[HN Gopher] Tether executives said to face criminal probe into b...
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Tether executives said to face criminal probe into bank fraud
Author : camjohnson26
Score : 349 points
Date : 2021-07-26 13:32 UTC (9 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| cosmojg wrote:
| 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.
| WalterSear wrote:
| USDC isn't audited either.
|
| And the risk is systemic. Either you put up with it, or you get
| out of crypto.
| rwiggum wrote:
| USDC is audited monthly https://www.centre.io/usdc-
| transparency
| WalterSear wrote:
| USDC is attested monthly. It is not audited.
|
| > 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.
| lawrenceyan wrote:
| Re: their recent settlement with the New York Attorney General -
| https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
|
| > 3. The OAG finds that the conduct set forth herein violated the
| Martin Act and Executive Law SS 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 SS 63(15), in lieu of commencing a
| statutory proceeding Page 2 of 17 for violations of the Martin
| Act and Executive Law SS 63(12), based on the conduct described
| below.
| jstx1 wrote:
| > 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?
| jonahbenton wrote:
| 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.
| jazzyjackson wrote:
| So what I'm hearing is, governments world prefer criminal
| enterprises stay in business so long as they get a cut of
| profits via settlements
| jonahbenton wrote:
| Non-snarky response to snarky comment:
|
| 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.
| jazzyjackson wrote:
| 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 ;)
| csomar wrote:
| > criminal enterprises
|
| 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.
| VWWHFSfQ wrote:
| 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.
| jazzyjackson wrote:
| I agree that it's pragmatic, it just doesn't seem
| especially Just.
| anonymousab wrote:
| > A company can never "admit wrongdoing" as doing so would
| have so many downsteam impacts as to make it impossible to
| stay in business.
|
| If anything that sounds like making it a requirement to admit
| wrongdoing should be step 1.
| tannhauser23 wrote:
| 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.
| [deleted]
| jonahbenton wrote:
| Thanks, appreciate the clarification. Am not a lawyer so
| the aspects of a person that a corporation can be vs cannot
| be is fuzzy to me lol.
| tannhauser23 wrote:
| 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.
| machinecontrol wrote:
| 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.
| rich_sasha wrote:
| 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.
| vmception wrote:
| Additionally, major regulators (feds + ny) are in a habit
| of not creating monopolies by not sanctioning a company or
| its executives into dissolution.
|
| To them its worse to be responsible for reducing
| competition, which is a fascinating prisoner's dilemma.
| xenadu02 wrote:
| 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.
| pwned1 wrote:
| An interesting primer on Tether, and whether it is a scam:
|
| https://www.zerohedge.com/crypto/what-effect-would-tether-be...
|
| (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...
| rvz wrote:
| > So in my estimation, it probably is a scam...
|
| 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.
|
| Just read:
| https://twitter.com/smdiehl/status/1393669812220465162
| fleddr wrote:
| 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.
| spookthesunset wrote:
| And yet people are so bought into crypto hype they look the
| other way. These dudes have been running this scam in plain
| sight for _years_ now.
|
| It always amazes me that the whole house of cards continues to
| stand and hasn't completely blown up.
| deepvibrations wrote:
| 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.
| lottin wrote:
| There is literally no innovation in the crypto "space".
| arcticbull wrote:
| 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.
| deepvibrations wrote:
| I agree there is a lot of this in the space, but if you
| look past the laser eyes, there is some really awesome
| stuff happening in defi.
| arcticbull wrote:
| 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, 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.
|
| [1] https://www.rekt.news/
| bostonsre wrote:
| 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.
| bluecalm wrote:
| 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?
| [deleted]
| NicoJuicy wrote:
| Calling it innovation seems pretty naive.
|
| - defi: images hosted on url's that can disappear
|
| - eth sites: exists since 1970?
|
| - eth auth: a step back, lose keys, lose account. No
| recovery possible.
|
| ...
|
| Can you say what exactly was "innovated"?
| deepvibrations wrote:
| 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.
|
| (some examples taken from article
| https://parthchopra.substack.com/p/part-2-why-defi-is-
| not-a-...)
| Marazan wrote:
| Yes, money started moving over to USDC at exactly the same
| time they reduced transparency over their reserves and
| stopped being fully dollar backed.
|
| The risk is still right there.
| onlyrealcuzzo wrote:
| 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?
| knownjorbist wrote:
| I'd err on the side of you not fully understanding the crypto
| picture rather than it being an enormous scam.
| Semaphor wrote:
| Probably because most people don't care much? Tether always
| seemed like a thing for day-traders and whales.
| xenadu02 wrote:
| 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.
| boc wrote:
| 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.
| [deleted]
| mikeblackson wrote:
| Some people being ignorant about how it works makes it
| (probably) a scam?
|
| That ZH article's ifs, possiblies, and maybes are doing a lot
| of heavy lifting.
|
| Is the Bitcoin price up? Queue the Tether FUD.
| onepointsixC wrote:
| 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.
| TheCapn wrote:
| >(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)
|
| I thought Tether & BitFinex were the two partners? Am I
| wrong?
| mikeblackson wrote:
| >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
| dsr_ wrote:
| As you undoubtedly remember, the universe popped into
| existence, complete with faked history of all space-time
| events, seventeen minutes ago.
|
| There's no evidence against it.
| EpicEng wrote:
| >Also, there is nothing which proves that Tether actually
| isn't backed by anything.
|
| There's nothing proving that the boogyman doesn't exist
| either.
| jcranmer wrote:
| > 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.
| mikeblackson wrote:
| >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
| FireBeyond wrote:
| 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".
| jcranmer wrote:
| > 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.
| Marazan wrote:
| The NYAG showed that Tether was not fully backed.
| mikeblackson wrote:
| >The NYAG showed that Tether was not fully backed.
|
| In 2017, when they were busy securing other banking
| partners due to accounts being shutdown.
|
| I consider this a gap due to growing pains, as did the
| NYAG. How would you shutdown Tether temporarily (2-3
| months) if a bank ends a relationship?
| Majromax wrote:
| > 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.
| mikeblackson wrote:
| >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)?
| jfrunyon wrote:
| 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.
| Marazan wrote:
| They siphoned money from Tether to fund Bitfinex.
|
| This was while they did have a banking relationship. What
| was the exscuse then?
| user-the-name wrote:
| 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.
| jfrunyon wrote:
| 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.
| gjsman-1000 wrote:
| This is cryptocurrency, where "Don't trust. Verify." is the
| sentiment, and they've done a terrible job at allowing
| verification.
| pwned1 wrote:
| 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."
| arcticbull wrote:
| 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].
|
| [1] https://cryptocriticscorner.com/
|
| [2] https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/
|
| [3] https://www.youtube.com/watch?v=5fgv4DJ0VAI
|
| [4] https://www.youtube.com/watch?v=-whuXHSL1Pg
| jpmattia wrote:
| > _(Yes, I know it 's zerohedge, but this is a decent article)_
|
| It's not even zerohedge: It's copied from bombthrower.com
| Tenoke wrote:
| >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.
| gjsman-1000 wrote:
| 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?
| scsilver wrote:
| 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.
| user-the-name wrote:
| 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.
| scsilver wrote:
| 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.
|
| https://coinmarketcap.com/currencies/tether/
|
| https://coinmarketcap.com/currencies/usd-coin/
|
| https://coinmarketcap.com/currencies/multi-collateral-
| dai/
|
| 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.
| ulzeraj wrote:
| 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.
| JumpCrisscross wrote:
| > _Some might become insolvent._
|
| Why should an exchange go broke because something they
| trade falls in value?
| phyalow wrote:
| 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.
| jfrunyon wrote:
| 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.
| jfrunyon wrote:
| 'Cause it's commercial paper from the exchanges? We know
| they've made "loans" to Bitfinex, after all.
| gjsman-1000 wrote:
| They have adamantly declared that these are not loans to
| exchanges. That's one of the few things we know.
| cycrutchfield wrote:
| 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.
| johnnyApplePRNG wrote:
| >Nobody knows where the USD supposedly backing it goes.
|
| Every single time that ifinex was upfront about where the
| money was going, their bank accounts would be closed with
| little notice.
|
| I can understand why they would stay tight lipped about
| where they are stashing $60B+.
| EpicEng wrote:
| Well they're currently being accused of fraud for
| misleading banks, so...
| matheusmoreira wrote:
| 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.
| rchaud wrote:
| 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.
| matheusmoreira wrote:
| https://www.treasury.gov/resource-
| center/faqs/Currency/Pages...
|
| > Federal Reserve notes are not redeemable in gold, silver
| or any other commodity, and receive no backing by anything
|
| Bigger scam than Tether. Has been running for almost a
| century now.
|
| > Crypto isn't used for anything except speculation.
|
| Looks like Amazon's going to accept cryptocurrency as
| payment:
|
| https://www.businessinsider.com/amazon-cryptocurrency-
| seeks-...
|
| Hopefully we'll be able to put this "cryptocurrency is just
| speculation" argument to rest soon.
| ketzo wrote:
| 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!
| matheusmoreira wrote:
| 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.
| jfrunyon wrote:
| > 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)
| matheusmoreira wrote:
| > Yes. Speculation and their ~~criminal conspirators~~
| exchanges.
|
| Not that different from traditional banks and other
| elements of the financial sector.
|
| > What's your point?
|
| My point is there is no fundamental difference between
| cryptocurrencies and legal tender.
|
| > What army and treasury is going to rescue USDT when it
| crashes?
|
| When the traditional finance people screw up, the US
| government _bails them out with taxpayer money_. It
| should totally do the same for Tether.
| nostrademons wrote:
| So does that mean that if Amazon [1], Paypal [2], Square
| [2], and Visa [3] start accepting Bitcoin, _it 's_ now
| backed by the U.S. economy?
|
| [1] https://gizmodo.com/amazon-to-accept-bitcoin-by-end-
| of-2021-...
|
| [2] https://www.barrons.com/articles/bitcoin-goes-
| mainstream-as-...
|
| [3] https://www.cnbc.com/2021/07/07/visa-says-crypto-
| linked-card...
| rchaud wrote:
| 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.
| matheusmoreira wrote:
| > No, because it still isn't legal tender, and lacks
| credibility as a medium of exchange.
|
| Some countries have accepted BTC as legal tender. It's
| only a matter of time really.
| selectodude wrote:
| Once I can pay my taxes in Bitcoin will be the day that
| it's backed by the US Economy.
|
| I've helped friends move in exchange for beer and pizza
| but nobody would call that a transaction "backed by the
| US Economy".
| eingaeKaiy8ujie wrote:
| > 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.
| cycrutchfield wrote:
| Keep waiting, kiddo
| jazzyjackson wrote:
| So what you're saying is it's backed by the US military.
| matheusmoreira wrote:
| The _use_ of USD, yes. The US military will probably
| intervene if any country attempts to sell oil for any other
| currency.
|
| The _value_ if USD, no. It doesn 't depend on US military
| strength. The US government and banks inflate it as much as
| they want.
| bathtub365 wrote:
| I think are at least a couple hundred million people who use
| USD.
| adevx wrote:
| 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.
| Proven wrote:
| Just a gentle reminded by US Gov racketeers ... and statists who
| like to constantly remind us about that
| Clewza313 wrote:
| https://archive.is/CMqsv
| smoldesu wrote:
| Who's surprised here?
|
| 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.
| jpmattia wrote:
| 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.
| cycrutchfield wrote:
| "Tether's claims that its virtual currency was fully backed by
| U.S. dollars at all times was a lie." -- NYAG Letitia James
| jpmattia wrote:
| ... 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?
| JumpCrisscross wrote:
| > _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.
| jpmattia wrote:
| > _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?
|
| That sounds laughable to me, but ok.
| JumpCrisscross wrote:
| > _let investors continue to be defrauded_
|
| 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.)
| jpmattia wrote:
| > _No need to launch a criminal probe against an overseas
| firm led by overseas founders harming out-of-state
| residents._
|
| There is definite need to launch a criminal probe against
| an overseas firm that defrauded NY state residents, which
| she did not do.
| JumpCrisscross wrote:
| > _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.)
| fergie wrote:
| Some smart crypto people are saying that if Tether goes down it
| will take a whole load of other crypto down with it.
| Fiahil wrote:
| 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.
| dcolkitt wrote:
| 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.
| defaultprimate wrote:
| 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.
|
| [0]https://coinlib.io/
| dcolkitt wrote:
| 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.
| deepvibrations wrote:
| 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.
| Clewza313 wrote:
| > "where people are told to redeem tether to USD"
|
| 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.
| wjohnsto wrote:
| 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.
|
| EDIT: DAI is backed by USDC not USDT, terribly typo :( https:
| //share.streamlit.io/tadzz/maker_dai_collateralization...
| eingaeKaiy8ujie wrote:
| DAI is not backed by USDT.
| wjohnsto wrote:
| My fault, I meant USDC. DAI is backed by USDC, and USDC
| is a competing stablecoin to USDT.
|
| I guess an important distinction is DAI is not 100%
| backed by USDC, but it is backed >50% as of this time: ht
| tps://share.streamlit.io/tadzz/maker_dai_collateralizatio
| n...
| phpnode wrote:
| Where would these real USD come from if USDT is worthless?
| Why would a holder of USDC or DAI accept USDT in return if
| USDT is worthless?
| carrja99 wrote:
| 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.
| graeme wrote:
| 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.
| ElKrist wrote:
| "Why anyone holding usdc would exchange one for a
| usdt..."
|
| One possible explanation is that you have more pairs
| available for other cryptos with USDT than with USDC on
| some exchanges
| dsyrk wrote:
| 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.
| counternotions wrote:
| Most serious crypto traders purport that the risks of Tether
| are already "priced in":
| https://twitter.com/raoulgmi/status/1408921296281407488?s=21
| runbathtime wrote:
| So what? Why should people not in crypto care if Tether crashes
| the market?
| jstx1 wrote:
| Probably. But the crypto market is inherently irrational so I
| wouldn't be too confident in any predictions.
| RankingMember wrote:
| Who?
| DJBunnies wrote:
| Top. Men.
| phpnode wrote:
| 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.
|
| [0] https://www.youtube.com/watch?v=ZBEqyiO35cQ
| nostrademons wrote:
| 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.
| [deleted]
| [deleted]
| swang wrote:
| 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.
|
| its not irrational, it is just pure fraud.
| mikeblackson wrote:
| >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.
| phpnode wrote:
| it can be both!
| overtonwhy wrote:
| 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.
| jasonlaramburu wrote:
| 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)?
| gruez wrote:
| 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.
| nateberkopec wrote:
| How much of a chunk of the 1-year treasury market is $61.9B?
| Can't figure out how to look that up.
|
| Seems like it could be a decent business if it was legit.
| [deleted]
| CrazyStat wrote:
| As of the latest published data (June 2021) there are
| $4.275 trillion in outstanding marketable Treasury bills
| (<1 year maturation) [1].
|
| [1] https://www.treasurydirect.gov/govt/reports/pd/mspd/202
| 1/opd...
| [deleted]
| boc wrote:
| 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.
| dom96 wrote:
| 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?
| xenadu02 wrote:
| > 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.
| lottin wrote:
| 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.
| vgeek wrote:
| The float from _allegedly_ having $xx,xxx,xxx,xxx in assets.
| gjsman-1000 wrote:
| 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...
| shawabawa3 wrote:
| 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
|
| (all according to them, but completely unaudited)
| Clewza313 wrote:
| 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.
| runbathtime wrote:
| All of those reserves are technically theirs, they do not
| belong to token holders.
| yawaworht1978 wrote:
| 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.
| arcticbull wrote:
| 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.
| throw_m239339 wrote:
| > 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.
| yellow_lead wrote:
| > 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?
| ceejayoz wrote:
| > Why haven't they looked at influencers pumping s*tcoins?
|
| They have, and are. https://www.sec.gov/news/press-
| release/2018-268
|
| "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."
| yellow_lead wrote:
| Fair enough, I guess we'll have to wait to see more action
| here.
| arcticbull wrote:
| You don't say.
| graeme wrote:
| > 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.
| gammarator wrote:
| This thread speculates that Tether's commercial paper may be in
| Chinese real estate, which is currently suffering huge
| losses...
|
| https://twitter.com/TheLastBearSta1/status/14183024655571107...
| spookthesunset wrote:
| Or more likely tether isn't backed by anything at all. The
| auditor they hired quit before completing their audit. Seems
| legit to me.
|
| These dudes are a complete scam but as long as BTC goes to
| the moon nobody seems to care.
| anonymoushn wrote:
| The Tether attestation earlier this year is by my fund's
| auditor, and they seem in my experience to be sufficiently
| diligent.
| fnordfnordfnord wrote:
| >These dudes are a complete scam but as long as BTC goes to
| the moon nobody seems to care.
|
| Chuckles... I'm in danger.
| jpmattia wrote:
| > _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.
|
| So no, not "more likely".
| [deleted]
| arcticbull wrote:
| Did you read the settlement? [1]
|
| > 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.
|
| [1] https://ag.ny.gov/sites/default/files/2021.02.17_-_se
| ttlemen...
|
| [2] https://www.cnbc.com/2021/02/23/tether-bitfinex-
| reach-settle...
| jpmattia wrote:
| > _Did you read the settlement?_
|
| 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.]
| arcticbull wrote:
| 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.
| jpmattia wrote:
| > _That makes it de facto un-backed._
|
| It makes them un-backed by US Dollars in a bank account.
|
| It does not make them un-backed by securities denominated
| in US dollars, which was my point. It's also likely why
| she never pursued a fraud case.
| arcticbull wrote:
| That was a settlement for fraud under the Martin act.
| Fraud was the charge settled.
| jpmattia wrote:
| Fine, a _criminal_ fraud case. Nobody went to jail.
| CryptoPunk wrote:
| >>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.
| arcticbull wrote:
| 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. "
|
| That was a lie, and it's not my claim, it's Letitia
| James'
| [deleted]
| spywaregorilla wrote:
| Given that you're not allowed to redeem tether for dollars
| I never quite understood why it mattered.
|
| edit: Note the difference between "trade" for dollars and
| "redeem" for dollars
| graeme wrote:
| 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.
| BLanen wrote:
| > The whales can redeem
|
| Show me the burns.
| graeme wrote:
| 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.
| user-the-name wrote:
| 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.
| FireBeyond wrote:
| Indeed, people have posted bounties for anyone willing to
| come forth with evidence that they have redeemed Tether
| for USD.
|
| No-one has claimed them (and, IIRC, some are in the order
| of $5K USD, so not too trivial).
| arcticbull wrote:
| Can they though?
|
| (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.
|
| [1] tether.to/legal
|
| [2] https://tether.to/wp-
| content/uploads/2016/06/TetherWhitePape...
| leppr wrote:
| _> 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.
| arcticbull wrote:
| > 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.
| renewiltord wrote:
| 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.
| anonymoushn wrote:
| 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.
| [deleted]
| staplers wrote:
| Most bank notes aren't "backed by anything". Reserve
| requirements are now zero for banks.
|
| Source: https://www.federalreserve.gov/monetarypolicy/reser
| vereq.htm
| killingtime74 wrote:
| Government is something. They can tax and print money.
| fksadfji12 wrote:
| lol
| Aperocky wrote:
| 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.
| graeme wrote:
| Update. Tether has replied here. This site is down, but this
| tweet has it:
| https://mobile.twitter.com/bitcoinsguide/status/141969423526...
|
| URL for if their site comes back online:
| https://tether.to/tether-responds-to-bloomberg-article/
| [deleted]
| ceejayoz wrote:
| "Open dialogue with law enforcement agencies" is a pretty
| funny way of describing that relationship.
| arcticbull wrote:
| Yes I've had similar such dialogues with law enforcement
| when caught speeding.
| arcticbull wrote:
| 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.
| duxup wrote:
| 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?
|
| Pull this stunt once, maybe twice, more?
| nipponese wrote:
| How did you survey the commercial paper sector?
| Clewza313 wrote:
| This has been widely reported, see eg Matt Levine's recent
| take: https://www.bloomberg.com/opinion/articles/2021-07-22/p
| rivat...
| [deleted]
| [deleted]
| spywaregorilla wrote:
| 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.
|
| Any opinions on this?
| tracedddd wrote:
| 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.
| [deleted]
| eingaeKaiy8ujie wrote:
| 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.
| scsilver wrote:
| 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.
| jstx1 wrote:
| 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.
| NicoJuicy wrote:
| 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).
| Kalium wrote:
| If your goal is to avoid regulatory risk, you might consider
| taking seriously the possibility of avoiding cryptocurrencies
| entirely.
| dcolkitt wrote:
| 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.
| xur17 wrote:
| 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.
| ancientworldnow wrote:
| 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.
| runbathtime wrote:
| What if Tether the company just throws in the towel? Take the
| reserves and run? What incentive do they have not too?
| graeme wrote:
| Jail or death. They're rumoured to be heavily involved with
| drug cartels for money laundering.
|
| But jail is a near certain outcome if they just took the money
| and ran off.
|
| So they're stuck with it. Once it implodes they'll also face
| jail, but they can kick the can down the road.
| phpnode wrote:
| 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.
| bob33212 wrote:
| 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.
| knownjorbist wrote:
| Can they even do that? What would that actually look like, from
| a technical perspective?
| xur17 wrote:
| 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.
| realce wrote:
| 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.
| timpez wrote:
| 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.
| santamex wrote:
| This one explains the Tether scam quite nice:
| https://youtu.be/-whuXHSL1Pg
|
| 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...
| user-the-name wrote:
| Tether's business at this point is basically manufacturing red
| flags.
|
| It is incredible the mental gymnastics people in the
| cryptocurrency business go through to defend this group of
| crooks.
| WalterSear wrote:
| "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."
| josh2600 wrote:
| 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.
| ceejayoz wrote:
| > 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.
| JumpCrisscross wrote:
| > _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.
| jcranmer wrote:
| > 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.
| guillegette wrote:
| 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.
|
| Do your own research, make your own decisions...
| jfrunyon wrote:
| > 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...)
| seaourfreed wrote:
| Templates should be good for stablecoin and crypto industry.
| Transparency. Audits. Prosecution for fraud.
| legutierr wrote:
| 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.
| csomar wrote:
| Tether has a $60bn market cap. That's a drop in the ocean for
| the international markets.
| graeme wrote:
| Lehman was quite small by the time it collapsed.
|
| Doesn't mean Tether will have a ripple effect but you're
| ignoring leverage.
| paulgb wrote:
| For something more recent, Archegos was a $10bn fund and
| something close to $200bn in asset devaluation was
| associated with its collapse.
| JumpCrisscross wrote:
| > _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.)
| JumpCrisscross wrote:
| > _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.)
| rubyist5eva wrote:
| 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.
| rglullis wrote:
| - 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.
| zzok22 wrote:
| Why is it dumb?
| nikanj wrote:
| It's great for crime though. It's like USD cash, except you can
| transfer it instantaneously across the globe.
| AgentME wrote:
| 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.
| zozin wrote:
| 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.
| perl4ever wrote:
| >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.
| jellicle wrote:
| 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.
|
| https://en.wikipedia.org/wiki/Wildcat_banking
|
| 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.
| h2odragon wrote:
| Recall E-gold? Them folks were at least honestly nuts... I
| _think_ they 're all out of jail now.
| eingaeKaiy8ujie wrote:
| There is also XAUT (Tether Gold) by the way.
| maverick-iceman wrote:
| 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 .
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