> But the Justice Department investigation is focused on conduct that occurred years ago, when Tether was in its more nascent stages. Specifically, federal prosecutors are scrutinizing whether Tether concealed from banks that transactions were linked to crypto, said three people with direct knowledge of the matter who asked not to be named because the probe is confidential.
Notably this is for events some time ago. Investigators haven’t gotten far enough ahead to formally file anything relating to the events of March 2020 to present, when Tether added ~$60 billion in tokens and claimed to be one of the largest commercial paper holders in the world.
(No one in the commercial paper sector has heard of them)
To be clear, by saying it is from some time ago I am not dismissing it. This is extremely serious for Tether.
The whales can redeem, in minimum chunks of $100,000. Mostly these are exchanges. Thus the peg is supported by the reserves in a roundabout way.
If Tether can’t redeem, and trades break the peg, then ultimately either exchanges go insolves or anyone holding tether has to write off their holdings. Or both.
(1) US persons and entities cannot redeem, period, so that leaves out all of Coinbase doesn't it? [edit] originally I mentioned FTX but of course they're based on Antigua and Barbuda and Hong Kong. [1 - Section 3/ and 3/3].
(2) Only individuals Tether deems as customers at their sole discretion are permitted to redeem. [1 - Section 9/ - "Tether in its absolute and sole discretion may determine that you are a customer of TIL or TLTD"]
(3) Tether may delay redemptions arbitrarily at their sole discretion. [1 - Section 3/]
(4) Tether may substitute whatever is in their reserves in lieu of cash at their sole discretion, and themselves admit to only having 3% of the cash needed to satisfy the "obligations" (and I air-quote say that because ... [1 - Section 3/]
(5) Holding tether tokens is not a claim to any backing assets. Any redemptions are strictly goodwill.
(6) Tether has identified their absconding with all the funds as a risk in their white paper [2 page 10].
This is all on their website. [1] Roughly speaking nobody has tried to redeem any - for obvious reasons. They know they can't.
To your point it's the largest exchanges with their hands in this particular cookie jar, and their fates are entwined. The exchanges are holding the bags, Binance alone has 17,000,000,000 USDT. They won't do anything to potentially upset the peg, and are incentivized to do whatever they can to maintain it. Otherwise, to your point, RIP.
One reason that roughly nobody tries to redeem, other than the operational issues, opportunity cost of waiting for bank wires, need for a non-US entity, etc. is that Tether is usually trading at a premium to $1. So when there's profit to be had, it's usually by creating Tethers, not redeeming them.
> Roughly speaking nobody has tried to redeem any - for obvious reasons. They know they can't.
Usually you at least come up with FUD that sounds reasonable to an outsider.
Obviously many people (some that I know personally) have "redeemed" USDT for a USD wire via Tether. Tether may be fraudulent but it wouldn't have held up until now without some aspect of credibility. There are many 8 figures+ redemptions going on, sometimes multiple times a day.
> Obviously many people (some that I know personally) have "redeemed" USDT for a USD wire from Tether. Tether may be fraudulent but it wouldn't have held up until now without some aspect of credibility. There are many 8 figures+ redemptions going on, sometimes multiple times a day.
I have not seen a single piece of evidence of this, and I have not seen any burns to line up with this. If you'd like to provide some I'll happily retract my statement.
For what it's worth 8 figures is small potatoes, Bitfinex literally grabbed 800M worth of their reserves one time, so we know they have some money in the piggy bank. They have some cash, but way, way, way less than they would require for a semblance of actual legitimacy.
Otherwise, everything I posted is directly from their legal page and whitepaper.
Won’t we expect to see token burns to match redemption? That should be easy to point to on the blockchain. Such a low cost way to just blow away all FUD.
They can redeem, but not necessarily in dollars. The terms of service specifically give Tether the option of redeeming in basically whatever they want.
Also, I say "they can", but we have zero proof of this ever happening.
I think they only had two big ones. One was around the time they had no banking, the other was when Phil Potter left.
My point wasn’t that the redemptions routinely happen. My point was that it does matter if no one can redeem, because eventually that will cause the peg to break and USDT to become worthless.
I wasn’t arguing redemptions will be honoured en masse.
Though interestingly Tether supply has gone very slightly down since June.
> Or more likely tether isn’t backed by anything at all.
In order to believe this, you have to believe that Leticia James got the data from the NYAG subpoenas, and then ignored the fact that Tether has no backing.
> New York Attorney General Letitia James’ office says it found that Tether sometimes held no reserves to back its cryptocurrency’s dollar peg. It said that, from mid-2017, the company had no access to banking and misled clients about liquidity issues. [2]
It also depends on what you believe the role of that settlement was. Some speculated it was a trial balloon for a federal suit.
Yes. It says that tether held securities/receivables denominated in dollars rather than actual dollars, despite Tether's claim that they held dollars.
I could not find anywhere that the settlement claimed "no reserves", despite CNBC's quote. [edit: It came out of the AG press release, not the settlement. As near as I can tell the settlement makes no representation that tether is unbacked, only that it is unbacked directly by US dollars, which was the Tether advertising up until 2017.]
They lost all access to banking meaning that there was no physical way for them to create redeem Tethers. That makes it de facto un-backed. This is addressed in 14/ through 18/. They lost access to banking, and continued to issue Tethers.
> 18/ Because Tether did not have a significant bank relationship in its name from at
least March 2017 until September 15, 2017, it could not directly process any fiat deposits for
purchases of Tethers by customers on either the Tether website or via the Bitfinex trading
platform.
And yet in that period they issued some 400M tethers.
Is the distinction meaningful in the course of reaching a settlement? Both parties agree on the facts at hand. I suppose you could make that case were the judge to make the determination on the basis of evidence, but the Tether folks signed the agreement of their own volition with the NYAG. At that point the evidence shouldn't be in question - and hence the standard isn't in question - simply their admission, no? Ok, not an admission, maybe an acquiescence.
I would say the evidence in a settlement or plea deal would be of equivalent quality whether a criminal or civil trial.
Further, I'd suspect the majority of folks who accept plea deals in criminal matters don't end up in prison either.
>>They lost all access to banking meaning that there was no physical way for them to create redeem Tethers.
Temporarily being unable to transfer USD to fulfill redemption requests is not the same thing as being unbacked. Having USD-denonimated commercial paper backing the tether is still having something of value backing it, which is in a different universe from tether being unbacked.
People need to be more careful to not make inflammatory accusations, that are not substantiated, about an operation. This is true even if there are numerous red flags associated with the operation.
They were also unable to receive deposits, and issued Tethers anyways. Ones they claimed on their website for years were backed 1:1 with dollars in a bank account they controlled. This is the substantiated fraud outlined in the settlement.
The fraud was they said, on their website, for years, that they had 1 USD in their bank accounts as liquid currency for every USDT outstanding. They unequivocally did not - at numerous times.
> “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system." - Letita James, NYAG.
Their new wording about 'reserves' was not in place at the time. They changed the wording in March of 2019. The wording at the time was:
> "Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USDT is always equivalent to 1 USD."
This was also the wording at the time Bitfinex grabbed $800M out of their bank account and left them an IOU.
That was a lie, and it's not my claim, it's Letitia James'
Finally re: commercial paper, I haven't seen a shred of evidence they own a single scrap of it. In fact the FT seems to be unable to find anyone else who has seen evidence of it either, despite their being ostensibly the 6th or 7th largest holder of commercial paper in the world sandwiched up between Vanguard and JP Morgan. Could they be? I guess. On a scale of 1 to 10 how likely do I think that is? About a zero.
>>This is the substantiated fraud outlined in the settlement.
That there is evidence of fraud does not justify making an unsubstantiated allegation that the tether was unbacked. No reasonable reading of "unbacked" would find it consistent with the tether being backed by USD-denominated commercial paper as opposed to USD.
I am not here to defend Tether, just careless language used when criticizing a party.
>>Finally re: commercial paper, I haven't seen a shred of evidence they own a single scrap of it.
That's an entirely fair statement. Like I said, I am not here to defend Tether. If anything, being careless with criticisms undermines the credibility of critics, and makes it harder for their salient arguments to be heard. So if you do have a good case against Tether, I'd suggest sticking only to the facts so that the case gets a fair shake.
For the record I do see what you're saying about my choice of language. I personally see my reading in line with that of CNBC and in line with the wording in the settlement - although I can certainly choose to hold myself to a higher or at the very least a more conservative standard. Thanks for keeping the conversation honest and grounded :) and thanks for clarifying your position.
LOL Evergrande is a ticking time bomb. Assets frozen by a Chinese bank just a week ago, and before that they were peddling CP in the range of 12% annual... It's about to explode.
IMO this feels more like they know they can get them on these crimes, easily, without involving other countries. Lying to banks is pretty trivial to nail them to the wall for. "Hey I'm a real estate company" - "sir these look like crypto deposits?" - "no, I don't think so." That kind of thing.
It's like getting Capone on tax evasion.
Once they've got them behind bars they can start untangling the clusterf*ck.
Thing is untangling the clusterf*ck is likely a multinational, mutli-party, multi-year effort but lying to Wells should be cut and dried. Remember it took 17 countries cooperating to unwind Liberty Reserve and that was a fraction of the scale and audacity. This will allow them to end it the fastest way possible.
I wonder if this is a situation where there is reason to be concerned about this given event, but it's also an easy path for an investigation to proceed / check if it has happened even further?
"“Given our portfolio composition in commercial paper, we believe that it is quite important to respect the privacy of the banking partners that we work with.” That’s not a thing! That’s not a thing at all! Every money-market fund just lists all of its holdings, by size and issuer and CUSIP! Tether has broken new ground in the concept of commercial-paper privacy rights!"
...
"Tether has traded between $0.9996 and $1.0009 over the last seven days, including during yesterday’s interview. That’s a pretty tight range given that, you know, anyone can watch the interview."
Edit: summary: 8 people founding the tether company, 7 of them with a criminal background. Lying and denying and then admitting after they have no other option. Yeah, seems like a nice company…
"It is difficult to get a man to understand something when the market liquidity his salary is traded and valuated against depends upon his not understanding it."
I've been in crypto for a while and never met anyone who likes Tether, it seems to be novices that use it that don't know any better. I don't know why anyone would use it over a decentralized stablecoin like DAI.
(Yes, I know it's zerohedge, but this is a decent article)
Tether usually has 2-3x the volume of bitcoin in any given day. And no one seems to know anything about how it works. So in my estimation, it probably is a scam...
>Tether usually has 2-3x the volume of bitcoin in any given day. And no one seems to know anything about how it works.
I think these are both bad arguments. If the most used stablecoin is used for most BTC volume as well as other crypto trades, you'd expect it to be more.
>. And no one seems to know anything about how it works
What? People do know how it works, or at least as much as with many other projects.
Nobody knows where the USD supposedly backing it goes. Most of it is in “commercial paper” they said, but the investors who work in that industry say they’ve never heard of them.
This seems impossible because at their scale, that would make them, like, the 5th largest commercial paper investor on Wall Street. How could commercial paper investors not heard of them?
With the track record these guys have, the more adamantly they declare something the more you may be justified in suspecting that it is false or at least only superficially true.
I dont think it matters to people who really use tether. If you cant buy usd due to capital controls, usdt is your other accissible option. As such its seemed to retain its user's opinion that it continues to track the dollar, even when its not backed directly and or backed insufficiently by other assets. Its a tool that has value, beyond its intrinsic value.
The thing is, it does not matter only to those who use it. Basically all trading of Bitcoin is not actually in USD, it is in Tethers. The polite fiction is that this is the same thing, but there are a million red flags saying that this is not the case.
Once Tether implodes, it takes the entire bitcoin market with it.
I was looking at the usdc, vs tether, vs dai market caps over the last few weeks. Tether seemed to have stopped printing as usdc has continued to grow.
Tether is at 60billion market cap compared to Usdc 30 billion and dai around 5 billion. Should probably look at volumes aswell.
I think we would get a major crash if tether fails, but I also think it will recover with usdc and other stable coins that have more legitimacy.
For now, its a house of cards that no one can really afford to remove their stake from. Those who have to use tether, are in a very precarious position.
I think there is a possibility of things going the other way around of what grand parent is expecting. Once USDT implodes there will be a bank run to sell those tokens for fiat, bitcoin, Ethereum or even other stable coins. That until exchanges cease accepting those or doing trades at all. Some might become insolvent.
In the end people who leave their funds at exchanges will be the one with the short end of the stick.
Because the leverage extended to customers is greater than the value of collateral the exchange holds. It is certainly possible if Tether dropped to 0.8 or something this would cause even automated liquidation and margining engines to fail then causing a systemic shock across all posted liquidity on the venue.
They have monthly attestations, but an attestation is not an audit. What those attestations say is also not the same from month to month. Lately, they have been changing the exact thing they attest.
For instance, the attestations no longer claim that they hold backing funds.
USDC doesn't have a leg to stand on either and as far as "other stable coins", it's pretty dumb to compete with someone who is able to undercut you on cost, so they're either doing the same or not competitive.
I highly recommend the first five Cas Piancey and Bennett Tomlin podcasts [1] and the (albit a little bit dated) Kalzumeus post [2]. I also really enjoyed the Calacanis podcast with Bitfinex'ed [3] and the Coffeezilla [4].
Game theory predicts that market participants who discover Tether is a scam would publicly praise it while simultaneously moving away from it slowly and quietly to avoid spooking the market - leave some other sucker holding the bag.
We also know people can be irrational so those who depend on Tether to operate simply cannot acknowledge it is a scam.
Yeah it's actually quite clever. Once you realize you've been trapped in a scam, the only way out is by hyping bitcoin so much that enough liquidity enters Bitfinex and allows you to liquidate your holdings. If you blow the whistle you get nothing out. If you ask for your money immediately, the exchange tells you they can't honor that request currently, but could if the price rises enough from new entrants.
It's basically like a pyramid scheme where you can buy your way out by shilling hard enough for Bitcoin.
We don't truly know the severity of it yet, but we do know that money has been moving over to other stablecoins such as USDC over the past year or so and so risk is slowly decreasing. There is a huge amount of innovation in the space and i think to gloss over it as a 'house of cards' is a bit naive - there is no denying it is a volatile market, but it is here to stay, so best to embrace it and see if there are actually projects that resonate with you.
Is there an article about USDC that describes what/when the major changes happened.
My understanding was that Coinbase was 1:1 dollars, and they actually had that money in banks, etc. Then, they ended transparency and the 1:1 peg. This is when people suspect they started getting debt to buy BTC - but this is presumably legal, right?
Do they have any obligation to be transparent - being a publicly traded company?
I'm not sure lots of innovation means it's not a house of cards. We don't know how many fraudulent companies there are in this space. It seems possible that a few pieces of information could lead to a crash and that would definitely mean it's a house of cards if it was the case.
Any evidence of that happening?
I mean there is still about the same amount of Tether in circulation (granted they stopped printing it). For the money to really move out it we would need to either see Tether supply shrinking or being moved to Tether own (or Bitfinex or any other of their sister companies) accounts. I am not following closely enough to know if that's the case, do you?
Sure there is! Innovating new ways to separate suckers from their money. It's a tough pill to swallow for the laser-eyed, I know.
The problem is there's a lot for the HN community to like in it, if you're willfully blind to it's hypercapitalist and manipulative nature: fun technical challenges, little-guy-vs-the-world. I get it, I really do.
I don't disagree there's some cool technology, and in particular in the DeFi space - the problem is it's all fruit of the poison tree at the moment. It's all dependent on price action and the price action is dependent on Tether, on sketchy exchanges, on crime and criminality, on 125X leverage, on manipulation.
And of course, there's so many problems with smart contracts - even the core idea of permanent, irrevocable transactions where bugs can leave you destitute and without anyone to speak to. And no way to unwind them. [1] Unless you're big enough, I guess, and can just fork the chain like Vitalik did with the DAO.
Most major exchanges have reduced max leverage to 20x or less now. Regarding bugs, the space is still young, so of course there will be risks attached, even. more so when the space is innovating so quickly, but projects like Aave and Compound can be considered pretty safe now, with hundreds of millions value locked and have stood the test of time.
Sure - some problems being solved right now:
What problems does DeFi solve? There are a few straightforward ones when looking at financial systems -
Inefficiency - Banks and financial institutions spend billions on opex (ex. BoA spent $53 billion on SG&A and occupancy/equipment in 2020). Well written protocols and decentralized trust can increase efficiency and collapse this number
Permissioned access - For better or for worse, anyone can create financial products and a whole market for it without asking the SEC
Opacity - Instead of using paper/hidden digital ledgers, open source contracts lets one easily follow money flow through code and transactions
Access - Turns out the world is very big and lots of people are either locked out from traditional financial institutions or their preexisting ones just really suck.
That are inefficient too, slow and costly. 51% was possible from China anytime until they banned it. Insane workarounds are proposed for easy problems.
Instead of the SEC, some sharks/influencers are ruling the markets. Not a week goes bye without a new hack or malicious ownership of the cloud solution or an on purpose malicious contract or extreme scams ( eg. Tether, USDT, ...). Within a second, all their money is away.
People just hide money with currencies that hide their money trail.
The nr. 1 problem for access to banks is internet access, look at El Salvador. They are suddenly creating internet access that hasn't been there before, creating a fake dogma. They had access to banks, it was just a long drive away. Transferwise could reduce transfer costs, but a big problem is also a faulty governement or eg. In case of Libanon: stable electricity. Crypto doesn't solve any of that.
In the end, it's all about the hype and a lot of the end-users don't understand how it works and aren't protected from their own stupidity.
Which is exactly where eg. Opex helps.
Ps. Copy pasting your answer without a minor edit even just shows how mindless this thing has become.
It's pretty clear you haven't actually used DeFi. To convert my shares into dollars in my bank account takes almost a week. In DeFi I can do it within minutes. Same with sending money, trading, loans, providing liquidity, purchasing insurance. It's a night and day difference between this and the existing financial system.
And what party are you trusting for your insurance?
In which country?
And how can shares take one week to convert? My broker has a deposit account in a
German bank, it takes 1 click to convert. The button's name = buy/sell.
I'm not sure if i have ever encountered a problem. I can use methods outside wire transfer to have additional funds deposited immediately.
And the shares on Defi aren't exactly shares, are they. I wouldn't touch a bank that does this and calls it "shares".
As said before, it doesn't solve any problems.
Ps. In case you didn't knew. Knowing the country is important for potential legal action ;)
Now tell me, what country is Binance located. They are one of the biggest in DeFi ? :) And how trustworthy are the "stable coins" backing the different DeFi protocols? :)
OK, I can see you are just drawing conclusions without doing any real research, you have the opinions of someone who left crypto in 2017 and never looked at it since. I'm not going to bother wasting my time on you, but do advise anyone else reading this to look into the space and see some. of the great projects such as Helium Network HNT, Akash AKT or Aave.
> OK, I can see you are just drawing conclusions without doing any real research.
Do i need to remind you that you literally copy-pasted your "conclusion"?
You have given me no reason to proof me wrong.
Saying "do your research" is exactly the reason of my conclusion and answering with that statement is another way of saying: ¯\_(ツ)_/¯
Eg. Helium Network HNT - decentralized hotspots?
Like i said, nothing new. Decentralized mesh networks already exists and those solutions are inferior to an ISP forcing a hotspot option, existing options, esim or mobile hotspot.
It's absolute bs that their "Network Coverage" page only shows info about their Blockchain and price, not actual wifi coverage that is of interest for customers, lol.
It IS a scam and it is backed by nothing. Only to pump the BTC price artificially.
The unveiling of this scam was seen and covered a mile away and was a long time coming.
To Downvoters: I'm sorry BTC maximalists, but this scandal was waiting to be cracked down and no, it is not FUD, or whatever denial spiral you are going through.
Whilst crypto maximalists can be annoying, there's also anti-crypto maximalists such as the source you're linking to.
It is legitimate to raise the Tether concern yet he confidently drops into very binary conclusions driven by his pure hate for crypto.
For example, his claim that it's 100% a scam whilst this fact isn't established.
Or calling any trade in crypto "shady". This one shows his true colors. A huge amount of people just deposit dollars on a KYC exchange, then buy and sell whatever crypto they fancy.
None of this is shady. It's fully legal, taxes are paid, it's like stocks. Yet according to him, any trade in crypto is shady.
Or, the claim that the 800 billion market cap of Bitcoin is solely based on Tether. That's an absurd statement.
As said, maximalists can be extreme, but so can anti-maximalists. He deeply hates any and all crypto, has zero nuance, and is not open to any type of discussion.
> Or calling any trade in crypto "shady". This one shows his true colors. A huge amount of people just deposit dollars on a KYC exchange, then buy and sell whatever crypto they fancy.
> None of this is shady. It's fully legal, taxes are paid, it's like stocks. Yet according to him, any trade in crypto is shady.
True, there has been a lot of activity that was no worse than gambling. Let's tally up everything that's come out of the space, good and bad, and ask where it comes out on net. Somewhere in region of "a giant casino with a mad electricity bill on an island with no cops, teeming with scumbags who busy themselves with fleecing the innocent suckers in there desparate to come away with one of the lambos on stage". Yes, you pay tax on your winnings when you get back to the mainland.
> Or, the claim that the 800 billion market cap of Bitcoin is solely based on Tether. That's an absurd statement.
"800 billion market cap of Bitcoin" is already an absurd statement.
It doesn't work that way, you can't "tally up everything". If so, let's do that for humanity as a whole and conclude it's been a mistake.
Again, a huge part of crypto is perfectly legitimate, just retail buying/selling crypto via KYC exchanges. It's not lawless, just a free market of assets.
Which any individual can use or ignore as they see fit. You can use an investment strategy (buy and hold), trading/speculation strategy (minority of day traders) or indeed go the gambling route: super high risk bets using leverage.
Calling this entire spectrum consisting of hundreds of millions of users "gambling" is simplistic, binary thinking. Most crypto holders have less than 10K USD worth of holdings and rarely trade on it.
"800 billion market cap of Bitcoin" is already an absurd statement."
How so? Because you think it's worth less, or perhaps zero? If you're so super confident about that, short it. You'll get filthy rich whilst proving you're right.
they're just called minimalists, vs. anti-maximalists, and announcing what someone who isn't you hates is a pretty unconvincing way of making your case, unless they've also announced that they "hate" it
I don't have a case to defend. I'm indifferent to people being pro or anti crypto. The only thing I did is to point out the agenda at work, and the limitations of the claims made: zero nuance, always hides from defending his case.
The guy hates crypto. A normal person would declare that and move on. He makes it his life work to hate crypto. He's consumed by it. That's anti-crypto maximalism.
A source to distrust as much as a pro maximimalist. Both have agendas set in stone, are not open to reason and nuance.
Unlike Bitcoin, Eth, and other coins, Tether was always claimed to be backed by something which ensured it's stable value. Tether the company claims that their tether coins are each worth $1.
There are now >$60Bn worth of Tether coin issued. With that much money they'd be a very serious private financial institution, and yet they only have 13 employee's. They have never been audited by any independent third party. They have repetitively lied about who owns the company (the same people who own Binance, the world's largest crypto exchange own Tether, and yet did not disclose that until it was found out). They have receptively changed their story on what backs Tether coin (originally each coin had $1 in a bank account to back it, now it's majoritively unspecified "commercial paper").
There is nothing which proves that Tether actually is backed by anything and the billions in new Tether coin which are minted could very well be worthless.
>There is nothing which proves that Tether actually is backed by anything
Also, there is nothing which proves that Tether actually isn't backed by anything.
I see a lot of people jumping to conclusions about a topic they are self admittedly ignorant about. Perhaps wait for the DOJ to do their jobs if you don't have insider knowledge.
In response to -dsr's sarcasm below (rate limit), I've got a bit of my own.
"I've run a profitable business for years and haven't committed fraud during the time I spent in an unregulated environment. Now that regulators are nearing my doorstep, it's the perfect time to start committing fraud." /s
> Also, there is nothing which proves that Tether actually isn't backed by anything.
There is a lot of circumstantial evidence though. To wit:
* Tether was previously caught lying, in a manner that is attuned to how many big frauds start (you hit a small road bump, so you lie to cover up the road bump, figuring you'll be able to make up the shortfall before too long. But now your lying projections are going faster than your ability to catch up, so what was originally a "small" lie is now a "big" lie). Tether had had the cash, until it was stolen from them, and they started lying to pretend that it wasn't stolen.
* Notably, Tether has yet to provide any audited statement of their claimed finances, in over 4 years. Even the attestations that they have come out with don't actually provide much in the way of reassurance.
* Their claimed asset breakdown, the closest thing any of us have to being able to being able to validate their claims, is presented in the form of 2 pie charts with vague labels, one of which is so bad that no one knows what it's supposed to mean ("reverse repo notes").
* Doing the math in the above point, they claim to be one of the largest consumers of commercial paper. They haven't said whose commercial paper they're buying, and no one has reported transacting with them. Supposedly this is for privacy, but it is the standard in the entire industry to just list all of your holdings for transparency's sake [1].
* Also, Tether has increased its issuance to the tune of several billion dollars a month. That's the kind of extraordinary claim that requires extraordinary evidence to back it up.
[1] Unless you're Bernie Madoff and you're promising awesome financial returns with your secretive trading strategy. Except it also turned out that said strategy was a literal Ponzi scheme. Note that "we're not telling you what we're investing in" is generally one of the red flags for a fraud.
>Tether had had the cash, until it was stolen from them, and they started lying to pretend that it wasn't stolen.
My understanding is funds in a bank account were seized and the account closed. Describing the shortfall that followed, while they tried to recover said funds, as fraud, is a tremendous mischaracterization.
Did somebody at Bloomberg have a BTC short position blowup? They have a long history of publishing FUD to manipulate markets in their favor. I hear people are still looking for the mythical SuperMicro "spy chips"... lol
> My understanding is funds in a bank account were seized and the account closed. Describing the shortfall that followed, while they tried to recover said funds, as fraud, is a tremendous mischaracterization.
They covered up pertinent facts that would seriously question their liquidity and/or solvency.
Let me put it like this: suppose you were selling your house to me for $1 million. If I had $1 million in We Are Criminals Shadow Bank, Ltd., and I've been struggling for weeks to get them to give me any of my money back, how would you feel if I told you that I had $1 million in cash without mentioning any of those details? That's exactly what Tether did.
If you still feel that calling that fraud is a mischaracterization, well, I have a bridge to sell you. I mean, I've been having a bit of trouble with the recorder of deeds over it, but that should get straightened out any day now, so it shouldn't matter, don't worry about it.
They also shipped tens of millions of dollars in BTC to another group to "assist" them with movement of funds (I want to say but am willing to be corrected, that the amount was actually ~$80M).
The group ... didn't do that. They kept the BTC and said "sucks to be you".
We have repeatedly seen that they're not backed by what they say they are backed by. I don't think anyone is saying that Tether has $0 - that would be stupid, if nothing else they've probably got cash "in transit". But if they aren't 100% backed - even if they're 99% backed - that's a BIG problem. You know who gets to give out money-tokens without actually having the money? Banks, and only banks. You know why? Because they're subject to a metric fuckton of regulations that Tether are not subject to, and because (in the US anyway, with limits, blabla) the government guarantees that customers won't lose money if they fail which they do not do with Tether.
> How would you shutdown Tether temporarily (2-3 months) if a bank ends a relationship?
By refusing to take deposits for new Tether, and by shutting down redemptions if necessary while the banking relationship is sorted out.
Tether doesn't exist ex nihilo; it requires active management to issue and redeem coins. If it ever cannot live up to its "fully backed" claim, then continuing to operate under a pretense is fraudulent.
>By refusing to take deposits for new Tether, and by shutting down redemptions if necessary while the banking relationship is sorted out.
I agree and expect that is the lesson the $18M fine taught them.
The key point is, they had a legitimate reason for under-collateralizing during the biggest bull run in crypto history at that point. 2014-2017 was the perfect period to begin fraudulent activity if they were really interested in it.
I guess the question is, what is the best time to commit fraud in the crypto space, earlier or later (during-post increased regulatory scrutiny)?
You're assuming that they began with the plan to commit fraud, rather than just failing at their business and then lying to cover it up, which is far more likely.
Why do you see clear evidence that the company directly lied and acted fraudulently, and immediately assume that this must be the one single time they have ever done so?
When I see that a company founded by criminals has lied, I tend to assume that they will be lying again. I think that is a fairly safe bet.
Just look at the tether terms of service. A whole section on your representations and warranties as user. The reps and warranties that tether makes? "Tether makes no representations, warranties, or guarantees to you of any kind."
USD is the real scam. It's not backed by anything either. Tether only exists because nobody else wants to touch the USD and its annoying regulations. I find it hard to care about Tether printing billions when the US government prints trillions.
Wish we could have a 100% XMR world without even a single dollar in sight. Won't happen until the end of the petrodollar which won't happen until the end of the US military.
It is, though. It's backed by the economic output of the United States, which is transacted in USD.
But why are you conflating USD with crypto anyway? USD is a currency that is actually used for purchasing goods and services. Crypto isn't used for anything except speculation. If capital gains is the goal, then yes, the USD won't be of much value to you as it's not particularly volatile.
And yet if I walk into a grocery store, I can buy milk with USD. Weird — it’s almost like there is something backing it, and it’s not just strictly gold/silver!
Taxes are not part of Economy, taxes are extortion of accumulated value from the Economy backed by a monopoly on the ultimate physical coercion. Your voluntary exchange of values with your friends is the actual Economy you're looking for.
No, because it still isn't legal tender, and lacks credibility as a medium of exchange. The simplest example of this is loyalty programs that offer 'points' that can be redeemed for goods and services. Since the points are useless on their own, the vendor creates agreements with other businesses so that they accept the points.
That's what gives the rewards program credibility. Real currency still changes hands in the background, but the customer only spends 'points'. Currencies, although unbacked by gold, are still credible because they are legal tender and widely accepted in ways that rewards points are not.
Amazon and other private businesses can refuse to accept BTC whenever they want. Earlier this year, Tesla 'accepted BTC for payments', and then changed their mind a month later.
Non-blockchain fiats are significantly less energy intensive than DeFi, their reversibility is a feature (IMO), and KYC regulations are needed to resist corruption and funding crime. So what compelling advantages does DeFi offer besides pseudo-anonymity and temporarily sidestepping hyperinflation?
Considering the shaky fundamentals, I'd rather not trust greedy strangers to stop burning the world down trying to get rich quick.
People can buy cryptocurrencies with USDT as well. They can even cash out dollars later. Weird, right? It's almost like there's something backing USDT as well even though it's all nonsense.
Another truth is governments force their citizens to use their own currencies. They require citizens to pay taxes in those currencies. They probably even require stores to accept those currencies.
> It's almost like there's something backing USDT as well even though it's all nonsense.
Yes. Speculation and their ~~criminal conspirators~~ exchanges.
> Another truth is governments force their citizens to use their own currencies.
Absolutely. Not a single person in this thread has argued otherwise. What's your point? How does that somehow make something else more stable? If the government is the big bad wolf, what's stopping it from using that same force to blow USDT's house down? What army and treasury is going to rescue USDT when it crashes? (And it will crash, eventually, just like every other market in history has, whether its due to Tether's negligence or external pressures)
> Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything
This is how a fiat currency is supposed to work. Earn it, then buy some gold, silver, real estate, crypto, or whatever. And inflation is not necessary a bad thing.
I have thought tether was a scam for years. I am very deep in the industry. I now think tether is neither a scam nor a Ponzi scheme in the classic sense of the word (they’re not borrowing from Peter to pay Paul).
What tether is doing is reframing what 1:1 collateralization means. Typically when we think of a fully collateralized stablecoin, we think a 1:1 mapping of dollars to synthetics. Tether is backed by ‘dollars or other dollar equivalent assets’.
Whether ‘other dollar equivalent assets’ will actually add up to dollars in the event of a crash is an exercise for the reader.
As for these current charges, they definitely did not have the dollars they said they did once upon a time. They definitely have a ton of money now but whether that’s the right ton of money in the event the market moves a lot is anyone’s guess.
For now, the seemingly unstoppable rampage that is tether continues on…
Edit: just to be clear I don’t hold tether and don’t make use of the currency personally but I understand why others do.
> What tether is doing is reframing what 1:1 collateralization means.
Which is, to be clear, fraudulent. Their website long claimed that for every 1 USDT, that they held $1 in USD. This claim fell apart years ago, as did their claim to regular audits (they still never completed one).
It may indeed be that they are collateralized now, but they got there via fraud.
> It may indeed be that they are collateralized now, but they got there via fraud
They claim to be collateralized with commercial paper which, without further information, is worthless. They could print a billion Tethers, sell them to a buddy for an IOU, and be "collateralized" by that definition.
> What tether is doing is reframing what 1:1 collateralization means.
Or in simpler terms, Tether is a crypto money market fund, combining the convenience of money market funds with the transparency of a Ponzi scheme. If you read even the little transparency they do provide very carefully, it doesn't exclude the possibility that they're lying through their teeth about their backing: the commercial paper is described as being valued at face value, which, combined with the extreme reluctance to even hint out which industry the commercial paper is in, is not reassuring at all.
One thing from the article that people should probably pay more attention to:
> A hallmark of Tether is that its creators have said each token is backed by one U.S. dollar, either through actual money or holdings that include commercial paper, corporate bonds and precious metals. That has triggered concerns that if lots of traders sold stable coins all at once, there could be a run on assets backstopping the tokens. Fitch Ratings has warned that such a scenario could destabilize short-term credit markets.
Even if Tether is 100% backed and not fraudulent at all, a bank-run scenario could result in Tether needing to sell off billions of dollars of its assets very quickly.
What happens if there is a precipitous sale of the assets that currently back the Tether token? Would there be ripple effects across the rest of the economy if additional volatility creeps into the commercial paper market as a result?
Regardless as to the actual risk, concern over this specific scenario is animating much of the regulatory interest into stablecoins. One would expect restrictions to be imposed on what types of assets may be used to back stablecoins, and for explicit reporting requirements to be imposed as well.
> What happens if there is a precipitous sale of the assets that currently back the Tether token?
If Tether is thusly backed, it's a non-interest bearing money market fund. We saw how those break down in the last crisis. In reality, Tether would just halt redemptions. (Unlike a money market fund, there is nothing holding them to convertibility.)
> Tether has a $60bn market cap. That's a drop in the ocean for the international markets.
Market cap here is more meaningless than usual as we don't care about Tether's liabilities but its assets. (Given their history, there is no reason to assume one strictly relates to the other.)
If Tether has its $60bn in short-dated Treasuries, great, no problem. If they have $5bn in receivables financing to a homebuilder, fast liquidation could very well crater that market. While that happens, other holders could be forced to sell, thereby transmitting risk from crypto to the mainline.
This happened when several money market funds "broke the buck" in '08, and led to a flurry of reforms that effectively banned maturity transformation in fund products. (Less jargon: you can't promise fixed-price redemption if you're buying securities.)
> In February, Bitfinex and several Tether affiliates agreed to pay $18.5 million to settle claims from New York Attorney General Letitia James that the firms hid losses and lied that each token was supported by one U.S. dollar.
Can anyone explain this because I'm not familiar with the legal framework here - they paid to settle with NYAG? So you pay and then having potentially broken a law isn't a problem anymore? How does this work?
The reason this happens is that the bar for proving criminal intent on the part of a corporation- which would lead to jail for executives and could lead to dissolution of the corp- is very very high. Getting the evidence related to "mindset" and linking it to action and doing so in a way that sufficiently resists various defense strategies is almost impossible, and extremely expensive and
time consuming to litigate.
The result is a Nash equilibrium where companies, in a world where prosecutors had infinite time and resources, could be convicted of criminal acts, instead make a deal with prosecutors- whose investigations cost companies money to support and whose work is often public which can damage reputation. The size of the deal and other aspects of behavior/policy change will all be negotiated.
A company can never "admit wrongdoing" as doing so would have so many downsteam impacts as to make it impossible to stay in business. For instance, a company that "admitted wrongdoing" would be in violation of any terms of financing and of many employment contracts.
Want to offer a clarification to what you said here.
Government doesn't have to prove that the corporation acted with criminal intent - that's impossible since corporations don't have minds.
To hold a corporation criminally liable, government must prove that an employee/agent of the company violated the law while acting within the scope of the employment.
So, if you can prove that a Tether executive committed bank fraud, it's rather trivial to hold Tether the corporation responsible as well.
The difficulty is proving that the individual acted with criminal intent. This is indeed a laborious, expensive process that involves trawling through millions of documents and IM messages. The targets of the investigation will often be able to afford the best defense lawyers. Which is why government will often settle a case rather than take it to trial.
There is corruption everywhere, of course. The sort of transaction you talk about is common but also inefficient. Many jurisdiction governments just take direct equity stakes in successful or well positioned "commercial" endeavors, often after they become successful, in addition to collecting supra-level "taxes" of various kinds.
That's not what's happening here, referring to Tish James' work against Tether as NY AG. My personal view, having both engaged with her office asking for help on one project and responding to queries from her office on another (neither related to crypto)- she's probably the best case/ideal state attorney general. Her heart and motivations are in the right place- working for the public interest- she's very politically savvy, and she's a very good chess player.
She has some resources- probably has 1000 lawyers working for her, which in law firm terms would be huge. But these are public servants with public servant salaries and budgets without much room for all of the support team and expertise infrastructure that back law firms themselves. The number of matters they are dealing with is probably in the 5-6 figures- dozens to hundreds per lawyer- and the breadth of expertise required spans the entirely of the legal system. Housing, education, finance, commerce, local to global- you name it.
In every case they have to understand the leverage they have, and use it carefully and deftly. This is what was done with tether. A relatively small settlement, but arrived at relatively quickly- has sent an extremely powerful signal. It is like striking a very precise blow with an extremely sharp axe, carving off a key part of the defensive bark on what was likely a wholly corrupt- but until then impenetrable- tree.
Watch as over time more of the bark falls, more documents leak, more complaints arise.
I appreciate your informed perspective, indeed I’m just bitter that banks got away with laundering drug money among other crimes. Sometimes it can seem like governments and financial institutions are on the same team ;)
I think it's more just that the government doesn't want to blow 100 mil trying to litigate a case they have almost no chance of winning in some reasonable amount of time. Government lawyers are almost always out-gunned in cases like this.
Define criminal enterprises? Because smoking can be considered one of them (it's harmful, addictive and heavily taxed). Only recently western governments started to crack on smoking (probably because they foot the bill for healthcare now?) but booze and tobacco where the way to tax people before.
This is very common in the US, especially for banks and financial institutions.
They settle without admitting any wrongdoing, and agree to pay a fine and promise to change their procedures to avoid doing this in the future.
It is exceedingly rare for financial executives to go to jail for crimes committed by a corporation.
There’s a weird game-theoretic angle to it too. US regulators tend to mostly hammer down when they are confident they can win, they don’t like fighting and losing. So in a way, being told to pay a fine is seen as “pay the fine or else we’re going to court and winning”. It saves the regulators the hassle of actually proving they are right.
But of course there is then a second-order effect. If you are defending yourself against the regulators, right or wrong it is assumed the case is very strong, by all parties.
Ultimately it’s an agency problem too: regulators want (are incentivised to maintain) “clean” markets, not to send people to jail. In the short term, if their civil fine achieves it, their job is done and there is no need to drag themselves through the courts.
From a societal perspective if the threat of investigation and fines is enough to scare most people into following the law most of the time then it's a fairly cheap return on investment. It sucks that some people "get away with it" but over-zealous prosecution can have its own negative side-effects.
FWIW I do wish we'd see more prosecutions of the big cases like the financial crash or the many instances of criminal fraud in the crypto space. Like Madoff you need to catch some big fish to remind everyone that your threats are not entirely empty.
Financial regulations carry three types of penalties:
- Criminal: go straight to jail
- Civil Fines: pay money
- Civil Injunctions: never work in finance again
In the United States there are several entities charged with enforcing financial regulations. You can roughly divide them up by jurisdiction:
- Federal agencies: Securities and Enforcement Commission (SEC) which can only enforce civil penalties, Department of Justice (DOJ) which can send you to jail, and other three-letter agencies.
- States and local governments: New York Attorney General, Manhattan District Attorney, etc.
- Self-Regulatory Agencies: New York Stock Exchange, Chicago Board Options Exchange, etc. can investigate on their own.
If this sounds complicated, well, it is! A company under investigation has to consider the ramifications that resolving one investigation will have on others.
Traditionally, companies settled with NYAG and the SEC on civil grounds without admitting or denying liability. This is because admitting fault will almost certainly screw up your defense against the federal criminal investigation, which is what you're really afraid of anyway. (Not to mention hundreds of private lawsuits that will be filed if you assume fault).
New York Attorney General's office can pursue criminal charges as well but the penalties aren't as feared as federal criminal charges. Defendants assume correctly that if they're going to be convicted in state courts, they're going to be convicted in federal cases as well. So there's not much incentive to resolve a state criminal case when federal prosecutors are circling the water.
From the NYAG's perspective, they know that any criminal charges they bring will be second fiddle to the federal criminal charges. It could make more sense to 'strike the first blood' and get a financial settlement from a company before the federal hammer falls.
And from the company's perspective, settling early with the AG might be a way to show the federal prosecutors that it is capable of reforming its ways. Federal criminal charges will kill a company. If federal prosecutors can be convinced that the company is capable of being reformed, they might agree to a Non-Prosecution Agreement (or Deferred Prosecution Agreement) which says, company admits X, Y, Z, and will pay $$$, and will agree to outside monitoring to make sure it doesn't break laws again, in exchange for not being charged with a crime. It's kinda like a plea agreement except the company isn't formally convicted.
Executives and individuals responsible for the wrongdoing often get thrown to the wolves. I wouldn't want to be Tether execs right now.
What Tether is doing is replaying the banking scams from the 1800s. A bank would open up, issue an unlimited amount of its paper currency, collect deposits in other, valuable currency, and operate for a while. Eventually it would collapse and the owners would walk away rich, having fleeced the public of a great deal of their money.
US banking regulation is nearly weak enough to permit this for regular banking, but not quite. However, US banking regulation is weak enough to permit it as long as you call it "cryptocurrency" instead of "private currency".
> "Commissioner Alpheus Felch recalled that one bank's "cash reserves" consisted of boxes of nails and glass topped with silver coins."
Pithy! A box that's heavy, makes good clinking noises when you shake it, and has only the tiniest bit of money in it. And so apropos for Tether. I wonder if we'll get some similarly pithy remarks about the modern wildcat banks.
I don't think they ever went to "jail" at all, just home detention. They convinced a Federal judge that “the intent was not there to engage in illegal conduct”.
Gold & Silver Reserve CEO Douglas Jackson was sentenced to 300 hours of community service, a $200 fine, and three years of supervision, including six months of electronically monitored home detention.
Cryptocurrency pegged to fiat is quite possibly the dumbest possible use of a cryptocurrency I can think of, except for Tether which was an obvious scam from the get go.
- Are you a merchant selling digital goods online and you want a zero-risk chance of dealing with chargebacks? You can accept stabletokens. No credit card fees as well.
- Are you hodling a good amount of BTC/ETH/BAT tokens but you would like to get some liquidity, perhaps for a large purchase? Put your crypto as collateralized loan on MakerDAO, get DAI with very low interest and spend that: bonus point, if the crypto you were holding loses value and your loan gets liquidated, you get a tax write-off.
- Do you live in some third-world country with poor countries and strong capital controls (e.g, Argentina)? It is a lot easier to buy crypto-pegged to the USD and EUR than it is to buy actual dollars and euros.
A lot of stablecoins sacrifice decentralization, but there are some like DAI that get you all of the (non-volatility-related) benefits of cryptocurrency like direct control without the price volatility. If you want to use cryptocurrency as money, the price volatility is often a big downside.
Edit: Isn't it a huge red flag that Tether doesn't make any money off transaction fees? Their daily volume is almost 2x that of BTC. They could fully support the company with a tiny transaction fee and avoid all the regulatory uncertainty/FUD.
How does tether make money (aside from potential fraud)? Is there a transaction fee that supports the people and cost of running tether (the company)?
If I were running it as a 100% legal/safe operation I'd invest the balance in short term treasuries. If you multiply tether's liabilities ($61.9B) by the current 1 year treasury rate (0.09%), you get $55.7M, which seems like plenty of money to run such an operation.
> If I were running it as a 100% legal/safe operation I'd invest the balance in short term treasuries. If you multiply tether's liabilities ($61.9B) by the current 1 year treasury rate (0.09%), you get $55.7M, which seems like plenty of money to run such an operation.
If we're playing that game I'd do the same but invest in tax-free municipal bonds and the like which can currently earn 3-5%. That would earn you $1.86 billion on the low end. Keep staff & expenses low, pay everyone insane salaries (eg 5m per year is less than 100m given their staffing levels), and coast until acquisition. Everyone gets rich now and again later when you sell.
That's what is so ridiculous about Tether... they have plenty of ways to go legit if they wanted to do so. Heck even if they were only spending half of every $ they took in to actually back the Tethers (and pocketed the other half) they could have invested in the US Stock market over the past four years to make up the difference, then presented public financials this year proving they have enough currency, bonds, stocks, and paper to fully back every Tether. They'd have pulled the same trick lots of big time crooks did and gone fully legit. The fact that they aren't doing that indicates they're either really stupid, really greedy, or both.
They can't do that because they have likely been "printing" tether out of thin air to boost the price of Bitcoin. They don't have assets to buy treasuries, otherwise they would have 100% done it.
In reality, there was never $60B+ of interest from the market, but once they invented it via printing unbacked tethers, they could grab real USD from people FOMO'ing in and then park that cash somewhere offshore where it can't be touched when the whole thing melts down.
Occam's razor states that they don't have the money given that they'd have zero issues if they actually had $60B+ in deposits.
Why has nobody done this in a legit/safe way yet? How hard is it to create the equivalent of Tether with 100% independent auditors from the start that verify the coins are backed by real fiat?
If you had literally more than $5 billion per employee under management, swiping a few billion because what are the odds of a bank run becomes extremely tempting…
They invest the funds backing the Tether in dubious investments (mostly short term loans to unknown companies, but some precious metals, bonds, funds, and even some crypto
The obvious source of commercial paper is that they sell Tethers at a steep discount to an exchange they're buddy-buddy with, and the exchange gives them an IOU in return. Hey presto, "commercial paper" backing the Tethers.
They make a lot of money (potentially). They sell USDT tokens which cost nothing to produce for dollars. Then they take these dollars and invest them in various places. Holders of USDT tokens have no claim on the profits (unlike investors in money market funds) so the profits are all Tether's.
Quick summary: The investigation relates to whether Tether misrepresented transactions for crypto in 2014. The statute of limitations for fraud is 5 years, but because it involves a financial org the SoL is 10 years.
Note that the lawsuit has nothing to do with Tether backing (despite the majority of HN comments as of this writing). As I've said elsewhere: In order to believe that Tether lacks backing, you have to believe that AG Leticia James got the data from the NYAG subpoenas, and then ignored the fact that Tether has insufficient backing. Not likely.
... which is consistent with having sufficient backing. Again: She did not open a criminal prosecution for fraud. Do you think she would just let go of a criminal prosecution?
> Do you think she would just let go of a criminal prosecution?
Yes? Those are my tax dollars at work. There are better places to prosecute. Let the Feds do the international heavy lifting such a prosecution will require.
> Yes? Those are my tax dollars at work. There are better places to prosecute. Let the Feds do the international heavy lifting such a prosecution will require.
So you believe Leticia James has documentation saying that USDT is not backed 1:1 with any dollar-based securities, and didn't even say so? And let investors continue to be defrauded, and she'll let the Fed AGs to get the credit?
She is the Attorney General of New York. Tether is banned from New York. No need to launch a criminal probe against an overseas firm led by overseas founders harming out-of-state residents.
> let the Fed AGs to get the credit
This isn't a case with obvious political upside. Tether getting blown out will cost millions of Americans on both sides of the aisle. There isn't a sympathetic party being harmed who will be grateful for enforcement. (To say nothing of the money printer cryptos have been for traditional finance.)
> There is definite need to launch a criminal probe against an overseas firm that defrauded NY state residents, which she did not do
That's not your or my decision to make. It's the prosecutor's.
And on this one, I'm with her. Everyone "defrauded" by Tether is and was a willing participant. The wound has been cauterized by banning Tether from New York. Damages can settle themselves through the courts using the injured parties' own resources. (Not taking into account that many of the presumed "injured" would object to that designation in the first place.)
What I don't understand is why major exchanges continue to give tether their customers money when it's not backed by cash?
Would an exchange not be incentivised to manage the cash themselves and significantly reduce risk for their customers and business? It seems like huge risk for what looks like a minor convenience.
Also, very good video on the history and current state of tether:
Any rational person can see that Tether poses an existential risk to the crypto economy - but the market is highly irrational. There was an interview with tether's CTO and GC the other day that was an absolute car crash[0] and should be sounding deafening warning bells for anyone invested in crypto, but instead we see the BTC price shoot up by 15% in the days since it aired. It is utter madness.
In the ending days of Mt Gox's meltdown, prices went up up up for quite a few digital assets, until they didn't.
Basically the shady exchanges are insolvent and they stop cashing out real money, so peoples' only chance to cash out is to buy crypto and transfer it out, driving up crypto pricing on the insolvent exchanges, that greedy people try to arbitrage.
BTC shot up (by about 250%) the last time Tether was nearly shut down as well, as the NY AG was investigating them from Apr - Jun 2019.
It makes sense when you consider that the population holding cryptocurrencies generally considers the USD worthless (you see that in some of the other posts here). USD are not an option. If Tether goes under, the next most stable reserve currency of the crypto economy is Bitcoin, so money flies out of Tether and into Bitcoin, pumping the price up.
According to this article [1], about 70% of the current buy pressure on BTC comes from USDT. If tether value collapses, that tether won't be able to afford any BTC, so it won't matter where it flies to. And 70% of the buy pressure on BTC will disappear.
it is because binance got transferred a whole bunch of tether and also created a whole bunch of its own stablecoin right before that huge spike last night.
>it is because binance got transferred a whole bunch of tether and also created a whole bunch of its own stablecoin right before that huge spike last night.
What you are describing is just people moving money to an exchange and buying with leverage, not fraud. Price moves up when large buyers step in with FOMO.
If I were holding any Tether, articles like this would probably push me to buy btc or eth with it, then transfer it out of exchange reach. I would, then, consider moving it back to USD only when the dust settle.
From that point of view, it's easy to imagine why a tether collapse would temporarily push crypto prices up - not down.
I’d not be surprised at an opposite effect because what will Tether holders “run to” in case of a bank run? With every crisis people will gain trust in Bitcoin not the reverse. Tether holders will bid up Bitcoin as it is something they can custody themselves.
People said the same thing about Mt. Gox. Tether only represents 4% of the market cap in crypto. About the same fraction of the US stock market represented by Amazon.
It's not about "market cap", which is a myth in the crypto space anyway: I made 1 billion of my proprietary tokens, and sold .001 to myself in another wallet for $1. Therefore my token's market cap is $1 trillion. I'm sure banks will let me buy a hundred million dollar mansion now since my net worth is verfiably gigantic.
It's about cash "equivalent" in flow and out flow that tether/stable coins make up. Currently they're responsible for over 80% of this volume[0], which mean virtually no "real money" exists in the crypto space, it's just imaginary "totally-backed-bux" and wash trading.
Volume is not synonymous with flows. For example ~50% of US equity market volume is HFT. Yet this trading has virtually no impact on the large-scale direction of the market. That's because they don't accumulate sizable positions. Most of the volume is very high turnover, so there's no large aggregate impact.
Similarly, most of crypto volume is Tether, because Tether is used to arbitrage between exchanges. Tether is a way to transfer money significantly faster than the fiat banking system. Particularly for exchanges in segmented banking markets. It's much cheaper/faster to get USDT from Coinbase to ByBit than it is to send an ACH wire.
It's much cheaper/faster to use USDT because if you are the "in crowd" you don't have to actually pay and back it, and if you own/print it, you can wash trade to infinity with it.
The point is that the amount of money that supposedly exists in the crypto ecosystem (which is, at best zero sum, but really negative sum in most cases) is as imaginary as tether's backing.
It certainly would, as currently USDT is used as collateral throughout the system, but I don't think Tether would just 'go down'. Regulators aren't stupid and the worst case imo is that there is a time period where people are told to redeem tether to USD or other stablecoins such as USDC/DAI. The space has been through worse things and always recovered, I do hope Tether is properly investigated so that we can have confidence in them or remove them from the space and use other stablecoins.
If Tether has no actual cash in its kitty and its price on open exchanges plummets to zero, how exactly are "people" going to redeem it for USD? Tether is entirely unregulated, there's no FDIC insurance or equivalent backing it.
Yeah, if you move fictional dollars in the form of USDT to USDC then you are just shifting the imaginary amount around, it doesn't change the fact $61B is rendered worthless.
And that’s actually been happening. For week’s usdc’s biggest trading pair has been usdt. So some people are dumping usdt on usdc holders at 1:1 ratios.
Why anyone holding usdc would exchange one for a usdt at par is a question I don’t have an answer to, but it’s happening en masse.
DAI is backed by USDC, and USDC is a competing stablecoin. Why would a competing stablecoin want to use their own reserves to redeem USDT for you? I don't mean to be antagonistic here, but there is no safe and steady off ramp for holders of USDT if it is found to be a scam. The value of USDT will collapse, and anyone holding it will have to take a 100% loss. The only way to remedy that would be in the form of some sort of bailout from some other entity, but I don't know how or why that would happen.
I do agree that crypto has been through some issues in the past and has recovered, and I'm sure in the long run it will recover from a Tether collapse as well. In the short term the market will take a significant hit, and many of the exchanges that deal heavily in USDT could collapse because of a lack of liquidity.
Yeah I definitely don't disagree with you. The backing can change over time, and I linked to a tool that programmatically checks the backing of DAI so that's what I quoted.
In Tether's case they are backed by almost no USD and mostly short term loans to undisclosed entities... I do not think Tether is legit, and USDC is questionable as well. Without third party auditing it's hard to trust any of this stuff.
My original response was trying to highlight how DAI is mostly made up of USDC (at this time), and USDC is a direct competitor to USDT. So in what world would it make sense for USDC to bail out USDT in the event USDT is revealed as a total fraud.
Why do people still use Tether? Alternatives like USDC and Dai are plenty liquid. I don't understand why anyone would put up with this level of unnecessary risk.
> Top five accounting services firm Grant Thornton LLP issues attestations each month on the US dollar reserves that back the USDC tokens in circulation.
Attestations were never intended to be used in this way, and are, in this situation, meaningless. The only reasonable purpose for these attestations is to confuse people who mistakenly conflate them with audits.
The fact that USDC is resorting to this behaviour rather than performing audits is not meaningless, however: it's a substantial red flag.
USDC isn't audited, but it is attested, which means what most laymen think of auditing as meaning - a major auditing firm has confirmed they hold the backing dollars
An attestation is an assurance that published valuations add up correctly. It provides no verification of the veracity of those valuations. Attestations are intended to be used as a follow-up to an actual audit, not as a replacement for one.
> One of the things to keep in mind to differentiate each of these services is that audits are performed to discover data, risks, or compliance issues that may not have been known before the audit took place, and attestation is to evaluate and review how true the data or information is when compared to a stated purpose, internal control or system.
Aren't many executives Italian?
So, whatever the US justice department does, as long they stay in Italy, they will not see jail time, or am I wrong?
The company sure can be shut down and blacklisted globally, as well as the current executives.
It looks like a shift to USDC is happening, why is that not stopped? It looks like a tether fork with different board, but backing etc look all the same.
> Aren't many executives Italian? So, whatever the US justice department does, as long they stay in Italy, they will not see jail time, or am I wrong?
I don't think these people live in Italy, more like Hong Kong or countries where extradition to US is difficult.
I want to say this, because a lot of people think that people suspicious of Tether hate bitcoin, quite the contrary, if one values Bitcoin, then one should be very skeptical of everything around Tether and Bitfinex, for Bitcoin's sake.
Generally speaking if the US can identify some interest in the case (US customers, for instance) then it can file an indictment. Most first-world countries have extradition treaties with the US, and will definitely ship Paolo over for something like this.
Seems like the obvious thing to do is set up a large Bitcoin short position, buy a bunch of tethers, and publicly try to redeem them
If tether has backing, you only lose the tether premium. Otherwise you lose all your tethers, but hopefully you make it back on the rest of your crypto shorts.
Disclosure: I know nothing about crypto. I've maybe transacted $300 of it, maximum, in my lifetime. But Tether was obviously shady from the start. The insane social-media pushes, the "thought guards" who would scour crypto hashtags to spam whitepapers at Tether detractors, it all seemed way too sensational from the start.
As a side-note, I really do feel bad for the people who have poured their lives into becoming full-time cryptocurrency advocates when Bitcoin took off. I've always thought the technology had potential, it's obviously not a one-size-fits-all solution. It's basically binary search with a sex factor, which makes it all the more fascinating to watch it take off with wild, unfounded speculation pouring in from the finance sector.
What I find more interesting than the rumors detailed in the article is the timing of publication. Crypto markets are moved by fud and fomo, to me the timing is no coincidence.
that's interesting story. this is quite huge and I think that could be crucial to tether and its reputation i wonder if the companies that accept tether now (like those mentioned here https://nowpayments.io/blog/businesses-accepting-tether) will continue to do so? what do you think
As someone who doesn't really care about the virtues of crypto, but has a small investment in btc that has grown into several thousand dollars, I'm feeling that if I want some casual investment in crypto I should move it into eth to avoid regulatory risk from bitcoin's environmental cost and tether collapsing and destroying bitcoin's value. I'm sure eth would tumble down with btc for a while but feel it might diverge positively after a while if either of these two threats hit btc? It feels like btc just has a lot more guns pointed at it.
The prices of all the top cryptocurrencies have been heavily correlated since the crash in early 2018. You aren't avoiding any of the risk by holding ETH instead of BTC.
DeFi, generally on Ethereum, would be severely impacted from a Tether fallout. Curve’s largest pool, which is the basis for a lot of yield in other services, can be drained to zero if Tether has even a minor sustained depeg. Tether backed loans at a variety of services would likely default sending liquidation events across all the major tokens on Uniswap and Sushi. Bitcoin wouldn’t do great but it is insulated from a DeFi ecosystem collapse that would undermine Ethereum’s value.
As for regulatory risk, I think privacy coins are the biggest target.
There is less of a liquidation risk regarding tether precisely because the major lending protocols (Maker, AAVE, Compound) do not let you use tether as collateral. You can deposit it to lend to others. And borrow it against other assets. But you cannot directly borrow against USDT as collateral.
Ive moved everything to eth over the last few months. It retains the ability to store value like btc, but fuels a defi ecosystem that is providing an automated financial services economy. As traditional financial institutions dive into the crypto assets, im thinking they can feel more comfortable about eth investments due to how they can compare defi to cefi and traditional finance and have good tools for valuing the asset. Wall street loves recurring revenue.
Comparing eth to other smart contract platforms, eth has strongest ecosystem of block chain developers, and the most mature smart contract tooling.
As for regulatory risk, it seems to me like pulling off a really attached bandaid, it will shock and hurt, but ultimately regulation allows a framework for traditional finance to bring crypto based products to its consumers without stepping into legal issues.
I am concerned that regulation around tether and stable coins could be very hurtful to anyone who is currently invested. For less risky investors, I would consider waiting until regulatory murkyness has been clarified.
Tether likely impacts eth as much if not more than Bitcoin considering it 1) runs on Eth and 2) Eth tends to be the financial product crypto of which tether is the largest element.
Ehhh. I'm pretty close to an Ethereum maximalist, but I'd actually say ETH is more at risk than BTC for these types of downside risks.
For one BTC is just bigger with more people widely invested in it, and more name recognition. That's going to constrain government action from interest groups and the public perception of overreach. If Biden announced tomorrow that he was going to "shut down Bitcoin", a lot of conservatives, and even moderates, would have a knee jerk opposing reaction. If he said he was going to "shut down Ethereum", most people would be like "what the hell is Ethereum?"
Two, Ethereum's smart contract system allows a lot more shenanigans. Remember, Tether runs on top of Ethereum, not Bitcoin. As does almost all of DeFi, which is starting to piss off financial regulations. Bitcoin doesn't come with all the baggage attached. 99% of it is just people transferring Bitcoin to one another. That makes its systematic risks pretty self-contained.
I'm not sure ETH would be any better protected from tether's collapse. If anything it might be more affected since a fair number of defi projects use it.
I got out at the previous peak of 20 k. When banks could short it.
Before the pandemic, it went to 4k. And I forgot to do it again. I would have sold everything by now, i don't think it will hold, just like it didn't hold in the past ( pre-covid).
DeFi is the future so I would say ETH is a better/safer investment than BTC in the long term. The only thing Bitcoin is useful for is doing transactions which any other cryptocurrency is also capable of. Also, consider Cardano. It's proof-of-stake already (so no environmental impact), and it's about to get smart contracts implemented in a few months.
I don't think there really are any (or many) reserves. I think they just printed a bunch of tokens, used the tokens to buy BTC and to inflate the value of the crypto they hold in Bitfinex (Bitfinex and Tether are approximately the same company). If they throw in the towel they lose their ability to influence the crypto market which is where their actual gains come from.
That seems most likely. They thought that it doesn't matter if they back these tethers with BTC because BTC is a better investment than the UDS anyways. Once they went down that path they had no way of getting out other than printing more tether to prop up BTC when BTC dropped.
If we're being totally honest, the incentive not to do so is probably death. Who knows who is "invested" with them, doubtful it's people who like investments with accurate record-keeping.
They would just stop redemptions. The existing supply would continue to exist on Ethereum and be tradeable, likely dropping in value due to the decreased confidence in it as an asset.
> In the course of its years-long investigation, the Justice Department has examined whether traders used Tether tokens to illegally drive up Bitcoin during an epic rally for cryptocurrencies in 2017.
But Bitcoin isn't a security. Is it illegal to manipulate it's price? Why haven't they looked at influencers pumping s*tcoins?
"The Securities and Exchange Commission today announced settled charges against professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled, for failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs). These are the SEC's first cases to charge touting violations involving ICOs."
As the saying goes: " The wheels of justice turn slowly, but grind exceedingly fine."
The minting amount of Tether is absurd and does have the free reign to mint how much they want. This issue was already exposed a long time ago, yet as the BTC price went up, they suddenly put up this Tether FUD news. There are some other alternative stable coins vs. USDT, and I think if you weigh in the pros and cons and with the issue of Tether right now, surely USDC and other stable coins would win.
> 3. The OAG finds that the conduct set forth herein violated the Martin Act and
Executive Law § 63(12).
> 4. The OAG finds the relief and agreements contained in this Settlement Agreement appropriate and in the public interest. Therefore, the OAG is willing to accept this Settlement Agreement pursuant to Executive Law § 63(15), in lieu of commencing a statutory proceeding
Page 2 of 17 for violations of the Martin Act and Executive Law § 63(12), based on the conduct described
below.
While everything that has been said about Tether seems valid, not sure what is true and not, it is definitely suspicious. But after reading all comments, I am wondering, isn't the whole financial system also a house of cards? Can we talk about the amount of debt on student loans, credit cards, house loans, those ridiculous low interest rate, the amount of $usd that is being printed and giving it away ?
And all of those financial instruments are controlled by the same people that have been "cracking down on stablecoins/crypto"...
So my question is, who can we trust? we were born with banks around us so we kind of trust them, but can you imagine the level of corruption that existed when they were being created? how many financial institutions disappear with everyones money...
We are just at the early days of crypto, there is people trying to make good things and people trying to make a quick win taking advantage of the current status.
> isn't the whole financial system also a house of cards
Yes. But importantly, it's a house of cards guaranteed by all the money and force of the government of $major_power.
> Do your own research, make your own decisions...
The vast majority of people are not capable of understanding either the economics or technology involved without investing an unreasonable amount of time. (I'm not ashamed to admit that I don't, and I certainly understand more of the tech and probably understand more of the economics than 99% of the US population...)
Oh, gee, another excessively dramatic article about crypto/Tether (see “… a potential criminal case that would have broad implications for the cryptocurrency market.”)
My gut tells me that the Tether team did break some laws when trying to find a bank to hold their hundreds of millions/billions of dollars, but I don’t think Tether is a scam, since I think they do have the cash reserves to back the stable coin.
Their problem was too much success: they literally had too much money and banks didn’t want to touch it, so Tether was forced to become “creative” because you can’t exactly store hundreds of millions of dollars under mattresses. I don’t see how Bitfinex/Tether making money hand over fist from collecting usurious trading fees will bring down crypto markets. Just because some bank executive is found guilty of breaking banking laws doesn’t mean it will have broad implications for the entire banking system.
>I think they do have the cash reserves to back the stable coin
They haven't completed an audit, have they? If someone starts an audit, they're admitting that it's necessary, and if they quit halfway with some lame excuse, how is there any chance they are legit and actually have the reserves they claim? There is just no innocent explanation I can imagine.
Ok so basically the accusation is that they said to the bank they were consultants/service company and did not disclose crypto
Back in the days banks would have meant they were in the cryptography sector or something.
Also why is this US business?
The US should be careful not to weaponize the USD, SWIFT DTCC or the correspondent banks network.
The world entrusted the US with said institutions (as well as the UN, World Bank, IMF) because the US never weaponized them, and never went after thought crimes.
The US can't stand Tether, more specifically it can't stand Crypto....so it is trying the same thing which pulled off with Microsoft in 2000 and with Standard Oil back in the days...only this time the population won't be onboard with it because there is no richer than god man in the high castle to point at .
