The dream of cryptocurrencies is in danger of imploding along with their value. If the crypto coin that supports the whole market goes under it could drag the entire system down with it. That coin is called Tether
Why this story?
It‚Äôs been like watching one of those failed rocket launches. For years, cryptocurrencies have shot upwards almost vertically. Some of us have gawped at the spectacle, some have scrambled to get on board. Either way, the roar of their value rising and the sight of them leaving other asset classes earth-bound has been captivating. And then, just as the rocket was about to escape the atmosphere, a flash and a deafening explosion: is that the end of the mission? Or is the problem fixable, Houston?
For a year at Tortoise we‚Äôve been investigating one cryptocurrency, Tether. It has a particular, enormous role in the crypto world. It‚Äôs meant to be an endless piece of string, tying itself to the physical world of cash through the apparently simple device of keeping a dollar, or a dollar equivalent, in the bank for every dollar‚Äôs-worth of Tether it issues. It‚Äôs pegged ‚Äď tethered ‚Äď one-to-one and, because of that, it‚Äôs become the on-ramp for people getting on board the crypto rocket and the off-ramp for cashing out.¬†
Only, like so much else in the crypto world ‚Äď as we discovered when Sam Bankman-Fried‚Äôs FTX/Alameda empire collapsed ‚Äď it has so far failed, or refused, to abide by established financial rules. It‚Äôs never been audited, never issued a proper set of accounts. In a world which often describes itself as trustless (you don‚Äôt have to trust governments, you don‚Äôt have to trust banks if you‚Äôre an investor in cryptocurrencies) you do, apparently, have to trust Tether ‚Äď blindly.¬†
But can we? Why would we? We‚Äôve been investigating the people who set up Tether and talked to the people who run it now. We‚Äôve checked in with their bankers past and present and their critics, all in an attempt to trace the cash Tether should have in the bank. There‚Äôs nothing orthodox about the people who run Tether or the way that it‚Äôs run, and that rings alarm bells. Because if, one day, that distant flash high in the sky is the sight of Tether exploding it really could be the death-knell for the dream of exploring a new financial world.¬†
How we got here
Around the time we began investigating Tether, one Bitcoin was worth more then $68,000 and Sam Bankman-Fried‚Äôs FTX/Alameda empire (Sam, the acceptable, mainstream face of cryptocurrencies) was on a very public roll. This week, the price of a Bitcoin crept back above $20,000 for the first time in a while and Sam Bankman-Fried maintained his innocence against charges of ‚Äúepic fraud‚ÄĚ. Sometimes, in the course of a long investigation, the story ambles away from you; sometimes it races in your direction.
It was a pie chart which first caught our eye. Under pressure to publish a full set of accounts to prove its claim that it had a dollar, or its equivalent, in the bank for every dollar‚Äôs worth of Tether it issued, the owners of Tether published a pie chart instead, in May 2021, with just four thinly-labelled slices.¬†
It felt like taking the mickey, or maybe worse than that: two fingers to anyone who suggested that this pioneering, buccaneering outfit should play by traditional financial rules. Tether was to be trusted, not because it had proved its trustworthiness, but because it was the keystone of a cryptocurrency system which was making too much money for awkward questions to be asked.
We didn‚Äôt trust it. And the more we looked at the people behind Tether ‚Äď a former child actor-turned crypto entrepreneur, a one-time plastic surgeon, a mysterious Dutch man who seems to have scraped every mention and image of his name and face from the internet ‚Äď the less trusting we became.¬†
Even now, with the rest of the cryptocurrency world wobbling all around it after a long ‚Äėcrypto winter‚Äô and the collapse of FTX, Tether still refuses to publish its accounts, or even to commit to a date when it will. But FTX shows that when you‚Äôre handling other people‚Äôs money ‚Äď $72 billion worth of it in Tether‚Äôs case ‚Äď proper accounting matters. Without it the risks are enormous.