Tether's Decade-Long Gamble: How Did It Evolve from a "Stablecoin" to the "Shadow Central Bank" of the Crypto World?

Author: BlockWeeks

What underpins the $2.6 trillion crypto market’s liquidity is not the sovereign credit of any nation, but a private company that shifted its headquarters from Hong Kong to Switzerland and finally landed in El Salvador—Tether. Its USDT dollar stablecoin commands over 70% of the market share. Over the past decade, Tether has expanded amid crises and doubts, and now it is trying to define the industry’s boundaries with its profits.

But a recent “weak” rating from S&P Global once again reveals the core contradiction of this grand experiment: A monetary tool designed to be “stable” has itself become the system’s greatest risk point.

It’s like an elephant dancing on a tightrope, its base made up of hundreds of billions in US treasuries, yet its steps venture into AI, brain-computer interfaces, and Argentine farmland. — BlockWeeks editorial team’s assessment.

Part I: Chronicle of Crisis—The Fragile Foundation of Trust

Tether’s history is a cycle of constant skepticism countered by even greater scale. Each crisis was once seen as its “endgame,” yet each time it emerged stronger, consolidating its position.

• 2017: “Hacker” Prelude and “Money Printing” Suspicion. On the eve of the crypto bull run, Tether claimed to have been hacked, with $31 million in USDT stolen. It immediately exercised centralized authority—hard forking to freeze assets. This event revealed two critical facts: Tether has life-and-death control over on-chain assets; the outside world has no idea if it actually holds sufficient dollar reserves. That same year, academic studies first statistically linked USDT issuance to rising Bitcoin prices, sowing the seeds for the “conspiracy theory” that “Tether prints money out of thin air to pump the market.”
• 2019: New York’s “Smoking Gun” and $850 Million Hole. This was Tether’s darkest hour in terms of trust. The New York Attorney General’s Office (NYAG) investigation revealed cracks beneath Tether’s polished surface: its parent company iFinex had appropriated at least $700 million in user reserves to cover losses at its affiliated exchange Bitfinex after payment processor Crypto Capital’s funds were frozen. The investigation confirmed that at the time, USDT was backed by only about 74% in cash or equivalents, rather than the claimed “1:1.” In 2021, Tether settled for $18.5 million and agreed to cease operations in New York. “While not admitting wrongdoing, fraud allegations moved from market rumor to judicial record.”
• 2021: “Commercial Paper” Mystery and Regulatory Crackdown. As its market cap soared into the tens of billions, one question became pressing: Where’s the money? Tether disclosed it held a large amount of commercial paper (CP), enough to make it one of the world’s largest holders. The market panicked, suspecting Tether was exposed to risky short-term debt like that of Evergrande. The US Commodity Futures Trading Commission (CFTC) then fined Tether $41 million for “making false or misleading statements about its reserves.” Under pressure, Tether cleared out all commercial paper in 2022, shifting to more transparent US treasuries.
• 2022: Market Turmoil and “Brief Depegging.” In May 2022, during the Terra/UST collapse and its contagion effect, Tether briefly lost its dollar peg on some exchanges (trading as low as $0.95 or less), accompanied by massive redemptions and volatility. Although USDT eventually restabilized, the event showed that even “mainstream” reserve-backed stablecoins can experience short-term market dislocations under extreme stress.

“Reviewing this history, you’ll see Tether’s ‘transparency improvements’ were forced by crisis and regulatory litigation.” BlockWeeks analysis notes, “Each time it was pulled back from the edge, only to become bigger. This forged its unique risk culture: extremely averse to external audits, but extremely adept at surviving in regulatory gray zones.”

Part II: Dangerous Metamorphosis—From “Stable” to “Aggressive”

If past crises were about “Are the reserves enough?”, current concerns have shifted to “What are the reserves?” and “Where do the profits go?” Tether is undergoing a dangerous strategic transformation: from a conservative monetary custodian, it is morphing into an aggressive crypto-era ‘financial oligarch.’

1. Balance Sheet Overhaul: When Stablecoins Fall in Love with Bitcoin and Gold

According to its latest third-party attestation (from BDO Italia), Tether’s reserve composition has fundamentally shifted:

• Foundation: About $135 billion in US Treasuries, making it the 17th largest holder globally, surpassing most countries.
• Controversy: Over $12.9 billion in gold and nearly $10 billion in bitcoin. This makes it one of the largest “public company” bitcoin holders.

This is the main reason S&P Global downgraded its stablecoin rating to “weak” (score of 5) in November 2025. S&P pointed out that while Tether reports around $6.8 billion in “excess reserves,” if bitcoin, gold, and other high-risk assets fell 30% in price, this safety cushion would be instantly wiped out, potentially pushing collateralization below 100% again.

2. Tether Evo: Betting Stablecoin Profits on the Future

Tether is no longer content with earning interest spreads. It is leveraging annualized profits in the billions to fund an aggressive investment initiative called “Tether Evo,” with a portfolio that reads like a “future tech wishlist”:

• Brain-Computer Interfaces: Majority owner of Blackrock Neurotech ($200 million), competing with Neuralink.
• AI Computing Power: Major investment in Germany’s Northern Data, with a commitment to purchase $150 million in GPUs.
• Real Assets: Bid $600 million to acquire a fertilizer subsidiary of Argentine agricultural giant Adecoagro, tapping into Latin America’s agricultural lifeline.
• Commodity Trading: Quietly entered the oil trade financing sector.

This goes far beyond the narrative of any traditional financial institution. Using “seigniorage”-like low-cost capital, it is directly making the highest-risk, longest-term equity investments. This blurs the line between the “user reserve safety net” and “company venture capital.”

3. Moving Headquarters to El Salvador: Ultimate Regulatory Arbitrage

In early 2025, Tether moved its headquarters to El Salvador, which has adopted bitcoin as legal tender. This move is widely interpreted as a “strategic retreat” in the face of the EU’s Markets in Crypto-Assets Regulation (MiCA) and increasingly strict US legislation.

El Salvador will not require PCAOB-standard (US Public Company Accounting Oversight Board) audits. BlockWeeks sees this as classic regulatory arbitrage—leveraging a sovereign nation’s leniency to counteract mainstream legal jurisdictions. The price: Tether is now even further from “mainstream financial recognition.”

Part III: Systemic Paradox—“Too Big to Fail” and “Too Risky to Probe”

Tether is now deeply embedded in the crypto world’s financial capillaries. Its survival is no longer a company issue but a systemic one.

Its resilience comes from a paradox:

1. Terrifying Profitability: In a high-interest environment, hundreds of billions in US Treasuries generate billions in annualized risk-free returns, providing a massive capital buffer.
2. “Too Big to Fail” Network Effect: Nearly all major exchanges’ liquidity is built on USDT. If it collapses, over 80% of the market’s liquidity would instantly evaporate. Giants like Binance and OKX would have every incentive to provide joint liquidity support in a crisis—not out of charity, but survival instinct.
3. Stress Test Track Record: During the FTX collapse, Tether processed over $16 billion in redemptions within 48 hours without losing its peg, serving as its most compelling credibility ad.

But its fatal risks are just as clear:

1. Custody Risk—America’s “Nuclear Option”: Tether’s Achilles’ heel is not lack of funds, but that those funds could be frozen. Its US Treasuries are held by Wall Street firms like Cantor Fitzgerald. If the US Department of Justice brings criminal charges (e.g., anti-money laundering or sanctions violations, as in recent Huione-related investigations) and freezes these accounts, USDT would instantly go to zero.
2. Asset-Liability Mismatch: Using short-term, instantly redeemable stablecoin liabilities to invest in long-term, illiquid equity and physical assets. In traditional finance, this is the classic recipe for crisis.
3. Audit “Rashomon”: Ten years on, Tether still provides only “attestation reports,” not “audit reports” up to global public company standards. The former only checks assets at a single point in time; the latter requires assessment of internal controls, asset quality, and going concern. It’s like showing you a balance sheet screenshot without letting you see transaction flows or contracts.

Conclusion and Outlook: The Perpetual Tightrope Dance

Tether’s story is the ultimate manifestation of crypto’s internal contradictions: A decentralized ecosystem whose lifeline is tied to an extremely centralized, opaque entity.

It has evolved from a mere “digital dollar token” into a crypto super-hybrid—part central bank (currency issuance), part commercial bank (credit creation), part sovereign wealth fund (strategic investments), and part hedge fund (high-risk asset allocation).

In the short term, thanks to its deep profitability and network effects, the likelihood of a self-induced collapse from “insufficient reserves” has diminished. The real “black swan” lies externally, especially at the intersection of geopolitics and regulation. The attitude of US authorities will be the key indicator: as long as its US Treasury custody accounts remain safe, Tether is still crypto’s de facto “Federal Reserve”; if that privilege is revoked, it will trigger the industry’s harshest winter.

For millions of users, Tether offers unparalleled convenience, and has itself become a form of infrastructure risk. Diversifying risk (using multiple stablecoins), watching price spreads (secondary market USDT/USD rates are a real-time confidence barometer), and understanding its non-bank nature are essential survival skills in this era.

The Tether bet continues. The wager is that before the Damocles’ sword of global regulation falls, the vast ecosystem it’s building with its profits will be able to self-sustain. This dance remains as perilous as ever.