What Is Tether? The Company Behind USDT
Tech Deep Dives

What Is Tether? The Company Behind USDT

Created 10mo ago, last updated 10mo ago

A deep dive into Tether, the company that issues leading stablecoin USDT, and recently announced it will be buying Bitcoin every month.

What Is Tether? The Company Behind USDT

Table of Contents

Tether (USDT) is the OG stablecoin that started it all. But Tether, the company, has also been plagued by scandals, lawsuits and investigations ever since it launched in 2014. Some people even accuse it of being a giant Ponzi scheme that manipulates the crypto market. Yet, Tether remains the biggest and most widely used stablecoin.

This report looks into how that happened:

  • Tether’s recent announcement that it is buying Bitcoin.
  • Tether’s company structure.
  • Tether’s reserves and revenues.
  • The controversies around Tether.

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Tether Accumulating Bitcoin

In May 2023, Tether announced its new strategy of funneling 15% of its net profit into accumulating Bitcoin to “diversify” its reserves, of which the majority are in U.S. Treasury Bills, according to the company. In Q1 2023, that would equal more than $200M, taking the $1.48 billion of net profit generated by Tether into account:
View post on Twitter

But there is already $1.5 billion worth of Bitcoin on Tether’s reported balance sheet. Why would the company want more?

Because it believes in Bitcoin’s long-term value proposition and its alignment with Tether’s goal of maintaining a secure and reliable stablecoin, at least according to CTO, Paolo Ardoino. But it’s definitely completely different from Terra Foundation buying BTC. Pinky promise:

View post on Twitter

Unsurprisingly, Tether’s plan to buy more Bitcoin has gathered attention in the crypto space. Some are wondering whether Tether accumulating BTC is actually good for Bitcoin:

View post on Twitter

Some Bitcoiners already have orange Bitcoin signs in their eyes at the sight of Tether potentially becoming a whale accumulator. Forgotten is all controversy:

View post on Twitter

Of course, skeptics are not convinced:

View post on Twitter

Tether has proven to be remarkably resilient in the face of accusations and doubts over its legitimacy. Let’s dive into the inner workings of the company to understand more.

Tether’s Company Structure

Founders of Tether

According to Wikipedia, the founders of the then-Santa Monica based startup are:
Brock Pierce: One of the co-founders of Tether and a former child actor. He's also a former presidential candidate.
Reeve Collins: Another co-founder and former CEO of Tether, who announced the project's rebranding from Realcoin to Tether in 2014.
Craig Sellars: The third co-founder and former CTO of Tether, who also served as the CTO of the Mastercoin Foundation, which developed the protocol that Tether uses.

Tether’s Executive Team

According to the Tether’s website, the executive team at Tether consists of:
JL van der Velde: A “technologist and serial entrepreneur” who was the CEO and co-founder of Bitfinex in 2013, and is currently the CEO of Tether.
Paolo Ardoino: The current CTO of Tether and iFinex, who leads the technical development and innovation of both companies. Also Tether’s voice on Twitter.
Giancarlo Devasini: The current CFO of Tether and iFinex, which is the parent company of Tether and Bitfinex. He oversees the financial operations and strategy of both companies.
Stuart Hoegner: The current general counsel of Tether and iFinex, who provides legal advice and guidance to both companies.
Leonardo Real: A former Anti-Money Laundering (AML) Quality Control Manager at the Bank of Montreal, who was appointed Tether’s Chief Compliance Officer in 2018.
Claudia Lagorio: Joined Bitfinex in 2015 and is now COO at Bitfinex and Tether.

Tether’s company structure looks as follows:

• Tether Holdings Limited, incorporated in the British Virgin Islands in 2014, is the ultimate parent company and owns 100% of iFinex Inc. and Tether Limited Inc.

• iFinex Inc. is the parent company of Tether Limited Inc. and also owns the Bitfinex cryptocurrency exchange.

• Tether Limited Inc., incorporated in Hong Kong in 2014, is the company that launched and operates the Tether platform and issues the Tether tokens.

• Tether Operations Limited, incorporated in the British Virgin Islands in 2017, is a subsidiary of Tether Holdings Limited that provides operational support and services to Tether Limited Inc.

• Tether International Limited, incorporated in the British Virgin Islands in 2017, is another subsidiary of Tether Holdings Limited that provides marketing and business development services to Tether Limited Inc.

Tether tokens are issued and redeemed on different blockchains, such as Ethereum, Tron and others. Tether tokens exist on different token protocols, such as ERC-20 and TRC-20. Tether Limited acts as the issuer of Tether tokens on these blockchains and claims to maintain a 1-to-1 pegging of Tether tokens to fiat currencies or gold, and backed 100% by its reserves.

Source: https://tether.to/en/transparency/#usdt

The Tether Reserves

Every USDT issued by Tether is backed 100% by its reserves. The company claims to back its tokens with cash and cash equivalents, other assets and receivables from loans and also gold and recently Bitcoin.
Over the years and under pressure from regulators and the crypto industry, Tether has decided to become more transparent about the collateral backing its issued stablecoins. It publishes breakdowns of its reserves on its website.

According to the latest report, as of March 31, 2023, Tether had $81.8 billion in total assets and $79.4 billion in total liabilities:

Source: Independent Auditor’s Report

Tether's reserves, according to its own statements, have shifted from commercial paper to mostly short-term duration US Treasury Bills. But questions still remain about the auditing process and some of Tether’s business practices. According to Tether itself, the company is highly profitable.

The Tether Revenues

Tether is making bank. According to its Consolidated Reserves Report, the company held $2.4 billion more assets than liabilities after Q1 2023. It turned a $1.48 billion profit in that quarter alone.

How Does Tether Make Money?

Tether's main source of revenue is the fees it charges for issuing and redeeming its tokens. Every time someone wants to buy or sell Tether tokens, they have to pay a small fee to Tether Limited, which is the issuer of the tokens. These fees vary depending on the blockchain and the amount of tokens involved, but they are usually around 0.1% or less.

Tether's other source of revenue is the interest income it earns from lending its reserves to third parties. Tether lends some of its reserves to other entities, such as exchanges, traders, or institutions, in exchange for interest payments and collateral. These loans are secured by assets that are worth more than the loan amount, and they are subject to margin calls if the value of the collateral drops below a certain level.

Tether's third source of revenue is the gains it makes from investing its reserves in various assets. Tether invests some of its reserves in different types of assets, such as corporate bonds, funds, precious metals, digital tokens, and other investments. These assets generate returns for Tether in the form of dividends, interest, capital appreciation, or price appreciation. Tether also buys and sells these assets depending on market conditions and its liquidity needs.

So where does all this money go?

Tether recently announced that some of the profits would be used to buy Bitcoin. That generated quite a few headlines, but Tether has been no stranger to those, as you are about to see.

Tether Controversies ─ A Long List

Tether says that for every USDT in circulation, there is one US dollar in its bank account. Sounds legit, but not everyone believes that. Tether has been accused of lying about its reserves and printing tokens out of thin air to pump the crypto market. Tether has also been accused of being secretive about its reserves, and has never provided a full audit by a reputable firm but relied on attestation reports and “independent auditors.”

Here’s a little best-of-Tether-controversies:

The New York Attorney General's Office (NYAG) probe: In 2019, the NYAG accused Tether and Bitfinex of covering up an $850 million loss of customer funds by using Tether's reserves. In 2021, Tether and Bitfinex agreed to pay $18.5 million in fines and stop operating in New York. They also agreed to submit quarterly reports on their reserves for two years.
The Paradise Papers leak: In 2017, a massive leak of offshore documents revealed that Tether and Bitfinex shared the same owners and executives, namely Giancarlo Devasini and Philip Potter. This raised questions about the independence and transparency of Tether's operations and audits.
The Crypto Capital connection: In 2019, Crypto Capital, a Panama-based payment processor that handled funds for Tether and Bitfinex, was accused of money laundering and fraud by several authorities around the world. Crypto Capital claimed to have $850 million of Tether's and Bitfinex's funds frozen by various governments, which was the same amount that the NYAG alleged was missing.
The USDT printing spree: In 2020 and 2021, Tether issued billions of new tokens at a rapid pace, coinciding with surges in the price of Bitcoin and other cryptocurrencies. This led to accusations that Tether was manipulating the market by creating artificial demand and inflating prices. Some critics also doubted that Tether had enough reserves to back all the new tokens.
The commercial paper mystery: In 2021, Tether revealed that most of its reserves were held in commercial paper, which are short-term debt instruments issued by corporations. However, Tether did not disclose the names or ratings of the issuers, nor did it provide any proof of ownership or verification by a third party. This raised suspicions that Tether was holding low-quality or even non-existent commercial paper.
The Protos investigation: In 2021, Protos Media published a series of articles based on an extensive analysis of blockchain data related to Tether's transactions. The investigation revealed that only a handful of entities were responsible for acquiring most of the USDT ever issued by Tether, and that some of them were linked to market manipulation and fraud allegations. The investigation also exposed some of the hidden connections and conflicts of interest between Tether and other crypto companies.
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