Tether (USDT)

Tether Ltd.
Founded	2014
Headquarters	British Virgin Islands, Hong Kong, Isle of Man (formerly)
Key People	Brock Pierce, founder; JL van der Velde, CEO; Giancarlo Devasini, CFO; Stuart Hoegner, General Counsel
Employees	5-10
Products	Tether (USDT)
Twitter	@Tether_to
LinkedIn	Profile
Facebook	Page
Website	tether.to

Tether (USDT) is a cryptocurrency that was designed to have a 1:1 exchange rate with the U.S. dollar (USD) in order to make it easier to liquidate cryptocurrencies like bitcoin or buy cryptocurrencies with fiat currency. Tether Ltd., the company that created and issues Tether, is owned by the people who founded Bitfinex, with which it shares overlapping officers.

Tether is currently the most popular stablecoin by far. As of 2023, Tether’s total asset was about $86.4 billion against liabilities of $83.2 billion, according to a third-party attestation for the third quarter of 2023 by BDO.

Background

Tether was founded in 2014 by Brock Pierce. It started in the Isle of Man, but later moved to the British Virgin Islands. The company is also incorporated in Hong Kong. Tether was originally called "Realcoin," but the name was changed to "Tether" to avoid brand confusion with other altcoin projects of the same name.

Originally, Tether used bitcoin's blockchain to record and verify transactions. In June 2017, Tether transitioned to using Litecoin instead.

Tether's founders and executives are the same executives of the cryptocurrency exchange Bitfinex.

Overview

The basic idea behind Tether is simple: create a "stablecoin" or digital asset whose value does not fluctuate relative to a fiat currency. This coin can be used in place of the fiat currency in trading and other transactions. According to the company's web site, each Tether coin in circulation was backed by the same amount of the fiat currency. As of first quarter 2018, there were approximately 2.2 billion U.S. dollar Tether (USDT) coins in circulation. The creators of Tether claim that they have at least this much in fiat currency backing the coins came under a great deal of scrutiny since 2017.

Tether is often used by traders to park their dollars between trades on cryptocurrency platforms that have expensive fiat on-ramps or offer no fiat transactions at all. It is also used to aid in transactions between exchanges and to engage in margin trading.

According to cryptocurrency research firms like Coin Metrics - as well as a large number of independent users on Twitter - by summer 2019 there were only about 318 wallet addresses holding about 80 percent of all USDT in circulation and referred to as the "Tether Mafia" by some Twitter users. Some have speculated that the so-called Tether Mafia can, and has, influenced the price of bitcoin and other digital assets directly. John Griffin, a finance professor at the University of Texas, Austin, told Bloomberg that the "concentration of Tether suggests that control of Tether is in the hands of a few central players who can swing bitcoin prices, and have a vested interest in doing so. It also suggests that many exchange players have a vested interest in keeping the Tether game going." Market analyst Sid Shekhar, the co-founder of TokenAnalyst, also said that the intensely centralized nature of these holdings create extreme price volatility whenever large amounts of Tether enter the market.

History

Concerns about transparency

Tether's official website asserts that its platform was "built to be fully transparent at all times." Despite this, the company has not complied with public pressure to publish clear proof that its fiat currency reserves contain at least enough money to back each USDT coin in circulation with an equal amount of U.S. dollars. A large number of concerned users on Twitter, Facebook and Reddit began publicly calling for this proof in April 2017 when news surfaced that the Bank of Taiwan and Wells Fargo would no longer be assisting in Tether's transactions.

A document was released on Tether's website on September 28, 2018 that purported to summarize Tether's liquid assets. The company that provided the consulting report was an accounting firm called Friedman LLP. After the document was released, Tether confirmed it had cut its ties with Friedman LLP. The document stated that as of September 15, 2018, Tether Ltd. had $442,984,592 and €1,590 in multiple bank accounts. Unfortunately, the names of the banks associated with these accounts were blacked out on the report. This made it very difficult to verify the information published in the report, which cited an amount of USDT in circulation at the time similar to the amount of money in each account.

Research provided by the cryptocurrency research website BitMEX suggests one of the banks in the report could be the Puerto Rico-based Noble Bank.

Tether Ltd. has received subpoenas from the CFTC; representatives from Tether have declined to comment on this subject.

On June 20, 2018 Tether reported that it had hired Freeh, Sporkin & Sullivan LLP, a U.S. law firm, to review the adequacy of its U.S. dollar reserves and the firm reported that there were sufficient holdings on June 1, 2018. Tether has said it is still seeking an auditor to conduct a full audit. 

In November, Tether published a letter from Bahamas-based Deltec Bank & Trust Ltd., stating the bank held $1,831,322,828 for Tether. The form included what appeared to be a signature without an accompanying printed name. Jean Chalopin, the chairman of Deltec, sent a message to CoinDesk saying that the letter is authentic. The bank itself did not issue an official statement.

In March 2019, Tether updated the terms on its website, saying that, contrary to what the company has said for years, USDT is not backed 100 percent by fiat currency reserves, but by a combination of fiat reserves and "cash equivalent" holdings, which may refer to other cryptocurrencies.

On April 30, 2019, the general counsel of Tether and Bitfinex, Stuart Hoegner, wrote in an affidavit sent to the New York Attorney General's (NYAG) office that Tether was no longer backed 1:1 by cash and cash equivalents (short-term securities). It said that Tether's cash holdings amounted to approximately $2.1 billion, which accounted for roughly 74 percent of all USDT in circulation. According to Hoegner, the affidavit was filed to support an Order to Show Cause, or a legal plea to modify the NYAG ex parte order filed the previous week. The ex parte order required Bitfinex and Tether to produce a large quantity of documents by May 3, 2019. Another attorney representing Tether, Zoe Phillips, wrote in a memorandum of law in support of Tether and Bitfinex that Tether does not need to hold $1 for every USDT issued; Phillips said that the NYAG's statement was "wrong on multiple levels."

In February 2020, Tether announced that it was partnering with Chainalysis, a blockchain forensics firm, to improve its AML capabilities.

Blacklisting

In July 2020, Tether "blacklisted" the addresses of 24 wallets - worth about $5.51 million worth of USDT - meaning that its users cannot send, receive or redeem the tokens. When asked for comments about this by cryptocurrency news website The Block Stuart Hoegner, general counsel at Bitfinex, said that Tether routinely cooperates with law enforcement officials, sometimes freezing or blacklisting tokens, in order to help customers recover lost digital assets from hacking attacks. "Tether routinely assists law enforcement in their investigations... Through the freeze address feature, Tether has been able to help users and exchanges to save and recover tens of millions of dollars stolen from them by hackers," he said.

Price manipulation

On May 18, 2018, Tether increased the number of USDT coins in circulation by 250,000,000. In January 2018, Tether had increased the number of tokens in circulation by 850,000,000. Both instances coincide with bitcoin price increases. Along with existing public concerns over the company's transparency issues, this has caused concerns about price manipulation. Some believe the company does not actually possess enough USD to back all USDT tokens in circulation.

An anonymous report released in January 2018 concluded that "Tether printing moves the market appreciably." Using data available on Tether's own website, the anonymous author of the report demonstrated an apparent relationship between the price of bitcoin and the minting of new USDT tokens. Another study released on June 13, 2018, made similar claims. This study, titled "Is Bitcoin Really Un-Tethered?" was published by University of Texas, Austin professor John M. Griffin and graduate student Amin Shams. The 66-page report concluded that there was substantial evidence that Tether had been used to "pump" the prices of certain cryptocurrencies like bitcoin in certain instances and that the price increases in those instances could be accounted for by typical market behaviors.

In March 2020, Tether printed 60 million USDT. Paolo Ardoino, the chief technology officer of Bitfinex and Tether, called it an “inventory replenish” on Twitter. Ardoino also said in a comment: “Note this is a authorized [sic] but not issued transaction, meaning that this amount will be used as inventory for next period issuance requests.” Some speculated that the printing of USDT coins was an attempt by Tether to revitalize the bitcoin market, which crashed later that week.

Tether's price falls below $1

In October 2018, Tether experienced the most significant price decrease in the coin's history, which coincided with a significant price increase for nearly every other cryptocurrency in the market, including other stablecoins like Gemini dollar. The price decrease was broadly speculated to be the direct result of widespread loss of confidence in the coin, due to long-standing issues regarding the coin's lack of transparency, as well as recent accusations of insolvency against Tether's partner firm, Bitfinex.

In December 2018, Tether was in the top 5 cryptocurrencies by market cap, according to CoinMarketCap.

Tether's daily transaction value surpasses bitcoin

In June 2020, USDT's aggregate daily transactional dollar value - the amount of U.S. dollars' worth of USDT traded per day - surpassed that of bitcoin for the first time, according to Coinmetrics. Ryan Watkins, a research analyst at Messari, told Bloomberg reporter Olga Kharif that most users on cryptocurrency exchanges "do not want to transact in volatile cryptocurrencies like Bitcoin or Ether, preferring to hold them instead, so stablecoins are a great complement.”

Litigation

New York State litigation and settlement

On April 24, 2019, New York State Attorney General obtained an injunction against Bitfinex and Tether as well as their affiliates and iFinex, which operates them, to cease fraudulent activities in dealings with New York residents. A hearing on the injunction was scheduled for May 3, 2019.

In a statement announcing the injunction against Bitfinex and Tether, the attorney general said that Bitfinex had attempted to cover up the "apparent loss" of $850 million by removing up to $900 million of Tether's cash reserves. The lost money was a combination of client and corporate funds. Executives of Bitfinex and Tether then allegedly created "conflicted corporate transactions" to hide the transfer of these funds, and credited Tether's cash reserves through the Panamanian firm Crypto Capital Corp. According to James' statement, Bitfinex never signed a contract or other agreement with Crypto Capital while doing this. Correspondence between a senior executive of Bitfinex and representatives of Crypto Capital included the senior executive saying that "this could be extremely dangerous for everybody...BTC could tank below 1K if we don't act quickly." The statement also said that none of these actions were disclosed to investors. Bitfinex said the statement was made in "bad faith," and that both Tether and Bitfinex were financially strong.

In an affidavit filed with the New York Supreme Court, Tether's general counsel, Stuart Hoegner, stated that as of April 30, 2019, Tether had cash and cash equivalents of about $2.1 billion which represented approximately 74% of the value of outstanding Tether tokens. Morgan Lewis partner Zoe Phillips, a lawyer who represents Tether, asserted in a memorandum of law that Tether is not required to hold fiat currency on a one-for-one basis with Tether.

On May 16, Judge Joel Cohen of the state of New York's Supreme Court ordered Bitfinex and Tether execs and employees stop loaning Tether’s reserves to Bitfinex due to the ongoing investigation by the New York AG into Bitfinex and Tether. On May 21, The Block published a story on the trial after obtaining a court transcript in which representatives from Tether admitted that some of their "cash equivalent" reserves included holdings of bitcoin. The same day, lawyers representing Bitfinex and Tether asked Judge Cohen to stay the NYAG's request for documents, claiming the request "onerous," as the companies "have nothing to do with New York investors - the businesses do not allow New Yorkers on their platforms and do not advertise or otherwise do business here."

On February 23, 2021 the New York Attorney General published a settlement order with Tether and Bitfinex on its website. The companies neither admitted nor denied the attorney general's findings. The attorney general found Tether along with Bitfinex repeatedly misled the market about the dollar backing of Tether. The attorney general's settlement order provided details of numerous irregularities, including the deposit for several months of the Tether reserves in a trust account in the company's general counsel's name.

The settlement requires a payment by Tether and Bitfinex of $18.5 million and acknowledgement that the companies may not do business with New York persons, including entities that hold Bitlicenses. The companies agreed to increase their surveillance of doing business with New Yorkers and committed to regular reporting to New York officials about their surveillance measures.

Freedman & Roch v. Bitfinex & Tether

In October 2019 Vel Freedman and Kyle Roch, lawyers previously involved in suits against Craig Wright, filed a class-action suit against Bitfinex and Tether, alleging violations of the Commodities Exchange and federal RICO statute, among other claims. The suit said that both Tether and Bitfinex engaged in a "sophisticated scheme that coopted a disruptive innovation — cryptocurrency — and used it to defraud investors, manipulate markets, and conceal illicit proceeds." An amended version of the case was filed in June 2020, adding Bittrex and Poloniex to the list of entities that were “knowing participants in the scheme” to transfer large amounts of unbacked USDT between exchanges. The updated suit included changes to the plaintiff list, including the removal of David Leibowitz and the addition of cryptocurrency trader Matthew Script. Global Trade Solutions AG, which was initially one of the defendants, was also removed in the amended filing.

Misc

On May 31, 2019, Bitfinex announced that it planned to launch support for USDT on the Lightning Network.

In August 2020, Ethereum integrated with the OMG Network after completing a chain swap - moving 8 billion USDT from the TRON blockchain to Ethereum. The same week these two things took place, Tether became the third biggest cryptocurrency by market cap.

Products

Yuan-backed stablecoin

In August 2019, a Chinese trader with ties to Tether siad that Tether was planning on launching a stablecoin tied to the yuan.

Tether burns tokens

On February 20, 2020, Tether burned 300 million USDT, knocking its total circulating supply down to 4.62 billion USDT. This hit the TRON network especially hard - TRON had been growing at an apparently unrestricted rate due to the presence of large amounts of USDT in its network.

Borrowing and lending

In March 2020, USDT was listed on the decentralized exchange, Aave, one of the biggest lending protocols in the OpenFinance Network. This enabled users of Aave to lend and borrow USDT, making it the first case of on-chain lending and borrowing according to Tether's Public Relations Manager Joe Morgan.

Tether Gold

Tether launched Tether Gold, a stablecoin (XAUT) backed by gold deposits held in Switzerland, on January 23, 2020. XAUTs are issued by TG Commodities Limited. TG Commodities is not further identified on the Tether website.

Tether Gold has a dedicated website.

According to CoinDesk Research. XAUT daily high prices were consistently higher than the spot gold daily high prices during its first month of trading. CoinDesk suggested that the price premium might be explained by the lower cost of holding a gold token like XAUT compared to physically stored gold.

Key People

• Brock Pierce - Founder (no longer with the company)
• JL van der Velde - CEO
• Giancarlo Devasini - CFO
• Stuart Hoegner - General Counsel