Tether Was Playing a Risky Game, a New Celsius Suit Reveals

A lawsuit filed against Tether by the administrators of the Celsius estate in the bankruptcy court for the Southern District of New York .

Tether cast the lawsuit as a “shakedown” designed to deflect the blame for failures by Celsius , it claims.

The lawsuit underlines the narrowness of the margin by which Tether sidestepped contagion that brought down Celsius and other crypto firms in 2022 .

Tether has voluntarily increased the size of its USDT reserve buffer and slightly reduced the proportion of the reserve made up of secured loans.

Tether declined to comment on its ability in 2022 to cover the potential reserve shortfall associated with its loan to Celsius with corporate funds.

The situation speaks to “the need for clear stablecoin regulation,” says Christian Catalini , founder of the MIT Cryptoeconomics Lab .

But the window for regulatory arbitrage, whatever the motivation, will close, says Catalini , as an international consensus forms around the appropriate controls to be placed on stablecoin issuers. “Regulatory arbitrage is a temporary phenomenon,” he says. “It’s only a matter of time before any stablecoin with significant scale will be required to comply.”.