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  • US legislators may categorize stablecoins as securities.
  • If USDT is considered a security, the cryptocurrency industry will be in trouble.

The US regulators are considering new legislation that will define stablecoins as security. If the bill is adopted, Tether might face a lawsuit from the SEC.

A Twitter user @RealWillyBot brought to notice that five days ago, the Justice Department ruled that a stablecoin can “constitute a security.”

Depending on its design and other factors, the stablecoin may constitute a security, commodity, or a derivative subject to the US federal securities, commodity, or/and derivatives laws.

Also, if a stablecoin is widely used for retail payments in the United States, additional safeguards may be required to deal with the risks. The issuer will have to implement robust risk management systems, ensuring a 1:1 reserve ratio and adequate financial resources to absorb losses, and meet liquidity needs, provide customer protection, and comply with all AML requirements. 

If the proposal becomes a law, and USDT, the largest and the most popular stablecoin, is qualified as a security, it will come within the purview of the federal securities laws. In this case, the US Securities and Exchange Commission might go after Tether for offering unregistered securities.

USDT will suffer XRP’s fate

The story with the SEC’s lawsuit against Ripple has clearly demonstrated what can happen to the coin when the regulator goes after it. However, when it comes to Tether, the outcome may be catastrophic, as it is the backbone of the whole cryptocurrency market with an average daily transaction volume of over $77 billion. Actually, it is the most actively traded coin in the industry, used by virtually all trading platforms and cryptocurrency service providers. 

According to Dragonfly Capital managing partner Haseeb Qureshi, the legal action against Tether would be a disaster for the industry. 

Make no mistake: the day that Tether gets taken down will be apocalyptic. Crypto markets will seize, exchanges will be thrown into disarray, millions of crypto traders will likely have their assets frozen, and prices everywhere will plummet. It will be pronounced yet another death for Bitcoin,” he said.

As FXStreet previously reported, Tether may be too big to fail as the industry has become too dependant on USDT. However, according to Haseeb Qureshi, Tether’s woes won’t kill the industry but rather make it stronger.

But, as it always does, crypto will eventually recover. And when the dust settles, we’ll enter the third stage of crypto money”, he said.

The expert believes that the digital dollar may come to replace USDT. The cryptocurrency markets will quickly adapt to a new standard to be able to get back to business, meaning that the authorities will successfully complete the mission of regaining control over the parallel financial system.