Howard Lutnick’s Senate Hearing: Navigating Tether Controversies

Howard Lutnick, the chairman of Cantor Fitzgerald and President Donald Trump’s nominee for U.S. Commerce Secretary, recently found himself under scrutiny during a Senate nomination hearing. The focus? His firm’s involvement with Tether, the issuer of the world’s largest stablecoin, USDT.

On January 29, Lutnick presented before the Senate Committee on Commerce, Science, and Transportation, just one day after defending Cantor Fitzgerald’s ties to Tether in front of the Senate Banking Committee.

Cantor Fitzgerald plays a crucial role as Tether’s primary custodian for U.S. Treasuries and manages a sizable portion of the company’s reserves. Additionally, it has holdings in the form of convertible debt issued by Tether’s parent company.

The opacity of the reserves backing USDT has raised alarms within the cryptocurrency sector for years. In early 2023, Lutnick attempted to alleviate these fears by asserting Cantor’s custodianship, stating confidence in Tether’s capacity to back its stablecoin. However, during the recent hearing, he appeared to temper those earlier declarations.

“Cantor Fitzgerald is not conducting continuous diligence on Tether’s financial statements, but I believe my statements were accurate when made,” Lutnick remarked. This statement marked a retreat from his previous assertion that “Tether has every penny, and it can produce liquidity on a moment’s notice.”

Market speculation reflects the concerns about Tether’s stability, with bettors on Polymarket assigning a 10% chance of Tether facing insolvency in 2025, alongside a 14% likelihood of it de-pegging during the same period. A previous contract questioning the issuer’s solvency for 2024 averaged around 4% in the last quarter of the previous year.

Lutnick also confirmed that Cantor Fitzgerald made an investment in convertible debt in Tether’s parent company back in April 2024, clarifying that this does not equate to an ownership stake in the stablecoin’s issuer.

“Cantor Fitzgerald’s debt investment in Tether does not constitute an equity interest,” he stated, addressing concerns about the potential depth of the brokerage’s relationship with Tether.

The topic of an independent audit of Tether’s finances is a contentious issue, given USDT’s significance in the broader cryptocurrency market. While Lutnick recognized the necessity for audits among U.S. dollar stablecoin issuers, he refrained from demanding one specifically for Tether. When queried about publicly calling for Tether to complete an independent audit within three months, he replied, “Upon my confirmation as Secretary of Commerce, I will faithfully execute my duties consistent with applicable government ethics laws and regulations.”

Furthermore, Lutnick faced questions regarding his potential influence on crypto regulation. He firmly rejected claims that he intended to ‘defuse threats’ against Tether, emphasizing, “I have never suggested to anyone that I would do anything improper with respect to Tether.” However, he cautioned Congress to be mindful not to jeopardize the dollar’s standing in the blockchain world through legislative actions.

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