President-elect Donald Trump’s pick for Commerce Secretary, Howard Lutnick, is in talks with Tether about the stablecoin issuer’s potential involvement in a new multi-billion dollar bitcoin lending program at Cantor Fitzgerald, the Wall Street trading firm where Lutnick serves as chairman. The discussions, first reported by the Wall Street Journal, signal a deepening relationship between Tether and Cantor, and could herald a new era of collaboration between the crypto industry and traditional finance under the incoming Trump administration.
But the initiative is already raising eyebrows given the regulatory scrutiny surrounding Tether. Last month, the Journal reported that the USDT stablecoin issuer was under federal investigation for possible bank fraud and money laundering violations. Tether called the report “irresponsible” and touted its cooperation with law enforcement, but questions remain about the company’s opaque reserves and its use by bad actors for illicit transactions.
Cantor’s Bitcoin Lending Ambitions
First announced in July, Cantor’s bitcoin lending program aims to allow institutional clients to borrow fiat currency using their bitcoin holdings as collateral. The initiative will start with a $2 billion lending capacity that could quickly scale up to tens of billions of dollars. Bringing Tether into the fold would give the program a major boost, given USDT’s status as the largest stablecoin by market cap and its widespread use as a dollar proxy in crypto trading.
This could be a game changer for bitcoin’s role in the broader financial system. If successful, it would give large BTC holders a powerful new financing option and help drive mainstream adoption.
– Jake Chervinsky, Chief Policy Officer at the Blockchain Association
For Cantor, partnering with Tether is a logical move as the firm looks to cement its position in the burgeoning institutional crypto lending space. Cantor already serves as the custodian for Tether’s U.S. Treasury holdings and recently acquired a 5% stake in the stablecoin issuer worth around $600 million. Leveraging Tether’s liquidity could supercharge Cantor’s lending capacity and its ability to compete with rivals like Genesis, Galaxy Digital and SALT Lending.
Tether’s Motivation
On Tether’s end, participating in the Cantor program could help the company build credibility with regulators and the public following years of controversy around USDT’s dollar peg and reserve assets. Tether claims its stablecoin is now fully backed by cash, cash equivalents and other short-term deposits. But the company only recently started releasing quarterly attestation reports, following a settlement with the New York Attorney General, and still does not provide a full audit.
- Critics allege Tether has used USDT to manipulate crypto markets
- There are also concerns about Tether’s relationship with crypto exchange Bitfinex
- Tether dominates the stablecoin market with over 46% share
Partnering with a reputable player like Cantor could lend more legitimacy to Tether’s operation. The stablecoin provider may also see the lending program as a way to generate yield on its treasury holdings and diversify its business model as competition in the stablecoin sector intensifies.However, Tether’s participation could also draw more regulatory heat for Cantor’s initiative, given the ongoing federal probe into the stablecoin issuer’s conduct.
Impact of the Trump Administration
The discussions between Lutnick and Tether are unfolding against the backdrop of the incoming Trump administration, which many expect to take a more hands-off approach to crypto regulation compared to the tougher enforcement posture under President Biden. Trump and his allies are seen as more ideologically aligned with the crypto industry’s libertarian, anti-establishment ethos. The president-elect and his family members have even launched several of their own cryptocurrency ventures.
There seems to be a close affinity between Trump’s inner circle and the crypto community. It wouldn’t surprise me to see a much friendlier regulatory climate for digital assets and more public-private collaboration in the space over the next four years.
– Anonymous crypto lobbyist in Washington
Lutnick’s own growing influence in Trumpworld could bode well for Cantor’s crypto ambitions. Beyond co-chairing the presidential transition, Lutnick is now poised to head the Commerce Department, a role that would position him to impact digital asset policy across multiple fronts, from export controls to trade promotion to technology standards.
If confirmed as secretary, Lutnick plans to step down from his current positions at Cantor and related firms BGC Partners and Newmark to comply with ethics rules. But his track record building Cantor into a Wall Street powerhouse suggests he would bring a favorable view of financial innovation to the job.
Potential Roadblocks Ahead
For all the excitement around Cantor’s lending plans and Tether’s possible involvement, significant hurdles remain before the program can get off the ground. Chief among them is the uncertain regulatory environment for stablecoins and crypto lending in the U.S.
The Biden administration has made no secret of its concerns about stablecoins’ potential risks to financial stability and their use in illegal activities. The President’s Working Group on Financial Markets issued a report last year recommending that stablecoin issuers be regulated like banks. Lawmakers in both parties have echoed the call for tougher oversight.
Stablecoins that are not backed by safe and sufficiently liquid assets pose risks to investors and potentially to the broader financial system.
– Treasury Secretary Janet Yellen
Even with the changing of the guard in Washington, those regulatory headwinds are unlikely to dissipate overnight. Tether’s legal woes and reputational baggage could invite more scrutiny of any program it participates in, no matter how distinguished the partners involved.
The other open question is whether there will be sufficient institutional demand for bitcoin-collateralized loans to scale the Cantor initiative into the tens of billions of dollars, as envisioned. While bitcoin has gained more mainstream acceptance on Wall Street, it remains a highly volatile asset. Firms may be wary of posting it as loan collateral compared to more stable instruments like Treasury securities.
Looking Ahead
Despite the obstacles and uncertainties, the Cantor-Tether talks reflect the financial establishment’s growing interest in finding ways to tap into crypto markets and appeal to younger, digitally-native customers. Other Wall Street banks like Goldman Sachs, JPMorgan and Morgan Stanley have also been cautiously wading into crypto through various trading, custody and investment offerings.
For the crypto faithful, initiatives like the Cantor lending program promise to validate the industry’s long-held view that digital assets can compete with and even supplant traditional finance. But mainstreaming crypto could also accelerate the trend of large, centralized players exerting more control over what was once a decentralized grassroots movement. The potential involvement of Tether, one of crypto’s most polarizing entities, crystallizes that tension.
As digital assets go more mainstream in the coming years, striking the right balance between encouraging innovation and mitigating risks will be a key challenge for policymakers and market participants alike. The outcome of Cantor and Tether’s lending project could provide an early test case for whether crypto and traditional finance can forge a productive coexistence, or whether their cultural and regulatory differences prove too vast to reconcile.
