This analysis was first published in SvD Näringsliv, in Swedish, on November 19th, 2021.

Could a single cryptocurrency cause the entire market to crash? Despite fresh all-time highs, the crypto world may be starting to wobble as Tether — a so-called stablecoin — has suddenly begun to feel unstable.

A bit player from the 1990s movie “The Mighty Ducks”. A former Italian plastic surgeon. And one of the people who came up with the cartoon TV series “Inspector Gadget”.

Together, this rather improbable trio is associated with a secretive company that administers $69 billion – more than SEK 600 billion – and keeps the entire crypto economy running. The only question is whether the money is actually still there.

The project is called Tether and is what’s known as a “stablecoin”. Unlike cryptocurrencies such as bitcoin and ether, whose prices are constantly in motion, stablecoins are meant to function as a digital substitute for ordinary currency. One (1) Tether is supposed to be backed by one (1) US dollar. You exchange your money for stablecoins, then use them to speculate and invest quickly.

The advantage of using stablecoins is that transactions are faster, cheaper – and that you can sidestep laws around tax and money laundering far more easily. Ordinary banks are hard to use for this kind of activity, since their rules and regulations often make it too risky for them to provide the services. In the shadow of that, a parallel world of crypto liquidity grows. Stablecoins become the lubricant of the entire economy, and therefore a central piece of the ecosystem.

But a stablecoin only works as long as the underlying currency is still there – that is, as long as you can swap your Tether back for dollars. And for some time, questions have been raised about whether all the money at Tether Limited actually exists – and if so, where it is. Most recently in a long Bloomberg Businessweek feature.

The journey takes them from Taiwan, via China and the French Riviera. The trail eventually leads to Deltec Bank & Trust, with offices in Nassau in the Bahamas. The bank confirms in the article that a quarter of the money sits with them, but answers cryptically that they have no knowledge of the remaining 75 percent. Where the rest of the money is remains unknown. And because Tether Limited is not registered as a bank but as an ordinary company, it does not have to disclose that information either.

This is no small actor surrounded by question marks. The amount of capital Tether Limited handles would make it one of the 50 largest banks in the United States.

The question of where the money sits is principally important because trading cryptocurrency through stablecoins is hugely popular. Over 50 percent of all bitcoin transactions are currently done with Tether, according to data firm Kaiko. On top of that, a published study from 2018 showed that an account at Bitfinex – a crypto exchange whose owners also control Tether Limited – bought bitcoin with newly issued Tether every time the bitcoin price fell, propping up the price. Plenty may have happened since then, but it is also in the nature of these transactions that they are hard to identify. There is therefore a concern that Tether is primarily an instrument for keeping the bitcoin price up for its investors.

If Tether Limited does not have full backing for its currency, a bank run could happen. That’s when everyone wants their money out at the same time and the cash isn’t enough to go around. It can happen for several reasons – bad investments, theft. In such a scenario, the owners would keep any upside, while all the losses fall on the customers. In a noted New York ruling in which Bitfinex and Tether Limited were sued, their own lawyers admitted that they had only 74 percent backing on deposited capital. The companies were banned from operating in New York and had to pay $18.5 million in fines for misleading their customers and overstating their reserves.

So how does this keep going? And how can crypto traders continue to trust that Tether Limited is legitimate? The short answer seems to be that Tether is needed for the speculation to keep going. Sam Bankman-Fried, a 29-year-old crypto billionaire, told Bloomberg that “if you’re a crypto company, banks get nervous about working with you”. So it is hard to run investing and speculation without an intermediary that can facilitate your trades. And since ordinary banks have laws and rules to follow, they often can’t help. Tether Limited, on the other hand, can. Tether is, in other words, the fuel that keeps a very large part of crypto trading going. And the upside of that trading is judged to outweigh the risk that Tether Limited might go insolvent.

That, at least, is the short-term reasoning. The question is what happens if – or when – this fuel suddenly runs out.