Unveiling the History of Tether: Undercurrents and Manipulation Techniques in the Crypto Market

Author: Rukawa Kaede

Compiled by: Lyric, ChainCatcher

This article is organized from Zeke Faux's book "Number Go Up." Zeke Faux, driven by a strong interest in cryptocurrency, began to delve into and investigate Tether (USDT), ultimately writing this book, which reveals in detail the manipulation behind Tether and its impact on the cryptocurrency market.

This compilation organizes the original text, mainly involving Giancarlo Devasini's manipulation of the Tether stablecoin USDT in the rise of the global cryptocurrency market. Although Tether initially promised a 1:1 dollar reserve backing, it has frequently faced regulatory scrutiny due to opaque fund flows, frequent issuance, and experiences with hacking incidents and mysterious fund operations, especially becoming a tool for illegal fund transfers in Southeast Asia. Nevertheless, he continues to promote projects like Bitcoin bond plans to expand the business landscape.

The Origin and Development of Tether

Originally conceived by Brock Pierce and named "Real Coin," the project later teamed up with the offshore exchange Bitfinex and launched Tether in 2013, focusing on a stablecoin model backed by a 1:1 dollar reserve. However, from its inception, Tether has faced skepticism regarding its operational model: in a global regulatory environment that is still developing, its fund flows and asset reserve issues remain hidden and complex. Tether not only provides critical liquidity support to exchanges but also acts as a "last resort" during extreme market volatility, yet the banking relationships and fund management behind it are filled with questions.

Giancarlo Devasini: From Plastic Surgery to Crypto Tycoon

The core figure of Tether, Giancarlo Devasini, has a tumultuous personal history. Born in 1964 in Turin, Italy, Devasini initially worked in plastic surgery before transitioning to the import of electronic products and software resale, even involving himself in the trade of pirated software. Reportedly, he quickly rose in the business world due to his adventurous spirit and unconventional management methods, amassing a net worth of approximately $9.2 billion, surpassing the wealth of executives at well-known luxury car companies.

Bitcoin: A Peer-to-Peer Electronic Cash System www.bitcoin.org

After encountering the Bitcoin white paper, Devasini saw the enormous potential of the crypto world, subsequently investing in Bitfinex and gradually getting involved in Tether's business. Ultimately, through acquisitions and strategic positioning, he gained control of about 40% of Tether's shares. His background and operational methods laid the groundwork for Tether's business model and risk control.

Operating in the Storm: Hackers, Banking Crises, and Fund Mysteries

In 2016, Bitfinex suffered the largest hacking attack in history, with approximately 119,000 bitcoins stolen, resulting in massive asset losses. In response to the crisis, Bitfinex implemented a 36% uniform account deduction measure and issued debt tokens BFX to compensate users for their losses. Investigations indicated that the complex fund flows between Tether and Bitfinex raised further questions about USDT's true reserve capabilities.

At the same time, Tether faced severe challenges in fund management. In 2017, the company deposited funds in several banks in regions like Taiwan, but due to intermediary banks' concerns about crypto businesses, many banks subsequently terminated their cooperation, leading to funds being stuck. Even when bank accounts were frozen and fund flows obstructed, Tether still issued a large amount of USDT on the Bitcoin Omni Layer, further raising market doubts about the authenticity of its 1:1 reserves.

Court documents and regulatory investigations revealed that Tether itself had admitted to being unable to use the traditional banking system normally. The hidden fund operation model behind it resembled a "wealth game," using arbitrarily issued USDT for large-scale asset allocation in the market, thereby manipulating Bitcoin prices to some extent.

Regulatory Investigations and Reserve Fund Controversies

In 2019, the New York Attorney General discovered a significant amount of fund complement operations between Bitfinex and Tether while investigating their financial interactions. Bitfinex had quietly misappropriated Tether's reserves due to a client withdrawal gap, and Tether's official website subsequently removed the promise of "1:1 dollar reserve support."

The changes on Tether's website at that time raised new concerns about the company's reserve policy.

Subsequently, Tether reached settlements and fines with both the New York state and the Commodity Futures Trading Commission, paying $18.5 million and $42.5 million, respectively, highlighting that its operational model always skirted the edges of regulation.

Additionally, reports indicated that Tether had stored about a quarter of its funds (approximately $15 billion) at Deltec Bank, and it was claimed that it also held up to $113 billion in U.S. Treasury bonds. This series of operations not only provided Tether with flexibility in fund allocation but also positioned it uniquely within the global financial system.

Southeast Asian Market and Global Fund Flows

Globally, USDT has become the settlement basis for many trading platforms and DeFi protocols. Investigations revealed that in Southeast Asia, USDT is widely used for illegal activities such as money laundering, fraud, drug trafficking, and even human trafficking, with its convenient cross-border transfer characteristics providing low-barrier tools for criminals to evade regulation. In the Taiwan market, the trading pair of USDT and New Taiwan Dollar (TWD) holds an absolute dominant position, demonstrating the irreplaceable status of stablecoins in global cryptocurrency trading.

At the same time, despite multiple bankruptcy incidents in the crypto space, such as FTX, Celsius, and BlockFi, USDT has maintained strong market liquidity and demand, solidifying its core position in the entire cryptocurrency ecosystem.

Capital Operations and Future Layout

Amidst the severe fluctuations in the crypto market, Giancarlo Devasini seems undeterred by the storm. In November 2022, he appeared in El Salvador, posing for a photo with President Nayib Bukele, and news emerged that he was planning a $1 billion "Bitcoin Bond" (Volcano Bonds) project aimed at further integrating global capital through Bitcoin assets. This move not only showcases his confidence in the market's future but also exposes Tether's commercial ambition to obtain excess returns through diversified operations.

At the same time, Tether's unique position in the global financial system and its subtle relationship with the U.S. government are gradually coming to light. On one hand, Tether provides financial support for the U.S. government to maintain the circulation of the dollar in developing countries; on the other hand, its substantial holdings of U.S. Treasury bonds are seen as important assets supporting the dollar system. It is this dual identity that allows Tether to expand its market share while also becoming a focal point of controversy and regulation.

Tether's Global Impact and Concerns

Tether and its mastermind Giancarlo Devasini play an important yet controversial role in the global cryptocurrency market. From the initial promise of a 1:1 reserve to the now complex and variable fund operation model, Tether not only challenges the boundaries of traditional financial regulation but has also, to some extent, become an "invisible driver" of the global dollar system's operation. In this high-risk, high-reward market, Devasini's presence raises the question: is he saving the entire industry, or is he merely manipulating a vast and dangerous capital game to satisfy personal greed?

In the future, how the crypto market finds a balance between regulation and innovation, and how Tether and USDT navigate this gray area, remain pressing questions for the industry and regulatory bodies to answer.

This article reflects the views of the author Rukawa Kaede and does not represent the position of ChainCatcher, nor should it be considered investment advice.