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Tethers are the main source of liquidity for unbanked crypto exchanges, which account for most of bitcoin's trading volume. Currently, there are $18 billion (notional value) worth of tethers sloshing around in the crypto markets. And nobody is quite sure what's backing them. Due to Tether's lack of transparency, its failure to provide a promised audit, and the fact that the New York AG is currently probing the firm along with crypto exchange Bitfinex, its sister company, for fraud, a good guess is nothing. Tethers, many suspect, are being minted out of thin air.

Nouriel Roubini thinks Tether is issuing fake money. And that nothing short of an audit will prove the $30 billion in USDT the BVI-registered company has spewed out into the crypto markets thus far are even 74% backed. Tether is a "criminal enterprise," he bluntly told reporters on Coindesk TV. In a 10-minute interview, Roubini predicted Tether's looming demise, called for the SEC to look into Elon Musk's bitcoin tweets, and claimed that central bank digital currencies will spell the end for crypto.

About $50 billion in cryptocurrency assets have left China in the past year, a possible indication that investors are dodging rules that limit how much capital they're allowed to transfer from the nation, according to Chainalysis. Tether accounted for more than $18 billion of the outflows from East Asia in the period. Tether has become a U.S. dollar replacement for many people in China, with lots of Chinese businesses and merchants, especially those working overseas, now accepting Tether. https://blog.chainalysis.com/reports/east-asia-cryptocurrency-market-2020

Bitcoin's price is determined by the total dollars, both fiat and Tether, in the system. Nicholas Weaver, a researcher at the International Computer Science Institute in Berkeley, believes that actual dollars in the system are depleted as Bitcoin miners need cash to pay their electricity costs. If the amount of real dollars in the ecosystem hits zero, Bitcoin will collapse, he argues. (Exchanges, typically those that lack links to traditional banking, use Tether in lieu of real dollars as a way to bring liquidity to the crypto markets and hedge against volatility.)

Crypto-asset exchange Bitfinex has launched tether (USDT)-settled perpetual contracts that track two European equity market indices (STOXX Europe 50 and Germany 30). Each contract offers up to 100x leverage and will be settled in stablecoin tether (USDT). A perpetual contract is similar to a traditional futures contract, but has no expiry and mimics a margin-based spot market. The perpetual contracts will be open for trading 24/7, unlike equity exchanges which are open for business for a limited number of hours, five days a week.

The US Commodity Futures Trading Commission (CFTC) fined Bitfinex and Tether more than $42 million on allegations that over a 26-month period between 2016 and 2018, the reserve funds backing its USDT stablecoin were comingled with the company's corporate funds and held in non-cash products, relying on unregulated entities and certain third-parties to hold funds comprising the reserves. In a statement published shortly after the CFTC release, Tether confirmed that indeed the reserves were not all in cash and all in a bank account titled in Tether's name, at all times, contrary to what the firm had claimed during the period in question.

Tether, will test trial a solution that will allow it to comply with the travel rule proposed by the Financial Action Task Force (FATF). The solution that will be tested, provided by Notabene, a software company that offers compliance solutions, will allow this information to be relayed between virtual asset service providers (VASPs). This solution aims to make tether (USDT) more friendly to law enforcement agencies all around the world.

"The CEO of crypto lending platform Celsius Network has said that Tether lends out new USDT stablecoins in return for cryptocurrencies - a claim that calls further into question Tether's founding promise that it uses only real dollars to issue its tokens. Celsius borrows USDT from Tether in return for well-known cryptocurrencies. New USDT is issued for such loans and later destroyed when the loan is closed so it does not permanently increase USDT in circulation. This flies in the face of the Tether operating model described in its whitepaper - issuance of USDT is supposed to be on a one-for-one basis against dollars. However a primer published in May 2021 says only that that 'newly issued [USDT] must be backed by collateral' and that 'redeemed [USDT] tokens are not released back into circulation unless new collateral has been provided'."

Fir Tree Capital Management, a $4 billion hedge fund, is making a substantial 12-month short wager on Tether. Its thesis against Tether centers around the coin's roughly $24 billion in high-yield commercial paper, much of it the firm believes is tied to Chinese real estate developers.

Tether and Circle, the issuers of USDT and USDC, have both moved to allay fears that their US dollar-pegged stablecoins are directly exposed to the fallout from the FTX debacle. CTO Paolo Ardoino said that Tether has no exposure to FTX or Alameda, although Alameda has previously redeemed a lot of USDT, but no credit exposure has matured. CEO Jeremy Allaire said that Circle has never made loans to FTX or Alameda, and has never received FTX's native token, FTT, as collateral, nor has it ever traded or held a position in FTT. Interestingly, both USDT and USDC became briefly unpegged today (November 10, 2022), with USDT spiking down, and Circle spiking up

The Wall Street Journal published an article that claims that Tether has increasingly been lending its own USDT stablecoins to customers rather than selling them for hard currency upfront. "The shift adds to risks that the company may not have enough liquid assets to pay redemptions in a crisis." Tether says it does indeed make short-term USDT loans to carefully vetted customers, but they are required to post "lots of extremely liquid" collateral, which could be sold for dollars if borrowers default. About 9% of USTD's backing assets are comprised of such secured loans, according to Bloomberg's Matt Levine. https://www.bloomberg.com/opinion/articles/2022-12-01/sbf-missed-ftx-s-risks

"Here are four things that Tether can do to ensure that the next time the crypto economy undergoes a shock, tether stays steady."

The NY Attorney General's office, which is embroiled in a legal battle with Tether Bitfinex, filed new documentation showing that Tether held accounts at Metropolitan Bank and Signature Bank, two crypto-friendly banks based in the state.

Tether has launched its Chinese yuan-backed stablecoin, which will run on top of the ethereum blockchain. The new CNH₮ token, is collateralized with yuan stored offshore.

This is a great summary of the potential systemic risks around Tether by Timothy Massad, ex-Chairman of the US Commodity Futures Trading Commission. He calls for a strengthening of the regulation of crypto-assets generally and in particular stablecoins. He seems supportive of the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, introduced in Congress last December, that would require that stablecoins be issued by a bank and would impose certain standards.

"Tether Holdings Limited made available its Consolidated Reserves Report for March 31, 2021 and an accompanying assurance opinion by Moore Cayman attesting that the information is accurate. It is our plan to release Consolidated Reserves Reports and related assurance opinions on a quarterly basis."

"Smoke and mirrors may maintain the peg for a while, but people won't be fooled forever. If Tether is serious about delivering "unrivalled transparency", it should publish the composition of its assets in sufficient detail to eliminate all doubts about their safety and liquidity. And if it wants the par peg to hold under all circumstances, it must significantly increase its capital. If it won't do either of these, then eventually the mirror will crack, the peg will break and Tether will be doomed. "

Using algorithms to analyze blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. The flow is attributable to one entity, clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests insufficient Tether reserves before month-ends.

Tether insiders Paolo Ardoino and Stuart Hoegner said they may reveal full details of the reserves backing the controversial digital dollar some time later this year. "We are contemplating providing an update on tether's asset backing during 2021," said Hoegner, speaking on the What Bitcoin Did podcast. Hoegner is general counsel for Tether and its affiliated entity, cryptocurrency exchange Bitfinex, while Ardoino is the chief technical officer for both.

"We analyse high-frequency realised volatility dynamics and spillovers in the bitcoin market, focusing on two pairs: bitcoin against the US dollar (the main fiat-crypto pair) and trading bitcoin against tether (the main crypto-crypto pair). We find that the tether-margined perpetual contract on Binance is clearly the main source of volatility, continuously transmitting strong flows to all other instruments and receiving only a little volatility. Moreover, we find that (i) during US trading hours, traders pay more attention and are more reactive to prevailing market conditions when updating their expectations and (ii) the crypto market exhibits a higher interconnectedness when traditional Western stock markets are open. Our results highlight that regulators should not only consider spot exchanges offering bitcoin-fiat trading but also the tether-margined derivatives products available on most unregulated exchanges, most importantly Binance."