tether

The Pope and US regulators warn about AI risks: Law Decoded

The head of the Catholic Church warned humanity of AI’s potential dangers and explained what needs to be done to control it.

Nowadays, everyone has an opinion on artificial intelligence (AI) and its potential risks. Even Pope Francis — the head of the Catholic Church — warned humanity of AI’s potential dangers and explained what needs to be done to control it. The Pope wants to see an international treaty to regulate AI to ensure it is developed and used ethically. Otherwise, he says, we risk falling into the spiral of a “technological dictatorship.” The threat of AI arises when developers have a “desire for profit or thirst for power” that dominates the wish to exist freely and peacefully, he added.

The same feeling was expressed by the Financial Stability Oversight Council (FSOC), which is comprised of top financial regulators and chaired by United States Treasury Secretary Janet Yellen. In its annual report, the organization emphasized that AI carries specific risks, such as cybersecurity and model risks. It suggested that companies and regulators enhance their knowledge and capabilities to monitor AI innovation and usage and identify emerging risks. According to the report, specific AI tools are highly technical and complex, posing challenges for institutions to explain or monitor them effectively. The report warns that companies and regulators may overlook biased or inaccurate results without a comprehensive understanding.

Even judges in the United Kingdom are ruminating on the risks of using AI in their work. Four senior judges in the U.K. have issued judicial guidance for AI, which deals with AI’s “responsible use” in courts and tribunals. The guidance points out potentially useful instances of AI usage, primarily in administrative aspects such as summarizing texts, writing presentations and composing emails. However, most of the guidance cautions judges to avoid consuming false information produced through AI searches and summaries and to be vigilant about anything false being produced by AI in their name. Particularly not recommended is the use of AI for legal research and analysis.

Tether responds to US lawmakers’ calls for DOJ action

Tether has reacted to lawmakers’ requests for DOJ action over its stablecoin use, claiming it wants to be a “world class partner to the U.S.”

Tether, the company behind the stablecoin Tether (USDT), disclosed letters directed to U.S. legislators, addressing requests for intervention by the Department of Justice in relation to the illicit use of its stablecoin.

The communications were sent to members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs and the U.S. House Financial Services Committee on Nov. 16 and Dec. 15, detailing “Tether’s commitment to fighting illicit use of stablecoins.”

The letters aim to answer calls from Senator Cynthia Lummis and Representative French Hill from October, urging the DOJ “to carefully evaluate the extent to which Binance and Tether are providing material support and resources to support terrorism.”

Tether responds to US lawmakers’ calls for DOJ action, onboards FBI

Tether has reacted to lawmakers’ requests for DOJ action over its stablecoin use, claiming it wants to be a “world class partner to the U.S.”

Tether, the company behind the stablecoin Tether (USDT), disclosed letters directed to United States lawmakers addressing requests for intervention by the Department of Justice (DOJ) about the illicit use of its stablecoin.

‘I’m a big fan’: Cantor Fitzgerald CEO praises Tether and Bitcoin

Cantor Fitzgerald has been managing Tether’s now $90 billion Treasury portfolio since late 2021.

Howard Lutnick, the CEO of Wall Street firm Cantor Fitzgerald, has praised USDT stablecoin issuer Tether, describing himself as a “big fan” of the firm.

“I’m a big fan of this stablecoin called Tether…I hold their treasuries. So I keep their treasuries, and they have a lot of treasuries,” Lutnick said in a Dec. 11 interview with CNBC.

“They’re over $90 billion now, so I’m a big fan of Tether,” the Cantor Fitzgerald CEO said.

Tether announces wallet-freezing policy for OFAC-sanctioned persons

Tether is expanding control sanctions to the secondary market in an effort to cooperate with regulators in the United States.

Stablecoin issuer Tether has announced another step toward cooperation with law enforcement and regulatory agencies by initiating a voluntary wallet-freezing policy, according to a blog post on Dec. 9.

Since Dec. 1, Tether has been offering secondary market controls to freeze activity connected with sanctioned persons on the United States Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List. Companies and individuals controlled or owned by sanctioned countries are included on the list.

According to Tether, the policy will supplement existing security protocols and is a “proactive effort to work even more closely with global regulators and law enforcement agencies.”

Russia debuts cross-border payments in Tether stablecoin

In addition to Tether, companies transacting through the Exved system can use the U.S. dollar and the offshore ruble, the platform said.

One of Russia’s first cross-border payment platforms has officially announced its launch and says it will facilitate local legal entities to process international settlements in cryptocurrency.

Exved, a local digital settlement platform — which describes itself as a “digital counterparty search system” — announced the launch on Dec. 7, stating that Russian importers and exporters can now use its business-to-business solution to simplify the process of “foreign exchange operations and foreign economic activity.”

The Exved platform specifically allows one to proceed with cross-border transactions using the Tether (USDT) stablecoin alongside the offshore ruble and the United States dollar, the announcement reads.

Tether market cap eyes record high after regaining 65% stablecoin dominance

The market capitalization of Tether is nearly a billion dollars away from reaching a new lifetime peak while rival stablecoins struggle.

Tether has emerged as a clear winner amid the ongoing banking crisis and crypto crackdown in the United States.

On April 17, the U.S. dollar-pegged stablecoin’s circulating market valuation reached nearly $81 billion, just 1.5% below its record high of $82.29 billion from a year ago. It has grown about 20% year-to-date (YTD) already and is now eyeing new all-time highs.

*USDT market capitalization monthly chart. Source: TradingView*

Tether rivals hit new yearly lows

Tether’s (USDT) growth came as it ate up the market share of its stablecoin rivals, USD Coin (USDC) and Binance USD (BUSD). That is due to crypto traders’ belief that Tether’s operations have no exposure to the potential banking crisis contagion.

For instance, the circulating market capitalization of USD Coin, the second-largest stablecoin, has dropped over 25% YTD to $31.82 billion, its lowest level since October 2021, primarily due to its exposure to the failed Silicon Valley Bank.

*USDC market capitalization monthly chart. Source: TradingView*

BUSD, on the other hand, has witnessed a 60% drop in market capitalization in 2023 to $6.68 billion, its lowest since April 2021, as the New York Department of Financial Services ordered Paxos, a regional crypto firm, to stop its mint and issuance.

Moreover, the U.S. Securities and Exchange Commission asserts that BUSD is a “security.” Conversely, the U.S. Commodity Futures Trading Commission alleges that the stablecoin is a “commodity.”

This capital shift likely helped Tether boost its dominance above 65% in the global stablecoin sector for the first time since May 2021, according to Glassnode data.

*Stablecoin supply dominance. Source: Glassnode*

On April 16, the U.S. House Financial Services Committee published a draft version of its potential stablecoin bill to create definitions for issuers. It says that non-U.S. firms like Tether must register if they cater to Americans, albeit without mentioning the specific agency that would regulate stablecoins.

Exchange stablecoin supply lowest since June 2021

Despite Tether’s market capitalization growth, its supply across crypto exchanges has been declining in 2023.

As of April 16, cryptocurrency exchanges had 12.94 billion USDT in their reserves compared with 17.89 billion USDT at the year’s beginning. On the whole, the stablecoin supply across exchanges has dropped 42% YTD to $21.53 billion.

*Stablecoin supply across exchanges. Source: Glassnode*

This dynamic coincides with the 21% YTD increase in the crypto market’s valuation from $1 trillion in January to $1.21 trillion, suggesting that Q1 has seen a trend shift from “safe” stablecoins to risk-on cryptocurrencies.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Crypto in Europe: Economist breaks down MiCA and future of stablecoins

A principal economist of the European Commission shares his views on stablecoins and the future of regulations in Europe.

In October 2022, the European Union finalized the text of its regulatory framework called Markets in Crypto-Assets or MiCA. The final vote on the new regulation is scheduled for April 19, 2023, meaning the days of an unregulated crypto market in the EU may soon be over. The MiCA regulations introduce clear guidelines for handling cryptocurrencies and consumer protection, and divide crypto assets into different sectors, each subject to specific rules.

The European Commission — the executive branch of the EU responsible for proposing new laws — first proposed the far-reaching regulations in 2020. The MiCA would apply to crypto service providers and issuers of digital assets in 27 EU member countries. By proposing to regulate crypto assets, the European Commission has taken a bold step, displaying the capacity and will to address complex issues creatively.

Joachim Schwerin is the principal economist at the Digital Transformation of Industry unit within the European Commission’s Directorate General for the Internal Market, Industry, Entrepreneurship and SMEs (DG GROW).

Schwerin is responsible for policy development regarding various aspects of token creation, its distribution and regulation (token economy), and the economic applications of distributed ledger technologies.

In 2020, Schwerin coordinated DG GROW’s input into the EU’s Digital Finance Strategy, including MiCA. Speaking to Cointelegraph, Schwerin shared his views on the importance of MiCA, the role of stablecoins, and why he hasn’t ever questioned the merits of blockchain and crypto, even in the wake of Terra’s collapse or the FTX crash.

“We want to develop and promote, not slow down”

With MiCA, the European Commission has adopted a regulatory framework that should minimize the negative consequences of incidents like the insolvencies of FTX and BlockFi in the future. The law was not in force at the time of the FTX case, but Schwerin hopes it will come as soon as possible, saying this should “clearly underpin the precautionary principle.”

“We promote the crypto sector and want to support its organic, market-driven development. The many positive opportunities should be recognized and used. It is like in sports here: Defending can make sense in certain phases of the game, but mostly defending means that a team is too bad to take the game into its own hands. We want to develop and promote, not slow down.”

For Schwerin, FTX was a typical case of an emerging and relatively unregulated industry finding its footing and developing its products and services. Indeed, he stated incidents like FTX and Terra’s collapse provided a chance for the cryptocurrency community to rally, condemn illicit behaviors and work to rebuild the industry’s reputation.

Joachim Schwerin, from @EU_Growth, illustrated his presentation with examples of healthcare institutions which use #Blockchain to manage their supply chains or to access research and data.#ECNCrowdCon2019 pic.twitter.com/UcpCQN9Ca9

— EURADA (@Eurada_RDAs) October 25, 2019

The crypto community is now focusing even more on better rule-setting and compliance in regulated or soon-to-be-regulated environments. It’s also looking more at truly decentralized mechanisms to reduce the potential for error by empowered individuals, Schwering added.

“All of this is positive and does not change the narrative of crypto as a success story with much more future potential.”

Blockchain as a philosophy

Schwerin sees the benefit of blockchain technology primarily in applications for the real economy. He said that Bitcoin (BTC) and other cryptocurrencies are “nice and fascinating with lasting significance,” but these are private concepts and “we don’t need to spend public resources on them.”

Schwerin is confident that the benefits for small businesses and the general population must be evident if the government will tackle something with public resources. And this is precisely the potential that blockchain has:

“That’s why, from the beginning, we didn’t see blockchain primarily as a technology but as a philosophy. [We saw it] as something that enables a true form of decentralization that creates trust; trustworthy technology that also opens up market opportunities for small businesses worldwide and allows many people with the same interests — but who don’t know each other — to come together digitally in the real world and develop projects.”

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The European Commission had this understanding of blockchain technology in mind when discussing dubious initial coin offerings from 2017 to 2018, or that money laundering was supposedly easier with crypto.

But European regulators understood that blockchain technology’s nature — thanks to its transparency and traceability — makes it much easier to track crypto transactions, and distinguish between regular and illicit activities on-chain.

According to Schwerin, financial crime related to cryptocurrencies is much lower than in traditional forms of finance.

“That is why we did not depend on any examples of criminality or the Terra case, just as we did not depend on FTX or any next case of that sort, but we were and are 100% convinced of the technology. We got involved with it early on, and because of that, we had already learned so much by then that we were in a position to work on the MiCA regulation in record time.”

But what about stablecoins?

After the collapse of the Terra ecosystem, the European Central Bank (ECB) issued a report claiming that stablecoins posed a threat to financial stability, but Schwerin does not share this view.

According to him, society needs stablecoins in many different forms because they have important functions within the crypto space, like cushioning price fluctuations and facilitating transactions; this is why the European Commission has allowed stablecoins in principle in the MiCA regulation.

“We have not banned anything, but we have developed basic rules for private stablecoin issuers that we think are reasonable. For example, they must have appropriate minimum liquidity as a reserve”.

Regarding Terra, Schwerin sees the whole thing as a learning process, saying, “The next similar project will simply be better because people have already had this experience. It is a natural evolution of innovation.”

Despite this, there are doubts about whether stablecoins will find a home in the EU. The largest stablecoins — Tether (USDT) and USD Coin (USDC) — are pegged to the United States dollar, with Circle’s euro-pegged stablecoin also issued outside the eurozone. When MiCA comes into force, should we expect more euro stablecoins?

Schwerin hasn’t ruled out the emergence of new euro stablecoins in the EU, but he isn’t expectant either. He says that the macroeconomic context, geopolitics, monetary policy and the euro are simply not moving in that direction.

The MiCA alone is unlikely to significantly increase the number of euro-denominated stablecoins in the euro area, Schwerin stated. “However, MiCA could help us to become more open to stablecoins as a whole.”

When asked whether MiCA could become a ground-breaking global regulatory standard, Schwerin said he sees great interest from other countries, especially the United States. In his view, MiCA is a particularly good example of a regulatory approach that is both innovative and liberal for global regulation of the financial sector.

“However, even though MiCA is ready, we have to be aware of the pace of innovation in the crypto sector and the new challenges it will bring. It was, is and continues to be a long process of learning.”

The views expressed in this interview are those of Schwerin personally and do not reflect or represent the official position of the European Commission.

Tether blacklists validator address that drained MEV bots for $25M

The co-founder of Polygon and other decentralization proponents said the move sets a bad precedent.

Tether, the issuer behind the leading stablecoin Tether (USDT), has blacklisted an address that drained Maximal Extractable Value (MEV) bots for $25 million last week.

The address in question exploited a bug in the MEV-boost relay to outsmart the MEV bots trying to execute a sandwich trade. Sandwiching occurs when one order is placed immediately before the trade and another immediately after it. In essence, the trader will front-run and back-run at the same time, sandwiching the original pending transaction in between.

In this case, the rouge validator address swooped in to back-run the MEV’s transaction, leading to losses of nearly $25 million in various digital assets, making it the largest MEV exploit to date. Etherscan has already flagged the address, warning of its involvement in the exploit.

*Rouge validator address. Source: Etherscan*

The USDT address held about $3 million in USDT at the time of blacklisting and a total of $21 million in various other ERC-20 tokens.

*Digital assets held in blacklisted validator address. Source: Etherscan*

The blacklisting of the rouge validator address attracted some pushback from the community for its censorship approach. Arthur, an engineer at the Kraken crypto exchange, called the blacklisting “bullshit,” saying that MEV bots also take advantage of traders and the sandwich trade they were trying to execute was as nefarious as the draining of their funds.

“MEV bots take advantage of mfers and it’s all good, but someone does it to them and they get blacklisted?!”

Another on-chain sleuth who goes by the Twitter name ZachXBT said that the blacklisting by Tether could be the result of a court order. Cointelegraph reached out to Tether to confirm but didn’t get a response by publication time.

Jaynti Kanani, the co-founder of Polygon, called Tether’s action a “bad precedent,” while Fastlane Labs co-founder Jordan Hagan called it the “most concerning DeFi development of 2023.” He added that the main issue is Tether’s willingness to block or unblock “large amounts based on activity in the consensus layer (Beacon Chain).”

This is the most concerning DeFi development of 2023.

The bot “victims” signed those transactions and sent them to the relay. They were executed.

The exploit wasnt in DeFi. Tether’s block implies they have an opinion on eth’s consensus / social layer.

Slippery slope… https://t.co/I4Lf2N6WtG

— Thogard (@ThogardPvP) April 11, 2023

MEV bots make more money by taking advantage of information about the transactions that are about to be executed. Most often, arbitrage is used to do this (taking advantage of price differences between exchanges).

When an MEV bot notices that someone else is planning to purchase a coin, it positions itself to benefit from the slight price increase that its bid will probably bring about. Front-running the trade, the bot skips the queue and buys the currency for a bit less.

The MEV bot’s practices are often considered a form of invisible tax. Recently, 27 Ethereum-based projects have joined hands to launch MEV Blocker. The MEV blocker aims to minimize the amount of value extracted from traders.

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Tether supply hits $80B for the first time since May 2022 — Stablecoin rivals stumble

The supply of USDT across cryptocurrency exchanges has dropped 28% in 2023, hinting at an overall decline in demand for stablecoins.

Tether (USDT) continues to benefit from the ongoing turmoil in the U.S. dollar-backed stablecoin industry, with its market capitalization growing significantly in Q1 2023 at other stablecoins’ expense.

Tether market cap reaches $80 billion

On April 6, the circulating market capitalization of USDT surpassed $80 billion for the first time since May 2022, with a gain of $15 billion so far in 2023.

*USDT circulating market cap 12-month performance. Source: Messari*

On the other hand, the market caps of its chief rivals, namely USD Coin (USDC) and Binance USD (BUSD), fell by about $12 billion and $9.4 billion, respectively.

*USDC and BUSD circulating market cap year-to-date performance. Source: Messari*

Tether benefits from non-U.S. status

Crypto traders opted for Tether given the growing concerns around USD Coin and Binance USD.

Notably, USDC’s market capitalization slipped due to its $3.3 billion exposure to the now-collapsed Silicon Valley Bank and additional exposure to Silvergate Bank, while BUSD suffered after New York regulators ordered Paxos to shut down the stablecoin’s issuance.

USDC weathered the crisis after the Federal Deposit Insurance Corporation’s assurance that it would make depositors at the insolvent banks whole. As a result, the stablecoin recovered its dollar peg after losing it at the peak of the banking crisis in mid-March.

*USDC price performance YTD. Source: Messari*

But a growing crypto crackdown in the U.S. has prompted investors to maintain distance from regional firms. For instance, Paxos confirmed that the Securities and Exchange Commission treats BUSD as an unregistered security.

On the other hand, Tether is a non-U.S. firm and has repeatedly assured that it has no exposure to insolvent U.S. banks. Nonetheless, it has faced scrutiny over its reserve assets and lack of proper audits for years, despite such issues becoming less of a concern among traders.

USDT supply drops across exchanges

Interestingly, the growth in the USDT circulating supply has coincided with a drop in its supply across exchanges.

Tether’s balance on exchanges has dropped 28% year-to-date to 12.88 billion USDT, according to Glassnode. In comparison, the aggregated stablecoin balance across exchanges has dropped by 41% YTD to $22.31 billion.

*USDT vs. rival stablecoin balances across crypto exchanges. Source: Glassnode*

The decline in stablecoin reserves coincides with a crypto market rally, suggesting that traders have been converting their crypto dollars to buy Bitcoin (BTC) and Ether (ETH).

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.