When Tether Warnings Are Marketing Tools

Chen, you see, is part of the team behind the Neutral Dollar, a stablecoin built on a basket of other stablecoins that is expected to launch later this month.

So the New York Attorney General's recent allegations casting further doubt on the dollar backing of USDT, the leading stablecoin, have given him and other rival issuers an opportunity to highlight how their own offerings are different.

"Exchanges were looking into stablecoins already."

Paxos had already been discussing its stablecoin with exchanges and other startups for some time, Carascilla said, but is "Doing that even more loudly now."

The New York Attorney General's office claims that Tether, the company behind the self-named USDT stablecoin, may have lent nearly $1 billion to crypto exchange Bitfinex to cover up the latter's loss of $850 million.

The office announced Thursday that it was seeking documents from Bitfinex and Tether detailing their plan to have the exchange "Borrow" as much as $900 million from the stablecoin issuer, after Bitfinex apparently lost access to $850 million held by currency converter Crypto Capital Corp. According to a statement published later by Bitfinex, Crypto Capital has told the exchange that its funds were seized by authorities in the U.S., Poland and Portugal.

While stablecoin issuers are taking advantage of the Tether news to promote their own cryptocurrencies as viable alternates to USDT, the latter is, curiously enough, still trading near its peg; according to data from crypto exchange Kraken, the token traded near $0.98 all day Monday.

Several stablecoin purveyors were quick to assert that unlike Tether, they had no conflicts of interest with operating their stablecoins.

Carascilla told CoinDesk that "Having a regulated stablecoin is very important to the stability of the system," while TrustToken co-founder Rafael Cosman explained that a third-party trust company is responsible for holding user funds in escrow.

"Building trust with traders is not only important for running a successful stablecoin company, it is critical to the future growth of the cryptocurrency industry."