TL;DR
- The SEC discovered that TrueUSD, a well-known stablecoin in the market, had almost all of its reserves in a high-risk fund.
- Tether has also been questioned for its lack of transparency regarding its reserves, which led to sanctions against the company.
- Europe will implement the MiCA regulation in 2025, requiring stablecoin issuers to keep part of their reserves in banks and undergo periodic audits.
Stablecoins have established themselves as an attractive option for those seeking stability within the crypto ecosystem. Unlike other cryptocurrencies, their value is tied to traditional assets such as the U.S. dollar or gold.
This mechanism has made them a viable choice for payments, international transfers, and storing value. However, recent investigations have raised doubts about the transparency and security of some of these cryptocurrencies.
TrueUSD Undermines Stablecoin Reliability
The TrueUSD case has raised concerns. The SEC found that the company behind this stablecoin falsely claimed that its value was fully backed by U.S. dollars. In reality, almost all of its reserves were invested in a high-risk fund. Such practices damage the integrity of the crypto industry and prove that, without real-time audits, verifying and trusting their transparency is extremely difficult.
Tether’s Transparency Issues
This is not the first time stablecoins’ reliability has been questioned. Tether, the company behind USDT—the largest stablecoin in the market—has also faced scrutiny over its lack of transparency. Previous investigations revealed that its reserves were not entirely composed of U.S. dollars but included loans and other risky assets. In 2021, the U.S. Commodity Futures Trading Commission sanctioned the company for misleading disclosures about its reserves.
The Lingering Effects of the TerraUSD Collapse
The 2022 TerraUSD crisis was one of the most severe blows to the industry. Unlike Tether or TrueUSD, which are backed by physical assets, TerraUSD was an algorithmic stablecoin. Its system relied on an automatic adjustment mechanism with the Luna cryptocurrency to maintain its peg to the U.S. dollar. When confidence in the system weakened, TerraUSD lost its peg and collapsed to a fraction of a cent. Thousands of investors saw their funds disappear in just days, reinforcing the perception that many cryptocurrencies are not as stable as they claim to be.
The Urgent Need for Proper Regulation
The lack of regulation remains one of the biggest issues. In the U.S., the SEC has taken action against stablecoins that fail to meet their obligations, but the absence of a comprehensive regulatory framework remains the root of the problem. In Europe, the situation is different. The implementation of MiCA, set for 2025, will establish clear rules for stablecoin issuers. The regulation mandates that at least 30% of received funds must be kept in separate bank accounts, while the rest must be invested in secure, highly liquid assets. Additionally, it requires periodic audits to allow investors to verify their solvency.
The European regulation could be a turning point for the market. Stablecoins that comply with clear rules are likely to gain traction over those that lack transparency. While some critics argue that strict regulations could stifle innovation, the ongoing crisis of confidence in the sector highlights the necessity of oversight to prevent fraud and ensure stability.
Necessary Changes for the Crypto Industry’s Growth
Stablecoins remain a crucial part of the crypto ecosystem. Their ease of use and peg to fiat currencies make them a valuable tool. However, their long-term success depends on trust. Without a solid and verifiable backing, their stability is merely an illusion. The adoption of real-time proof of reserves and independent audits could enhance their credibility and provide greater security for investors.
The future of stablecoins will depend on their ability to prove that they genuinely hold the reserves they claim to have. It is essential to implement clear, fair, and standardized regulations that encourage greater transparency in the sector.
