Tether is what’s known as a stable coin in financial circles—stable since one Tether is meant to be backed by one dollar. However, it is more like to a bank. Tether Holdings Ltd., the firm that issues the currency, accepts dollars from customers who wish to trade cryptocurrency and credits their digital wallets with an equivalent quantity of Tethers in exchange. People may transfer Tethers to cryptocurrency exchanges and use them to gamble on the price of Bitcoin, Ether, or any of the hundreds of other currencies once they have them.
It’s always been unclear how Tether is supported, or if it’s actually backed at all. For years, a steadfast group of detractors has maintained that, despite the company’s promises, Tether Holdings has sufficient assets to sustain the 1-to-1 exchange rate, implying that the coin is effectively a sham. But in the crypto world, where joke currencies with dog images may be valued billions of dollars and scammers often earn fortunes with ridiculous-sounding schemes, Tether appeared to be just another oddity.
And at least in theory, Tether Holdings holds on to the dollars so it can return them to anyone who wants to send in their tokens and get their money back. The convoluted mechanism became popular because real banks didn’t want to do business with crypto companies, especially foreign ones.
Then, this year, Tether Holdings started putting out a huge amount of digital coins. There are now 69 billion Tethers in circulation, 48 billion of them issued this year. That means the company supposedly holds a corresponding $69 billion in real money to back the coins—an amount that would make it one of the 50 largest banks in the U.S., if it were a U.S. bank and not an unregulated offshore company.
As far as the regulators are concerned, the size of Tether’s supposed dollar holdings is so big that it would be dangerous even assuming the dollars are real. If enough traders asked for their dollars back at once, the company could have to liquidate its assets at a loss, setting off a run on the not-bank. The losses could cascade into the regulated financial system by crashing credit markets. If the trolls are right, and Tether is a Ponzi scheme, it would be larger than Bernie Madoff’s.
On Twitter, on business TV, and on hedge fund and investment bank trading floors, everyone started asking why Tether was minting so many coins and whether it really had the money it claimed to have. An anonymous anti-Tether blog post titled “The Bit Short: Inside Crypto’s Doomsday Machine” went viral, and CNBC host Jim Cramer told viewers to sell their crypto. “If Tether collapsed, well then, it’s going to gut the whole crypto ecosystem,” he warned.
So earlier this year I set out to solve the mystery. The money trail led from Taiwan to Puerto Rico, the French Riviera, mainland China, and the Bahamas. One of Tether’s former bankers told me that its top executive had been putting its reserves at risk by investing them to earn potentially hundreds of millions of dollars of profit for himself. “It’s not a stable coin, it’s a high-risk offshore hedge fund,” said John Betts, who ran a bank in Puerto Rico Tether used. “Even their own banking partners don’t know the extent of their holdings, or if they exist.”
A green pentagon emblazoned with a white T represents the Tether coin on the company’s website, which promises “Digital money for a digital age.” The logo doesn’t look like much, but it’s probably the most normal thing about Tether Holdings, which is weird in almost every way imaginable. Only a dozen employees are listed on LinkedIn, a tiny number for a company with $69 billion under management.
Tether’s website also touts a settlement with New York’s attorney general, but the announcement of that settlement made it sound like the company had been up to some horrible stuff. Tether Holdings had been “operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system,” Letitia James, the attorney general, said in a statement. Elsewhere on the website, there’s a letter from an accounting firm stating that Tether has the reserves to back its coins, along with a pie chart showing that about $30 billion of its dollar holdings are invested in commercial paper—short-term loans to corporations. That would make Tether the seventh-largest holder of such debt, right up there with Charles Schwab and Vanguard Group.
To fact-check this claim, a few colleagues and I canvassed Wall Street traders to see if any had seen Tether buying anything. No one had. “It’s a small market with a lot of people who know each other,” said Deborah Cunningham, chief investment officer of global money markets at Federated Hermes, an asset management company in Pittsburgh. “If there were a new entrant, it would be usually very obvious.” It wasn’t clear which regulatory body is responsible for overseeing Tether. On a podcast, a company representative said it was registered with the British Virgin Islands Financial Investigation Agency. But the agency’s director, Errol George, told me in an email that it doesn’t oversee Tether. “We don’t and never have.”
The chief executive officer listed on Tether’s website, J.L. Van der Velde, is a Dutchman who lives in Hong Kong and seems never to have given an interview or spoken at a conference. The chief financial officer is Giancarlo Devasini, a former plastic surgeon from Italy who was once described on Tether’s website as the founder of a successful electronics business. The only reference to him that turned up in a search of Italian newspapers showed he was once fined for selling counterfeit Microsoft software. He didn’t respond to emails or messages on Telegram, where he goes by Merlinthewizard.
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