The story, summarized, as I understand it from this article:
1. It's difficult to bank cryptocurrency because traditional finance has KYC/AML procedures and cryptocurrency exchanges (generally) don't.
2. For awhile, the largest exchange was Bitfinex.
3. Bitfinex suffered a breakin and lost $70MM worth of Bitcoin, and became insolvent.
4. Bitfinex took 36% of all clients deposits/balances to make up for the loss, and repaid them in "BFX" tokens, redeemable for equity in Bitfinex, and eventually for $1/BFX.
5. Bitfinex banked through a series of small regional banks, but these were all backstopped by Wells Fargo, which ultimately cut Bitfinex off.
6. So Bitfinex switched to Tether, a stablecoin meant to trade 1:1 with USD; if you can trust Tether, you don't so much urgently need bank support, because even if Bitcoin (or Monero or whatever) plunges in value, your Tethers will still be worth $1; you can "offramp" your cryptocurrency into Tethers instead of USD.
7. Ostensibly, Tether works by being backed by reserves of dollars or dollar-equivalent commodities.
8. This, as kind of an aside, is a huge win for criminals, who accept fraud detection risk every time they deal with a real bank, but can't accept the currency risk of keeping holdings in cryptocurrency. Bitfinex/Tether even advertises Tether as a way of avoiding KYC.
8. Tether isn't and probably never was backed by dollars or dollar-equivalent commodities; rather, Tether was "backed" by some admixture of Bitfinex receivables and cryptocurrencies.
9. Tether got kicked out of all the Asian banks, happened on a tiny Puerto Rican "bank" called Noble, which was backed by the large BNY Mellon bank; Noble balked at banking Tether, Tether invested $2MM in Noble to get over that objection, BNY Mellon noticed, and killed Noble.
10. Tether switched to Deltec Bank.
11. Tether started using a money laundering firm called Crypto Capital, which set up shell companies to fraudulently route deposits to banks with poor KYC/AML compliance; Bitfinex gave customers wire instructions sourced from Crypto Capital, which were all in some sense I guess a form of wire fraud? Super-amusingly, the wire instructions Bitfinex sent customers included a warning not to reveal any of the details of the instructions, to avoid systemic risk to the greater cryptocurrency economy.
12. Crypto Capital's founder stole a bunch of money from his firm, over a long period.
13. Crypto Capital got caught, a bunch of their accounts got frozen, Tether became insolvent, there was a run on Tether.
14. But Tether is still worth $1, possibly because Bitfinex resorts to shenanigans to satisfy withdrawals, like offering a premium for withdrawals denominated in Bitcoin (which you can sell at a reputable, banked exchange for dollars), or using mules to deliver dollars on a bespoke basis, or satisfying withdrawals using customer deposits directly and papering over that fraud with loan documentation.
15. A bunch of people got indicted recently.
16. The plates are still spinning in this plate-spinning act.
Am I missing anything here?