How Does Tether Make Money? Analyzing Its Business Model

Executive Summary:

Tether is a cryptocurrency that is pegged to a given fiat currency, for example, the USD, as well as physical assets such as gold.

Tether makes money from various fees, by issuing loans to other institutions, as well as through investments.

What Is Tether?

Tether is a type of cryptocurrency that is pegged to a given fiat currency as well as physical assets such as gold.

These cryptocurrencies are known as stablecoins. Tether’s best-known stablecoin is USDT (short for (United States Dollar Tether). Other stablecoins are pegged to the Euro (EURT), Chinese Yen (CNHT), and gold (XAUT).

Consequently, Tether holds the equivalent amount of to the given cryptocurrencies in reserve. For example, there is currently close to $80 billion in USDT in circulation, which means Tether holds the equivalent amount in its reserves. As a result, each USDT is redeemable for a corresponding U.S. dollar that is held by the company.

Stablecoins, such as Tether, are primarily used for trading purposes on cryptocurrency exchanges. Tether itself is available on almost every well-known exchange including Coinbase, Binance, FTX, Kraken, Kucoin, and dozens more.

Additionally, the company also offers a solution for merchants that enables them to accept customer payments for their products and services.

Tether itself can be traded across a variety of blockchains. It began as a ledger on the Bitcoin blockchain (vis-a-vis the Omni Layer) but has since expanded into other chains such as Ethereum (ETH), Tron (TRX), Solana (SOL), and many more.

Tether Company History

Tether, which is currently headquartered in Hong Kong, was founded in 2014 by Brock Pierce, Reeve Collins, and Craig Sellars.

Certainly, the most illustrious of the three is Pierce who, as a child, appeared in a variety of Disney movies such as The Mighty Ducks, Little Big League, or Three Wishes.

In 1997, at age 17, he decided to retire from acting and instead take advantage of the dot-com boom by founding media company Digital Entertainment Network (DEN).

Despite raising $88 million in venture funding, the company ultimately shut down in June 2000. Pierce resigned in late 1999 after fellow co-founder Marc Collins-Rector was accused of sexually abusing a child, which required DEN to withdraw its IPO.

Throughout the coming years, Pierce founded and ran Internet Gaming Entertainment (IGE), a gaming company that focused on MMORPG currency-selling. In 2006, he even took funding from Breitbart News founder and former White House Chief Strategist Steve Bannon.

At the beginning of the 2010s, he discovered the Bitcoin whitepaper, which prompted him to commit a significant amount of money to the cryptocurrency (those investments are now believed to have made him a billionaire).

His fortunate investment also led him to launch Blockchain Capital (BCC), a venture capital firm focused on investing in cryptocurrency-related projects, in 2013.

Around the same time, together with programmer Craig Sellars, he also came up with the idea for a stablecoin. They went on to recruit Reeve Collins who himself had launched various (unsuccessful) companies in the past.

To get the project off the ground, they tried to raise venture funding from a variety of entities such as Goldman Sachs and Sequoia Capital. All of them declined on the spot, in large part due to the potential legal ramifications.

While modern-day banks have a variety of laws and regulations to abide by, in particular validating the authenticity of their customer’s identity (referred to as Know Your Customer or KYC), cryptocurrencies are often considered to be a welcoming outlet for criminals.

In the case of Tether, it would validate a customer’s identity when directly selling a stablecoin to them but once the token was ‘out in the wild’ (namely traded on other blockchains), it had no chance of checking the intention behind a given transaction.

Despite the lack of institutional interest, Pierce and his team remained undeterred for the time being.

In the summer of 2014, they revealed a project dubbed Realcoin to the public. In November, they announced that the project would be renamed to Tether alongside the launch of their private beta.

However, adoption in those early days was lackluster at best. This eventually prompted the founding team to sell their ownership stake in the company in 2015. Pierce later said he even sold his shares for free.

The ownership group was comprised of the same team that was behind the cryptocurrency exchange Bitfinex. They included Phil Potter who had previously worked with the Tether team to get the stablecoin off the ground.

The other two include Giancarlo Devasini, a former plastic surgeon and electronics dealer, as well as Jean-Louis van der Velde, a Dutch national living in Hong Kong. Not much is known about the three owners since they keep an extremely low profile and mostly avoid the public limelight. In fact, Devasini was one of the key figures behind the foundation of Bitfinex, which he financed with cash that he got from early Bitcoin investments.

Over the coming two years, Tether continued to grow at a slow pace. Naturally, one of the first exchanges that it was integrated into became Bitfinex, which pushed its circulation volume to around $50 million by the beginning of 2017.

In those early days, the trio had to resort to a variety of (shady) workarounds to keep their bank accounts open. As volume on Bitfinex and thus Tether began to pick up, its banking partners began to question the legitimacy of its business.

In April 2017, Tether’s (and Bitfinex’s) banking partners in Taiwan closed their accounts after Wells Fargo cut off correspondent banking services for the Taiwanese banks as a result of their connection with Tether.

This forced the team to resort to more drastic measures, which meant relaxing their banking requirements. Soon after, they found a FinTech startup in Puerto Rico, dubbed Noble Bank International LLC, that was willing to accept Tether’s deposits.

With a new banking partner in place, Tether was able to take advantage of the crypto bull run that took place in 2017. The stabelcoin’s circulation rose from $50 million at the beginning of the year to over $1 billion by the end of it.

Unfortunately, issues also continued to pile on. In November 20017, Tether announced that a hacker managed to retrieve nearly $31 million worth of USDT from the firm’s treasury wallet. On top of that, skepticism about the firm’s dollar reserves continued to pile on. Various crypto influencers and news outlets began demanding that the company would release audited reports about its holdings and reserves.

The negative sentiment against the company was amplified after the release of the Paradise Papers, which, for the first time, revealed that Devasini, van der Velde, and Potter were indeed involved with Tether. Previously, that information was not accessible to the public, which prompted many to speculate who actually was behind the company (since the original founders had already left it two years ago).

Weeks after the hack, Tether announced that it would completely revamp its platform. However, it would take another year, until November 2018, until Tether finally allowed its customers to withdraw cash directly from the company again.  

Uncertainty regarding Tether only increased when, in late January 2018, it announced that it had dissolved its relationship with audit firm Friedman LLP. The auditor had been working on creating a detailed report about its holdings.

A few days later, various news outlets released reports that Tether had been subpoenaed by the U.S. Commodity Futures Trading Commission on December 6th, 2017. Within an hour of the news breaking, the market value of all cryptocurrencies dropped by close to $30 billion.

Internally, tensions also began to mount. Devasini and van der Velde wanted to dissolve their relationship with Noble after the former allegedly began Tether’s bank reserves to loan them out to other exchanges. Potter, on the other hand, argued that they should maintain their relationship.

In June 2018, Devasini and van der Velde bought out Potter for $300 million and terminated their relationship with Noble, which, as a result of losing its most valuable client, had to shut down not long after.

To appease the public, Devasini and van der Velde made a variety of public moves, for example hiring Leonard Real, a former anti-money laundering (AML) analyst for the Bank of Montreal, as its Chief Compliance Officer. It also burned around $300 million in USDT tokens throughout the summer to signal a more responsible ‘printing’ process.

Despite those efforts, detractors continued to attack the company. In October, CoinDesk alleged that Bitfinex was inflating the Tether trading volume data it shared with CoinMarketCap to artificially pump up demand.

In the meantime, Tether also announced that it found a new banking partner called Deltec Bank & Trust in November. Its chairman even issued a public letter that confirmed that Tether indeed held the necessary dollar equivalent in its reserves.

While all of these issues were perpetuating, Tether still managed to sign on a variety of new partners. For example, it was able to integrate its stablecoin on exchanges and platforms such as Kraken, Ledger, or Huobi Global.

In March 2019, the company yet again had to face scrutiny. Reporters discovered that Tether had changed its website and removed the “100% backed” statement. Instead, it now claimed that Tether would also be backed by additional assets:

“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.”

This ultimately led New York Attorney General (AG), Letitia James, to file a motion to further investigate the ties between Bitfinex and Tether. The New York Office of the Attorney General alleged that Bitfinex had used funds equal to $850 million from Tether to cover up losses in customer funds. These losses occurred after Bitfinex had entrusted Panamanian money-transfer service Crypto Capital Corp. with some of its funds.

Crypto Capital ultimately ended up defrauding Bitfinex, which prompted the team to source the $850 million from Tether’s funds, leaving the stablecoin partially unbacked (Bitfinex would’ve been bankrupt if it didn’t receive those funds).

In order to resolve this issue as quickly as possible, Bitfinex decided to conduct an initial exchange offering (IEO) in early May 2019. The IEO allowed it to raise $1 billion in additional capital. In the meantime, Tether’s spokespeople also announced that it only ran fractional reserves, with USDT being backed by 74 percent of fiat equivalents.

While Bitfinex’s and Tether’s lawyers quickly tried to dismiss the case (arguing that the New York Supreme Court (NYSC) does not have jurisdiction over the alleged misconduct), the public damage was already done.

Although Bitfinex managed to repay the first $100 million in early July, others were less kind to the company. On July 10th, New York-based Metropolitan Commercial Bank shut down all accounts associated with Tether.

Four days later, Tether accidentally printed $5 billion of USDT after one of its engineers made a typo mistake (wanting to initially transfer $50 million).

In the meantime, Tether’s team continued to expand its ecosystem. For example, it launched on the Algorand blockchain and Blockstream’s Liquid Network as well as unveiled a Chinese yuan-backed stablecoin in September.

The executive team also celebrated some successes in court. On September 24th, it won a motion that would allow them to not be forced to turn over documents pertaining to its relationship with Tether.   

The New York AG, however, wasn’t the only one having issues with the company. In late 2019, various frustrated traders and customers filed multiple class-action lawsuits against the company, alleging that it misused its funds without their approval and used USDT to manipulate the Bitcoin market.

Although Tether continued to be in hot waters, it also managed to keep demand for stablecoin increasing. In early 2020, the market capitalization of Tether had swelled to over $2 billion, making it by far the most in-demand stablecoin on the market. In May 2020, it even surpassed Ripple (XRP) as the third-largest cryptocurrency in the world.  

Fuelled by the exponentially increasing demand for decentralized finance (DeFi), Tether’s market capitalization increased from $2 billion at the beginning of the year to over $20 billion by the end of it. Companies like Australia-based Stax even announced that they would go public and allow customers to purchase their shares using USDT.

Sentiment further improved when, on February 5th, 2021, Bitfinex announced that it had fully repaid the $850 million it borrowed from Tether. A mere two weeks later, on February 23rd, Bitfinex and Tether finally managed to resolve their legal issues with New York Attorney General Letitia James.

As part of the settlement, Tether (and its associated entities) agreed to cease any trading activity in the state of New York. Furthermore, the company was forced to pay $18.5 million in fines and agreed to release quarterly reports regarding its funds. However, Tether admitted to no wrongdoing as part of the settlement.

With its legal issues out of the way, Tether’s team was finally able to focus on business matters once again. In March 2021, on the backbone of reaching $40 billion in market cap, it announced that Tether would be integrated on the Solana blockchain, its 8th network partner.

A few weeks later, it released its first report, which detailed that the company had over $35 billion in total assets (against a similar amount of liabilities). In the coming months, Tether managed to score additional partnerships with the likes of Polkadot (its 9th blockchain) or Coinbase.

In spite of Tether’s increased transparency, regulators continued to investigate the company. United States financial watchdogs, led by Treasury Secretary Janet Yellen, began scrutinizing Tether over the composition of its reserves, which not only included cash but also secured loans or corporate bonds.

Those concerns also led Tether to halt the printing of additional tokens, which it eventually resumed in late August. At that point, its market cap had swelled to over $65 billion. In the meantime, the judge in the class-action lawsuit filed in the Southern District of New York in late 2019 granted Tether motions to dismiss the majority of the claims filed against the company.

Unfortunately, not all of its legal battles ended that well. On October 15th, the Commodity Futures Trading Commission (CFTC) fined Tether and Bitfinex more than $42 million for making false claims about the securitization of its stablecoin.

Days later, reports emerged that infamous short-seller Hindenburg Research would offer $1 million for anyone that could help it uncover more details about Tether’s reserves. Tether’s issues, in spite of continuing to mint more stablecoins, also allowed its competitors to make up ground. In January 2022, Circle’s USD Coin managed to surpass Tether in total supply on the Ethereum network (its overall volume remains significantly smaller, though).

How Does Tether Make Money?

Tether makes money from various fees, by issuing loans to other institutions, as well as through investments.

Let’s take a closer look at each of its revenue streams in the section below.


One source of revenue for Tether comes from charging deposit or withdrawal as well as account verification fees.

The company charges $150 for every customer that wants to have their account verified. Verification is needed to deposit and withdraw cash with Tether.

Apart from its verification fee, Tether also charges deposit and withdrawal fees. Users can only transact directly with Tether if they deposit a minimum of $100,000.

For deposits, Tether charges a fee of 0.1 percent. A similar fee structure is applied to withdrawals. However, a minimum withdrawal fee of $1,000 is always applied.

That means even if a customer withdraws $200,000 (theoretically equal to a $200 fee), he or she still ends up paying $1,000.

Tether, unlike banks or other financial institutions, does not charge any fees to transfer money between accounts for example.

Instead, the fees are applied by the exchanges, such as Coinbase or FTX, it works together with. Additionally, users also have to pay the gas fees of the blockchain that they transact in.


Tether, furthermore, makes money from issuing loans to other businesses and institutions that then pay interest on those loans.  

In October 2021, for instance, Tether loaned $1 billion to Celsius Network, which is a cryptocurrency lender.

Its CEO Alex Mashinsky came out days later and confirmed that Celsius would pay between 5 to 6 percent in interest per year. Essentially, Tether would generate between $50 million to $60 million per year from that transaction alone.

Tether got under fire in September 2021 after subsequent reporting revealed that it also had lent billions of dollars to large Chinese companies, which is often avoided by money-market funds due to the greater involved risk.

Lending out cash to companies that are at risk of not being able to pay back their loans is often seen as the greatest risk to Tether’s business. If, at some point, a large number of Tether holders decide to cash out their stablecoins, then Tether needs to hold the necessary reserves to accommodate those demands.

Should a greater number of its borrowers default, then the company may be unable to meet those withdrawal requests.


Lastly, Tether also generates a small portion of revenue from investing in other businesses and participating in their growth.

In January 2021, for example, it invested $1 million into Exordium, a studio focused on blockchain game development. The investment granted it a pro-rata right to 20 percent of Exordium’s profit.

Investing in the crypto ecosystem is a strategy that is largely employed by other exchanges such as Binance or Coinbase.

Tether makes money from those investments either by participating in the firm’s profits or by selling its shares for more than they were purchased for.

However, just like its loan initiatives, this can pose a potential risk for both the company as well as its customers. If too many of Tether’s investments would fold, then the company could not fulfill withdrawal requests, which would cause its tokens to lose all their value.

Who Owns Tether?

Tether is fully owned by iFinex Inc., a Hong Kong-incorporated holding company that is also behind cryptocurrency exchange Bitfinex.

At this point, unfortunately, not much is known about the holding company and the stakes that it holds in other businesses.

The company itself is being led by the same people that are behind Tether, namely Jean-Louis van der Velde (CEO) and Giancarlo Devasini (CFO).

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.