China, US, and Europe Take Action! USDT Struggles to Decouple from Illegal Forex Transactions; Kraken Evaluates Delisting European Tether Pairs

USDT, the world's largest dollar stablecoin, is frequently associated with illegal forex transactions. Due to the ambiguous regulatory environment, its issuer Tether constantly faces skepticism from the investment market. China and the US have actively cracked down on several cases, and the upcoming MiCA legislation in Europe might ban USDT. Major cryptocurrency exchange Kraken has announced that it is evaluating the possibility of delisting European Tether pairs.

The European Union proposed the Markets in Crypto-Assets (MiCA) regulation in 2019, which will come into effect this July, potentially making the EU the first jurisdiction with comprehensive cryptocurrency regulations. However, this legislation also brings regulatory pressure on USDT and other dollar stablecoins in the European market.

According to Bloomberg, Kraken's European exchange is actively assessing whether to stop supporting USDT under this legislation. Marcus Hughes, Kraken’s Global Head of Regulatory Strategy, stated in an interview:

"We are absolutely planning for all possible scenarios, including the inability to list certain tokens like USDT. We are actively reviewing this issue, and as the situation becomes clearer, we can make a definitive decision."

Although the MiCA regulation has not been finalized by the European Banking Authority, it requires cryptocurrency issuers to obtain a license from the national financial institution of at least one member state by June 30. Issuers will also be required to meet higher standards for corporate governance, conflict of interest, and reserve management, such as holding at least one-third of funds in independent credit institutions. This is expected to impose restrictions on the USDT stablecoin industry.

Hughes noted: "This is still an evolving situation, but we clearly understand that the types and quantities of stablecoins available in Europe might not be sustainable in the future, largely depending on which assets are formally registered under the EU’s e-money framework."

Additionally, Hughes revealed that Kraken is in the final stages of selecting its European headquarters post-MiCA, with France and Ireland being popular choices, as competitors like Coinbase, Binance, and Gemini have already chosen these locations. According to its website, Kraken is currently registered in Italy, Spain, Ireland, Belgium, and the Netherlands.

In response, Tether cited a statement from its CEO, Paolo Ardoino, expressing concerns about some MiCA requirements and stating that the company will continue dialogues with regulators. Tether said, "They hope that exchanges will properly prioritize providing euro liquidity for European customers while continuing to use USDT as a means for capital flow."

In an April interview with crypto media The Big Whale, Ardoino mentioned that Tether has no plans to comply with MiCA’s rules in the medium term. As early as mid-March, OKX, one of the world's top three exchanges, had taken steps to delist most USDT trading pairs, keeping only USDT/EUR and USDT/USDC open.

Although OKX did not explicitly state whether this move was directly related to the upcoming MiCA legislation, some users revealed that OKX mentioned in an email that it was in response to regulatory requirements. Currently, on the OKX platform, USDT can still be deposited and withdrawn, and over-the-counter (OTC) trading is allowed. Looking ahead, OKX plans to launch over 30 new euro spot trading pairs.

In the US, Senators Kirsten Gillibrand and Cynthia Lummis proposed a new stablecoin bill, the Lummis-Gillibrand Payment Stablecoin Act, at the end of April. According to S&P Global, if passed, this legislation could prompt more banks to enter the stablecoin market, potentially affecting USDT’s dominance as it is issued by an entity not registered in the US.

"Tether, being issued by a non-US entity, would not be allowed under this bill as a payment stablecoin, meaning US users would not be able to hold or trade Tether, possibly reducing demand while boosting US-issued stablecoins."

However, S&P Global also noted that USDT trading mainly occurs in emerging markets outside the US, driven by general users and remittances. In China, authorities recently busted a large underground money shop using USDT to evade national forex regulations. This scheme covered 26 provinces, including municipalities and autonomous regions.

Wu Blockchain reported that Sichuan police, in the former bitcoin mining hub, cracked a case involving an underground money shop with transactions exceeding $1.9 billion, using USDT to smuggle drugs and cosmetics and help clients purchase assets overseas.

Additionally, the US has charged Cartier heir Maximilien de Hoop Cartier with laundering hundreds of millions of dollars through OTC USDT transactions. Ripple has warned the market that the next step for US regulators could be targeting USDT.

On Saturday (May 18), the Economic and Technological Development Zone branch of the Dongying Public Security Bureau in Shandong Province successfully cracked the city’s first virtual currency fundraising fraud case. The main suspect, Wang Moumou, was sentenced to 11 years and six months in prison.

In February 2023, the Economic Investigation Brigade of the Development Zone branch discovered that suspect Wang Moumou had registered a company without obtaining financial permits and issued virtual currency tokens CET, promising high returns to investors, constituting virtual currency fundraising fraud.

An investigation revealed that in September 2021, Wang Moumou commissioned a network company to develop an app and issue CET tokens on the Tron chain. Through organizing provincial agents nationwide via video conferences and WeChat, they promoted the app and CET, attracting a large number of shareholders (operators) and promising geometric profit growth from CET investments.

The police retrieved backend data, confirming 1,039 registered members and 241 investors, covering 23 provinces, cities, and autonomous regions, with the case involving over 200 million yuan.