In my last post I explored the history of one of the founding members of Tether, Brock Pierce. In that post I speculate as to whether or not Pierce was being controlled by his past, and placed into the crypto world as an asset by the CIA. Whilst researching for that post I came across some very troubling issues surrounding Tether.

First off, I'd just like to say that I think Tether is actually a great idea. It's a currency that's pegged to the US dollar which allows you you cash in and out of cryptocurrencies quick, easily, and relatively cost free, all without the hassle of jumping through banking regulation hoops.

With the ever increasing number of Tether being released into the market each day, along with their lack of banking facilities, I wonder whether Tether has been creating and issuing their currency illegally and then lying about it.

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Originally, the only way for Tether to be issued into the system was if people first bought them with US$, via a verified Tether wallet. Once someone purchases Tether via the wallet, they are then free to send it to an exchange to buy other cryptocurrencies. Unfortunately, in April 2017 Tether announced that their US banking payment partner, Wells Fargo, had blocked international money transfers to their bank in Taiwan. This effectively left Tether without a bank to facilitate international money transfers to and from Tethers Taiwanese bank. After this event, you'd assume that the amount of Tether entering the system would decline dramatically. Instead, the opposite happened. Since April, Tether's issued over 1.5 billion Tethers bringing their total market cap to over US$ 1.6 billion. The correlation between the issuing of new Tether, and the price rise in Bitcoin, seems highly suspicious.

According to Tethers Terms of Service they'll buy and sell you Tether for US$ if you register your Tether wallet with them. Unfortunately though, they haven't had a functional wallet since they were hacked in late November last year.

Hackers steal $30 million worth of cryptocurrency in Tether hack | Hack Read - 11/21/2017

Tether, a start-up firm known for offering dollar-backed cryptocurrency has announced that hackers have breached their security and stole a whopping $30 million worth of tokens. The breach took place on 19th November 2017 while the news of it was announced earlier today.

The question I'm stuck on is, if there has been no bank to send US$ to, and no Tether wallet to receive them in, then how were Tethers entering the market? One thing that stood out to me in their ToS was the word property. "Tether Tokens are fully backed by the currency or property used to purchase them at issuance."

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So, how would you go about buying Tether with property? Does this mean that people have been selling their houses for a ton of Tether? No. In fact, the IRS classified BTC as property back in 2014. This makes me wonder whether it's actually Bitcoin that is the property backing Tether? I suspect, yes.

Bitcoins are property, not currency, IRS says regarding taxes | Reuters - 03/25/2014

Wading into a murky tax question for the digital age, the U.S. Internal Revenue Service said on Tuesday that bitcoins and other virtual currencies are to be treated, for tax purposes, as property and not as currency.

Coin Market Cap shows us that on the day the banking blockade began the market cap for Tether was at US$60,720,500. Given that a Tether is worth around $1, this works out to be about 60,720,500 total tethers in circulation. In an announcement on their site Tether even states that they "do not expect the supply of Tethers to increase until constraints have been lifted."

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As they had no way of processing payments due to the banking blockade it would make sense that they wouldn't be issuing any more Tethers. But this wasn't the case. Instead, the amount of Tethers in circulation went up dramatically throughout 2017. The issue some people have with Tether is compounded further by the fact that they continue to put off releasing a full audit of their US$ accounts.

What could be happening?

I see a few things that could be happening here. Firstly, because their bank in Taiwan continued to except direct US$ deposits after the blockade by Wells Fargo, Tether may have been buying up Tethers using their own US$ and then trading them for BTC on Bitfinex and other exchanges. A second theory is that they could have been issuing Tethers that weren't actually backed by any US$ at all, awhich they were using to buy BTC on Bitfinex and other exchanges. Or, they were buying Tether with Bitcoin and then issuing them into the market. Whatever happened did seem to have an effect on the price of BTC.

I feel there has definitely been some kind of scam going on with Tether over the last year. In all honesty though, after looking at all the evidence I could find I feel like this isn't a scam in the sense that Tether plans to run off with everyone's money. I do think however that it it's a creative tactic used by Tether to introduce a much needed stable coin into the cryptocurrency space. If this is the case then it's a very risky tactic. Not only because nearly 2 billion $ would get wiped from the total market cap if they were ever found out and shut down, but it would also have a massive effect on the confidence of new people entering the crypto-markets.

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