Tether was once the stablecoin king. Now its dominance is threatened by newcomers and legal uncertainty.

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In 2018, Jeff Bezos told Insider that innovators “have to be willing to be misunderstood.” So when Stuart Hoegner, the top lawyer at tether, began an indignant blog post in May citing Bezos, it suggested he saw his product as the unfairly maligned bleeding edge of a crypto revolution.

Others aren’t so sure. Regulators are training their sights on tether, the biggest of the dollar-pegged cryptocurrencies known as stablecoins.

On Monday, reports circulated that the DOJ was eyeing a criminal bank fraud case against tether execs’ conduct years ago. The next day, further reports indicated a presidential committee led by Treasury Secretary Janet Yellen was homing in on tether, likening it to an unregulated money-market fund – the kind which caused financial turmoil during the 2008 crisis and again when COVID-19 rattled markets.

But even as tether’s legal troubles reach an apex, the stablecoin has in some ways become less relevant.

So far this year, tether’s share of the overall stablecoin supply has tumbled from 75% to 57%, according to data from The Block. Behind the decline are new challengers, including Circle’s USD Coin, Binance USD, Gemini, and DeFi-focused Dai.

The problem for tether is that the technological barriers around its stablecoin business are not very high.

All the various US dollar-backed stablecoins “are not that different in terms of what they’re representing,” Denelle Dixon, CEO of the Stellar Development Foundation, told Insider. Stellar hosts USD Coin on its network.

“But the companies that support those tokens and what they do behind the scenes is really important,” she added.

And what tether does behind the scenes has become a central focus. Alongside the recent bank fraud allegations, past issues with its parent company’s misconduct have dogged tether, leading New York state to ban trading.

Moreover, there are two sets of complaints about the stablecoin itself: the quality of its reserves and transparency.

First, regulators worry that tether’s reserves – which in principle should back each tether with one dollar – could be of dubious quality. After the company released a reserves breakdown this year, JPMorgan estimated that its $30 billion in commercial paper, a cash-like type of short-term corporate debt, would make tether one of the world’s biggest investors in the asset.

Yet unlike other massive commercial paper holders, tether does not disclose the make-up of what it owns. Hoegner told CNBC his company’s holdings included international paper – leading anchor Jim Cramer to speculate tether could be a “ticking time bomb” holding default-prone Chinese paper. A recent academic paper suggested tether could be subject to bank runs, where the company is unable to meet a wave of dollar redemptions.

Second, some think tether’s disclosures, which were recently beefed up, are still insufficient. The company has not yet produced a full independent audit, though Hoegner told CNBC that one was “months away, not years.” It has, however, produced an independent “attestation” – essentially verification that tether’s balance sheet is what the company says.

Tether has disputed or denied the accusations against it. It says its commercial-paper holdings are highly rated, it has plenty of cash to cover redemptions, and its disclosure efforts are setting a “new industry standard for transparency.”

“It’s a classic entrepreneur’s dilemma,” Sadie Raney, CEO of crypto hedge fund Strix Leviathan, told Insider. Firms operating in scantily regulated industries, like tether, must choose whether to plow ahead and risk blowback or take it slow and give up market share, she said.

For Raney, who also co-founded the SEC-registered crypto robo-advisor Makara, using tether is too risky when her business relies on a government green light.

“If we utilize a stablecoin, we do not use tether, [although] we have in the past,” said Raney, whose company now uses Gemini. “The regulatory uncertainty with tether was what kept us from continuing to use it.”

Not everyone is deterred, though. Valkyrie CIO Steven McClurg told Insider that tether’s public attestation helped soothe some of his prior fears, saying its publication has been “really good for the industry.”

“I don’t think there are really any concerns anymore,” he added.

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