[HN Gopher] Tether Fined $41M for Lying About Fiat Currency Backing
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Tether Fined $41M for Lying About Fiat Currency Backing
Author : virtualwhys
Score : 242 points
Date : 2021-10-15 15:53 UTC (7 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| buhrmi wrote:
| Probably paid in USDT.
| sneak wrote:
| They don't need to; they can print USDT, swap it for Ether, and
| take Ether to any normal, above-board exchange and get Real
| Dollars.
| kangnkodos wrote:
| What is the average daily net inflow of US dollars into Tether?
| How many days of net inflow is $41M?
| FireBeyond wrote:
| At times they've claimed that it is in the billion dollar a
| week range.
|
| But their cash backings say that that was most likely always
| bullshit, even as they move to "other instruments" (cough
| Chinese junk paper cough).
| satellites wrote:
| But crypto coins are so much more trustworthy and secure than
| traditional financial institutions... /s
| robcohen wrote:
| I'm pretty sure no one thinks digital IOUs are worth more than
| the word that's behind them.
|
| It's not reasonable to conflate decentralized cryptocurrency
| with digital coupon IOUs.
| jfk13 wrote:
| See also https://news.ycombinator.com/item?id=28878874, which
| (currently, at least) has more extensive discussion.
| mensetmanusman wrote:
| They will have to spin up 41,000,000 more Tethers to pay for
| this!
| dylan604 wrote:
| But when they submit the payment, they print out the hashes for
| the coins in 6pt font double spaced in a script style font.
| system2 wrote:
| I am blown away. 61.5 million dollars for $68,536,825,819 (68
| billion dollars.) Maybe not the same in 2017 but damn, how does
| this even work without anyone panicking?
| inopinatus wrote:
| It doesn't, but that's bubbles for you.
| gws wrote:
| Don't really get you guys saying Tether should be shut down...
| the big banks get routinely fined with much bigger fines for much
| bigger crimes, are we gonna shut them all down then? At least
| Tether did not steal from nor defraud anyone. Just as a random
| example: https://www.justice.gov/opa/pr/jpmorgan-chase-co-agrees-
| pay-...
| ceejayoz wrote:
| Tether _did_ defraud people. They lied on their website,
| claiming a) audits (which they never completed a single one of)
| and b) 1:1 backing of each Tether with a dollar in the bank
| (which they didn 't have).
| gws wrote:
| You are right, they lied, and people could have been harmed
| if there were a "bank run" on Tether. But in practice there
| was not and nobody suffered any damage, zero, nada, nicht.
| While big banks got fined for actually taking money illegally
| out of people's pockets and nobody said let's shut them down
| tootie wrote:
| I think the difference is this is Tether's entire reason for
| existence. It's equivalent to Bernie Madoff.
| gws wrote:
| Still there have been zero redemption issues in getting USD
| back from USDT
| joelbondurant wrote:
| Fiat backing, lol , clown world.
| missedthecue wrote:
| Hear that? That's the sound of 41 million new tether coins
| entering the market
| adflux wrote:
| Perfect haha. Tether has figured out how to print money and
| nobody seems to care.
| BitwiseFool wrote:
| "Stay out of my territory" - Jerome Powell, PBUH
| zardo wrote:
| They just printed $440 Million in _technically not
| counterfeit USD_
| Hamuko wrote:
| Where can I apply to get this silk glove treatment by the
| authorities when I start making "untrue or misleading" bank
| notes?
| rossdavidh wrote:
| Well I think it's maybe more like how to do a GoFundMe on a
| massive scale.
| SilasX wrote:
| lol yeah: "So can we pay the fine in--" "No."
|
| (Reminds me of Zimbabwe having to come up with money to pay
| Switzerland for printing their hyperinflating currency.)
| pkulak wrote:
| Jokes aside, Tether can't both determine how many coins are in
| the market and the price of those coins.
| orthecreedence wrote:
| No, but apparently they can tell people "this is worth $1"
| and people will believe them, even if there's nothing backing
| it. On a long enough timeline what you say might be true, but
| in the short term it seems that most people haven't gotten
| the memo.
| danuker wrote:
| > there was never more than $61.5 million backing Tether, even as
| more 442 million coins were circulating at one point.
|
| Ah, pulling the classic "fractional reserve" I see.
| trident5000 wrote:
| Depends what that means. Dollar reserve could be low because
| investment reserve is high. Would need to see the numbers.
| sneak wrote:
| I'm sure that the 68.5 billion-with-a-b tethers they have out
| there now must be backed, though, right?
|
| Surely they learned their lesson when they only had 442 million
| tethers issued and only 61.5 million dollars in the bank.
| SandB0x wrote:
| This is simply insolvency, not fractional reserve.
| tom-thistime wrote:
| Insolvency would be a better _metaphor_ than fractional
| reserve. But I 'm guessing* Tether doesn't actually offer to
| settle up in any reserve currency.
|
| *I think it's a pretty good guess, based on the fact that
| Tether is still in business.
| SilasX wrote:
| I think that would be illiquidity -- having only assets that
| need to be converted, rather than dollars themselves --
| rather than insolvency, right?
| SandB0x wrote:
| Well that too
| mortehu wrote:
| If you read the order, it's clearly about cash reserves (in
| the financial sense) specifically, and not total underlying
| assets.
| AlexandrB wrote:
| And yet, they're still operating. This is the kind of thing
| that makes me think the whole cryptocurrency ecosystem is a
| house of cards. Cryptocurrency advocates seem to be really
| bad at spotting and punishing incompetent and malicious
| actors in their markets.
| onlyrealcuzzo wrote:
| Why would they? If you're invested in Crypto - you don't
| want it to go down. It's better to look the other way while
| someone is pumping and hope they never start dumping.
| ikiris wrote:
| It's hard to claim someone's specifically malicious /
| incompetent when the entire "market" is.
| wbsss4412 wrote:
| It's really an amazing case study in what happens when* you
| take libertarian ideology to its conclusion.
|
| Edit: typo*
| CryptoPunk wrote:
| Libertarian ideology has resulted in Tether being
| replaced by USDC in Ethereum DeFi. Your claim is based on
| the bizarre premise that people are only intelligent when
| formulating mandates for otherd, while they can only
| exercis if formulating a course of action for themselves
| wbsss4412 wrote:
| > Your claim is based on the bizarre premise that people
| are only intelligent when formulating mandates for
| otherd, while they can only exercis if formulating a
| course of action for themselves
|
| I'm not sure where my statement implied what you are
| assuming here. I think you may have your dogmatic
| blinders on.
|
| Both tether, and crypto unrelated to tether are
| implicated in what I stated. That doesn't make tether any
| less a result of libertarian ideology drawn to its
| conclusion.
| TameAntelope wrote:
| I think if you got a few beers in even the most adamant
| crypto advocate, you'd discover their thinking is more
| along the lines of, "The house of cards is out in the open
| with crypto, vs. hidden behind bureaucracy and obfuscation
| in traditional banking".
|
| With crypto, the "average" person gets to feel "in on it"
| in a way usually reserved for coked up Goldman associates.
| That is possibly _not_ a good thing, as you 're pointing
| out.
| pasabagi wrote:
| It's a misunderstanding of what the house of cards is
| about, though.
|
| One of the first empires to use fiat currency was the
| Yuan dynasty, and it worked, because if your currency is
| backed by the mongols, you're absolutely going to act as
| if it makes sense, even if it seems crazy to you. The
| backing of money is not precious metals, nor currency,
| but rather force - a state can demand tax in it, and
| exact retribution if their taxes are not paid. The state
| could demand taxes in cowries, and people would collect
| cowries, because you are going to get imprisoned if you
| don't pay your tax.
|
| The fiat-currency house of cards collapses when people
| think the state isn't going to be able to pay their bills
| and collect their dues. Cryptocurrencies are more like
| tulips. There's nothing behind the curtain - it's just a
| weird social eddy that's grown out of all proportion.
| usrusr wrote:
| While they are not completely divested, self-interest
| mandates that they still hype what they try to get out of.
| And after that, they simply don't care and pride
| discourages them from being vocal about their apparent
| change of heart. Some might be good at spotting, but they
| will be excellent at staying quiet about their conclusions.
| chihuahua wrote:
| In my opinion it's a house of cards (and Ponzi scheme), but
| combined with the John Maynard Keynes observation that the
| market can reman irrational longer than you can stay
| solvent (if you were to bet against it)
| ceph_ wrote:
| > 442 million
|
| Current market cap is up to 70 billion! 90% of which has been
| printed in the last 2 years, and wasn't even covered by the
| report. Looks like they're going on a last ditch printing spree
| FireBeyond wrote:
| Hah. At one point Tether was claiming, during the days where
| they were holding on to the "1:1 backing!" that they were
| banking $2 billion A WEEK.
|
| And yet the cryptofans were telling us we were curmudgeons for
| not buying into the hype (or in this case, the bullshit).
| tastyfreeze wrote:
| From their website: "Every Tether token is always 100% backed
| by our reserves, which include traditional currency and cash
| equivalents and, from time to time, may include other assets
| and receivables from loans made by Tether to third parties,
| which may include affiliated entities (collectively,
| "reserves")."
|
| They don't claim 1:1 USD backing. They claim that every
| tether is backed by 1 USD of value. So, when their crypto
| holdings go up in value, TADA!, more reserves to print tether
| against. The problem here is they never explain what happens
| when the value of their backing assets goes down.
| loeg wrote:
| Their website's claim has changed. Historically, they
| claimed USD backing: 2015[1] 2016[2] 2017[3] 2018[4]. By
| 2019, they had abandoned that claim[5].
|
| [1]: https://web.archive.org/web/20150814185145/https://tet
| her.to... "Every tether is always backed 1-to-1, by
| traditional currency held in our reserves."
|
| [2]: https://web.archive.org/web/20160417000232/https://tet
| her.to... "Every tether is always backed 1-to-1, by
| traditional currency held in our reserves."
|
| [3]: https://web.archive.org/web/20171201230600/https://tet
| her.to... "Every tether is always backed 1-to-1, by
| traditional currency held in our reserves."
|
| [4]: https://web.archive.org/web/20180809053152/https://tet
| her.to... "Every tether is always backed 1-to-1, by
| traditional currency held in our reserves."
|
| [5]: https://web.archive.org/web/20190426055956/https://tet
| her.to... (current language)
| onlyrealcuzzo wrote:
| Don't worry - like Stonks - Crypto only goes up
| zomglings wrote:
| There has _always_ been a healthy amount of skepticism about
| Tether in the crypto community. Your cryptofans narrative
| does not accurately reflect reality.
| SkyPuncher wrote:
| Yea, I'm on the edge of crypto and I knew that Tether has
| always been viewed is questionnable.
| Kiro wrote:
| I've never seen a cryptofan defend Tether.
| leppr wrote:
| Most of the big Bitcoin talking heads did.
| bonestamp2 wrote:
| Some of us who like crypto also knew it was bullshit.
| pfisherman wrote:
| <insert crypto rant> fiat <more crypto rant > debasing the
| currency.
|
| What I find ironic is that the crypto ecosystem still ended up
| with something like central banks, only in this case their
| mandate is make money for its owners, and they have no
| accountability or obligation to serve the general public.
| DennisP wrote:
| Play centralized games, win centralized prizes.
| rgrieselhuber wrote:
| Exactly.
| bko wrote:
| The difference is I can choose not to hold Tether. Removing
| my exposure to dollars as a US citizen is a lot harder. Not
| to mention people that are on a fixed income like my parents.
| So debasing fiat is a lot worse
| lupire wrote:
| Sure but "not holding Tether" is just "Tether not existing"
| but with extra wasteful steps.
| frankbreetz wrote:
| I believe a tether collapse would have a significant effect
| on the entire cryptocurrency ecosystem
| kaashif wrote:
| It would at least open the door to more regulation, not
| to mention prudence on the parts of investors. I can't
| escape the feeling some of these risks aren't being
| priced in properly.
|
| I don't think very many average people are invested in
| crypto significantly, if at all, despite the hype, so
| hopefully the harm would be limited.
| [deleted]
| headmelted wrote:
| This is the big question mark, and why I sigh when people
| shrug it off.
|
| How much of the demand for these tokens is being driven
| by money that never really existed? 100%? 50%? 0.02%?
|
| There's no way of knowing until it crashes - then what?
| e.g. if the price dives by 50%, and that really equates
| to 200% of the actual capital ever invested, what happens
| then?
|
| I was listening to Darknet Diaries episode 102 today
| about the Canadian money printer, and I was thinking the
| entire way through it that it was basically describing
| tether but with paper and ink.
|
| It got especially eye-opening when he talked about having
| to manage how it was released into circulation slowly so
| as no-one could track where it was coming from.
| itsoktocry wrote:
| > _The difference is I can choose not to hold Tether.
| Removing my exposure to dollars as a US citizen is a lot
| harder._
|
| Did you miss the part about them lying?
|
| "I have a right to choose to buy something" for whom the
| value is deceptively obfuscated is quite the argument.
| spywaregorilla wrote:
| That is part of being part of the society, yes.
| anm89 wrote:
| So is having the right to hold other currencies and
| assets.
|
| Tell that to an Argentinian who has had their life ruined
| because of the lack of foresight from the the people who
| run their society.
| floatingatoll wrote:
| Incorrect, no such right is necessarily guaranteed by
| societies. For example, during much of the 1900s you were
| required to sell gold to the US government for USD rather
| than keep it under your mattress, and if you refused they
| had the right to seize it with force. For another
| example, negative savings interest rates in certain
| European countries.
| anm89 wrote:
| And yet, I still hold those other things.
|
| Many people told that society where to shove it when they
| came to repossess their assets by force.
|
| If you are trying to explain why I owe some debt to
| society to support their currency you aren't making a
| very convincing argument.
| [deleted]
| waterhouse wrote:
| > during much of the 1900s you were required to sell gold
| to the US government for USD rather than keep it under
| your mattress, and if you refused they had the right to
| seize it with force
|
| Many considered this a violation of their rights. Justly
| so. I would say that "no such right is necessarily
| guaranteed" is only true in the sense that no rights _at
| all_ are necessarily guaranteed.
| dragonwriter wrote:
| > What I find ironic is that the crypto ecosystem still ended
| up with something like central banks, only in this case their
| mandate is make money for its owners, and they have no
| accountability or obligation to serve the general public
|
| So, like private currency-printing banks _before_ government
| monopolies (and like private banks, which subject to central
| regulation still create money though they don 't print
| currency), _not_ like central banks.
| majormajor wrote:
| > So, like private currency-printing banks before
| government monopolies (and like private banks, which
| subject to central regulation still create money though
| they don't print currency), not like central banks.
|
| Yes, nothing prevents a crypto bank from "creating money"
| (aka lending) in the same way that a fiat bank does. Loan
| out your deposits. It's that easy.
|
| Not having it blow up on you in a run-on-the-bank scenario
| is the harder part than "creating the money". ;)
| jayd16 wrote:
| But the point of the article is that they essentially did
| print currency, no?
| dragonwriter wrote:
| The point of the article is rather that they violated the
| rules on creation of "money" [0] by means other than
| issuing legal-tender currency, and are being punished for
| that violation.
|
| [0] viewed broadly, but I won't quibble about that.
| OneLeggedCat wrote:
| > crypto ecosystem still ended up
|
| It's decades from its final form.
| rzwitserloot wrote:
| Perhaps. But we're, what? 10 years in and so far crypto has
| enabled 'I encrypted your data!' scams, caused political
| instability, been a vehicle for highly volatile investment
| (but the world wasn't hurting for such opportunities...),
| and served as a fine buzzword for dev teams around the
| world to get a sack of cash to update some systems.
|
| That's a pretty poor result for 10 years of this much
| investment and focus. The internet was waaaaaaaaaaaaay more
| useful 10 years in.
|
| I don't think crypto gets to claim the benefits of the oft
| touted protection against centralized bullies or scams.
| Quite the opposite: You need to go pretty deep into
| political dictatorships before crypto on net balance seems
| favourable. So far crypto coins are far more likely to be
| fleeced, and the vast majority of crypto holding folks are
| working with mostly centralized entities (such as Tether),
| which rate, as far as trustability and good shepherdship
| goes, not in a good place. Better than Pol Pot and Mugabe.
| Maybe.
|
| Oof.
|
| So if it's decades from its final form, when is it going to
| deliver on its first actually useful to humanity milestone?
| I'm still waiting.
| kbenson wrote:
| If that's the trend, by the time it reaches it's final
| form we'll all be smoking husks left over from the great
| AI uprising wars, but don't judge those AIs too harshly,
| that new testnet that paid out for verified kills was
| just too good to pass up.
| bonestamp2 wrote:
| > so far crypto has enabled 'I encrypted your data!'
| scams
|
| These scams existed long before crypto. But, crypto
| currencies are a better solution to international money
| transfers so of course they became the preferred
| currencies for these scams.
| varjag wrote:
| It took crypto to make them Web scale.
| lottin wrote:
| If cryptocurrencies were a better solution, they would
| have been widely adopted. Instead, they have been adopted
| by people who can't use real money for one reason or
| another, e.g. criminals. Which tells us they are a bad
| substitute for real money.
| AnthonyMouse wrote:
| > I don't think crypto gets to claim the benefits of the
| oft touted protection against centralized bullies or
| scams.
|
| The big problem here is that the core benefit of
| cryptocurrency is in removing the bank as a middle man.
| But the bank is the chokepoint where governments impose
| constraints.
|
| When you're up against an authoritarian government
| imposing unreasonable constraints, that's what you need.
| But it works the same against any constraints. So if you
| want constraints on "money laundering" or processing
| transactions related to criminal activity, those
| constraints are gone too.
|
| The constraints are already gone for anyone willing to
| break the law. You can't un-invent Bitcoin, so from here
| on drug dealers will be able to use it or something like
| it to transfer their drug money etc. That's happened,
| it's in the past, no regulations you put on law-abiding
| people will undo it because the people doing it are
| already the people breaking the law.
|
| We still have all the regulations. They just don't work
| anymore. We're still paying the cost and the benefit has
| evaporated. But for all the honest people who are
| following the law, the regulations still apply. The
| overhead is still there. All the paperwork and the false
| positives.
|
| So you can use Bitcoin to buy drugs but you can't use it
| to buy a sandwich, because to accept Bitcoin the sandwich
| shop would have to deal with filing fees and lawyers that
| the drug dealer is just ignoring. Regular people don't
| get the benefit until we have a regulatory system that
| makes it as easy to accept cryptocurrency as it is to
| accept cash.
| clusterfish wrote:
| You can't uninvent Bitcoin but you can certainly make it
| illegal, making it all but useless for drug trade or
| money laundering. Nobody needs a currency that you can't
| exchange for, you know, real currency that you can buy
| real things with. So although the government doesn't have
| the power to eliminate Bitcoin, they do have the power to
| make it useless. I don't think they will though, because
| guess who is using it for bribes and money laundering?
| AnthonyMouse wrote:
| Making it illegal doesn't affect its utility for illegal
| activity. Criminals already break the law. It would cause
| a one-time decline in value but that only matters to
| speculators. The value would still be non-zero because
| it's global and there exist places where it isn't
| illegal.
|
| Even if it was somehow illegal everywhere, the value
| still wouldn't be zero because of black markets. The drug
| user uses it to buy drugs, the drug dealer uses it to buy
| guns, the gun runner uses it to buy stolen art, the fence
| uses it to buy stolen goods from petty thieves who use it
| to buy drugs.
|
| Black markets would also exist to exchange it for cash or
| ordinary commodities so that someone else could get it to
| buy drugs/guns/art/whatever.
|
| And it has utility over using physical cash or gemstones
| or bullion in that you can transfer it over the internet.
| mwint wrote:
| If you can't trade BTC for USD, you'll trade it for Yen,
| and then trade for USD.
|
| Some country will want to cash in on the demand for their
| currency, and will leave it legal to exchange.
| flipbrad wrote:
| Don't forget the environmental catastrophe of all that
| wasted electricity generation, and driving up prices of
| GPUs.
| [deleted]
| dylan604 wrote:
| > their mandate is make money for its owners,
|
| Isn't this pretty much the description of every company? I
| understand feduciary responsibilities blah blah, but if the
| company didn't think they could do both then they wouldn't be
| running the legitimate buisness. If it was started to
| intentionally dupe people that's an entirely different thing.
| dragonwriter wrote:
| > Isn't this pretty much the description of every company?
|
| Which is why we don't let private companies create currency
| willy-nilly anymore.
| heurisko wrote:
| > Which is why we don't let private companies create
| currency willy-nilly anymore.
|
| As I understand, private banks extend loans, which while
| not being printing money, the loans being deposits (which
| can be withdrawn) the effect of creating currency is the
| same.
| majormajor wrote:
| Private banks can only extend loans so much as they have
| the money already.
|
| Yes, it's a juggling act: Person A still has $1000 on the
| ledger in their deposit even if the bank lends $800 of
| that to Person B, so if the people with deposits want to
| cash out all at the same time, and the bank can't pull
| back what they've lended out fast enough, you have big
| problems!
|
| But they aren't just adding numbers to a cell in a
| spreadsheet without having the money to back it - a loan
| that can't be used to pay someone or to be turned into
| cash is useless. You can't just start a bank and issue
| yourself a thousand dollars into your own account and
| expect to be able to use it for anything. This would be
| closer to the credit card model - short term credit
| without taking deposits, making money on the repayment -
| but again, good luck issuing yourself your own credit
| card to buy a bunch of stuff with to "create money."
|
| And they also aren't doing anything that couldn't be done
| with crypto!
| rsj_hn wrote:
| Correct, for the non-financial sector, "money" is
| currency in circulation (created by the government) and
| then liabilities of the financial sector (created by the
| private sector). This is true regardless of whether they
| are checking accounts, savings accounts, certificates of
| deposit, money market mutual funds, etc. It's all private
| money and we not only allow it but we subsidize and
| encourage it.
| dragonwriter wrote:
| Lending, and the maintenance of the depository accounts
| where lent money not withdrawn in cash must end up, is
| much more tightly regulated than it was in the era of
| willy-nilly private currency issuance, as well as direct
| currency issuance itself being reserved for the State.
| simonh wrote:
| Issuing tether was basically an unregulated bank loan
| system. With a regular loan the created money is
| destroyed when you repay it. In theory that would happen
| to the tether when you redeem it for dollars. The problem
| is really just that tether was lying about how they were
| operating.
| lazaroclapp wrote:
| > Isn't this pretty much the description of every company?
|
| For the most part, sure. But that's the parent's point, I
| think. _Central_ banks are not companies, they are part of
| the public financial infrastructure of a nation (or, in the
| EU case, group of nations).
| jameshart wrote:
| > Central banks are not companies
|
| Actually... it's complicated. The Bank of England, for
| example, was nationalized only in 1946, and it remains
| technically a company which is owned by the state, not
| actually part of the government.
|
| In the US, the Fed is... well, it's not a company, but
| it's also not _not_ a company... or group of companies...
|
| See https://en.wikipedia.org/wiki/Federal_Reserve_Bank
| pfisherman wrote:
| Objectives and incentives are extremely powerful drivers of
| mass behavior in large organizations. Maximizing profit is
| a much different objective that contributing to the social
| good. That is why some functions are best fulfilled by non
| profits and government.
|
| There world is full of cases where products or services are
| degraded in order to maximize profit. Has DRM ever made for
| a better gaming experience? Do clickbait articles result in
| a better informed public?
| ChainOfFools wrote:
| decentralization is at best nothing more than a polite name
| for the transition period from one centralized regime to
| another.
|
| like all mirages, it dissolves when you get too close.
| lmkg wrote:
| On the initial headline I thought that $41 million would be
| negligible compared to the central role they have in the crypto
| ecosystem. But apparently that fine is 2/3 of their backing
| reserves.
| boole1854 wrote:
| Correction: it is 2/3rds of what their reserves were back in
| 2017. The amount of Tether in circulation has increased over
| 150-fold since then, so presumably their reserves have
| increased as well.
| delecti wrote:
| > The amount of Tether in circulation has increased over
| 150-fold since then, so presumably their reserves have
| increased as well.
|
| They _just_ got punished for not having actual reserves
| match their circulation. What basis is there to presume
| that their reserve is matching their circulation now?
| sgpl wrote:
| While I wouldn't say that their reserve is matching now (
| I do not know) there were a few threads on twitter that I
| read a while back that stated that the folks behind
| tether were increasing the supply (of tether) to
| artificially inflate the value of their bitcoin holdings
| - which is something that they could have liquidated in
| exchange for more fiat since then. Obviously this is all
| conjecture at this point.
|
| This is the best reference I could find in relation to
| what I've said above:
|
| _In newly published research, with Amin Shams of Ohio
| State University, he finds evidence that Bitcoin's
| 2017-2018 bubble was inflated by a lesser-known digital
| currency called Tether._ [0]
|
| [0] https://medium.com/texas-mccombs/tether-connection-
| puts-bitc...
| 35fbe7d3d5b9 wrote:
| https://tether.to/wp-
| content/uploads/2021/08/tether_assuranc...
|
| This all boils down to two questions in my mind:
|
| 1) Do you trust the unsigned report from the auditor, who
| appears to be a fairly unknown entity?
|
| 2) Do you trust the asserted quality of the commercial
| paper, which makes up 50% of the putative reserves?
| jyrkesh wrote:
| Even worse, they just took the opportunity to pay off the
| govt to avoid disclosing exactly to what extent they
| lied.
|
| At this point, what basis is there to presume that their
| reserve is non-zero?
| [deleted]
| thaumasiotes wrote:
| Problem: Tether has less money than they're supposed to have in
| order to back their obligations.
|
| Solution: take some of their money away.
| rkagerer wrote:
| https://archive.is/eqUP1
| nickff wrote:
| The CFTC claims to be helping end-customers by doing this kind of
| thing, but it is really taking money that could have been
| distributed off the table. Fining (and perhaps requiring the
| dismissal of) Tether's corporate officers would likely instill
| more discipline, but fining the company just hurts the customer.
| klyrs wrote:
| No. This teaches scammers and customers alike that this is a
| risky business. Fining the corporate officers is almost
| certainly off the table, because Tether appears to be some form
| of limited liability corporation (but I don't know anything
| about the law in HK). Play stupid games, win stupid prizes. I'd
| hope the founders end up in jail for what appears to be blatant
| fraud... but chances are, they'll just move on to the next
| thing after Tether crumples.
| nickff wrote:
| The CFTC mission statement is:
|
| > _" The mission of the Commodity Futures Trading Commission
| is to promote the integrity, resilience, and vibrancy of the
| U.S. derivatives markets through sound regulation."_
|
| I don't see how punishing customers accomplishes that goal.
| klyrs wrote:
| Let's read that carefully, now.
|
| The CFTC provides "sound regulation," not insurance.
| Insurance protects customers. Regulation by the CFTC is
| meant to protect "the U.S. derivatives markets." They
| aren't there to protect customers.
|
| If the customers wanted a safe investment, they should have
| used an insured vehicle for that.
| tdeck wrote:
| It would be better to confiscate Tether's entire reserve, force
| them to allow tether holders to cash out (for fractional
| amounts), and punish the execs directly.
| nickff wrote:
| That would make sense to me, though it may be possible (and
| less disruptive) to allow tether to continue under new
| management.
| Hamuko wrote:
| This sounds a lot like letting Bernard L. Madoff Investment
| Securities LLC to "continue under new management" in order
| to be less disruptive.
| nickff wrote:
| Madoff's fund was insolvent; I am not sure whether the
| same is true of Tether. There's no need to liquidate a
| solvent entity.
| tdeck wrote:
| I don't understand why this is something they can settle rather
| than something that gets them completely shut down.
| _3u10 wrote:
| The SEC is in the business of protecting investors not
| destroying peoples savings over a few inaccuracies.
|
| Why would misleading statements ever result in a shutdown of a
| company instead of a fine?
| tdeck wrote:
| Because the "misleading statement" (i.e. deliberate lie) is
| the entire basis of Tether's business. The service they claim
| to provide is fiat backing for their cryptocurrency and they
| didn't do that. That's not "a few inaccuracies", it's fraud.
| _3u10 wrote:
| Isn't the basis of the business that tethers are
| exchangeable for USD? Have they failed to provide USD when
| asked?
| orthecreedence wrote:
| Wait, has anybody ever in the entire existence of Tether
| actually _withdrawn_ their USDT for USD??
| tdeck wrote:
| Essentially yes. They throw up all kinds of roadblocks to
| make it difficult to exchange tether for cash in order to
| preserve the facade.
|
| Just one article I found:
| https://www.google.com/amp/s/micky.com.au/irredeemable-
| why-i...
| wmf wrote:
| It's debatable whether Tether has a few inaccuracies or
| massive fraud.
| [deleted]
| Kranar wrote:
| The CFTC doesn't have that authority; a company can only get
| shut down for a criminal offense and Tether is not accused of
| any crime. Only the Department of Justice can prosecute or
| investigate crimes, the CFTC is an independent agency and as
| such has no authority to do so.
|
| All the CFTC can do is levy a fine, so both parties are fairly
| indifferent as to whether that money comes from a judgement or
| from a settlement. There could be some minor benefit of not
| having to admit any "wrongdoing" for press release purposes,
| but overall it makes no difference.
| AlexanderTheGr8 wrote:
| Tether is not a US-based company. So does US have the authority
| to shut them down?
| 35fbe7d3d5b9 wrote:
| There is an entire branch of the Department of Treasury
| designed to enforce stiff sanctions and financial penalties
| against people, companies, and even _countries_ that defy US
| regulations.
|
| If the federal government decides Tether needs shut down, it
| won't be a struggle.
| 35fbe7d3d5b9 wrote:
| Since I didn't really talk through this before, a bit of an
| effort post.
|
| OFAC sanctioned Suex, a crypto exchange based in the Czech
| Republic, less than a month ago[1]. As far as I can tell it
| is _gone_ from the face of the earth. Here 's why:
|
| > As a result of today's designation, all property and
| interests in property of the designated target that are
| subject to U.S. jurisdiction are blocked, and U.S. persons
| are generally prohibited from engaging in transactions with
| them. Additionally, any entities 50% or more owned by one
| or more designated persons are also blocked. In addition,
| financial institutions and other persons that engage in
| certain transactions or activities with the sanctioned
| entities and individuals may expose themselves to sanctions
| or be subject to an enforcement action.
| suex.io. 676 IN SOA ns-648.awsdns-17.net. awsdns-
| hostmaster.amazon.com. 1 7200 900 1209600 86400
|
| suex.io's hosting is gone due to OFAC's ruling: Amazon is
| barred from providing them service.
|
| They used to take Visa & Mastercard[2] - even if they were
| online today, they wouldn't find a payment processor in the
| world willing to touch them: that would expose the payment
| processor to OFAC sanctions which is as close to
| "existential risk" as you can get in finance.
|
| Suex was listed on the SDN list[3]. As a result no US based
| exchange can touch any crypto from those addresses. If,
| say, you wanted to cash out that crypto by sending it to
| Coinbase, they'd be legally required to freeze it and deny
| you access to it: otherwise, they're at risk of OFAC
| sanctions.
|
| Every bank in the US monitors the OFAC SDN list, and as a
| result, they will be monitoring transactions. If Suex
| attempted to move their money into a bank account
| controlled by the US, they'd be blocked. But most likely
| their accounts are already frozen, because OFAC
| jurisdiction attaches when funds pass through any US
| financial institution or any foreign financial institution
| owned by a US person.
|
| OFAC has recently decided that _the mere presence_ of US
| dollars in a financial transaction is sufficient to
| establish jurisdiction: if Suex had their entirely foreign
| owned bank process any transactions in dollars, this would
| cause a US counterparty to indirectly provide financial
| services to an SDN. This risks sanctions at their foreign-
| owned bank.
|
| At the end of the day, most global financial institutions
| assume a US nexus is present and deny any service to
| targets of US sanctions - the risk is much lower.
|
| To wrap this up, OFAC has published an interesting guide[4]
| to sanctions that directly relate to cryptocurrency, and
| it's well worth a read.
|
| [1]: https://home.treasury.gov/news/press-releases/jy0364
|
| [2]:
| https://web.archive.org/web/20210414074952/https://suex.io/
|
| [3]: https://home.treasury.gov/policy-issues/financial-
| sanctions/...
|
| [4]: https://home.treasury.gov/system/files/126/virtual_cur
| rency_...
| orthecreedence wrote:
| This is really interesting. I've long thought of as the
| US' empire being a primarily financial one (as opposed to
| military, like many other past empires) and I didn't even
| realize OFAC existed until reading your comment, much
| less the types of activities they engage in. This
| certainly cements my suspicions even more about the
| financial empire of the US and how they exercise that
| power.
|
| Thanks for the post.
| BitwiseFool wrote:
| I'm not saying they _shouldn 't_ be shut down, but I genuinely
| wonder how that process would work. People don't have an
| account with Tether itself, so how would they be able to compel
| people to "return?" the Tethers and get their cash back?
| skybrian wrote:
| In theory, by announcing a changeover period and a deadline
| for turning them in? If they don't, it's on them.
|
| A similar thing was done when upgrading national currencies
| to the Euro: https://europa.eu/european-union/about-
| eu/euro/exchanging-na...
| WalterSear wrote:
| * They don't need to? If Tether, the company, disappeared,
| the market can decide what to do with the, now entirely
| unbacked, Tether cryptocurrency.
|
| * Tether, the company, can freeze specific Tethers they have
| issued, making them unusable as currency. Whoever shuts them
| down might be able to force them to do this en masse.
| BitwiseFool wrote:
| That's the thing, though, Tether is supposed to be holding
| all these assets and individuals are able to redeem Tethers
| proportionally. Leaving aside the strict notion of 1 Tether
| = 1 Dollar convertibility, just closing up shop would mean
| all those actual real world assets now belong to... who
| exactly?
| WalterSear wrote:
| I'm confused as to what 'real world assets' you are
| referring to.
|
| If Tether goes away, any value goes with it, like a gift
| card to Blockbuster's.
|
| Fwiw, it's likely just the _pretence_ of redemption that
| would go away - it may never have been really there.
| Tether is explicit that they only redeem Tethers at their
| discretion. While they also specify that they will only
| redeem them for high value, non-US parties, I suspect
| this is misdirection.
|
| There is no evidence of any appreciable redemption going
| on, though they have announced the burning of $1.5
| billion Tethers - all in the last six months. According
| to Tether, this is because they just 'keep them for
| later'.
|
| https://cointelegraph.com/news/tether-explains-why-it-
| hasnt-... https://cointelegraph.com/news/bitfinex-is-
| constantly-printi...
| paulgb wrote:
| I'm more surprised that anyone still _holds_ Tether, unless
| they 're stuck with it. The company has been caught in lies
| several times before, it's not as if a $41M fine will turn them
| honest.
| ur-whale wrote:
| >I'm more surprised that anyone still holds Tether,
|
| The price BTC shooting up right now (it is around $61k as I
| write this) is probably because lots of USDT holders are
| starting to realize what a bad idea that is.
|
| If you were in their shoes ... what would you be doing right
| now?
| leppr wrote:
| The BTC price increase is because of rumors of a US BTC ETF
| being approved. The Tether fine is a non-event in crypto
| social networks.
| knownjorbist wrote:
| Lending rates for USDT on the major decentralized lending
| platforms are more favorable than other stablecoins.
| sdhfjgjh wrote:
| The lending rates are higher because lenders are paid a
| premium for owning a potentially worthless (USDT
| denominated) credit. The idiom that comes to mind is
| "picking up pennies in front of a steamroller".
| gammarator wrote:
| Basic question: why doesn't this affect the currency pair
| exchange rate? If lending rates reflect the (realistic!)
| idea that holding 1 USDT is less valuable than holding 1
| USD, how does 1 USDT trade at par?
| humaniania wrote:
| The platforms that deal in USDT have a very strongly
| vested interest in seeing its continuation. To the long
| term detriment of nearly everyone else.
| ZephyrBlu wrote:
| I'm assuming because a lot of people would lose a lot of
| money if it stops trading 1:1.
| sdhfjgjh wrote:
| If the price is under $1, the backer can purchase the
| coins with reserves and pocket the difference. The price
| will only depart from the peg if selling forces the
| market price down and the backer doesn't have enough
| reserves to purchase tokens sold beneath the peg. This
| scenario is similar to a bank run and would require high
| selling volume to set if off.
|
| The lending rates are determined by a separate mechanism
| and reflect the probability of a future departure from
| the peg.
| bluecalm wrote:
| Once the peg is broken it will collapse quickly. That
| means it's in their interest to keep the peg. If they
| have enough reserves (hard to imagine they have even 5%
| in cash but maybe they managed to buy enough BTC with
| their tokens to keep afloat for a while) they can keep
| the facade going for a very long time (until some kind of
| bank run is triggered).
| humaniania wrote:
| Many people are also assuming that unlicensed unregulated
| offshore exchanges keep 100% of client funds in reserve.
| LOL.
| SilasX wrote:
| It flips back and forth with USDC, which one is higher,
| at least on compound.finance. Right now USDC is higher,
| but it's been different. Here are the historical charts
| (click the "borrow" tab, doesn't seem to be a way to link
| it with that one selected):
|
| https://compound.finance/markets/USDC
|
| https://compound.finance/markets/USDT
|
| For example, on October 7, it shows USDT at over (sorry,
| "north of") 13%, while USDC was (sorry, "clocked in at")
| ~5%.
| leppr wrote:
| The rates are mostly affected by sudden changes in
| demand.
|
| The demand for Tether comes mostly from Binance and the
| other centralized Asian exchanges. The demand for Circle
| dollars comes from the DeFi ecosystem and FTX.
| SilasX wrote:
| Really? I've been using compound.finance, and it
| fluctuates, heavily -- sometimes a lot less than USDC,
| sometimes a lot more.
|
| Edit: More details in my other comment:
| https://news.ycombinator.com/item?id=28882422
| 300bps wrote:
| Or why outright lying that every Tether was backed by a U.S.
| dollar is termed "misleading".
|
| It's incredible - they had 4x as much Tether as dollars backing
| it and lied about audits taking place that never happened.
| BbzzbB wrote:
| More than 7x ("at one point")
| [deleted]
| WalterSear wrote:
| That was then. This is now:
|
| https://pbs.twimg.com/media/FBwhKnmXEAE1whT?format=jpg&name
| =...
| BbzzbB wrote:
| The fact the number of Tethers in circulation basically
| never goes down even when the crypto market gets more
| then halved says it all as far as I'm concerned, but
| without an investigation it is speculation. I was
| referring to the ratio highlighted by the article.
| [deleted]
| JumpCrisscross wrote:
| > _why this is something they can settle rather than something
| that gets them completely shut down_
|
| I'm a Tether sceptic. I wouldn't want to be the regulator
| (note: not prosecutor, different standards) to shut it down.
|
| There was a moment when I suspected Tether may hold U.S. dollar
| money market securities. That would mean a collapse could spill
| to our financial markets. But that doesn't seem to be the case.
| The only people who would get hurt in its wake seems to be
| those who choose to keep using Tether despite the screaming
| warnings.
|
| Those same people would make you public enemy No. 1 for
| bringing down the house of cards. So given the problem is
| contained to the people who oppose its solution, there isn't a
| great argument for allocating regulatory resources to this over
| anything else.
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(page generated 2021-10-15 23:01 UTC)