Tether

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Tether
Tether.svg
Tether
Initial releaseOctober 6, 2014; 6 years ago (2014-10-06)
Development statusActive
TypeCryptocurrency
Websitetether.to
Tether.svg

Tether is a stable cryptocurrency, which is a bit like saying "proprietary FOSS". While Tethers are printed unbacked, so far Tether ₮ has maintained its $1.00 USD peg across many exchanges.

Tether provides valuable insight into how cryptocurrency exchanges operate, and how Bitcoin hit new all time highs in 2017 and 2021 respectively.

History


Phil at Bitfinex explains the "hack" on August 11th, 2016

In 2014, cryptocurrency exchange Bitfinex was hacked of their Bitcoins and became insolvent. To resolve this, they traded 36% of each customers funds for a new token that tracks how much money they took from everyone, then repurchased it at $1 per token. Obviously, this didn't print money, so Bitfinex didn't actually have the dollars to make this purchase. To resolve this, they acquired the company behind Tether.

Tether prints money on the blockchain, and admitted in court they lied about having the reserves to back it up. Due to the controversies surrounding this, no bank wanted to work with Tether, and what reserves Tether did have were now being shuffled into banks through shell corporations. To solve this, Tether bought out a bank, but then the bank disappeared. To solve this, they outsourced the shell company work to a company called Crypto Capital.

When it turned out that Crypto Capital was stealing Tether's money, Bitfinex covered this up by only allowing authorized users to deposit or withdraw money with Tether. Knowing that Crypto Capital was using shell corporations, Bitfinex instructed its users to lie about the details of wire transfers, to avoid being caught:

"[Do not share these instructions] except with your financial institution. Divulging this information could damage not just yourself and Bitfinex, but the entire digital token ecosystem. Accordingly, you are cautioned that there may be severe negative effects associated with this information becoming public."

Wire deposit instructions
Bitfinex, October 16th, 2018

In 2018, this all caught up, when Crypto Capital ran out of funds after regulators froze what they had left in their shell corporation accounts. Bitfinex tried a few new ideas to handle USD withdraws, but ultimately swapped their users' money (stored at Deltec bank) with their paper money (that was lost) at Crypto Capital, and wired out $625 million dollars of users' money to other users.

To avoid collapse, Bitfinex created an unregistered securities offering for the LEO Token, which is an "I-Owe-You of 1 (t)USD", selling $1 billion worth, and bringing them back into the world of solvency. These simple steps are naturally the ones behind creating a "stable cryptocurrency".

With court hearings exposing Tether as unbacked, or partially backed by Bitcoin, or partially backed by magic beans, Tether is now let out to do what it wants. By printing Tether and pumping Bitcoin, Tether's backing increased (Tether is backed by Bitcoin is backed by Tether is backed ..). If you've ever heard of the 2007 financial crisis, this is almost exactly what they did.

The whole story until this point involved ~3 billion Tethers. With the ability to print, buy Bitcoins, then cover their print with Bitcoin, Tether printed an additional 1.2 billion by the end of Q4 2019, and significantly more in the quarters since then.

Tether Prints by Quarter

Since the start of 2020

Quarter Print
Q1 2020 0
Q2 2020 $5.3 Billion USDT
Q4 2020 $5.4 Billion USDT
Q4 2020 $5.6 Billion USDT
Q1 2021 $19.8 Billion USDT
Total $44,411,605,830 USDT