Tether claims and believes that their tokens are backed 1:1 by US Dollars. However, this claim has a catch.<p>Tether + BitFinex have been running a new business model since they lost their bank accounts. B&T agreements with affiliated exchanges are something along the lines of "Here are $100 mill worth of Tethers, now please hold $100 mill cash in your account for us".<p>When affiliate X transfers Tethers to affiliate Y, Tether instructs Y to pay X directly. When a Bitfinex customer wants to withdraw funds, they match-make customers to do the same kind of transfers.<p>This model of leaving funds under control of affiliates is what caused problems for Friedman LLP auditors in completing their audit.<p>Also potentially US Regulators can consider this business model a Hawala model.<p>Sources:<p>https://medium.com/@bitfinexed/the-bitfinex-dilemma-blow-up-now-or-try-a-hail-mary-to-retain-in-business-10b9d989359f<p>https://www.youtube.com/watch?v=62cvxPIDBGY