The Truth About Tether's Resistance to Censorship
The Truth About Tether's Resistance to Censorship
Tether, the largest stablecoin by market capitalization, has been accused of facilitating money laundering, sanctions evasion, and terrorist financing. However, the real issue with Tether is not what you might think.
Recently, reports emerged that the Venezuelan state-owned oil company, Petróleos de Venezuela, allegedly planned to use Tether to circumvent US sanctions. This comes after the US lifted its embargo on Venezuela, prompting the Maduro regime to seek new ways to finance its oil exports. Tether's CEO, Paolo Ardoino, defended the company against these allegations, stating that Tether wallets for Venezuelan sanctions evasion would be frozen immediately.
However, the Wall Street Journal has also accused Tether of assisting Russian sanctions evasion. The accusations are severe. But is Tether truly suitable for such high-stakes activities?
With a market capitalization of over $110 billion, Tether is the largest dollar-backed stablecoin. In an interview Ardoino claimed that the connection between Tether and illegal transactions is simply a symptom of its success. He has a point, as a UN report found that criminals often use Tether due to its low volatility, fast, and cheap transactions. Additionally, Tether collaborates with numerous law enforcement agencies. An internal investigation team has already frozen $1.2 billion in illegal funds.
Tether users are at the mercy of the company
In reality, Tether cooperates willingly with the justice system. In December, Tether froze wallets with over $435 million in assets to support US law enforcement. On this occasion, Ardoino declared that his company would become a "world-class partner" of the US to "expand the dollar's hegemony worldwide." The strict "wallet-freezing policy" can be measured, as 1,428 Tether addresses with over $1 billion in assets have been frozen. While this approach may be justified in combating criminals, it is not censorship-resistant – any wallet can be blocked by state authorities at any time.
This raises concerns about the potential for political dissidents or unwanted NGOs to have their wallets frozen. The prerequisite is simply that state authorities target them and Tether complies with the pressure. "Almost our entire user base is in emerging markets," Ardoino proudly stated at the Token2049 conference. And indeed, more and more people in Argentina, Vietnam, or Turkey are using Tether for savings.
But what if a US government were to impose sanctions on these countries in the future? Or if the respective governments were to target oppositional organizations? In such cases, Tether users would ultimately be at the mercy of Tether's discretion. For those seeking real protection from financial repression, the answer is not Tether, but Bitcoin.
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