What is Tether?

Tether is a cryptocurrency token claimed by its creators to be backed by one dollar for each token issued.

As stated by Wikipedia page on Tether. The idea behind Tether is rather simple. They issue blockchain token USDT, every token stands for one United States Dollar. Fair deal, right? But there is a catch.

Tether is not obliged to redeem USDT for real USD! From their terms:

There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money. There is no guarantee against losses when you buy, trade, sell, or redeem Tethers.

In fact, there are many other legal statements in their terms, which are in short mean that you do not have any rights, they owe you nothing and you can't even take them to the court over the matter. One may ask, who would buy Tether then? You will be surprised.

How that all happened? Why are people so blind?

Tether Timeline

Let's first look at history timeline of Tether.

  • July 2014 – Brock Pierce announces Realcoin, a cryptocurrency backed by U.S. dollar value.
  • September 2014 — Bitfinex set up Tether Limited in the British Virgin Islands, but tell the public that Bitfinex and Tether are completely separate.
  • November 2014 — Realcoin rebrands to Tether. At the same time, the company announces several partners, including Bitfinex. Some question if Bitfinex actually purchased Realcoin and simply wanted to hide the fact that an exchange was issuing dollarized tokens.
  • February 2015 — Tether begins trading, but the amount of USDT in circulation remains relatively flat throughout 2015 and 2016.
  • March 2017 — Wells Fargo, the last bank willing to process Bitfinex transactions, cuts off all services to Bitfinex and Tether, according to court documents in a lawsuit Bitfinex files against Wells Fargo later. Bitfinex is not a direct customer of Wells Fargo but a customer of four Taiwan-based banks that use Wells Fargo as a correspondent bank.
  • November 2017 — Leaked documents dubbed "Paradise Papers" reveal Bitfinex and Tether are run by the same individuals.
  • November 2017 — Tether is hacked and 31 million USDT. Tether initiates a hard fork to prevent those funds from being spent.
  • December 2017 — The CFTC sends subpoenas to Bitfinex and Tether, Bloomberg reports. The actual documents are not made public.
  • January 2018 — After five months of stating an audit was forthcoming, Tether parts ways with auditor Friedman LLP.

Tether Capitalization

There is also another timeline in Tether history. Timeline of printing money. Let's take a look.

tether-chart

As you can see Tether capitalization stayed relatively small and stable until November 2017. After that, they started printing money like mad reaching 2,282 billion US Dollars by January 2018. It took three months to print around 1.8 billion US Dollars. We all know what happened in this period, especially in December 2017. Bitcoin and cryptomarket reached it all-time highs. What a coincidence! It is especially thrilling because they lost banking in March 2017, yet they printed 1.8 billion US Dollars with no banking whatsoever.

There is a twitter account called 'Not Tether Printer', which I highly recommend. It monitors Tether public address and as soon as they print more USDT it posts new twitter with the amount.
tether-printer-twit

I am pretty sure, someone has a trading bot based on that.

Tether Money Reserve

Even we know that Tether by any means is not obliged to redeem tokens for real USDT, let's try to figure out how much money does Tether have.

image

According to official Tether statement, the last audit they had was in March 2017 by TOPSUN CPAs & Co, which showed a total of 44 millions of USD Dollars.

tether-audit

After they hired Friedman, LLP based in New York, but soon after their relationship was dismissed.

"Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame," Tether said in the statement.

I wonder what happened there. Probably Tether books are so good that an audit not even needed!

I failed to find any proof of funds for Tether neither any information on recent audit, but what I found is that Wells Fargo Blocked $180m in funds belonging to iFinex and Tether customers. But I never found that these funds were released. How much money does actually Tether has? No one really knows. I would bet my money that it has less than 2,282 billion US Dollars.

Legal Situation

Any book on economics will tell you that one of the most important functions of government is monetary policy (printing money). The thing is government doesn't really like a competition that is why it tends to send to jail anyone who prints money in one or another way. Thanks to blockchain technology now there is a new way to print US Dollars – issue USDT. U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether in January 2018. It seems US government not exactly happy about Tether minting fresh dollars using blockchain. The whole story of Tether from legal perspective reminds me Liberty Reserve.

Liberty Reserve was a Costa Rica-based centralized digital currency service that billed itself as the "oldest, safest and most popular payment processor, serving millions all around a world".

Liberty Reserve also had a Liberty Reserve Dollar, which was tied to the value of US dollar. It existed in total for 7 years and it took authorities around two years of investigation to shut it down. Arthur Budovsky founder of Liberty Reserve was sentenced to 20 years in prison. At its peak, Liberty Reserve had 1 million users and had launder more than $6 billion. Tether has $2.6 billion day trading volume and who knows how many users.
As of January 2018, you can't even legally hold Tether as US citizen according to new Tether terms.

The End

Speculation is fine, but fraud is not. Educate yourself on the situation. Do your own research. Do not trust anyone. Tell other cryptocurrency enthusiasts. Good luck!

TL;DR

  • Tether is not obliged to redeem tokens for money.
  • Tether has no banking.
  • Tether has no audit and the last one was in March 2017.
  • Tether probably under criminal investigation.

Disclaimer: this article is for educational purpose only and it’s not a financial advice. Seek a duly licensed professional for investment advice.

References:

  1. Tether Wikipeda Page.
  2. A Timeline of Tether and Bitfinex Events by BitcoinMagazine.com.
  3. Great read on the Binfinex & Tether Issue.
  4. "Biggest misconception about Tether market cap and why it’s totally different from all other coins" by Sam Aiken.