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Tether (often referred to by its currency codes, USD₮ and USDT, among others) is an asset-backed
cryptocurrency A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
stablecoin. It was launched by the company Tether Limited Inc. in 2014. Tether Limited is owned by the
Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a List of cities in China, city and Special administrative regions of China, special ...
-based company iFinex Inc., which also owns the Bitfinex
cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
. As of July 2022, Tether Limited has minted the USDT stablecoin on ten protocols and blockchains. Tether is described as a stablecoin because it was originally designed to be valued at USD $1.00. Tether Limited has stated that it maintains USD $1 of asset reserves for each USD₮ 1 issued, but has been fined by regulators for failing to do this and has failed to present audits showing sufficient asset reserves.


History


Creation

In 2012, J.R. Willett published a whitepaper which described the possibility of building new
cryptocurrencies A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It ...
on top of the
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, ...
. Willett went on to help implement this idea in the cryptocurrency ''Mastercoin'', which had an associated ''Mastercoin Foundation'' (later renamed the ''Omni Foundation'') to promote the use of this new "second layer". The Mastercoin protocol became the technological foundation of the Tether
cryptocurrency A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
, and one of the original members of Mastercoin Foundation.
Brock Pierce Brock Jeffrey Pierce (born November 14, 1981) is an American entrepreneur known primarily for his work in the cryptocurrency industry. As a child actor, he starred in Disney films '' The Mighty Ducks'' (1992), '' D2: The Mighty Ducks'' (1994), an ...
, became a co-founder of Tether. and Tether founder, Craig Sellars, became the CTO of the Mastercoin Foundation. The precursor to Tether, originally named "Realcoin", was announced in July 2014 by co-founders Brock Pierce, Reeve Collins, and Craig Sellars as a
Santa Monica Santa Monica (; Spanish: ''Santa Mónica'') is a city in Los Angeles County, situated along Santa Monica Bay on California's South Coast. Santa Monica's 2020 U.S. Census population was 93,076. Santa Monica is a popular resort town, owing to i ...
based startup. The first tokens were issued on 6 October 2014, on the
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, ...
. This was done by using the Omni Layer Protocol. On 20 November 2014, Tether CEO Reeve Collins announced the project was being renamed to "Tether". The company also announced it was entering private beta, which supported a "Tether+ token" for three currencies: USTether (US+) for
United States dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
s, EuroTether (EU+) for
euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
s and YenTether (JP+) for
Japanese yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the ...
. Tether said "Every Tether+ token is backed 100% by its original currency, and can be redeemed at any time with no exposure to exchange risk." The company's website states that it is incorporated in Hong Kong with offices in Switzerland, without giving details.


2015–2016

In January 2015, the cryptocurrency exchange Bitfinex enabled trading of Tether on their platform. While representatives from Tether and Bitfinex say that the two are separate, the
Paradise Papers The Paradise Papers are a set of over 13.4 million confidential electronic documents relating to offshore investments that were leaked to the German reporters Frederik Obermaier and Bastian Obermayer, from the newspaper'' Süddeutsche ...
leaks in November 2017 named Bitfinex officials Philip Potter and Giancarlo Devasini as responsible for setting up ''Tether Holdings Limited'' in the British Virgin Islands in 2014. A spokesperson for Bitfinex and Tether has said that the CEO of both firms is Jan Ludovicus van der Velde. According to Tether's website, the Hong Kong-based ''Tether Limited'' is a fully owned subsidiary of ''Tether Holdings Limited''. Bitfinex is one of the largest
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
exchanges by volume in the world. For a while, Tether was processing US dollar transactions through Taiwanese banks which, in turn, sent the money through the bank
Wells Fargo Wells Fargo & Company is an American multinational financial services company with corporate headquarters in San Francisco, California; operational headquarters in Manhattan; and managerial offices throughout the United States and intern ...
to allow the funds to move outside
Taiwan Taiwan, officially the Republic of China (ROC), is a country in East Asia, at the junction of the East and South China Seas in the northwestern Pacific Ocean, with the People's Republic of China (PRC) to the northwest, Japan to the no ...
. Tether announced that on 18 April 2017, these international transfers had been blocked. Along with Bitfinex, Tether filed suit against Wells Fargo in the U.S. District Court for the Northern District of
California California is a state in the Western United States, located along the Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the most populous U.S. state and the 3rd largest by area. It is also the m ...
. The lawsuit was withdrawn a week later. Tether issues tokens on Bitcoin (Omni and Liquid Protocol),
Ethereum Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether (Abbreviation: ETH; sign: Ξ) is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capita ...
, EOS, Tron,
Algorand Algorand is a proof-of-stake blockchain cryptocurrency protocol. Algorand's native cryptocurrency is called ALGO. History Algorand was founded in 2017 by Silvio Micali, a professor at MIT. Algorand is composed of a company and a foundation. Th ...
, SLP and -OMG Network blockchains. Currently, there are a total of five distinct Tether tokens: United States dollar tether on Bitcoin's Omni layer, euro tether on Bitcoin's Omni layer, United States dollar tether as an ERC-20 token, and euro tether as an ERC-20 token, and added in 2020 United States dollar tether as an TRC-20 token on the TRON network.


2017–2018

From January 2017 to September 2018, the amount of tethers outstanding grew from about $10 million to about $2.8 billion. In early 2018 Tether accounted for about 10% of the trading volume of Bitcoin, but during the summer of 2018 it accounted for up to 80% of Bitcoin volume. Research suggests that a price manipulation scheme involving tether accounted for about half of the price increase in
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
in late 2017. More than $500 million of Tether was issued in August 2018. On 15 October 2018 the tether price briefly fell to $0.88 due to the perceived credit risk as traders on Bitfinex exchanged tether for Bitcoin, driving up the price of Bitcoin.


2019–Present

In 2019, Tether surpassed Bitcoin in trading volume with the highest daily and monthly trading volume of any cryptocurrency on the market.


Alleged price manipulation


Academic Research

Research by Griffin and Shams found that
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
prices increased after Tether minted new USD₮ during market downturns. They speculated this was an attempt at
market manipulation In economics and finance, market manipulation is a type of market abuse where there is a deliberate attempt to interfere with the free and fair operation of the market; the most blatant of cases involve creating false or misleading appearances ...
. These findings were contested by the Bitfinex
cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
who claimed the authors cherry-picked data and lacked a complete dataset. Subsequent researchers found little to no evidence that Tether USD₮ minting events influenced
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
prices, supporting the Bitfinex critique. In 2022, research found that
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
prices only increased when Whale Alert tweeted to the public that Tether had minted USDT, supporting a classic investor response to news announcements. Academic research following the Griffin and Shams study did not conclude that Tether manipulated
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
. The CEO of Tether and Bitfinex commented on the academic debate: ''"Bitfinex nor Tether is, or has ever, engaged in any sort of market or price manipulation. Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex''."


Media Research

Bloomberg News Bloomberg News (originally Bloomberg Business News) is an international news agency headquartered in New York City and a division of Bloomberg L.P. Content produced by Bloomberg News is disseminated through Bloomberg Terminals, Bloomberg T ...
reporters found irregularities on the
Kraken The kraken () is a legendary sea monster of enormous size said to appear off the coasts of Norway. Kraken, the subject of sailors' superstitions and mythos, was first described in the modern age at the turn of the 18th century, in a travelog ...
cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
, with small market orders moving the market price of Tether as much as larger market orders from 1 May 2018 to 22 June 2018. New York University Professor Rosa Abrantes-Metz and Federal Reserve bank examiner Mark Williams suggested the unusual order sizes were indicative of wash trading by automated trading programs. The
Kraken The kraken () is a legendary sea monster of enormous size said to appear off the coasts of Norway. Kraken, the subject of sailors' superstitions and mythos, was first described in the modern age at the turn of the 18th century, in a travelog ...
cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
offered a rebuttal of these claims, stating that
Bloomberg News Bloomberg News (originally Bloomberg Business News) is an international news agency headquartered in New York City and a division of Bloomberg L.P. Content produced by Bloomberg News is disseminated through Bloomberg Terminals, Bloomberg T ...
misunderstood the concept of stablecoin and that the market price of Tether was not greatly influenced by market order size because Tether was a stablecoin pegged to the
United States dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
. The user responsible for unusual order sizes also confirmed that the oddly specific order sizes and decimal places were "''randomly selected''." The
Kraken The kraken () is a legendary sea monster of enormous size said to appear off the coasts of Norway. Kraken, the subject of sailors' superstitions and mythos, was first described in the modern age at the turn of the 18th century, in a travelog ...
cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
rebuttal of the
Bloomberg News Bloomberg News (originally Bloomberg Business News) is an international news agency headquartered in New York City and a division of Bloomberg L.P. Content produced by Bloomberg News is disseminated through Bloomberg Terminals, Bloomberg T ...
findings were later supported by academic research concerning the stability of stablecoins.


Legal Research

On 20 November 2018, Bloomberg reported that U.S. federal prosecutors are investigating whether Tether was used to manipulate the price of
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
. According to Tether's website tether can be newly issued, by purchase for dollars, or redeemed by exchanges and qualified corporate customers excluding U.S.-based customers. Journalist Jon Evans states that he has not been able to find publicly verifiable examples of a purchase of newly issued tether or a redemption in the year ending August 2018.


Security and liquidity

Tether claims that it intends to hold all
United States dollars The United States dollar (symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official ...
in reserve so that it can meet customer withdrawals upon demand. It was unable to meet all withdrawal requests in 2017. Tether purports to make reserve account holdings transparent via external audit; however, Tether never produced an audit showing it had the purported reserve. In January 2018 Tether announced that they no longer had a relationship with their auditor. About $31 million of USDT tokens were stolen from Tether in November 2017. Later analysis of the Bitcoin
distributed ledger A distributed ledger (also called a shared ledger or distributed ledger technology or DLT) is the consensus of replicated, shared, and synchronized digital data that is geographically spread (distributed) across many sites, countries, or institutio ...
showed a close connection between the Tether hack and the January 2015 hack of Bitstamp. In response to the theft, Tether suspended trading, and stated it would roll out new software to implement an emergency "hard fork" in order to render all of the tokens that Tether identified as stolen in the heist untradeable. Tether has stated that as of 19 December 2017, it has re-enabled limited
cryptocurrency wallet A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often al ...
services and has begun processing the backlog of pending trades. On September 19, 2022, due to an ongoing lawsuit in New York District Court, Bitfinex and Tether (referred to in court records as B/T), were ordered to produce documents showing the backing of USDT, the outcome of which is still pending.


Questions about dollar reserves

An online critic who goes by the name "Bitfinex'ed" has raised questions about the relationship between Bitfinex and Tether in 2017, accusing Bitfinex of creating "magic Tethers out of thin air". In September 2017, Tether published a ''memorandum'' from a public accounting firm that Tether Limited claimed showed that tethers were fully backed by US dollars; however, according to the ''
New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'', independent attorney Lewis Cohen stated the document, because of the careful way it was phrased, does not prove that the Tether coins are backed by dollars. The documents also fail to ascertain whether the balances in question are otherwise encumbered. The accounting firm specifically stated that Tether has failed to present audits showing that the amount of tethers outstanding are backed one-to-one by U.S. dollars on deposit despite repeated claims that they would. A June 2018 attempt at an audit was posted on their website in June 2018 which showed a report by the law firm Freeh, Sporkin & Sullivan LLP (FSS) which appeared to confirm that the issued tethers were fully backed by dollars. However, FSS stated "FSS is not an accounting firm and did not perform the above review and confirmations using
Generally Accepted Accounting Principles Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...
," and "The above confirmation of bank and tether balances should not be construed as the results of an audit and were not conducted in accordance with Generally Accepted Auditing Standards." Stuart Hoegner, Tether's general counsel said "the bottom line is an audit cannot be obtained. The big four firms are anathema to that level of risk. We’ve gone for what we think is the next best thing."


Legal cases


New York Attorney General's Case Against iFinex

On April 25, 2019,
New York Attorney General The attorney general of New York is the chief legal officer of the U.S. state of New York and head of the Department of Law of the state government. The office has been in existence in some form since 1626, under the Dutch colonial government o ...
Letitia James Letitia Ann James (born October 18, 1958) is an American lawyer and politician. She is a member of the Democratic Party and the current Attorney General of New York, having won the 2018 election to succeed appointed Attorney General Barbara U ...
(prosecution) filed a lawsuit against iFinex (defendant)—the parent company of Tether Limited and the Bitfinex
cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
. The prosecution claimed that the Bitfinex
cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
had been unable to secure a reliable fiat banking relationship, so it had entrusted USD $1 billion to the Panamanian payment processing firm Crypto Capital Corp. The prosecution alleged that funds were co-mingled with corporate and client deposits and that no contract was ever signed with Crypto Capital. The prosecution speculated that Crypto Capital Corp had lost or stolen the money, and executives at Bitfinex and Tether Limited had been unable to recover up to USD $850 million of funds. The prosecution accused iFinex, Bitfinex, and Tether Limited of using Tether Limited to cover up the shortfall. On April 26, 2019, iFinex contested claims that funds had been lost or stolen by Crypto Capital Corp, stating that funds had actually been seized and Bitfinex sought release of the funds. Crypto Capital Corp told Bitfinex the seizures were temporary and presented excuses as to why the funds could not be released to Bitfinex (Case Point 33). Crypto Capital Corp stated that: in May 2018, the government of Poland had frozen a Crypto Capital Corp bank account holding at least USD $340 million of Bitfinex funds (Case Point No. 33); and between April and July 2018, a Crypto Capital Corp account in Portugal containing around $150 million of Bitfinex funds had also been frozen (Case Point No. 34). The principals of Crypto Capital Corp were later arrested. During the case, iFinex contested claims that Tether Limited had been used to cover up alleged losses, stating that Bitfinex had borrowed USD $400 million from Tether Limited due to the inability to access seized funds from Crypto Capital Corp (Case Point No. 38). Bitfinex stated they had fully repaid the loans with interest to Tether Limited by February 5, 2021. On May 16, 2021,
New York Supreme Court The Supreme Court of the State of New York is the trial-level court of general jurisdiction in the New York State Unified Court System. (Its Appellate Division is also the highest intermediate appellate court.) It is vested with unlimited civ ...
Judge Joel M. Cohen granted iFinex's motion to modify the injunction because the
New York Attorney General The attorney general of New York is the chief legal officer of the U.S. state of New York and head of the Department of Law of the state government. The office has been in existence in some form since 1626, under the Dutch colonial government o ...
's office's accusations were too general and lacked specificity, stating the prosecution's case was "''couched in exceedingly sweeping terms''" and "''injunctions must be specific."'' On February 17, 2021, iFinex settled the legal dispute with the
New York Attorney General The attorney general of New York is the chief legal officer of the U.S. state of New York and head of the Department of Law of the state government. The office has been in existence in some form since 1626, under the Dutch colonial government o ...
's office. iFinex, Bitfinex, and Tether Limited did not admit any wrongdoing and paid USD $18.5 million to settle the case.


U.S. Commodity Futures Trading Commission (CFTC)

On December 5, 2017, the U.S. Commodity Futures Trading Commission (prosecution) issued subpoenas to Bitfinex and Tether Limited concerning the backing of minted USD₮. Before February 25, 2019, Tether Limited's terms claimed "''Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USDT is always equivalent to 1 USD''." After February 25, 2019, Tether Limited revised their terms to more accurately state "''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''." On April 30, 2019, iFinex (defendant)—the parent company of Tether Limited and the Bitfinex
cryptocurrency exchange A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
—issued an affidavit stating that minted USD₮ was 74% backed by a narrow definition of cash and cash equivalents, with the remaining 26% backed by other assets. On October 15, 2021, Tether Limited paid a fine of USD $41.6 million for inaccurately claiming that minted USD₮ were 100% backed by fiat USD, when they were actually 100% backed by a combination of fiat USD and other assets such as "''unsecured receivables, commercial papers, funds held by third parties, and other non-fiat assets''". Tether Limited responded by revising their claims to state that "''All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves''." Tether Limited released assurance reports from 2017 to 2022 attesting to the 100% backing of minted USD₮. In May 2021, Tether published a report showing that 2.9% of Tether was backed by fiat USD, with over 49.6% backed by
commercial paper Commercial paper, in the global financial market, is an unsecured promissory note with a fixed maturity of rarely more than 270 days. In layperson terms, it is like an " IOU" but can be bought and sold because its buyers and sellers have some ...
, and the remaining amount backed by other assets.


See also

* Stablecoin * USD Coin (USDC) * Dai (DAI) * Pax Dollar (USDP) * Gemini Dollar (GUSD)


References


External links

* {{Cryptocurrencies, state=expanded 2014 establishments Cryptocurrency projects Currencies introduced in 2014 Ethereum tokens Blockchains