Tether, the company behind the largest stablecoin by market capitalization, allegedly allowed its customers to send funds through Signature Bank’s payment platform, giving it access to US banks.
According to a Bloomberg note dated April 4, Tether provided a gateway into the US banking system by instructing its users to send dollars via Signature’s Signet to its Bahamian partner Capital Union Bank. The note it quoted “people with knowledge of the situation” who added that this system was in place at the time Signature was seized by regulators in March.
Tether doesn’t have direct access to the US banking system, but for a while it found at least one pathway: through Signature Bank https://t.co/gKDgTs6Jae
—Bloomberg (@business) April 4, 2023
Although the deal between Tether and Signature would not have been illegal, not disclosing that information to the investing public would suggest high-risk practices. According to a Tether spokesperson, the banks used by the stablecoin issuer “always had access to various banking channels and counterparties” and partner entities “would not be affected by direct or indirect exposure to Signature.”
The New York Department of Financial Services announced the closure of Signature on March 12, saying at the time that the decision had been made with the Federal Deposit Insurance Corporation (FDIC) in an effort to “protect the United States economy “. The stablecoin issuer Paxos reported at the time that it had $250 million tied to Signature, while Tether CTO Paolo Ardoino said the firm had no exposure to the failed bank.
#tether doesn’t have any exposure to Signature Bank.
— Paolo Ardoino (@paoloardoino) March 12, 2023
US lawmakers are still investigating the bankruptcy of the cryptocurrency-friendly bank, the third in a chain that begins with Silvergate and Silicon Valley. At a March 28 Senate Banking Committee hearing, FDIC Chairman Martin Gruenberg said Signature had failed to adequately manage traditional banking risks. Although Signature had reduced its exposure to digital assets following the collapse of the FTX exchange, a user has filed a lawsuit alleging that the bank “aided and abetted” fraud facilitated by former FTX CEO Sam Bankman-Fried.
The bank plans to sell its approximately $38 billion in deposits and $13 billion in loans to Flagstar Bank, a subsidiary of New York Community Bancorp. Gruenberg said that $4 billion in cryptocurrency would likely be returned to users sometime this week.
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