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Stablecoin War: Circle Bans Tether-Backed Fund
15 Jul
Summary
- Circle banned a Tether-backed fund over alleged market manipulation.
- An arbitrator ruled in favor of Circle, dismissing the fund's claim.
- Tether had invested $800 million in the banned Heka fund.
Circle, a major stablecoin issuer, took action against the Heka Fund, reportedly backed by its competitor Tether, by banning it in late 2023. This decision stemmed from Circle's growing concerns that Heka was engaged in market manipulation to benefit Tether. The situation escalated when Heka filed an arbitration claim in 2024, seeking $49 million in lost profits due to the ban. However, the arbitrator ultimately sided with Circle, dismissing Heka's claim.
Court filings have recently brought details of this dispute to light, highlighting the intense rivalry between Circle and Tether in the significant stablecoin market. Circle suspected that Heka was redeeming its stablecoin, USDC, in unusually large volumes, potentially to transfer dollars to Tether. This concern was amplified when Circle discovered Tether's substantial $800 million investment in Heka, which constituted about 75% of the fund's assets and was reportedly concealed by Heka.
The arbitrator's decision, which dismissed Heka's complaint, found the fund had acted in bad faith. Circle was awarded approximately $166,000 in legal and expert costs. The controversy emerged in the wake of the 2023 Silicon Valley Bank crisis, which had previously caused USDC to briefly dip below its $1 peg, creating arbitrage opportunities that Heka initially exploited.
