What Is Tether?

a close up of a pile of crypt coins
a close up of a pile of crypt coins

What Is Tether?

If you didn't know about Tether before, well, get ready! Like it or not, we're all about to start hearing more about Tether.

There's a lot to cover but before we dig in, there are a few important things to know.

  • Tether is a hot topic of gossip in the crypto world.

  • Tether has a colorful history with auditors and transparency.

  • Tether's leaders have nontraditional backgrounds for the financial sector, some might say.

  • Tether has already been in trouble with the state of New York.

  • It's common to attack questions about Tether as FUD, which stands for Fear, Uncertainty and Doubt. FUD is used as a verb and an accusation.

For a variety of reasons, Tether is the Bruno of crypto (we don't talk about either). But not everyone would rather not discuss Tether. Investigative reporter Zeke Faux has been on the case. He wrote an incredible book on Tether called Number Go Up. It's wildly popular and Wired included it in The 16 Best Books of 2023.

On Saturday, February 17, 2024, Bloomberg published "Bahamas Bank Deltec Accused of Giving Bankman-Fried ‘Secret’ Credit to Buy Tether," an article by Zeke Faux. It confirms many details that skeptics have long suspected to be true and reveals a declaration from former Alameda CEO, Caroline Ellison, from a new FTX-related trial.

You follow all that? Great, now lets start with the basics!

Basics

Tether (USDT) is a type of cryptocurrency. It is designed to be a stablecoin, meaning its price is supposed to remain stable and pegged to a specific asset or currency. It is issued by Tether Limited, a company closely associated with the cryptocurrency exchange Bitfinex.

Price

As a stablecoin, the USDT price is supposed to remain stable because it's pegged to the price of another asset. In their own words, "All Tether tokens (USD₮) are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves."

Market Cap

As of February 11, 2024, Tether has a $96.3B market cap, making it the 3rd largest cryptocurrency. To put this number into context, Bernie Madoff's Ponzi scheme is valued at almost $65B.

Market capitalization, often shortened to market cap, is one metric typically used in the stock market. It measures the total value of all outstanding shares. Crypto uses market cap the same way to value tokens. According to CoinGecko, here's how to calculate market cap.

Let:
A = Current cryptoasset price in USD
B = Circulating supply of an asset

Market Capitalization = A*B

New York

Tether is no stranger to legal trouble, especially in the state of New York.

In October 2019, plaintiffs filed a class action lawsuit against Tether. They claimed over $1.4T (yes, as in trillion) in likely collective losses. The case, filed in the United States District Court's Southern District of New York, In re Tether and Bitfinex Crypto Asset Litigation, 1:19-cv-09236, (S.D.N.Y.), is still pending.

In 2021, Tether reached a settlement agreement with the State of New York. As part of the settlement, they paid a $18.5M fine and agreed to "end all trading activity with New Yorkers."

A press release announcing this step said pointedly, "Bitfinex and Tether Deceived Clients and Market by Overstating Reserves, Hiding Approximately $850 Million in Losses Around the Globe."

Tether's Leadership

Want to hear a truth stranger than fiction? We thought you might!

A former plastic surgeon, a questionable poker executive, and a former child actor with his own history of legal trouble are among Tether's ringleaders.

The Wall Street Journal has been reporting extensively on Tether (the company and the coin). In a February 2023 article, they state the following: "The firm releases little information about itself, much like the rest of the crypto industry. It has never disclosed its ownership structure, the details of how its assets are managed and how it would prevent a wave of redemptions from toppling the cryptocurrency."

Critics and Concerns

Tether was listed under Financial Stability Challenges in a June 2021 presentation by Boston Fed President Eric Rosengren. It has even been called, "a financial Chernobyl waiting to happen."

United States Senator Cynthia Lummis co-wrote a letter naming Tether with United States Representative French Hill to the Department of Justice. Senator Lummis asked "DOJ to finish its investigation and consider criminal charges against Binance and Tether after reports they served as intermediaries for Hamas and engaged in illicit activities."

In The News

Until recently, Tether was completely missing from the news. This is clearly no longer true. In prepared remarks given at the 2023 Blockchain Association's Policy Summit on November 29, 2023, Deputy Secretary of the Treasury Wally Adeyemo said the following:

"We cannot allow dollar-backed stable coin providers outside the United States to have the privilege of using our currency without the responsibility of putting in place procedures to prevent terrorists from abusing their platform. And we cannot permit offshore financial services providers to use jurisdiction-evasion tactics to avoid complying with our laws. We are working to close these gaps and others."

Even Tether is talking about Tether. By their own admission, they have "recently onboarded the United States Secret Service into its platform and will be working with the Federal Bureau of Investigation to do the same."

If you're confused by this, you're not alone. As of February 17, 2024, it's not clear exactly what Tether has been onboarding these agencies to do. How the rest of the Tether story plays out is still unknown.

Regardless the outcome, it will likely evoke strong reactions from around the cryptoverse.