Where the digital dollar came from
In 2014 a few entrepreneurs, among them the former child actor Brock Pierce, launched a token called Realcoin, soon renamed Tether. Banks did not want to work with crypto exchanges, and moving real dollars onto them was slow and hard. Tether offered USDT, a token that lives on a blockchain, moves between exchanges in minutes and is always worth exactly one dollar, because the company supposedly holds a dollar in reserve for every token (chapter “The Dollar Nobody Has Seen”).
“Supposedly” is the right word. The Commodity Futures Trading Commission later found that from June to September 2017 Tether’s reserve never exceeded 61.5 million dollars, while at one point 442 million tokens were in circulation. The digital dollar was backed by real dollars at about fourteen cents (same chapter). What happens to such a token when holders ask for their dollars back is shown in the experiment “Fourteen cents on the dollar”.
Fines and profits
In February 2021 Tether and Bitfinex, without admitting wrongdoing, paid New York State 18.5 million dollars and agreed to publish what their reserves consisted of. The state’s attorney general, Letitia James, said Tether’s claims that its currency was always fully backed by US dollars were a lie. In October the Commodity Futures Trading Commission added a 41 million dollar fine (same chapter).
For a company that prints money, that was small change. In 2024 Tether made more than 13 billion dollars in net profit with about a hundred employees. It invests customers’ money in US Treasury bonds, gold and bitcoin and keeps the interest. It has never had a full audit from one of the four largest audit firms (same chapter). A movement that set out to free money from the dollar grew one of the largest private buyers of American government debt.
Who really needs them
Between mid-2023 and mid-2024 more than sixty percent of all crypto transactions in Argentina were in stablecoins. Argentines do what their grandmothers did with cash dollars, only with an app instead of a money changer (chapter “Dollars for Those Who Have None”). In the year from spring 2023 Turks bought about 38 billion dollars of stablecoins, more than four percent of the country’s entire output. In Nigeria stablecoins made up about forty percent of the crypto market, and in Caracas prices are often counted in “Binance dollars” (same chapter).
The second real use is remittances. A migrant sending 200 dollars home pays intermediaries 6.5 percent on average, according to the World Bank, and almost nine percent when sending to Africa. A stablecoin transfer takes minutes and costs cents (same chapter). Millions of people in countries with bad money got access to good money. But Satoshi did not invent that good money; it is the US dollar, and the blockchain is its envelope (same chapter).
The other side
USDT is issued by a private company, and it can freeze any wallet at any moment. That is exactly what it does when the American government asks (same chapter). The savings of an Argentine or a Nigerian sit in money issued by a company based in El Salvador, and the last word on that money belongs to the US Department of Justice.
The same properties that honest people value in a stablecoin are valued by fraudsters. Victims of pig butchering almost always pay in crypto, most often USDT, because the transfer cannot be reversed and a real bank would ask questions (chapter “Pig Butchering”). More on that scheme in the answer “What is pig butchering”.
