Tether: Ten years, 100,000,000,000 USDT, and still no audit

The most important stablecoin, Tether, has officially breached the symbolically important barrier of a $100 billion market capitalization.

It’s now nearly four times the size of its next competitor, USDC, and much larger than historically important funds like the $65 billion Reserve Primary Fund, which infamously broke the buck during the financial crisis.

Throughout Tether’s near-decade-long ascendancy, it’s grown and matured from a firm that promised that USDT was “always backed 1-to-1, by traditional currency held in our reserves” and “subject to frequent professional audits” to a firm that now holds billions in yield-generating reserves that have never been audited.

Tether’s road to $100 billion started in 2014

Self-described ‘doula for creation’ Brock Pierce and a number of colleagues founded Tether in 2014. Many, including Reeve Collins, Craig Sellars, William Quigley, and Jonathan Yantis, claimed to be there when it was formed under the name Realcoin.

However, this history isn’t universally agreed upon. Phil Potter, the former chief strategy officer of Tether and sister firm Bitfinex, claimed in Zeke Faux’s book Number Go Up that he was the one who approached Sellars. Potter downplayed Pierce’s role, saying “I’m sure Brock will tell you he came down from Mount Sinai with it all written on stone tablets.”

By September 2014, Realcoin underwent a rebrand. Tether Holdings Limited was formed in the British Virgin Islands, with Potter as a director and Giancarlo Devasini, the chief financial officer of Bitfinex and Tether, as a shareholder. A month later, the very first USDT was issued on the Mastercoin blockchain layer, later renamed Omni.

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Then-CEO Reeve Collins told CoinDesk that the rebrand was meant to make it clear that Tether was “not an altcoin, we’re not our own blockchain. We’re a service, a token that represents dollars. Our specialty at Tether is currencies on the blockchain, so Tether means a digital tie to a real-world asset and the digital assets.”

When it was time for Tether to finally launch in beta, Devasini took to BitcoinTalk to note that he’d been lucky enough to get an invite to this new service — a strange flex for the principal shareholder of the firm. Unsurprisingly, Bitfinex was the first exchange to list USDT.

Tether’s growth was slow in these early years, reaching a market capitalization of less than $10 million by the end of 2016, according to CoinMarketCap. However, this would soon begin to change, thanks in part to shifts in the operation of sister firm Bitfinex.

The acceleration

In early 2017, Tether and Bitfinex lost access to many of their banking partners. Wells Fargo had stopped offering correspondent banking services to the Taiwan banks that Tether and Bitfinex relied on. This led to a poorly conceived and quickly dropped lawsuit against Wells Fargo, which Potter once described as an attempt to “buy time.”

New York Attorney General (NYAG) and Commodity Futures Trading Commission (CFTC) lawsuits against Tether would eventually reveal that Tether relied on receivables from sister firm Bitfinex, illegal payment processing firms like Crypto Capital Corp., and funds held in the account of its general counsel to back the stablecoin during this period — despite publicly representing that the token was still backed by currency in its bank accounts. The CFTC lawsuit claimed that Tether was only backed for one day in four in the 26-month period the CFTC investigated.

Despite these structural headwinds, Tether’s market capitalization exploded from less than $10 million at the beginning of 2017 to $1.8 billion on November 27, 2018, when Tether finally announced it was reopening its ‘direct redemption’ facility.

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Leading up to this period in the summer of 2018, Tether had several meaningful changes. John Betts, the chief exec of Noble Bank (an international finance entity founded by Pierce and Betts that was providing banking services to Tether), claimed in an interview with Bloomberg that Devasini wanted to invest the Tether reserves to earn a yield. Potter disagreed and was reportedly bought out of his role in Tether for $300 million, and Tether began looking for a new banking partner.

Crypto Capital Corp., the unregistered payments processor that both Bitfinex and Tether used, would stop responding to Bitfinex executive requests for withdrawals in this period as well, as its bank accounts were seized around the world. In response, Bitfinex would ‘borrow’ hundreds of millions of dollars from Tether’s reserves without documentation in order to service its withdrawals.

After the NYAG reached out to these firms, these transactions were ‘rolled’ into a revolving credit agreement from Tether to Bitfinex that had the same executives sign for both firms.

Tether would finally establish one of its longest-lived banking relationships with Bahamas-based Deltec Bank and Trust, with whom it still seems to have a working relationship. The stability Deltec provided has contributed to Tether’s meteoric rise.

Clients and role in the ecosystem

Most USDT were issued to only two firms: Cumberland Global, a subsidiary of DRW, and Alameda Research, the now-bankrupt trading firm owned by Sam Bankman-Fried. These entities are, or at least were, important trading firms that regularly interacted with a massive quantity of exchanges and other trading desks.

Now-bankrupt Three Arrows Capital, now-defunct RenRenBit (operated by a Tether partner and Bitfinex shareholder who was sentenced to prison in China for money laundering), gone-bust Genesis Block (integrated with Alameda Research), and even sister firm iFinex were other important trading desks that did regular business with Tether.

Delchain, a sister firm to Deltec Bank and Trust, is also, of course, a Tether client.

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Read more: Examining Cumberland, Tether’s biggest client left standing

Tether hasn’t shied away from making investments in firms across the cryptocurrency space. It invested in Exordium, the now-bankrupt cryptocurrency lender Celsius (which was also a client of Tether and took advantage of the secured loans that Tether offered), and has made new investments across energy, artificial intelligence, bitcoin mining, payment solutions, staking, and more.

In this role of extending liquidity and investment, Tether has been accused of engineering ‘bailouts’ for struggling firms. This included a leaked audio recording that alleged that Tether bailed out now-defunct cryptocurrency lender Babel Finance. Jason Stone, a former Celsius trader via KeyFi, accused Tether of bailing out an already insolvent Celsius in his wide-ranging lawsuit.

More recently, a self-proclaimed Tether spokesperson told the Wall Street Journal that Tether was continuing its secured loan program to fulfill “short-term loan requests from clients.” Shortly after, Tether disavowed the statement and the spokesperson.

Read more: Tether rarely minded law enforcement, now it suddenly does

Regulator scrutiny

In April 2019, the NYAG filed a lawsuit against Bitfinex and Tether that detailed these related party transactions. As a result, Bitfinex took the Tether reserves to satisfy Bitfinex customer withdrawals. This initial lawsuit launched further waves of scrutiny, including a lawsuit from the CFTC that alleged Tether was regularly backed by commercial paper long before it was publicly tracked and further detailed how “Tether did not accurately track reserves.”

Eventual settlements with both the NYAG and the CFTC failed to stop the attention, however, even as it began publishing the court-ordered assurances from auditing firms across the Caribbean. This perhaps peaked in July 2021, when Bloomberg reported that Tether executives had received target letters related to potential indictments for bank fraud.

However, in the two and a half years since that was reported, no indictments have been revealed.

More recently, Tether has taken to bragging about the extent of its collaboration with law enforcement. The firm recently onboarded both the Secret Service and the Federal Bureau of Investigations to its platform. This hasn’t stopped scrutiny from lawmakers and the executive branch, but none of it has slowed the rise of its asset.

It’s unclear what the future holds for Tether, as it surpasses $100 billion in market capitalization, earns billions in profits, and continues to forge a deeper relationship with law enforcement. One thing we know is that it’s come a long way from its youth, when it advertised that you could “fund your account with bitcoins and convert to Tethers…without having to undertake KYC.”

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