I'm guessing the auditors weren't happy with "out of thin air" when they asked where the the backing currency came from.

The Tether folks were like "Our balance sheet is really simple! We just add numbers to this column until it evens out, what's the problem?!?" and the auditors are like "that's just fraud".

It's ridiculous; surely they could have made tons of money with USDT legally if they'd just been less greedy:

- Create Tether out of thin air

- Sell it to people for $1USD each

- Put that USD in a bank account to earn interest

Hell, there's probably still an opening for someone else to do it right.

- Create MyTetheredCrypto out of thin air

- Convince people & exchanges to accept it ???

- Sell it for $1USD each

- Unlike Tether, let your company be checked and audited frequently

- Get rich off the interest

I'm pretty sure they did try to do this legally, but then they lost the ability to actually send and receive USD from the US. If you tried to do the same thing you'd run into the same problem. If the effective point of your tether is to allow exchanges to avoid enforcing anti-money-laundering controls and skirting legislation requiring them to be properly registered in the states they do business, then good luck finding any US bank that will work with you once they figure this out (either to hold your account if you are US based or to transfer money to and from your international bank if you're international).

So what likely started out as a legitimate operation probably found it impossible to continue that way once it could no longer easily exchange tether for USD. So the options were probably to shut down or keep operating "untethered" and basically have a free money printer.

Why would anyone buy your tethers with usd?

It sounds like exchanges are using Tether because offering to cash out USD can be difficult if the exchange isn't in the US, so they let people use Tether as a proxy USD. e.g. If someone thinks the market's about to crash, they can sell their Bitcoin for Tether, then buy back Bitcoin when the price drops.

So if your coin has the same use case as Tether does now, people may not buy MyTetheredCrypto off you directly for USD, but they might buy it off you for Bitcoin or other cryptocurrencies you accept if it's not easy for them to convert to USD. Then you sell those coins immediately for their value in USD (you presumably having more access to do this than the buyer does) so you have your USD-backed tethered cryptocurrency with every MyTetheredCrypto backed by a real dollar USD.

Obviously I'm not really suggesting all this seriously though, there are lots of potential problems all over it.

The big problem being how you convince people to put real money into the system in the first place, especially if you want to keep the price fixed at 1:1. You end up with a huge quantity if BTC chasing tiny amounts of real USD. In a proper market the exchange rate should plummet due to the imbalance.

that's more or less what happens when you go and get a loan or a mortgage from the bank

Banks can repossess your property if you don't pay. If you're not putting in much money as a down payment, they'll also force you to pay for insurance (PMI) on the mortgage.

They're also not promising otherwise and claiming to be regularly audited while firing/being fired by their auditor.