Tether (USDT) is a digital dollar – a stablecoin pegged to US dollar. Stablecoins are a type of cryptocurrency with a value fixed to other assets (usually assets outside of the cryptocurrency space, e.g. fiat currencies, precious metals, etc.).
Their main purposes are: 1) help investors escape the volatility of the cryptocurrency market and 2) allow investors to buy cryptocurrencies on exchanges that do not offer fiat deposits.
Tether is the largest stablecoin by market cap, at around $80 billion, making it the No. 3 cryptocurrency overall, behind Bitcoin (BTC) and Ethereum’s Ether (ETH).
Cons
It’s centralized
Tether is centralized. Tether Limited (controlled by the owners of Bitfinex) is responsible for issuing USDT. Tether Limited is free to issue and freeze all USDT. When PolyNetwork was famously hacked in August 2021, all of the USDT that hacker stole was frozen and then returned to the victim. There were other such examples in the past (e.g. when KuCoin was hacked in 2020).
As much as the above examples are positive, nothing stops Tether from being less ethical in the future. Especially taken into consideration their shady history. Not to mention that centralization is against one of the core principles of cryptocurrencies.
It lied on several occasions
Tether always claimed that they and Bitfinex are two completely separate entities and denied all the speculations that they are the same. In November 2017, “The Paradise Papers” revealed Bitfinex and Tether are indeed run by the same people.
Until February 2019, Tether claimed to be backed by the US dollar on a one-to-one basis: “Every tether is always backed 1-to-1, by traditional currency held in our reserves.” – read their website. The text was then changed to: “Every tether is always 100% backed by our reserves (…) and, from time to time, may include other assets (…).
However, in April 2019, Tether’s general counsel admitted that the stablecoin can back only around 74% of its supply in circulation. It was also reported by the New York Attorney General that at some point in time Tether didn’t even have access to banking services. Therefore, Tether lied about its backing.
Tether promised to share reports from independent auditors on their reserves. They haven’t done so until forced by a court order in 2021. And even then they couldn’t stop themselves from misleading the public. In a tweet from Paolo Ardoino, Tether’s CTO, he stated that they share the report because “community asked for it.”
There are some shady people behind it…
The most important people at Tether are surrounded by many controversies:
Jan Ludovicus (or Jean Louis) van der Velde, Tether’s CEO, is a ghost. There’s barely any information about him. This is rather concerning when you take into consideration he’s a CEO of a multi-billion company.
Giancarlo Devasini, Tether’s CFO, boasts he built companies that generated 100 million euro in revenue but documents show it was almost 10 times less. He was sued by Microsoft for pirating their software and by Toshiba for infringing its DVD-related patents. And these are just a few examples of Devasini’s questionable doings and statements.
Phil Potter, CEO of Bitfinex (Bitfinex is the only partner of Tether. And it’s a company that actually controls Tether. So the only partner of Tether is a company that… controls it), was fired from Morgan Stanley in the 90’s after he bragged about his lavish lifestyle in an interview for The New York Times.
Letitia James, the New York attorney-general, called those people “unlicensed and unregulated individuals (…) dealing in the darkest corners of the financial system.”
…against whom criminal charges might be filed
US Justice Department that is investigating Tether and in July 2021 it reported that it is now considering whether it should file criminal charges against Tether executives. The charges might be based on the assumption that Tether lied about its business when it was opening bank accounts all over the world.
Theodore Lee is the editor of Caveman Circus. He strives for self-improvement in all areas of his life, except his candy consumption, where he remains a champion gummy worm enthusiast. When not writing about mindfulness or living in integrity, you can find him hiding giant bags of sour patch kids under the bed.