Tether’s supposedly growing role in illegal activity

Christina Tkach Hacker Noon profile picture

Tether has been the subject of several investigations in recent years. Most fit into at least one of these categories:

  • Currency Issuing Practices
  • Lack of corporate transparency
  • Reserved verifiability difficulties
  • Loss of funds due to security breaches, enforcement actions, and questionable banking practices
  • Missing KYC / AML mechanisms
  • Various civil and criminal charges against organizations affiliated with Tether and Bitfinex

Our main assumption when it comes to understanding the motivations of the Tether creators is that if you can run a partial reserve system and have trading fees, no sophisticated scam programs are required. We focus our attention on exposing Tether’s role in the crypto marketplace without attempting to attribute individual crimes and securities laws violations to individual participants in the ecosystem.

Our results

Dominance over USD markets

Tether replaces Fiat as the quote currency. USDT has the most liquid markets with trading volumes in excess of $ 100 billion per day. It thrives wherever traders struggle with bank access to fiat, and is starting to compete with the USD in developed markets.

The total monthly volume of Binance, Huobi, OKEXx, HBTC, Kucoin, Bitstamp, Gemini and Coinbase is traded against USDT, USDC, USD. Source: NTerminal

USDT minted (in USD) by various blockchains, February – December 2020. Source: NTerminal

Transferring USDT (in USD) through various blockchains, 2020. Source: NTerminal

Market manipulation

There is no statistical evidence that tethered coinage correlates with Bitcoin price movements that go beyond a typical relationship between supply and demand. Furthermore, correlation is not synonymous with causality. Constantly evolving fundamentals of crypto trading make it difficult to see the correlation, and it’s nearly impossible to prove the motives of market participants.

BTC price for Binance vs. USDT injections in Binance, May 2020. Source: NTerminal

BTC price for Binance vs. USDT injections in Binance, January 2021. Source: NTerminal

There is no suspicious pattern in Tether’s liquidation other than the lack of trading venues in the US and EU. Major liquidity exchanges in countries with liberal digital asset laws are involved in the launch of Tether. This also confirms the previous observation: tether issuers are more interested in liquidating freshly minted tethers quickly at a good price than manipulating the financial markets.

USDT dumped into exchanges (TRON, Ethereum, Omni Blockchain). Source: NTerminal

Legal problems

In connection with USDT trading venues, security and fraud issues peaks are mentioned compared to trading exchanges that do not offer USDT trading. Source: NTerminal


Tether is also actively used in the gaming industry. Several online gambling websites in China used Tether for their large cross-border transfers and money laundering. In the first nine months of 2020, Chinese authorities cracked down on 1,700 online gambling platforms and 1,400 underground banks that processed over $ 153 billion for criminal organizations involved in illegal online gambling.

Drug trafficking

In October 2020, the DoJ unsealed a document claiming a drug cartel that has been laundering money for 12 years tried to bribe US officials and buy US passports using Tether.

Capital controls evasion

Tether is pegged to the US dollar, which provides a way to bypass sanctions and capital controls (a maximum of USD 50,000 in yuan, which is converted into a foreign currency in China per year) and to eliminate volatility risks. Up to USD 30 million per day are traded by Chinese importers in Russia at the Moscow OTC trading counter. Tether (which maintains parity with the US dollar) is bought in bulk and shipped back to China, where tight capital controls are in place. According to the head of OTC trading at Huobi Russia, Chinese customers come with cash, the prices on the exchanges are recorded, and the customer’s USDT money is sent to his wallet address in China. Back in China, the USDT can easily be converted back into Fiat (Huobi and OKEx offer OTC trading desks). Such trades partly explain why there is a huge daily USDT trading volume that often exceeds supply.

Loss of deposit funds

Number of court records with USDT mentions compared to those with USDC mentions. Source: NTerminal

One of the third party payment processors Tether used was a Panamanian company called Crypto Capital Corp. Tether established a business relationship back in 2014. By 2018, more than USD 1 billion in customer and corporate funds had been mixed with Crypto Capital.

As stated by Bitfinex and Tether, no written agreement has been signed between Crypto Capital and Tether. By 2018, Bitfinex was already having problems fulfilling customer requests to withdraw funds from the platforms because Crypto Capital was unable to process them. Despite these issues, the exchange claimed that the withdrawals were being processed as usual.

According to the records provided by respondents, a Bitfinex executive was told by someone at Crypto Capital that $ 851 million could not be returned because the funds were seized by government agencies in Portugal, Poland and the United States.

Bitfinex never disclosed this loss of funds. Instead, Bitfinex and Tether (with the same executives in both companies) agreed on a transaction from Tether to Bitfinex to cover the losses (no repayment details were given during the meeting), which raised questions about conflicts of interest.

The New York Attorney General’s investigation into Tether is nearing completion. USDT associates are most likely to face heavy fines and will need to change their business practices to avoid further prosecution. The likelihood that the New York attorney general will find nothing questionable in the 2.5 million documents that Tether had to hand over to them is, in our opinion, extremely small.

KYC / AML obstacles

Deployed KYC / AML tools struggle to keep up with millions of transactions per day. Most of the tether use is seen in poorly regulated markets with little to no surveillance. To further complicate matters, Tether uses other blockchains besides Ethereum, including Omni, Tron, Algorand, Solana, EOS, OMG, and Liquid Networks.

USDT transfers between exchanges on the Ethereum blockchain from November 20th to December 21st. Source: NTerminal

The diagram below shows that USDT is already deeply integrated into the TRON network via transfers between major exchanges.

USDT transfers between exchanges on the TRON blockchain from November 20th to December 21st. Source: NTerminal

USDT transfers between exchanges on the EOS blockchain from August 20th to December 21st. Source: NTerminal


Tether is gradually becoming a threat to Fiat as a value transfer mechanism. Central banks’ inability to introduce a viable alternative to USDT in the crypto market led to their overwhelming marker dominance. There is significant evidence that money laundering is taking place in USDT. Using USDT for massive cross-border transfers is preferable to other coins like BTC because the price is stable. Tether does not require a centralized KYC for people using USDT as there is no reliable method of identifying money launderer from traders without obtaining data from exchanges with USDT.

The years of prosperity for Tether led to new resilience mechanisms. Tether is already used today in five independent blockchains, which often dominate the transactions in the chain and in some cases lead to network congestion. Current blockchain forensics and market surveillance tools are unable to provide an acceptable level of KYC / AML efficiency. These tools do not identify money laundering as an activity beyond assigning mixers to that type of activity. This is a naive view of money laundering in crypto markets that significantly undervalues ​​this activity, as evidenced by Chainalysis’ 0.34% value for illegal activity.

Finding tether issuers requires significant international law enforcement and engineering efforts. However, such an attack will only lead market participants to stable coin alternatives that are even more resistant to assertion. Any attempt to reduce the crypto market’s dependence on USDT must be accompanied by a viable alternative in the form of a CBDC.

Also published at https://inca.digital/intelligence/tether/

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