Tether’s T-bill custodian mixes crypto with politics

The Wall Street titan allegedly custodying Tether’s T-bills is reportedly being considered for chief of staff under a second Donald Trump administration, which could spell trouble for Tether’s stablecoin rival Circle.

On October 22, Politico reported on the names being considered for chief of staff should Trump lumber into the White House in January for his second term as U.S. president. Among the names being bandied about is Howard Lutnick, co-chair of Trump’s transition team and chairman/CEO of financial services firm Cantor Fitzgerald (NASDAQ: ZCFITX).

While Lutnick is reportedly a longshot candidate for the role, the article prompted a second Politico report the very next day that quoted unnamed ‘Trump insiders’ expressing unease at Lutnick “improperly mixing his business interests with his duties standing up a potential [Trump] administration.” Lutnick was said to be intent on sidelining some longtime Trump aides and installing “new people who could be personally beneficial to [Lutnick].”

Lutnick allegedly discussed regulatory matters impacting Cantor’s business interests during what were supposed to be purely transition-focused meetings with lawmakers on Capitol Hill. The report notes that among the interests Lutnick is said to have discussed were his ties to Tether, the issuer of USDT, the largest stablecoin by market cap.

There are a handful of stablecoin bills floating around both Congressional chambers, any one of which might come up for discussion during the post-election lame-duck session. But unless it’s attached to a larger, must-pass bill in the dead of night on the final day of the session—it’s happened before—the odds are that the stablecoin debate could get pushed to next year. By this point, Trump might once again be the principal occupant of 1600 Pennsylvania Ave.

This is where concerns over the intersection of Lutnick’s Tether ties and his role in helping to staff a new Trump administration come into play. Richard Painter, an ethics lawyer who served under President George W. Bush, told Politico, “To have a guy who is in the crypto industry picking financial regulators, I think, is an invitation for trouble.”

Lutnick would hardly be a disinterested observer of efforts to pass any of the current stablecoin bills, given the advantage the bills confer on ‘payment stablecoins,’ hair-splitting language that most observers interpret as favoring Circle’s USDC over Tether’s USDT.

It remains to be seen if Lutnick’s Capitol Hill crypto cheerleading and his longstanding relationship with Trump might prove sufficient to fend off USDC-friendly legislation, criminal prosecution of Tether, and/or seizure of the assets allegedly under Cantor’s custody.

There can be only one

While USDT’s market cap ($120.1 billion) dwarfs USDC’s ($34.3 billion), USDC has been winning most of the regulatory battles (and winning positive PR in the process). This summer, USDC became the first stablecoin to be approved under the European Union’s Markets in Crypto Assets (MiCA) regulatory framework.

Tether has publicly decried the MiCA rules—particularly the requirement to hold 60% of fiat reserves in EU banks—as injecting additional risks into the stablecoin sector. Critics countered that Tether’s sketchy history—the United Nations recently dubbed USDT a ‘crime coin’ that fuels all manner of serious illegality—means it’s incapable of opening its books to the kind of scrutiny that traditional banks require from their clients.

Tether has never submitted its alleged billions in fiat reserves—the majority of which it claims to hold in U.S. Treasury bills—to an independent third-party audit. Circle has also never submitted to an independent audit, but Circle does publish the CUSIP numbers of the T-bills in its reserves, a tentative step towards transparency that Tether has yet to match.

To date, the only confirmation of Tether’s T-bill stash has come from the quarterly ‘attestations’ performed by BDO Italia. But these reports are only ever based on a single day’s snapshot of Tether’s finances, with no info on what those accounts looked like the day before or the day after.

Tether was previously caught red-handed playing an in-out game of assets with its sister company (the Bitfinex digital asset exchange) to mask massive losses by the latter, so few impartial observers are willing to take Tether at its word that all is well.

This is where Lutnick/Cantor comes in. In February 2023, the Wall Street Journal first suggested that Cantor was ‘helping’ to custody Tether’s T-bill stash. That December, Lutnick told CNBC that he was “a big fan” of Tether and claimed that “I hold their treasuries,” with “I” apparently being a reference to Cantor.

Since then, Lutnick has publicly promoted Cantor’s Tether ties at nearly every opportunity. At this summer’s annual BTC conference in Atlanta, Lutnick told attendees that Tether had given Cantor “complete access to due diligence to see and prove that they had the money.”

All well and good, but taking Lutnick’s assertions as gospel is an inversion of the crypto sector’s oft-proclaimed mantra of “don’t trust: verify.” So, how much longer can Tether get away with this?

All’s fair in love, war and stablecoins

Belatedly realizing over the past year that American law enforcement agencies’ patience is wearing thin, Tether toned down its standard “your laws don’t apply to us” rhetoric in favor of making token gestures towards compliance. These days, barely a day goes by without Tether CEO Paolo Ardoino offering some variation on ‘look ma, no illegality’ in his public utterances.

True to form, Ardoino made an appearance (of sorts) at this week’s D.C. Fintech Week confab in Washington, where he claimed—with a straight face—that Tether “has always been a force of compliance. I understand that publicly, it never, or didn’t appear like that, at least in the U.S.”

Once rolling, Ardoino proved unable to stop himself, claiming that “it would be difficult to find another financial firm that matches the level of law enforcement cooperation and number of agency relationships that Tether has.”

(And yet, for some reason, the travel-happy Ardoino chose to give his D.C. address on video rather than show up in person. This suggests some lingering doubt regarding the potential existence of indictments bearing Tether execs’ names waiting to be unsealed.)

Ardoino bemoaned America’s lack of crypto-specific laws and regulations, but predicted that regardless of whether Trump or his opponent Kamala Harris prevails in November, “it is very, very important that crypto regulation, sensible crypto regulations, and stablecoin regulations come to fruition in a way that will protect the end-users.”

But will U.S. stablecoin legislation that protects end-users also place a target on Tether’s—and Lutnick’s—back if Trump doesn’t win in November?

Finish him!

Even longtime digital asset observers were taken aback by comments a senior Circle exec made during a House of Representatives hearing in February that appeared to suggest federal agencies looking to bring down the America-avoiding Tether could do so by targeting the New York-based Cantor.

Without mentioning Tether by name, Caroline Hill, Circle’s senior director of global policy and regulatory strategy, testified that “opaque so-called stablecoin issuers” served as “a ‘Welcome Sign’ for terrorists, fentanyl manufacturers, terrorist organizations, and state-sponsored actors.”

Without mentioning Cantor by name, Hill added that Treasury officials “should have the proper authority to capture” illicit stablecoin activity. Hill suggested that “U.S. touchpoints—in the traditional financial sector or via a [virtual asset service provider]—should be held responsible for promulgating or otherwise facilitating the existence of these non-compliant tokens.”

While Hill played coy, Rep. Wiley Nickel (D-NC) wasn’t so shy, publicly naming/shaming Tether and Cantor. Nickel said Cantor was “giving [Tether] access to U.S. dollars,” adding that “Cantor’s enabling of terrorist and other illicit activity across the globe is unacceptable.”

For what it’s worth, as of October 24, Nickel had received over $116,000 in campaign funding from Fairshake, the deep-pocketed pro-crypto political action committee whose primary donors include the Coinbase (NASDAQ: COIN) exchange, Circle’s USDC partner.

On October 22, Politico reported on Fairshake’s impact on the 2024 election, claiming that “a wave of crypto-friendly lawmakers is about to crash Congress.” Given that many of these lawmakers will apparently owe Fairshake, Coinbase, and Circle a debt of gratitude, stablecoin legislation that rewards USDC while punishing its rivals could find a much smoother path to becoming law.

Cui bono?

There are so many questions regarding precisely why Lutnick would be willing to tie his company to Tether, given the latter’s role in fueling not just crime but the fraudulent wash trading that underpins the entire ‘crypto’ casino model. Simply put, without USDT-based market manipulation, major tokens like BTC, ETH, and countless others would behave more like the memecoins that are here today, gone later today.

This article is already too long to go into too much detail speculating on Lutnick’s possible motivations, but do check out this Mariana Trench-deep dive by the X personality known as @Cryptadamist, who expressed alarm at Lutnick’s role in picking Trump’s cabinet six weeks before Politico’s sources found their voice.

The article notes Lutnick’s role in Trump’s transition team and suggests that “it would be reasonable for an American citizen to be Somewhat Concerned about the fact that a man who manages money for an offshore company which by all appearances seems designed more to avoid criminal prosecution than to serve its customers could well end up choosing who will be in charge of things like the Department of Justice and the armed forces if Donald Trump is reëlected [sic].”

The article also references the many organized crime rings that rely on USDT, for which Tether acts as “the accounting system that enables this cast of supervillains to share the bank account, keeping track of who owns how much of the money in the account at any given time. Howard Lutnick’s company Cantor Fitzgerald is the bank.”

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