New Chainalysis Report Explores the Secret World Behind Tether

Chainalysis Report on Tether (USDT)

Chainalysis recently released a report on Tether, the controversial stablecoin company that offers a USD-backed digital token. The report offers an overall positive look at Tether, including the factors driving its growth and what financial institutions can learn from it.

Tether excitedly shared the report on its blog this past week. You can view Tether’s blog post here or the Chainalysis report here in PDF format.

The report was titled, “What is Driving Tether’s Growth and What Financial Institutions Could Learn From It.”

In the report, Chainalysis theorizes that Tether has experienced strong growth due to its “bank-like properties” while playing a fundamental role in providing liquidity and accessibility within the crypto ecosystem.

Some of the key benefits of Tether, according to the report, include:

  • It provides a way for users to “store their funds in a stable and safe manner on-chain” across 30 different exchanges
  • It gives users “stable, low-cost, widely integrated and instantaneous transactions within the ecosystem”
  • It “boosts industry-wide liquidity by providing a platform of support for exchanges, traders and innovative projects in the space

Obviously, Tether has also attracted plenty of criticism. The company has a questionable history of audits and it’s unclear if they currently have the USD reserves necessary to back each USD Tether (USDT) token 1:1. Earlier this year, Tether released a report that they had sufficient cash reserves at one point, but it’s unclear if they still have sufficient cash reserves.

Today, Tether has a market cap of around $3 billion and represents approximately 15% to 20% of all daily crypto trading volume.

Chainalysis, meanwhile, is a legitimate blockchain analysis company founded in 2014. The company is a vendor for the FBI and ICE. Chainalysis has helped law enforcement track criminal activity on blockchain networks.

The fact that Chainalysis released a report on Tether is a big deal. It gives added legitimacy to Tether amidst its seemingly-never-ending scrutiny. Let’s take a closer look at some of the things revealed in the latest report.

What Did Chainalysis Find in Their Report?

The 12 page Chainalysis report on Tether goes into detail about the company and its growth over the last few years. Here are some of the key findings from the latest report:

  • Tether’s activity has grown exponentially over the past 12 months and has experienced notable gains throughout 2018 as other cryptocurrencies have experienced declines amidst the bear market
  • Tether serves as a cryptocurrency bank for traders by allowing individuals to store cryptocurrencies at a stable value on nearly 30 exchanges, although activity “is highly concentrated on fewer than 10 exchanges.”
  • Chainalysis mentions that Bitfinex is one of these “highly concentrated” Tether exchanges; after issuance, all Tether passes through the Bitfinex trading platform, which is Tether’s only client, and 80% of newly issued Tether then moves to seven exchanges
  • Tether is almost exclusively used for trading; 73% of all Tether on-chain transaction volume goes to exchanges, with 27% being sent from exchanges, which suggests that most Tether is used for trading
  • Tether’s activity has changed significantly over the past 12 months as the currency moves away from being traded against bitcoin and Ethereum and “increasingly towards low-volume cryptocurrencies and, at times, pump and dump schemes”
  • Chainalysis’s analysis found that through January 2018, Tether’s on-chain transaction volume was highly correlated with BTC, ETH, and LTC transaction volumes (nearly 75% correlation), which implies individuals were making bets on these top cryptocurrencies; since early 2018, however, Tether transaction volumes have been more correlated with newer, less established cryptocurrencies like EOS, NEO, and Decred
  • “Analysis of Tether trading pairs reveals Tether is being used for pump and dump activity,” explains the report. “The share of Tether trading volume going to low-volume cryptocurrency pairs has grown from 6% in November 2017 to nearly 20% by April 2018.”

Does Tether Facilitate Illicit Activity?

Much of the Chainalysis report explores the link between Tether and illicit activity.

In their blog post responding to the report, Tether claims that Tether doesn’t facilitate illicit activity: the currency is just so usable and convenient that it will inevitably be used for illicit activity. Here’s how they responded:

“It is irresponsible to suggest that Tether enables illicit activity due to its efficiency and wide-scale applicability within the cryptocurrency ecosystem. Tether does not enable illicit price manipulation of low cap assets or pump and dumps any more than any other asset, digital or otherwise.”

Tether Doesn’t Generate Artificial Growth

Tether has also been criticized for generating artificial growth within the crypto community. The claim is that Tether will “print” new USDT tokens to prop up crypto markets. Tether, in their response to the Chainalysis report, also disputes this fact:

“Tether plays a fundamental role in the success of numerous exchanges around the world, all of which have experienced immense growth in user numbers and trading volumes. It is this monumental economic activity that drives demand for Tether, not the other way around.”

Tether goes on to explain that Tether simply responds to demand: They don’t create it:.

“Tether’s association with volatile assets comes from its efficiency in what it does; it’s a low cost, instant digital asset, which explains its growing use case. Pump and dumps have been pervasive throughout legacy financial markets, cryptocurrency markets, and anything else with value that fluctuates. To make claims that Tether is a vehicle that enables pump and dump schemes to exist overlooks the history of such schemes.”

Tether Disputes Idea that It’s a Central Bank for Crypto

The Chainalysis report also mentions that Tether has “bank-like properties” and acts like a “cryptocurrency bank” for traders:

“Tether serves as a cryptocurrency bank for traders by allowing individuals to store cryptocurrencies at a stable value no nearly 30 exchanges, although activity is highly concentrated on fewer than 10 exchanges.”

Tether disputes this claim. They feel that Chainalysis has “been somewhat misunderstood” by labeling Tether has having bank-like features.

“Tether does not purport to be a central bank, and it is false to suggest that Tether is like a central bank for a number of reasons,” explains Tether in their response.

Tether mentions that they don’t represent a country or oversee a banking system, for example. They also claim that they don’t have control over monetary policy: USDT is dictated by consumer demand, not centralized decision-making. Tether also doesn’t set interest rates, nor does it oversee a banking sector.

For all of these reasons, Tether feels that it can act as a private company without abiding by laws that would otherwise pertain to banks.

Chainalysis Did Not Audit Tether

It’s important to note that Chainalysis didn’t launch their report to audit Tether. Instead, the report focuses exclusively on Tether’s growth as a company, including how Tether’s usage has changed over the years.

The word “audit” isn’t mentioned once in the twelve page report.

Nevertheless, the fact that Chainalysis analyzed Tether is a big win for the stablecoin company.


Tether thanks Chainalysis for “producing an insightful and objective report based on hard data.” The report gives further information about Tether and its rise to prominence, although some questions remain to be answered.

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