#TMBT or Take-Me-Back Tuesdays will be NFTing’s featured articles that will discuss the history of NFTs, cryptos, metaverses, blockchain, and everything that is about the web 3.0.
For our fourth #TMBT feature, we will discuss the rich history and controversies surrounding the world’s largest stablecoin — the Tether.
Tether is a fiat-collateralized stablecoin that offers individuals the advantages of transacting with blockchain-based assets while mitigating price risk. Tether is primarily issued on the Ethereum and Bitcoin blockchains and corresponds on a 1:1 basis with US Dollars in banks. Before we proceed, let’s first identify what stablecoins are and their types.
Stablecoins are crypto assets that attempt to reduce volatility by retaining a peg to something more stable such as the U.S. dollar. There are three main types of stablecoins:
- Fiat-collateralized stablecoins, which have a centralized company, retains dollars and issues tokens that represent IOUs. In theory these should remain the most stable as they are redeemable for dollars on a 1:1 basis. Examples: Tether, Gemini dollar, Paxos, USD Coin, TrueUSD
- Crypto-collateralized stablecoins which seek to maintain a peg to $1 USD but rather than being backed by them are backed with crypto assets. Since the collateral is volatile, to maintain faith in the backing they are typically over collateralized meaning the value of the crypto is much higher than the stablecoins themselves. Examples: Dai, BitUSD
- Seignorage shares which act as decentralized central banks algorithmically adjusting the supply to maintain the peg. As demand grows it will issue more stablecoins, and otherwise it will issue bond-like instruments to remove coins from circulation.
What is Tether?
Tether is an open source, peer-to-peer blockchain digital currency. It is considered today the world’s largest stablecoin and has a long and detailed timeline in the crypto industry. Its executives also boast fascinating personal storylines.
Founded in July 2014 by Brock Pierce, Craig Sellars, and Reeve Collins, Tether (USDT), originally known as “Realcoin”, is a cryptocurrency commonly known as a “stablecoin” that aims to keep a fixed 1:1 exchange ratio with the U.S. dollar. This is different from cryptocurrencies like Bitcoin and Ethereum, whose prices fluctuate significantly and whose value is determined on a more speculative basis. That said, a report from CryptoCompare shows that nearly 80% of Bitcoin trading is done in Tether, making it a major source of crypto liquidity.
Tether was one of the earliest stablecoins created, built upon Mastercoin (Omni), which was a protocol layer for Bitcoin that introduced the stablecoin concept to the world in 2012. Tether pioneered what is now known as a fiat-collateralized stablecoin model, and is now the most widely used stablecoin.
Tether was created as an attempt to solve two major issues with existing cryptocurrencies: high volatility and convertibility between fiat currencies and cryptocurrencies. To address these perceived issues, Tether created a cryptocurrency that is fully backed 1:1 by deposits of U.S. dollars held at banks. On Ethereum, USDT tokens are represented as ERC-20 tokens, while on Bitcoin, Tether utilizes the Omni layer, to represent USDT tokens. While the tokens themselves operate in a decentralized network, Hong Kong based Tether Ltd is solely responsible for creating and redeeming tokens as well as maintaining the 1:1 deposit backing.
Currently, there are four Tether stablecoin currencies: USDT (tied to the U.S. dollar), EURT (tied to the Euro), CNHT (tied to the Chinese yuan) and XAUT (tied to one ounce of gold per token).
Exchanges have been the primary users of Tether as an alternative to fiat currencies, reducing or eliminating the need to maintain outside banking relationships. Tether Ltd shares many executives and has strong ties with Hong Kong based Bitfinex with both sharing the same parent organization iFinex Inc.
Tether Timeline History
Tether’s rich history and controversies has a narrative that spans over a decade which started way back in 1996.
1996
On December 6, 1996, future Bitfinex Chief Financial Officer Giancarlo Devasini was caught selling fake Microsoft software licenses.
2006
Bitfinex general counsel Stuart Hoegner serves as Director of Compliance for Excapsa. Excapsa operated an online poker game that included a backdoor enabling privileged users to view other players’ cards.
2011
Bitfinex founder Raphael Nicolle registers on BitcoinTalk as “UncleScrooge.” He uses the account to promote scams and pyramid schemes. He loses money to another scammer, Trendon Shavers. A jury eventually sentenced Shavers to 18 months in prison for his role in a Ponzi scheme.
2012
Bitfinex parent company iFinex founded in Hong Kong, although exact incorporation date is unclear (later, DigFinex would become the umbrella over all Tether-related entities).
2014
- On March 13, 2014, Bitfinex introduced “One Cancels Other” orders.
- On July 8, 2014, Brock Pierce, Reeve Collins, and Craig Sellars launched “Realcoin” in California, which later rebranded to Tether.
- On September 5–15, 2014, Tether Holdings Limited was incorporated in the British Virgin Islands. Bitfinex Chief Strategy Officer Phil Potter and Giancarlo Devasini are co-founders. Tether’s first Chief Compliance Officer is Matthew Tremblay. Bitfinex also added mining contracts.
- On November 20, 2014, Realcoin rebranded to Tether.
2015
- On January 15, 2015, Bitfinex enabled USDT deposits and withdrawals.
- In the month of May 2015, Bitfinex co-founder Raphael Nicolle retired as CTO and Bitfinex’s hot wallet was hacked — a total of 1,581 BTC loss ($375,000 then, $80.6 million today). Bitfinex tweets a warning to not deposit Bitcoin to old Bitfinex BTC addresses.
- On June 4, 2015, Bitfinex partnered with BitGo to add multi-signature technology to its exchange.
- On August 5, 2015, Bitfinex announced a revised commission structure.
- On December 29, 2015, Bitfinex made changes to withdrawal procedures ostensibly to make withdrawals more secure.
2016
- On June 2, 2016, The CFTC agreed to settle its allegations that Bitfinex illegally traded customers’ Bitcoin in offshore wallets and failed to register as a futures commission merchant.
- On August 2, 2016, hackers attacked again and successfully stole 119,756 BTC ($70 million then, $6.1 billion now) from Bitfinex’s multi-signature wallets.
- On August 16, 2016, Tether launched a euro-based stablecoin, Tether Euro (EURT).
- On August 31, 2016, Bitfinex listed BFX tokens for trading.
- In the month of October 11, 2016, Bitfinex announced another token issuance — this time, Recovery Right Tokens — also ostensibly to compensate users who lost funds in the August 2 hack. They agreed to trade 20 million BFX tokens for equity in its exchange to compensate for lost funds during the August 2 hack and made efforts in communicating with the person responsible for it.
- On December 21, 2016, Bitfinex opened an OTC trading desk led by former DigitalX Chief Trading Officer Bill Brindise.
2017
- Within the months of March to September 2017, Tether admitted it had just $61.5 million in cash held in trust by its general counsel Stuart Hoegner.
- On May 5, 2017, Bitfinex claimed it hired Friedman LLP to conduct a comprehensive balance sheet audit.
- On September 1, 2017, Bitfinex froze accounts associated with “Eth-Coin” phishing scam.
- On November 20, 2017, Attackers stole more than $30 million in Tether from the Tether Treasury in another hack forcing Tether to a hard fork that adds the ability to freeze USDT based on the Omni blockchain stolen during the hack.
2018
- On January 27, 2018, Tether cut its ties with auditor Friedman LLP.
- On March 14, 2018, Bitfinex adopted Bitcoin’s SegWit proposal and introduced “Honey Framework” for traders using automated trading strategies.
- On May 7, 2018, Peter Warrack joined Bitfinex as Chief Compliance Officer.
- On June 2018, Tether Limited hired the law firm Freeh, Sporkin & Sullivan LLP to “provide legal advice and counsel regarding a review of bank account documentation” (report here).
- On November 18, 2018, Bitfinex announced support for Bitcoin Cash.
- On December 21, 2018, Bitfinex added USDT/USD as a fiat-denominated trading pair.
2019
- Within the months of February to March 2019, Tether updated its terms of service and its introduction on their website.
- Within the months of April to May 2019, multiple charges were filed outlining Bitfinex and Tether’s bank account issues as well as fraudulent activities done by Crypto Capital Corp.’s senior officials using Tether funds. Bitfinex also launched the Unus Sed Leo (LEO) fundraising token during these months.
- On July 29, 2019, Tether added support for Bitcoin’s Liquid Network.
- On October 18, 2019, Bitfinex announced an affiliate program.
- On November 4, 2019, Bitfinex added support for bech32 Bitcoin addresses.
- On December 6, 2019, Bitfinex added support for Bitcoin’s Lightning Network.
2020
- On January 6, 2020, Bitfinex started adding credit and debit cards as payment methods.
- On January 24, 2020, Tether launched a gold-based stablecoin, Tether Gold (XAUT).
- On June 10, 2020, Bitfinex introduced Autonomous Token Sales.
2021
- On February 23, 2021, Bitfinex paid $18.5 million in fines and agreed to cease USDT trading in New York to settle a case in which the New York Attorney General alleged that the exchange covered up major financial losses. The exchange did not admit wrongdoing as part of the settlement.
- On May 13, 2021, Tether released two pie charts disclosing to the public its reserves for the first time since it was conceived. The largest percentage of its reserves is identified as commercial paper.
- In July 2021, The U.S. Department of Justice and the Office of the U.S. Treasury Secretary opens a probe regarding allegations surrounding Tether and the regulations of digital currencies.
- In November 2021, The U.S. The President’s Working Group on Financial Markets reported on stablecoins, expressing concerns about “bank runs” that could destroy the value of stablecoins like Tether.
Tether’s Future
Since its founding in 2014, Tether has been the subject of ongoing controversy due to the failure of Tether to provided audited financial statements proving it has adequate reserves backing USDT. Historically Tether has failed to disclose its banking relationships, only recently announcing its banking partners in November 2018 to quell rumors about its solvency raised by associated crypto exchange, Bitfinex.
Despite a handful of controversies that the currency and its company have run into, it has still proven to be a rather secure and stable cryptocurrency. Again this is mainly due to the fact that it is tied to the value of existing fiat currencies. That means it’s not subject to intense market swings like Bitcoin or Ethereum. In addition, there are very few speculative elements to Tether today, which makes it a relatively safe and stable cryptocurrency investment. Some even consider it akin to buying and holding cash or another foreign currency. If you anticipate large fluctuations in the market for the U.S. dollar or the Euro, for example, this could be a worthwhile investment.
