Published in


The Curious Tale Of Tethers

In my last post, I discussed Tethers and a little bit of how they work. In this post, you will learn exactly how precarious Tethers really are.

At the start of 2017, the amount of Tethers in circulation stood at around $10M ‘USD’, as can be seen on the CoinMarketCap history.

You’ll notice that for most of 2016, the Tethers in circulation were essentially flat in the grand scheme of things, and they only started to increase dramatically along with the price of Bitcoin.

Tether really started to take off after March 2017, when Bitfinex was cut off from the traditional banking system, Tether being a sister company of Bitfinex, was also cut off from banking at the same exact time which triggered a lawsuit from both Tether and Bitfinex against Wells Fargo.


And withdrawn a mere six days later…


Tether finally made an announcement regarding the situation a week later.

Since April 18, 2017, all incoming international wires to Tether have been blocked and refused by our Taiwanese banks. As such, we do not expect the supply of tethers to increase substantially until these constraints have been lifted.


At of the time of this post, Tether has not made any formal announcements about a solution to their banking problem (as is the case with Bitfinex).

Presumably, if Tether in fact had a viable solution to their banking problems, they would of course be proud to announce it on their website to inform everyone of the good news. It’s been nearly four months, and we’ve had radio silence regarding the issue.

People have been quick to dismiss this as “not a big problem” or “bitcoin finds a way”, but that’s not what Bitfinex and Tether said in their lawsuit against Wells Fargo…


How Tether and Bitfinex ‘Solved’ their banking problem.

Tether claimed that the supply of tethers would not increase until their banking problem was solved, yet the supply of Tethers has actually increased by 482% since this announcement.

From July 2017 to August 2017, the supply of Tethers has increased by over $100,000,000 ‘USD’.

And no traditional banking… so how are Tethers being increased so substantially? Who is sending money to Tether to create these Tethers?

Who would in their right mind, agree to buy hundreds of millions of dollars of Tethers?

We’re not criminals, but now we have to learn to bank like criminals.
- Giancarlo Devasini, Bitfinex Chief Financial Officer and shareholder of Tether during a verbal conversation regarding Tethers.

Information from Bitfinex

Bitfinex and Tether have attempted to resolve their banking problem by essentially creating seemingly unrelated shell corporations and opening bank accounts under those corporations. Phil Potter, Chief Strategy Officer, admitted to using this tactic for Bitfinex, and it’s not a stretch to presume that this tactic is being used regarding Tether as well.

“We’ve had banking hiccups in the past, we’ve just always been able to route around it or deal with it, open up new accounts, or what have you… shift to a new corporate entity, lots of cat and mouse tricks.”
-Phil Potter, Chief Strategy Officer of Bitfinex (

This strategy is not going to last, with the recent crackdown on BTC-E, it’s only a matter of time before regulators start to investigate where BTC-E money ended up.

And BTC-E proceeds are likely co-mingled with Tethers.

BTC-E Announcement 3 days before Tether announcement about no withdrawals/deposits. Source (Archive)

In order to add Tether to an exchange you operate, you must contract with Tether Limited for the correct type of account. You can’t just add Tether to your exchange without cooperation with Tether, and it’s likely not a coincidence at all that these two started working together within days of their banking problems materializing.

BTC-E was very good at keeping their banking open, despite being notorious in the Bitcoin community for being shady and the place where criminals would cash their crypto-currencies out to fiat currencies.

Bitfinex and Tether, likely adopted the BTC-E strategy for their banking.

Tether claims to be ‘professionally’ audited, but does not provide any proof whatsoever about the audits, or who audits them.

‘Transparency’ You keep using that word. I do not think it means what you think it means. Source (Archive)

I have asked for months for proof of the audits, or simply the name of the firm of their professional auditors, and there has been deaf tone silence. There is now over $300M USD in these Tethers, and nobody seems to be asking questions.

Tether has no real liquidity. There is only one legitimate USD/USDT pair, on Kraken.

If you want real USD for your USD Tethers, you must use Kraken. Source

The volume against USD/USDT organically is negligible compared to the size the rest of the market. The only other USD/USDT pair is on Bitfinex, which is in the same position as Tether anyway.

Tethers do not float on Bitfinex. Bitfinex will always treat 1 TetherUSD the same as 1 USD.

ALL US Dollars on Bitfinex platform, are in the same position as Tether USD.

On May 12th, 2017 Bitfinex announced that they moved a majority of their funds out of Taiwan, indicating that their Taiwanese banking is likely very limited.

We have, however, moved the majority of our funds out of Taiwan and the “one-time” withdrawal solution discussed in the prior announcement is coming online. Unfortunately, due to the cumbersome nature of the settlement procedure, we are processing these requests in descending order of size as we learn how to handle the process more efficiently.
Source (Archive)


Well, I’m not talking about Bitcoin. This post is about Tether. But just for fun, let’s go ahead and pretend everything I said is false about Tether…

Let’s just visit the Tether Website (Archive).

Money built for the internet, that is not money.

However, Tethers are not money and are not monetary instruments.
- Tether Website

Converts cash to ‘digital currency’, that is not stored value or currency.

They are also not stored value or currency.
- Tether Website

100% backed by no contractual right or legal claim.

There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money.
- Tether Website

Your money is securely in our possession.

We do not guarantee any right of redemption or exchange of Tethers by us for money.
-Tether Website

I’m not sure, but I don’t think tether.to/legal is on a different website than tether.to. Feel free to correct me if I’m wrong and tether.to/legal is some sort of FUD conspiracy website.

There’s no limit to how many Tethers can be issued.

Without reliable third party audits, the amount of USD Tether Limited really controls is completely unknown.

  1. It’s likely in bank accounts that are legally unaffiliated with Tether Limited (remember: they can’t get banking normally under Tether Limited), which raises questions on how you’d expect them to make good on Tether redemption's, even if they wanted.
  2. Their own ‘professionally audited’ stats have routinely showed negative equity, indicating they may be ‘printing’ unbacked Tethers.
March 20th, 2017, 3 days before the first known suspended withdrawal. Source
April 30th, 2017 Source
July 15th Source (Archive)

There have been no mass redemption of Tethers into real USD.

Tethers in circulation have yet to be redeemed for real money in any large amounts. Smaller players can likely get USD out via Kraken. The problem occurs when too many Tether holders try to actually redeem several million, or tens of millions dollars collectively.

In theory, on their transparency website the Tethers in circulation should go down when this happens, but in practice it has never actually gone down.

They have never redeemed a large Tether holder account when you look at the data available.

And they likely never will.

There are potentially others, so we need to reserve the right to not redeem.
- Stuart Hoegner (Archive), Tether lead legal adviser.

What are the other reasons? They wouldn’t say.

Even the Tether lawyer spreads FUD about Tether! What does he know? Source (Archive)

So, to summarize this entire post. I will give you the absolute best case scenario for Tethers of what they really are for people holding them.

And the worst case scenario? Hundreds of millions of “1 USD” blockchain tokens floating around and continuing to trade, that in reality have no USD backing them at all.

When music stops for Tethers banking shenanigans, those tokens still remain as accounting entries, and can still be traded.

One could expect some pretty silly prices. If you hold 50,000 USDT tokens that in reality is $0 USD, it’s a bargain to buy Bitcoin at 50,000 USDT per 1 BTC, and how will the rest of the market interpret this initially?

Don’t forget, it’s inevitable that some people will know the music stopped before everyone else. People knew about the banking problems before the rest of the market and before the lawsuit, and traded on that information.

Trade carefully.




Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store

Blog for @Bitfinexed on Twitter. Exposing possible fraud by largest Bitcoin exchange, Bitfinex/Tether