Tether

Tether's logo.

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“”That's as good as money, sir. Those are Tethers.

—u/TamponSmoothie

“”We could abscond with the reserve funds.

—from a Tether legal disclaimer notice

Tether is a Hong Kong-based company known for issuing, among others, USDT, a centralized cryptocurrency whose value is supposed to be backed by US dollars. USDT is part of a family of cryptocurrencies called stablecoins.

Run by executives who avoid making public appearances and just somewhere between 11 to 50 employees supposedly managing more than 60 billion USD, they are perhaps the most important company in the cryptocurrency space.

Origins

Pierce in 2018

J. R. Willett wrote something called "The Second Bitcoin Whitepaper" in 2012. This whitepaper described the MasterCoin idea that would keep track of ownership of all the disparate cryptocurrencies in one place, and eventually resulted in the creation of a functional MasterCoin. Willett received the equivalent of $500,000 in investments by selling MasterCoins starting in 2013 based on the promise that it would launch as a tradable coin. This was as it happened illegal, being an "unregistered securities offering". He never was charged for a crime however presumably because the US Securities and Exchange was not yet on the lookout for this type of cryptocurrency activity.

Three people joined together to create Tether in 2014:

1. Brock Pierce is best known as a former-child actor; he made some moolah selling a gaming company he founded, IGE, which was pioneering in the concept of selling game-based virtual currency that had been 'farmed' by low-wage foreign workers.
2. Craig Sellars, who was a computer programmer who had worked on developing MasterCoin
3. Phil Potter, who was then an executive at the Bitfinex Bitcoin exchange

Von NotHaus

Both Pierce and Potter have claimed credit for the idea of Tether. Contrary to Pierce and Potter's great man theory of Tether creation, several similar attempts at creating stablecoins had already taken place:

• Bernard Von NotHaus created a physical "Liberty Dollar" in 2005 with Ron Paul's face on it, intended to compete with the US dollar. Von NotHaus was convicted of counterfeiting but only served probation.
• Arthur Budovsky created the Gold Age, a digital non-cryptographic currency in 2001. After Budovsky was convicted of violating the New York State banking law in 2006 in connection with Gold Age, he fled to Costa Rica where he created the Liberty Reserve digital currency that same year. In 2013, the Liberty Reserve was seized by the US government and Budovsky was sentenced to 20 years in prison in 2018.

Company executives

Tether's C-suite (i.e., the senior executives), excluding the Chief Technology Officer (CTO), is notorious for being secretive and not appearing in the media, which is strange for a company managing such a large amount of money as they claim.

Paolo Ardoino

Paolo Ardoino

“”I have been open about the attempts from some hedge funds that were trying to cause further panic on the market after TERRA/LUNA collapse. It really seemed from the beginning a coordinated attack, with a new wave of FUD, troll armies, clowns etc.

—Ardoino

Ardoino was the company's CTO from about 2019-2023 He became CEO in October 2023. He is also the CTO for the cryptocurrency exchange Bitfinex. He's the public face of Tether and the one who shows up in Tether's media appearances.

In July 2021, he appeared in a interview in CNBC. He dodged every important question, such as what companies make up their commercial paper holdings, who their intermediaries are and inquiries about the NYAG statement that "Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie."

Like any proper cryptocurrency user, he was thrilled with El Salvador accepting Bitcoin as legal tender, having much of the same views you would come to expect, despite the fact that Bitcoin has none of the properties that would allow itself to be suitable for currency use in El Salvador, like a stable price with stable inflation over time and being actually usable in a country where Internet penetration and amount of people actually able to use Bitcoin securely is low.

Giancarlo Devasini

Giancarlo Devasini

Devasini (1964–) is the company's CFO, as well as Bitfinex's CFO. Not much is known about him, and what little is out there seems unreliable. He previously had careers as a plastic surgeon, computer hardware trader and owner of a food delivery service. Regarding his career as a surgeon he said, "All my work seemed like a scam, the exploitation of a whim." His computer hardware trading involved several instances of shady practices, including counterfeiting Microsoft software for which he paid a US$65,000 fine in 2007 in exchange for cooperating with criminal investigators. In a 2008 blog post deduced to be by Devasini, he expressed admiration for the great Ponzi schemer Bernie Madoff and how he had gotten away with the scheme for so long.

Devasini is clearly the nexus in the incestuous relationship between Tether and Bitfinex, since he is able to transfer funds at will between the two companies by signing off as the CFO of both companies on the same document.

Jean-Louis Van Der Velde

Jean-Louis Van Der Velde

Van Der Velde was the company's CEO until October 2023, as well as Bitfinex's CEO. Like the CFO, he's surrounded in mystery. He has a Bitfinex blog post about him making some vague claims, however. His puff-piece biography lists him as a "technologist and serial entrepreneur". He attended National Taiwan Normal University, but presumably did not obtain a degree. His title of CEO purportedly carries little weight, and Devasini is the actual person in charge of Tether. As of 2021, Van Der Velde was still the owner of record of Huashun Electronics, a Chinese-based company that is on a Chinese government list of companies that are "seriously untrustworthy and law violating".

Controversies

Auditing

In order for USDT's value to remain at 1 USD, people need to know that (1) there's indeed 1 US dollar somewhere in the company's possession for every USDT issued and (2) they can cash out whenever they want. A way for people to be assured that this is indeed the case is to have Tether's reserves be regularly audited by a trusted, independent third party, something they are not good at.

Tether's former auditor from May 2017 to January 2018, Friedman LLP, settled charges with the U.S. Securities and Exchange Commission that it had engaged in "serial violations of the federal securities laws" and numerous instances of "improper professional conduct".

In 2021, Tether appears not to have had a functional auditor, but they do publish attestations, in which a third party, Moore Cayman, based in the Cayman Islands (!), says that they indeed have $X when they did the attestation and doesn't go any further than that. In 2022, all of Moore Cayman's clients were taken over by MHA MacIntyre Hudson, which as of 2023 was under investigation by the UK Financial Reporting Council. To get an idea of how worthless these assurances are, there's no better way than reading one of them. If you can't stand the legalese, David Gerard has a blog post about one published in 28 February 2021, explaining why these attestations are not a substitute for a proper audit.

By 2022, Tether obtained the auditing services of a reputable accounting company, BDO Global, which did at least certify Tether's assets for a single day (30 June 2022):

Our opinion is limited solely to the CRR [Consolidated Reserves Report] and the corresponding consolidated total assets and consolidated total liabilities as of 30 June 2022. Activity prior to and after this time and date was not considered when testing the balances and information described above. In addition, we have not performed any procedures or provided any level of assurance on the financial or non-financial activity on dates or times other than that noted within this report.

But Tether's auditing problems appear to be ongoing, and more likely a feature than a bug.

Redeeming USDT

Cashing out or redeeming USDT is a whole different story entirely. Theoretically, Tether themselves will allow you to redeem their stablecoins with them directly.^{Do You Believe That?} In order to do that, you will need an account with them. However, in order for your account to be able to redeem cryptocurrencies, you will need to verify your account (also known as completing a Know Your Customer or KYC process), which includes having to pay for this process to be completed.

Of course, in reality, redeeming Tether's cryptocurrency with Tether isn't that easy. In the "Redeem TETHER tokens to fiat currency" page, there's this:

5. Finally, you will now receive an email confirming receipt of your redemption request.

Note the use of the word request. In Tether's legal page, the following clause can be seen:

The right to have Tether Tokens redeemed or issued is a contractual right personal to you. Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.

Indeed, there are many stories about not being able to redeem USDT in Tether's official website. For most people, the way to get back fiat from USDT is finding a buyer willing to exchange real money for USDT in the ever-so-trustworthy cryptocurrency exchanges.

Unbacked USDT speculation

Because of Tether's failure to produce a credible audit, there's a fair amount of speculation that USDT may not be backed after all, and that they are lying through their teeth.

Most speculation centers around the fact that commercial paper from companies whose identities are not disclosed is part of Tether's reserves.

Crimes

“”Also, if you think bitcoin has a reputation problem for money laundering now, just wait until you can store USDCoins in the block chain! At last, drug dealers and human traffickers will have the perfect currency to enable their work.

—R. J. Willett

“”I think criminals (like the rest of us) will prefer to deal with stable currencies rather than unstable ones. Also, betting on data streams will likely be a breeding ground for insider trading. (Note: I'm writing this protocol, but I'll be very careful not to use it for anything like that myself – I would prefer to stay out of jail!)

—R. J. Willett

In 2017, Bitfinex was the only exchange that traded Tether. At that time Bitfinex's assets were held only in a few Taiwanese banks. Non-Taiwanese banks became increasingly worried that if they accepted transfers from the Bitfinex accounts they could potentially be held liable for money laundering. This functionally deprived Tether of owning any USD assets. Despite this, Tether continued to issue $200 million in new coins.

By 2018, Bitfinex had transferred its assets to a loosely-regulated Puerto Rican bank called Noble Bank International (NBI). According to the bank's founder, Tether did have 1-to-1 dollar assets in the bank when the account was opened, but that same Devasini wanted to invest the assets in corporate bonds (which carry varying levels of risk) rather than USD. Due to a dispute with the other Tether owners over this issue, Devasini received a cashout of $300 million USD that year and NBI failed shortly after that. A blockchain analysis for cryptocurrency trades from March 2017 to the end of March 2018 found that someone was using Tether to manipulate Bitcoin prices and that these manipulations indicated that Tether was not fully backed by USD.

In 2019, Bitfinex was accused by the New York State Attorney General of covering up a $1 billion loss of Tether's fiat assets to a shady Panamanian company with whom no contract had been signed. In 2021, Bitfinex agreed to pay a $18.5 million penalty without admitting guilt, and Bitfinex and Tether have been barred from operating in New York.

In August 2021, journalist Zeke Faux was given a confidential partial accounting of where Tether's investments were located. The investments including billions of dollars in short-term loans to Chinese companies, something most foreign companies avoided due to China's opaque financial system and due to what was widely believed to be an ongoing crisis in overdevelopment of housing in China. In October 2021, Tether agreed to pay a $41 million penalty for making false statements about its financial holdings (violating the Commodity Exchange Act). The Commodity Futures Trading Commission investigation began in 2017, and as the investigation proceeded, so did Tether's statements about financial backing:

• Before February 25, 2019: Tether tokens are "100% Backed: Every tether [token] is always backed 1-to-1 by traditional currency held in our reserves. So 1 USDT is always equivalent to 1 USD."
• February 25, 2019: "Tether Tokens are 100% backed by Tether’s Reserves,” defined as “traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.
• After the October 2021: "All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves. The value of our reserves is published daily and updated at least once per day."

Irony overload

Considering the ideology of a sizeable portion of cryptocurrency users, the irony that coins backed by statist USD are so widely used to keep crypto afloat seems to be completely lost on them. Part of the idea of cryptocurrencies was to establish a decentralized economy out of reach from governments, yet, Tether (and by extension USD or at least the pretense of USD) has become a vital part of the cryptocurrency economy.^{[citation NOT needed]}

Centralization fans

Nothing about Tether indicates that they want decentralization, a concept that cryptocurrency users like to pretend they care about.

• Their website is hosted by Cloudflare, which is very much not decentralized by any stretch of the imagination and hated by those who care about decentralization and privacy.
• They can freeze wallets and reverse transactions. Satoshi wept, so much for censorship-resistance.

See also

• Scam
• Liberty Dollar