JPMorgan Says Stricter KYC/AML Rules Could Cripple USDT Dominance

In a recent research report, American financial giant JPMorgan warned about Tether (USDT), the leading stablecoin in the crypto market. The report highlighted vulnerabilities stemming from Tether’s reliance on the American market and impending regulatory scrutiny.

While Tether operates outside the United States, the report underscores that U.S. regulators possess avenues to influence the stablecoin’s offshore activities, notably through the Office of Foreign Assets Control (OFAC). This assertion gains traction from OFAC’s previous blacklisting of Tornado Cash, a crypto-mixer affiliated with Tether accused of enabling money laundering.

JPMorgan’s analysts emphasized the potential for indirect regulatory actions and international cooperation to impede Tether’s usage. They argue that forthcoming stablecoin regulations, likely to enforce stricter Know Your Customer (KYC) and Anti-Money Laundering (AML) standards, could significantly diminish Tether’s allure compared to more transparent and compliant alternatives.

Besides, they see this regulatory scrutiny extending to decentralized finance (DeFi), where USDT is a vital source of collateral and liquidity.

Meanwhile, the report stressed that stablecoin regulations are poised to be globally coordinated through the Financial Stability Board (FSB) across the G20 countries. This coordination is expected to impose further constraints on using unregulated stablecoins.

Notably, Tether has faced increasing pressure to enhance transparency regarding the investment of its reserves and has taken steps toward publishing real-time data. However, despite these efforts, JPMorgan asserts that the latest disclosures by the stablecoin issuer have not adequately alleviated transparency and reserve management concerns.

CoinMarketCap data shows stablecoins make up $138.41 billion of the overall crypto market, with USDT commanding over half the figure with a $97 billion cap. USDT’s closest rival, USDC, has a market cap of $28 billion.

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