Tron faces legal troubles. What’s next for the network?

How have recent legal challenges impacted Tron’s trajectory, and what implications does this hold for Tether’s future? 

According to recent research by TRM Labs, in 2023, Tron (TRX), led by Chinese entrepreneur Justin Sun, saw 45% of all illicit crypto transactions, up from 41% the previous year. Ethereum (ETH) followed at 24%, and Bitcoin (BTC) at 18%.

Blockchain addresses associated with terrorist financing activities on Tron increased by 125%, particularly those receiving the stablecoin Tether (USDT). 

USDT remains the top choice for criminal activities, accounting for over $19 billion in illicit funds, surpassing other stablecoins like USD Coin (USDC).

Tron’s low fees and quick transactions attract illegal activities, making it easier for bad actors to launder money. It has become a preferred platform for hackers linked 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 concerning statistics, TRM Labs reports a decrease in hacked and sanctions-exposed fund volumes, possibly due to increased pressure from governments and law enforcement agencies worldwide. 

Amid this, Justin Sun and the Tron Foundation have faced legal scrutiny, including charges from the U.S. SEC for unregistered offerings and market manipulation.

Brewing troubles for Tron and Tether

In March 2024, legal troubles unfolded for Tron (TRX) as 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 (BTT) tokens. 

The SEC accused them of promoting these tokens without proper registration, violating federal securities laws, and misleading investors.

Adding complexity to the situation, high-profile celebrities such as Soulja Boy, Lil Yachty, Austin Mahone, Lindsay Lohan, Jake Paul, and Akon were involved in endorsing TRX and BTT.

Additionally, concerns arose regarding USDT’s role in facilitating illicit activities, particularly in Southeast Asia. 

A January 2024 United Nations report highlighted the misuse of USDT in money laundering and scams, notably through online gambling platforms in the region.

Sun addressed these concerns in a Jan. 19 post, disputing some details related to USDT transactions on Tron’s TRC-20 protocol. He emphasized Tron’s commitment to combating blockchain misuse while also citing inaccuracies in the UN’s findings.

Tether also defended its role, mentioning contributions to law enforcement, such as helping freeze $225 million in USDT linked to a human trafficking group.

Sun advocated for increased blockchain education and potential collaboration between TRON, HTX DAO, and the UN. Meanwhile, Tether expressed disappointment with the UN report, refuting allegations of involvement in illicit activities and citing its dedication to facilitating financial inclusion.

Circle cuts ties with Tron

Circle, the issuer of stablecoin USD, announced its decision to discontinue support for USDC on the Tron blockchain in February 2024. This was part of a phased transition, immediately halting USDC minting on Tron. 

Circle attributed this move to its risk management framework, aiming to uphold USDC’s reputation for trustworthiness and regulatory compliance.

In response, Binance, the world’s largest cryptocurrency exchange by trading volume, declared that it would no longer facilitate deposits and withdrawals of USDC via the Tron network, effective Apr. 5. 

Following Circle’s lead, Tether, another stablecoin issuer, did not provide a definitive stance on whether it would cease support for the Tron network, leaving the possibility open for future developments.

What to expect next?

In response to the lawsuit from the SEC, Tron refutes these claims, asserting that its token sales were conducted overseas and deliberately excluded the U.S. market. 

Tron Foundation further challenges the SEC’s assertions of manipulative trading and celebrity endorsements, saying there’s no proof or identified victims.

In its defense, Tron is using legal arguments similar to those Coinbase used against the SEC, hoping to get the lawsuit dismissed.

With the dismissal motion filed, the community awaits the SEC’s response, which could provide further insight into the future direction of this legal dispute.

On another front, Tether faces tough regulations, especially in the EU. With new rules coming, like the Markets in Crypto-assets Regulation (MiCA), Tether’s had issues like OKX delisting its USDT trading pairs.

Moreover, voices within the cryptocurrency industry, including executives from Coinbase and Circle, have called for legal action against Tether by U.S. authorities.

In response, on Apr. 1, Tether completed the SOC2 audit. The audit evaluates a company’s ability to manage customer data across key trust service principles. Passing it means Tether has effective IT controls for keeping data and systems safe. Tether has committed to undergoing this audit annually to keep up with security standards.

Looking forward, Tether’s focus on regulatory compliance and security measures will remain crucial amid ongoing developments.