1. What is Tether?
Tether is a stabelcoin issued by Tether Limited. Since Tether Dollars (USDT) is the company’s most popular token, it is understood to be Tether by default.
2. Who created Tether and when?
The history of Tether began in 2012 when programmer J.R. Willet [J.R. Willet] proposed a solution to create new cryptocurrencies based on bitcoin. Based on this solution, Mastercoin token was released on July 31, 2013. In order to promote Mastercoin (later renamed Omni Layer Protocol), the Mastercoin Foundation (later renamed Omni Foundation) was created. Brock Pierce, chairman of the Bitcoin Foundation, was one of the founders of the Mastercoin Foundation, and programmer Craig Sellars was appointed CTO.
In July 2014, Pierce, Sellars and advertising industry entrepreneur Reeve Collins launched Realcoin, a startup headquartered in Santa Monica, USA. On Oct. 6, 2014, the company issued Realcoin tokens based on bitcoin and using the Omni Layer protocol.
“Realcoin will be fully transparent, secure, safe and insured. Each dollar in our reserve will be represented by one coin in circulation with the ability to redeem at any time. The one-to-one reserve will be fully available for audit,” the creators of the project said at the time.
On November 20, 2014, Realcoin CEO Reeve Collins announced rebranding the project to Tether. By doing so, the creators of the project wanted to avoid association with altcoins. They explained:
“We are not an altcoin, we are not a separate blockchain. We are a service, a token representing dollars. We specialize in issuing currencies on the blockchain. Tether is a digital link to a real world asset.”
Shortly thereafter, Hong Kong- and Isle of Man-listed Tether Limited announced the launch of a closed beta test of three tokens: USTether (US+) for the US dollar, EuroTether (EU+) for the euro and YenTether (JP+) for the Japanese yen.
Tether also announced partnership agreements with Hong Kong cryptocurrency exchange Bitfinex and three startups in which Brock Pierce was involved: Expresscoin, GoCoin and ZenBox.
In January 2015, Bitfinex listed Tether on the exchange. Although Bitfinex and Tether representatives claimed to be unrelated, in November 2017, leaked documents (Paradise Papers) revealed that Bitfinex employees Philip Potter and Giancarlo Devasini had founded Tether Holdings Limited in the British Virgin Islands.
According to Tether’s official website, Hong Kong-based Tether Limited is a subsidiary of Tether Holdings Limited.
3. How does Tether function?
The issuer of Tether tokens is Tether Limited. You can follow the issuance process in Omni Explorer.
- The circulation cycle of Tether tokens includes the following steps:
- The user deposits fiat funds into a Tether Limited bank account.
- Tether Limited creates Tether tokens in the equivalent of 1 USD = 1 USDT or 1 EUR = 1 EURT and lends them to the user. The tokens are put into circulation.
- The user makes transactions with Tether: transfers, exchanges, etc.
- The user makes a deposit to Tether for repayment in fiat.
- Tether Limited destroys the deposited tokens and sends the fiat to the user.
Initially, USDT tokens were only issued on a bitcoin basis using the Omni Layer protocol.
Omni Layer is a platform implemented as a software layer on top of the bitcoin blockchain. It allows the creation, transfer, tracking, exchange and destruction of Tether tokens. Each Omni transaction and, by extension, a Tether transaction is written to the bitcoin blockchain with the same hash.
Currently, Tether tokens are issued on the Ethereum blockchain using the ERC-20 protocol, on the Tron blockchain using the TRC-20 protocol, on the EOS blockchain, on the Algorand blockchain, and on the Liquid Network.
Basic user software
The official wallet is Tether.to.
Since some Tether tokens are issued using the Omni Layer protocol in the bitcoin blockchain, you can use a wallet that supports the Omni protocol – the official Omni Core desktop wallet and the OmniWallet web wallet. Third-party wallets that support Omni Layer are also available: Holy Transaction, Ambisafe, and Coinomi.
For transactions with Ethereum-issued Tether tokens, wallets supporting the ERC-20 format can be used: MyEtherWallet, Ledger Nano S, Metamask, Atomic, Edge, Exodus and others.
4. How is Tether evolving?
Since 2014, management has claimed that all USDT tokens are fully collateralized with U.S. dollars.
On February 27, 2019, Tether changed its USDT collateral policy. Since then, each coin has been backed by “reserves that include currency and cash equivalents as well as, from time to time…other assets and forthcoming proceeds from loans that Tether has made to third parties.”
In May 2019, Tether Limited General Counsel Stuart Hogner confirmed that USDT is only 74% backed by fiat reserves.
In April 2019, the New York State Attorney General’s Office charged the Bitfinex exchange with withholding the loss of $880 million from users and using Tether reserves to cover the resulting hole. Bitfinex funds were frozen in Crypto Capital’s processing accounts in several countries.
In October 2019, investors filed a class action lawsuit against iFinex Inc. the parent company of Bitfinex, accusing it of creating billions of dollars worth of USDT tokens without real collateral. According to the plaintiffs, this contributed to the rise in bitcoin’s price to an all-time high in 2017.
The overall list of charges includes violations of the U.S. Commodity Exchange Act, the RICO (Racketeer Influenced Capital Investment Act), money laundering, Pump & Dump schemes, market manipulation through the issuance of USDT and willful deception of investors.
On June 3, 2020, plaintiffs filed a new version of the lawsuit, which also contains allegations against Bittrex and Poloniex. It is alleged that both of these exchanges were directly involved in the scheme, creating the illusion of bringing fresh liquidity to the market through multiple BTC purchase orders. Bitfinex and Tether stated that the lawsuit is baseless and that they intend to continue defending their reputations in court, while Bittrex and Poloniex called the accusations against them “unconvincing.”
In September 2016, Tether announced the launch of the EURT (Eurocoin) token, pegged to the euro.
In April 2019, Tether issued the first USDT tokens on the Tron blockchain, and in June of the same year on the EOS blockchain.
In July 2019, Blockstream and Tether launched USDT staplecoin on the Liquid Network. In the future, Blockstream and Tether plan to launch USDT tokens on the Level 2 Lightning Network.
In September 2019, Tether launched a staplecoin tied to the offshore Chinese yuan (CNH).
In January 2020, the company announced the launch of a new token backed by gold. Tether Gold (XAUT) “represents ownership of one troy ounce of physical gold in a particular bullion block.” Stablecoin will be available on the Ethereum (ERC-20 protocol) and Tron (TRC-20) blockchains. The token’s gold collateral will be held in a Swiss vault.
In February 2020, Tether released a U.S. dollar-linked steblecoin on the Algorand 2.0 blockchain. Through the partnership, Tether will take advantage of standardized asset technology (ASA). The latter opens up a wide range of possibilities for tokenization and issuing “assets of any type” on the Algorand blockchain. The developers of Algorand are working on a blockchain based on the Proof-of-Stake consensus algorithm.
Tether (USDT), based on the Bitcoin Cash blockchain, was launched on March 20, 2020. For this purpose, the developers used the Simple Ledger Protocol, which allows to issue tokens on top of the BCH network.