Tether’s $69 Billion Mystery: Five Takeaways From Bloomberg Businessweek’s Cover Story

(Bloomberg Businessweek) -- Tether is a stablecoin, a cryptocurrency that’s supposed to be worth $1 because it’s backed by real U.S. dollars. It’s central to the cryptocurrency economy, used by traders to move money from one exchange to another. This summer, because of its exponential growth, it caught the attention of traders on Wall Street and regulators in Washington, who say it’s a risk to the financial system. There are now 69 billion Tethers in circulation, which means the company that issues them should hold a corresponding $69 billion of assets to back them, enough to make it one of the top 50 banks in the U.S.—that is, if it were a U.S. bank and not an unregulated offshore company. But for years, despite the company’s assurances that the money is safe, exactly what’s behind Tether has been a mystery.

Here are five takeaways from Bloomberg Businessweek’s cover story “ The $69 Billion Crypto Mystery.”
 

• Tether has invested some of its reserves in Chinese commercial paper. Businessweek obtained a document showing a detailed account of Tether Holdings Ltd.’s reserves. It said they include billions of dollars of short-term loans to large Chinese companies—something money-market funds have avoided. And that was before one of China’s largest property developers, China Evergrande Group, started to collapse. Tether has denied holding any Evergrande debt, but its lawyer declines to say whether Tether had other Chinese commercial paper. He says the vast majority of its commercial paper has high grades from credit rating firms.
   
• Tether has made billions of dollars of crypto-backed loans. Some of those loans have Bitcoin as collateral. One is to Celsius Network Ltd., a giant quasi-bank for cryptocurrency investors, according to its founder Alex Mashinsky. Tether’s lawyer says the secured loans are low-risk because borrowers have to put up Bitcoin that’s worth more than what they borrow.
   
• A banker says Tether’s top executive put reserves at risk. John Betts, former chief executive officer of Noble Bank International LLC in Puerto Rico, which Tether used, says Tether Chief Financial Officer Giancarlo Devasini, who effectively controls the company, had put its reserves at risk by investing them to earn potentially hundreds of millions of dollars of profit for himself. “It’s not a stablecoin, it’s a high-risk offshore hedge fund,” he says.
   
• Tether no longer keeps all of its assets at a bank in the Bahamas. Jean Chalopin, chairman of Deltec Bank & Trust in Nassau, the Bahamas, says he has held only cash and extremely low-risk bonds for Tether. But recently, he says, the company started using other banks to handle its money. Only a quarter of it—$15 billion or so—is still with Deltec. “I cannot speak about what I cannot know,” he says. “I can only control what’s with us.”
   
• Tether executives are the subjects of a U.S. criminal investigation. Earlier this year, prosecutors from the U.S. Department of Justice sent letters to Devasini and other Tether executives informing them that they’re targets of a criminal bank fraud investigation, as Bloomberg News has reported. The FBI is examining whether they deceived banks years ago to open accounts. “Tether routinely has open dialogue with law enforcement agencies, including the DOJ, as part of our commitment to cooperation and transparency,” the company said in a statement.

Check out the full story to learn how Tether was dreamed up by a former Mighty Ducks child actor, run by an Italian ex-plastic surgeon, and banked with the co-creator of Inspector Gadget.

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