The Shadow Dollar That Feeds the Financial Underworld

An anonymous reader shares a report: A giant unregulated currency is undermining America’s fight against arms dealers, sanctions-breakers and fraudsters. Last year, nearly as much money flowed through its network as Visa cards. And it recently made more profits than BlackRock, with a tiny fraction of its workforce. Its name: Tether. The cryptocurrency has become a vital cog in the global financial system, with as much as $190 billion changing hands every day. Essentially, Tether is a digital US dollar, though it’s privately controlled in the British Virgin Islands by a secretive group of owners, with its activities largely hidden from governments.

Tether, known as a stablecoin because of its 1:1 peg to the dollar, saw early adoption among crypto enthusiasts. But it has spread deep into the financial underworld, enabling a parallel economy that operates beyond the reach of U.S. law enforcement. Wherever the U.S. government has restricted access to the dollar system—Iran, Venezuela, Russia—Tether has flourished as a kind of incognito dollar used to move money across borders. Russian oligarchs and arms dealers funnel Tether abroad to buy properties and pay suppliers for sanctioned goods. Venezuela’s sanctioned state oil company receives payment in Tether for shipments. Drug cartels, fraud rings, and terrorist groups like Hamas use it to launder revenue.

But in dysfunctional economies like Argentina and Turkey, plagued by hyperinflation and a shortage of hard currency, tether is also a lifeline for people who use it for everyday payments and as a way to protect their savings. Tether is probably the first successful real-world product to emerge from the cryptocurrency revolution that began more than a decade ago. It has made its owners immensely wealthy. Tether has $120 billion in assets, mostly risk-free U.S. Treasuries, along with positions in bitcoin and gold. Last year, it generated $6.2 billion in profits, $700 million more than BlackRock, the world’s largest asset manager.