Legal issues plague Tron.
Tron’s trajectory has been significantly impacted by recent legal challenges, and these challenges have important implications for the future of Tether. According to a study conducted by TRM Labs, Tron has witnessed a rise in illicit crypto transactions, with 45% of such transactions occurring on the platform in 2023, compared to 41% the previous year. Ethereum follows closely at 24%, while Bitcoin trails behind at 18%.
Of particular concern is the increase in blockchain addresses associated with terrorist financing activities on Tron, especially those receiving the stablecoin Tether. Tether remains the top choice for criminal activities, accounting for over $19 billion in illicit funds, surpassing other stablecoins like USD Coin.
Tron’s appeal to illegal activities can be attributed to its low fees and fast transaction speeds, which make it easier for bad actors to launder money. It has become a preferred platform for hackers connected to North Korea, who often exchange stolen funds for USDT on the network. These funds are then laundered and converted into fiat currency through high-volume over-the-counter brokers.
Despite these alarming statistics, TRM Labs reports a decrease in the volume of hacked and sanctions-exposed funds, possibly due to increased pressure from governments and law enforcement agencies worldwide.
However, amidst these challenges, Justin Sun and the Tron Foundation have found themselves under legal scrutiny. They face charges from the U.S. Securities and Exchange Commission (SEC) for unregistered offerings and market manipulation.
Furthermore, Tron encountered legal troubles in March 2024 when the SEC filed a lawsuit in New York’s Southern District. The lawsuit implicated Sun, the Tron Foundation, and the BitTorrent Foundation for alleged securities violations related to TRX and BitTorrent tokens. The SEC accused them of promoting these tokens without proper registration, violating federal securities laws, and misleading investors. Complicating matters, high-profile celebrities such as Soulja Boy, Lil Yachty, Austin Mahone, Lindsay Lohan, Jake Paul, and Akon were involved in endorsing TRX and BitTorrent.
Concerns have also arisen regarding the role of Tether in facilitating illicit activities, particularly in Southeast Asia. A United Nations report in January 2024 highlighted the misuse of USDT in money laundering and scams, particularly through online gambling platforms in the region. Justin Sun addressed these concerns in a post, disputing some details related to USDT transactions on Tron’s TRC-20 protocol. He emphasized Tron’s commitment to fighting blockchain misuse while pointing out inaccuracies in the UN’s findings. Tether also defended its role, mentioning its contributions to law enforcement, such as assisting in freezing $225 million in USDT linked to a human trafficking group.
In February 2024, Circle, the issuer of stablecoin USD Coin, announced its decision to discontinue support for USDC on the Tron blockchain. This move was part of a phased transition to uphold USDC’s reputation for trustworthiness and regulatory compliance. In response, Binance, the largest cryptocurrency exchange, declared that it would no longer facilitate deposits and withdrawals of USDC via the Tron network.
Tron has refuted the SEC’s claims in response to the lawsuit, asserting that its token sales were conducted overseas and intentionally excluded the U.S. market. The Tron Foundation also challenges the SEC’s allegations of manipulative trading and celebrity endorsements, claiming there is no proof or identified victims. Tron is utilizing legal arguments similar to those used by Coinbase against the SEC in hopes of getting the lawsuit dismissed.
Tether is also facing tough regulations, particularly in the European Union. With new rules like the Markets in Crypto-assets Regulation (MiCA) coming into effect, Tether has encountered issues such as OKX delisting its USDT trading pairs. Additionally, voices within the cryptocurrency industry, including executives from Coinbase and Circle, have called for legal action against Tether by U.S. authorities.
In response to these challenges, Tether completed the SOC2 audit on April 1. This audit evaluates a company’s ability to manage customer data across key trust service principles and passing it indicates effective IT controls for data and system safety. Tether has committed to undergoing this annual audit to ensure compliance with security standards.
Moving forward, Tether’s focus on regulatory compliance and security measures will be crucial in navigating the evolving landscape of the cryptocurrency industry.
