A giant unregulated currency is undermining America’s fight against arms dealers, sanctions busters and scammers. Almost as much money flowed through its network in 2024 as through Visa cards. And it has recently minted more profit than BlackRock, with a tiny fraction of the workforce. Its name: tether. The cryptocurrency has grown into an important cog in the global financial system, with as much as $190 billion changing hands daily. In essence, tether is a digital U.S. dollar—though one privately controlled in the British Virgin Islands by a secretive crew of owners, with its activities largely hidden from governments.  Known as a stablecoin for its 1:1 peg to the dollar, tether gained early use among crypto aficionados. 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 financial system—Iran, Venezuela, Russia—tether thrives as a sort of incognito dollar used to move money across borders.

Russian oligarchs and weapons dealers shuttle tether abroad to buy property and pay suppliers for sanctioned goods. Venezuela’s sanctioned state oil firm takes payment in tether for cargoes. Drug cartels, fraud rings and terrorist groups such as Hamas use it to launder income. Yet in dysfunctional economies such as Argentina and Turkey, beset by hyperinflation and a shortage of hard currency, tether is also a lifeline for people who use it for quotidian payments and as a way to protect their savings.

Tether is arguably the first successful real-world product to emerge from the cryptocurrency revolution that began over a decade ago. It has made its owners immensely rich. Tether has $120 billion in assets, mostly risk-free U.S. Treasury bills, along with positions in bitcoin and gold. Last year it generated $6.2 billion in profit, out-earning BlackRock, the world’s largest asset manager, by $700 million.

The company behind tether, Tether Holdings, issues the virtual coins to a select group of direct customers, mostly trading firms, who wire real-world dollars in exchange. Tether uses those dollars to purchase assets, mostly U.S. Treasurys, that back the coin’s value. Once in the wider market, tether can be traded for other tokens or traditional currencies through exchanges and local brokerages. In Iran, for example, a crypto exchange called TetherLand allows Iranians to swap rials into tether. Tether vets the identities of its direct customers, but much of its vast secondary market goes unpoliced. The tokens can be pinged near-instantaneously along chains of digital wallets to obfuscate the source. A United Nations report in January 2024 said tether was “a preferred choice” for Southeast Asian money launderers. 

The company says it can track every transaction on public blockchain ledgers and can seize and destroy tether held in any wallet. But freezing wallets is a game of Whac-A-Mole. Between 2018 and this June, Tether blacklisted 2,713 wallets on its two most popular blockchains that had received a total of about $153 billion, according to crypto data provider ChainArgos. Of that massive sum, Tether could only freeze $1.4 billion because the rest of the funds had already been sent on.

Excerpts from Angus Berwick & Ben Foldy, The Shadow Dollar That’s Fueling the Financial Underworld, WSJ, Sept. 10, 2024