Rise of Crypto Tether Has US Worried

With $190 billion of tether changing hands daily, it has not only become a leading cryptocurrency but also become a clandestine payment system for the underworld — undermining U.S. sanctions and law enforcement, The Wall Street Journal reports.

Controlled by Tether Holdings, a private company in the British Virgin Islands, tether trades 1:1 to the U.S. dollar and is known as USDT.

It’s become so popular and standardized that nearly as much money flowed through tether’s network last year as did via Visa credit cards. In 2023, it earned $6.2 billion in profits, outpacing the world’s biggest asset manager, BlackRock, by $700 million.

Tether is purchased electronically by trading firms and some individuals with real-world dollars in exchange for virtual tether tokens. The funds are invested primarily in U.S. Treasuries to back the coins.

The problem is that illicit players — including Russian oligarchs, money launderers, terrorists such Hamas — are turning to tether rather than the U.S. dollar since it enables them to easily evade the law.

On top of this, a vast amount of tether is exchanged on a secondary, unpoliced and untraceable cryptocurrency market of digital wallets.

Although Tether declined to comment for the article, the company said in May it cooperates with law enforcement and was upgrading its systems so that none of its 300 million users could use it to evade sanctions. Tether also said it has frozen digital wallets.

Tether’s success rate of tracking bad actors appears to be abysmal, for between 2018 and June 2024, Tether blacklisted $153 billion in 2,713 wallets but could only freeze $1.4 billion currently in hand, according to ChainArgos, a cryptocurrency data provider.

Tether first got on the map during crypto’s bull run in 2020-2021, increasing its market capitalization from $4 billion to $80 billion.

Venezuela also drove interest in 2020 when the United States sanctioned its state oil firm, Petroleas de Venezuela (PdVSA) and President Nicolas Madura passed a law that authorized the government to demand payment for oil in tether.

Unfortunately for Venezuela, the secrecy of the tether network worked against it, because the crypto middleman the country had selected for the tether trades diverted funds to themselves.

With demand for money laundering on the black market so high, however, other players, including Russia, have been undeterred by the risks. Tether is one of Russia’s most popular mediums to convert rubles into foreign currencies.

Tether has also become a go-to currency for Venezuelans looking to protect themselves from 2 million percent inflation, and for Russia’s elite. Many of these individuals find sellers, and, when needed, buyers, on popular social media platforms like Telegram. The exchange of cash is conducted in clandestine locations.

However, even startups are now starting to use tether, giving it legitimacy, especially in emerging markets.

Tether CEO Paolo Ardoino visited Tbilisi, Georgia, in 2023 to meet with government officials to offer to help the local crypto economy with a $25 million investment in startups.

The main recipient of Tether’s investment, CityPay.io, now has advertising signs throughout the country reading, “Pay with USDT. Everything. Everywhere.”