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JPMorgan warns of Tether’s dominance in stablecoin market

A recent report by JPMorgan analysts has raised concerns about the growing dominance of Tether, the largest and most controversial stablecoin, in the crypto market.

The report, led by Nikolaos Panigirtzoglou, underlined Tether’s lack of regulatory compliance and transparency and stated that its increasing concentration was seen as a negative for the stablecoin universe and the overall crypto ecosystem.

Stablecoins are digital tokens that are pegged to a fiat currency or a basket of assets, and are designed to maintain a stable value. They are widely used in the crypto space for trading, payments, lending, and other purposes.

However, stablecoins also face regulatory risks globally, as authorities seek to ensure that they are backed by sufficient reserves, follow anti-money laundering rules, and do not pose a threat to financial stability.

In the US, the Clarity for Payment Stablecoins Act is awaiting approval from Congress, which would require stablecoin issuers to obtain a banking charter and comply with federal banking regulations.

Meanwhile, Europe expects partial implementation of CryptoAsset Markets (MiCA) regulation in June this year, which would impose strict rules on stablecoin issuers, such as capital requirements, governance standards, and consumer protection measures.

Analysts believe that stablecoin companies that strictly adhere to existing regulations can benefit from the upcoming regulatory scrutiny and potentially gain market share.

One such company is Circle, the issuer of USD Coin (USDC), the second-largest stablecoin by market capitalization. Circle recently secretly filed for public listing in the US, which analysts interpret as a sign of its intention to expand internationally and prepare for upcoming stablecoin regulations.

On the other hand, Tether, the issuer of USDT, the largest and most controversial stablecoin, has been facing legal challenges and accusations of market manipulation, fraud, and insufficient backing.

Tether CEO Paolo Ardoino responded to JPMorgan’s report, saying he was pleased that JPMorgan had recognized the importance of Tether and the stablecoin technology created by his company. But he found it hypocritical for JPMorgan, the world’s largest bank, to talk about centralization.

Ardoino attributed the success of Tether’s USDT to its financial reliability, strong reserves, and commitment to emerging markets and developing countries.

According to analysts, stablecoins function like the “cash” in crypto, acting as a link between traditional finance and the crypto world. Their expansion means more money entering crypto from traditional finance, more cash circulation in the crypto space and an increase in collateral, making the cryptocurrency financial system more stable.

However, the report also warned that the dominance of Tether could pose a systemic risk to the crypto market, as any disruption or loss of confidence in USDT could trigger a liquidity shock and a sharp correction in crypto prices.

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