There's money laundering. This feels like money laundering.
This is not a whitepaper analysis. The following is purely an opinion about a cryptocurrency based on facts and some speculation. It will likely be updated.
Facts:
Tether is a company which pegs its currency to the USD.
Tether is built on the bitcoin blockchain. You can use tether just like you can use bitcoin.
Tether is not based on Proof of Work like Bitcoin. Instead it's based on Proof of Reserves. Ie they will be audited to prove they have the money to back up the coins in circulation.
While other coins are finite, because it's tracking to USD, Tether can create coins. Theoretically, the more USD people use to buy Tether, the more Tether coins are created.
Jan Ludovicus van der Veld is the CEO of Tether and the Bitfinex exchange. This connection was found with the release of the Paradise Papers. For those just joining us, those papers were leaked from multiple off shore business and tax haven accounts.
Tether recently dissolved their relationship with their auditor Friedman LLP.
Quote from Coindesk
“Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of tether, it became clear that an audit would be unattainable in a reasonable time frame."
According to archives, Friedman LLP was meant to audit Bitfinex in March 2017. However, the Bitfinex audit never materialized.
In the past month, Tether has created 400 million Tether coins equivalent to 400 million USD.
Rumors
The main thinking behind these peculiarities is that Tether has little money backing the actual volume of Tethers created.
Some have said that Tether is creating new coins when other altcoins are exchanged for Tether coins.
Very few exchanges allow you to buy Tether for USD. Bitfinex is one of those exchanges. The rumors are that when people trade USD for other cryptocurrencies on Bitfinex, they have their money converted into Tether first. That means they can create 100 Tether tokens.
100 USD -> 100 Tether -> $100 Bitcoin
Now if that relationship works in the same way, but backwards then when have a problem.
$100 Bitcoin -> 100 Tether -> 100 USD
Theoretically, they can create another 100 Tether. This means 200 Tethers are created with two transactions and the same $100.
Opinion
I have mixed feelings about using a coin that's pegged to fiat. However, given the constant up and downs of crypto, it's nice to have a safe haven of sorts. You can get your feet wet and not worry too much about risk. I understand, but it you might as well invest money in a few altcoins. At least then you'll probably make a few dollars within a few years as opposed to losing value due to USD inflation.
I can't lie. I'm piecing together this information from a variety of sources over the past year or so. I don't understand why they can't comply with their auditors. If their process is simple, no matter how detailed the audit is, you should be able to provide the required information. Personally, given the Paradise Papers connection, it's just as likely that they are using Tether and Bitfinex to funnel money. It follows the similar methods of money laundering. A drug dealer buys a sandwich shop for $100,000. After 6 months, that shop is now doing $500,000 in business.
Bitcoin managed to create billions of dollars in wealth less than a decade. Other cryptocurrencies, such as Tether, have followed similar patterns. In less than a year, Tether has a market cap of more than 2 billion dollars. That will explain the money you have in a few offshore accounts.
This can play out in a multitude of ways, but given the people involved and their history, it doesn't look good. They either don't have the money, or cant tell you where they got it from.