Among the many “stablecoins” that peg their value to the dollar or similar stable currencies, USDT is one of the leading contenders.

Issued by the company Tether and owned by Hong Kong-based company iFinex, USDT (also known as Tether) is both the largest stablecoin and the third-largest cryptocurrency, with 24-hour trading volumes sometimes rivaling those of Ethereum and Bitcoin. It has a market capitalization of over $6 billion at time of writing, and iterations exist across a range of blockchains, including Ethereum and TRON. 

For traders, USDT is a useful dollar-denominated asset, a way to cash out into stable dollar value while staying “inside” the crypto ecosystem. For investors, it’s a useful  hedge against volatility. For service providers—not to mention sanctioned foreign investors—it’s a means of accepting cross-border payments easily.

Yet for a token so crucial to the market, it has refused to undergo professional audits in the past, has been delisted from major exchanges like the Canadian wing of, and has been banned in a number of jurisdictions, including New York

In this article, we’ll explore what Tether is, who uses it, and why critics question the validity of crypto’s largest stablecoin.

What Is Tether?

Tether is a stablecoin pegged to the US dollar, which means it aims to maintain a 1:1 exchange rate with USD. Ideally, this means that every time a USDT token is printed, a physical dollar or cash equivalent gets added to Tether’s reserves. The promise is that you can swap your USDT tokens for cash in these reserves anytime.

Why Use Tether?

Tether allows traders to maintain a stash of stable, dollar-valued wealth within the crypto ecosystem without having to cash out through a traditional bank. “Offboarding” crypto assets into fiat can often be laborious, and requires going through know-your-customer and anti-money laundering checks. Tether facilitates speedier trading—and also allows shady actors to avert the gaze of banks that might flag suspicious transactions to authorities.  

Many US-sanctioned Chinese and Russian investors, for instance, use Tether as a way to access dollar economies without interacting with US banks. Similarly, Tether is used by “unbanked” people in developing countries to access a stable currency.  

Tether (and other stablecoins such as USDC) is used for many other reasons, including:

  • Reducing exposure to volatility when trading
  • Earning passive income (through lending, staking, or yield farming)
  • Making and receiving payments
  • Providing liquidity to DeFi projects

As the largest stablecoin and the most widely available on exchanges, most crypto investors default to using Tether, assuming it is the most trustworthy stablecoin. But is it really?

Tether’s Controversy Timeline

Tether’s controversies stem from the fact that, for a long time, no one had any proof of USDT’s 100% dollar-backed reserves. 

Tether had championed transparency from the get-go. Its website declared, “Every tether is always backed 1-to-1, by traditional currency held in our reserves”— messaging it later backtracked.

The most vocal critics of Tether have always questioned the validity of these statements, with some claiming that tranches of USDT were printed unbacked to select investors, resulting in manipulation of the price of Bitcoin. 

Because Tether accounts for much of the “dollar” value in the crypto markets, the fear was that an abrupt decline in the price of Bitcoin could lead to a run on Tether’s reserves. If it turned out the company was insolvent, billions of dollars’ worth of crypto wealth would evaporate. 

Tether’s promises of an audit certifying its claimed reserves date back to a tweet on March 9th, 2015. However, not only did that audit never materialize, but subsequent “proof” seemed to be limited to attestations from its own bank, the Bahamas-based Deltec, which was also affiliated with the collapsed FTX exchange.

In a long, two-year case against Tether by the New York State Attorney General’s office, the critics were proved—at least directionally—right: Tether’s “reserves” were only partially backed. 

In a court order lodged in April 2019, New York investigators revealed that Tether’s sister company, Bitfinex, had lost around $850 million in 2018 to an outlaw ‘shadow bank’ called Crypto Capital Corp, which used a series of shell companies to fraudulently set up accounts with traditional banks. Shadow banks were common in crypto back then, because banks could pull the plug on crypto companies pretty easily. Bitfinex had relied on Crypto Capital Corp to maintain that critical connection with the mainstream financial world. 

The shadow bank never returned the money, however, and Bitfinex’s owners (who are the same as Tether’s owners) tried to conceal their mistake. To cover the $850 million hole on its balance sheet, Bitfinex dipped into Tether’s reserves, whipping up a $700 million Tether-denominated loan to itself that was drawn partly from user funds. Tether subsequently admitted to investigators that its reserves were only 74% backed by cash and “cash equivalents.” 

Tether and Bitfinex chose to settle by paying $18.5 million in penalties, and agreed to cease business in New York. 

In an attempt to restore shaken investor confidence and finally deliver on its audit promise, Tether released a full reserve breakdown for the very first time in May 2021. It revealed that three-quarters of Tether’s reserves are held in cash, cash equivalents, and short-term deposits. It also, dubiously, claimed its reserves held commercial paper, a kind of IOU issued by a corporation. 

However, the May 2021 audit had the opposite effect of what Tether was hoping for—it showed that most of the company’s reserves were debt instruments, with hard cash being just 3.87%. 

Faced with even more criticism, Tether has since taken stringent measures to eliminate its exposure to commercial paper, published quarterly attestations by third parties, and updated daily reserve reports.

The Future of Tether

Tether has had a rocky road with a history of broken promises and questionable decisions. But it has taken some steps in the right direction and has promised regular audits.

However, with close competition from stablecoins such as USDC partnering with traditional finance giants like Visa, Tether needs to build more trust in the crypto ecosystem to maintain its position as the largest stablecoin.