In a recent ruling by Chief Judge Laura Taylor Swain of the US District Court for the Southern District of New York, Tether and Bitfinex have emerged victorious in a class-action lawsuit brought against them. The lawsuit alleged that the stablecoin issuer, Tether, had made false claims about its stablecoin, USDT, being backed one-to-one by the US dollar. However, the court dismissed the case, citing a lack of “plausible allegations of injury” in the complaint. This legal victory has significant implications for the future of Tether and the stablecoin market.
The plaintiffs, Matthew Anderson and Shawn Dolifka, argued that Tether did not maintain the same amount of reserves as the number of USDT tokens in circulation. They further claimed that these reserves were not solely comprised of US dollars as Tether had implied, but rather included overcollateralized loans and undisclosed commercial paper. According to the plaintiffs, these actions misrepresented the actual value of the stablecoin.
In response, Tether argued that the plaintiffs failed to provide any concrete evidence of any diminished value of USDT. The court agreed with Tether, emphasizing the lack of factual support for the alleged injury. Paolo Ardoino, Tether’s CTO, expressed his support for the court’s decision on Twitter, highlighting that the plaintiffs couldn’t substantiate their allegations of value diminishment. Ardoino also raised suspicions about recent stablecoin market movements, hinting at potential market manipulation aimed at depegging USDT. He also mentioned a new stablecoin competitor, First Digital’s FDUSD, in connection with the market activity.
Despite facing repeated allegations of lacking decentralization and governance, Tether continues to maintain its dominant position in the stablecoin market. As of now, USDT’s circulation has reached an all-time high of $83.9 billion, capturing a commanding market share of 66.7%. In contrast, its competitor, Circle’s USDC, holds a supply of $26 billion, representing a 20.7% market share. However, USDC’s supply has faced a significant decline of 41.5% since the start of 2023.
It’s worth noting that Tether and Bitfinex have faced scrutiny from regulatory bodies in the past. In October 2021, the Commodity Futures Trading Commission (CFTC) fined them over $42 million on allegations that the USDT stablecoin was not fully backed at all times. The CFTC found that Tether’s stablecoin was fully backed by reserves for only one-quarter of the time over a 26-month period between 2016 and 2018. Additionally, Tether settled charges for commingling reserve funds with the company’s corporate funds, indicating a lack of proper separation between the two.
Implications for the Stablecoin Market
The dismissal of the class-action lawsuit against Tether and Bitfinex is a significant legal victory for the stablecoin issuer. It reinforces Tether’s position as the market leader in spite of ongoing controversies and regulatory challenges. However, it also raises questions about the regulatory framework surrounding stablecoins and the need for greater transparency and oversight.
Tether and Bitfinex’s legal victory in the US District Court is a positive development for the stablecoin issuer. While the lawsuit alleged false claims about the backing of USDT, the court’s ruling highlights the importance of providing concrete evidence to support such claims. As Tether continues to dominate the stablecoin market, the regulatory landscape surrounding stablecoins will likely undergo further scrutiny and evolve to address concerns about transparency and investor protection.
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