Bank in 2023.

Terra Lunacy

Shortly before Terra imploded, Ardoino suggested that the project was a "bad idea." However, his statement was met with disdain: it is obvious that he will have a negative attitude towards the algorithmic stablecoin, since it was then said that it is a competitor that will win back part of the Tether market.

“Of course, Terra Luna happened, and Tether was under a lot of pressure, and people were saying they were going to destroy us and cause a banking panic,” Ardoino noted, “but we managed to buy back $7 billion in 48 hours; and in 20 days, about $20 billion dollars."

Circle's Disparte lamented the "gates of its own" that cryptocurrencies could avoid and how coins have achieved such "checkerboard scores" in the emerging industry.