Perhaps nothing encapsulates the perils of crypto better than Tether Holdings Ltd.

Tether is a so-called stablecoin. It addresses one of cryptocurrencies’ greatest drawbacks — extreme volatility — by mimicking the government-issued currencies that crypto was supposed to replace. In return for actual dollars, it provides dollar-denominated digital tokens that can be sent across various platforms to anyone, anywhere without touching the regulated financial system.

Miraculously, Tether has survived various cataclysms to become the crypto world’s stablecoin of choice. It has done so despite practices that would trigger a run on a traditional bank — such as effectively lending holders’ dollars to an affiliated, insolvent crypto exchange. Controlled by a company registered in the British Virgin Islands, Tether still keeps a significant portion of its “reserves” in bitcoin and unspecified loans and investments, and it has been looking to expand into commodity finance. It has about $120 billion in tokens outstanding, roughly equivalent to a mid-sized US bank.

What could go wrong? Much already has. An almost comical cast of villains — including Russian arms dealers, Irish gangsters, North Korean hackers and Hamas — have used the stablecoin to move billions of dollars. Although Tether at times co-operates with authorities to freeze tokens, its persistent association with criminal activity suggests these efforts aren’t entirely adequate.

According to news reports, federal prosecutors have been investigating Tether, and the Treasury Department has considered imposing sanctions on the company, effectively prohibiting Americans from doing business with it. (Tether has denied wrongdoing.)

Now, though, president-elect Donald Trump’s victory has radically changed Tether’s outlook. Trump and his associates have embraced crypto enthusiastically. His nominee for commerce secretary, Howard Lutnick, controls a firm — Cantor Fitzgerald LP — that recently struck a deal to take a 5 per cent stake in Tether, makes tens of millions of dollars a year keeping custody of its assets, and has solicited its participation in a plan to lend billions of dollars against bitcoin. Although Lutnick says he will distance himself from his businesses if confirmed, he has remained a vocal supporter of Tether.

This combination — Trump and Tether — presents quite a few potential problems. Two in particular stand out.

First, the more Tether grows, takes on risks and becomes interconnected with Wall Street firms such as Cantor, the greater the chance that crises in crypto will infect the broader financial system. Second, a resurgent Tether could vastly expand opportunities for illicit activity, undermining governments’ ability to fight crime, counter terrorism and enforce sanctions. Trading volume more than doubled after the election, totalling about $4.6 trillion in November.

No doubt, Scott Bessent and Jay Clayton, Trump’s picks to head the Treasury Department and the US Attorney’s Office for the Southern District of New York, recognise the dangers. So may some legislators. Ideally, Congress would impose order, requiring stablecoin issuers to hold only safe and liquid assets, and take much greater responsibility for monitoring trading and reporting suspicious activity. Barring that, Bessent and Clayton should use their ample powers — including the prospect of sanctions and prosecution — to achieve the same.

Ultimately, stablecoins — or at least the technology behind them — may have significant benefits, including making money transfers faster, cheaper and more transparent. It is in no one’s interest that they instead become a conduit for crime and a threat to financial stability.