With new global benchmarks emerging for stablecoin oversight, Tether’s regulatory gaps are becoming harder to ignore.
After years of regulatory avoidance and offshore operations, Tether is reportedly plotting a domestic return to the US.
In a recent Bloomberg Television interview, Tether CEO Paolo Ardoino confirmed the company is “well in progress of establishing our U.S. domestic strategy” with a renewed focus on payments, interbank settlement, and trading.
For a company long synonymous with opacity, market dominance, and controversy, the move raises questions about how far the industry’s most divisive stablecoin is willing (or able) to change.
A troubled origin story
Tether (USDT) was launched in 2014 with a simple pitch: provide crypto markets with price-stable liquidity backed by US dollars. Originally incorporated in the British Virgin Islands and later operating from Hong Kong under its parent company iFinex, Tether took shape in offshore jurisdictions known for limited financial oversight.
What followed was a cascade of questions that continue to shape its legacy.
Is it really backed 1:1?
Who oversees it?
Can it trigger systemic risk?
In 2021, the New York Attorney General’s office concluded a sweeping investigation into Tether and its affiliated exchange Bitfinex. The resulting $18.5 million settlement revealed Tether had misrepresented the backing of its tokens and had no reserves for significant stretches of time.
“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” said Attorney General Letitia James. “Tether’s claims that its virtual currency was fully backed by US dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system.”
The company was barred from serving customers in New York.
That same year, the Commodity Futures Trading Commission (CFTC) fined Tether another $41 million for claiming it was fully backed by US dollars, a claim regulators found to be untrue for most of the period between 2016 and 2018.
According to the CFTC, Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018.
Furthermore, instead of holding all USDT token reserves in US dollars as represented, Tether was reported to have relied upon unregulated entities and certain third-parties to hold funds comprising the reserves; comingled reserve funds with Bitfinex’s operational and customer funds; and held reserves in non-fiat financial products.
Regulation avoided, not resolved
Rather than submit to US oversight, Tether relocated its operations offshore, ultimately establishing its regulatory home in El Salvador earlier this year; a jurisdiction that, as ECB President Christine Lagarde recently warned, “lacks any prudential framework for stablecoins.”
In a June 2025 hearing before the European Parliament, Lagarde explicitly named Tether as a cautionary example, arguing that a “fragmented approach prevents a global level playing field and can open the door to systemic vulnerabilities.”
Her concern is echoed by the ECB’s own analysis, which views stablecoins as posing monetary policy and financial stability risks if left unchecked.
The company’s choice of El Salvador, a country that has adopted Bitcoin as legal tender but lacks comprehensive financial oversight, has reinforced the perception that Tether is structurally incompatible with regulated finance.
A problem of transparency
Despite publishing quarterly attestation reports and claiming a 3.5% equity buffer, Tether’s disclosures still fall short of the standards demanded by institutions and regulators. The Anchorage Digital Stablecoin Safety Matrix, published in July, scored Tether just 2.5 out of 5 for regulatory oversight and 3.5 out of 5 for reserve management.
Anchorage flagged the issuer’s jurisdictional risk and incomplete reserve breakdowns — noting that while high-quality liquid assets (HQLAs) are included, the precise securities and bank exposures are undisclosed.
By contrast, rivals like PYUSD, USDP, and USDG received higher scores due to transparent reserve practices, regulatory licensing under the New York State Department of Financial Services or Monetary Authority of Singapore, and the use of insurance to mitigate bank risk. Notably, Anchorage has already announced it will phase out support for several lesser-scoring stablecoins.
Still dominant — but for how long?
Despite the criticism, Tether remains the world’s largest stablecoin by market capitalisation, with more than $110 billion in circulation. It plays a pivotal role in crypto trading, particularly in markets with limited access to US dollars or traditional banking.
However, its long-term viability is now being tested on multiple fronts. The EU’s Markets in Crypto-Assets Regulation (MiCA), which came into effect this year, requires stablecoin issuers to meet strict reserve, transparency, and redemption rules. Tether has not been authorised under MiCA and may face de facto exclusion from the European market.
In the US, new legislative frameworks such as the GENIUS Act are beginning to formalise stablecoin oversight, reinforcing the need for prudential regulation and onshore accountability.
Tether’s push back into the U.S. market may be less about ambition than necessity. As central banks accelerate digital currency plans and regulators tighten the net, the margins for offshore, unregulated stablecoins are narrowing fast.
If Tether is serious about institutional adoption – and regulatory acceptance – it will need to do more than relaunch. Until then, it will remain what it has long been: the indispensable but problematic centre of the stablecoin universe.
