A former chairman of the Commodity Futures Trading Commission is calling for tighter regulation of stablecoins, or cryptocurrencies, which were created to be pegged to other assets like fiat money.
Timothy Massad, who headed the commission for much of the Obama administration’s second term, told CNBC’s Jim Cramer that investors would benefit from greater transparency following Tether Limited’s deal with the New York District Attorney in February.
Tether Limited is the company that issues Tether, the most valuable stablecoin and third most valuable cryptocurrency after Bitcoin and Ethereum.
“We need a better regulatory framework for Tether and other stablecoins,” said Massad, a senior fellow at the Kennedy School of Government at Harvard, in Mad Money on Wednesday. “We need better framework conditions so that we can simply be sure that there can be no rush for something like this.”
Tether and an affiliate, Bitfinex, reached a settlement with prosecutors for $ 18.5 million to complete an investigation into allegations that the companies owned by Ifinex moved money, to cover a loss of $ 850 million.
The New York attorney general alleged the company misrepresented the status of its reserves at some point in 2018 and 2019. While the companies admitted no wrongdoing, Tether was instructed to provide quarterly disclosures about its reserves. In March she presented her first report.
That March report revealed some obscure uses of the money invested in the coins. According to the report, Tether held 13% of its assets in secured loans and 50% in commercial paper or unsecured short-term debt, Massad noted.
“We have no idea what the loans are or who they are to” and “we don’t know what kind of paper they are buying,” he said. “It’s all a problem so I think we need more disclosure here.”
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Correction: This story was updated to show that Tether held 50% of its assets in commercial paper. In an earlier version, the percentage was incorrectly specified.