[HN Gopher] "When systems require novel accounting methods the r...
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"When systems require novel accounting methods the reason is
usually fraud"
Author : DyslexicAtheist
Score : 108 points
Date : 2022-05-30 15:53 UTC (7 hours ago)
(HTM) web link (twitter.com)
(TXT) w3m dump (twitter.com)
| puranjay wrote:
| How to audit a USD stablecoin:
|
| 1. Calculate all current circulating supply of said stablecoin
| across all chains
|
| 2. Calculate value of deposits across issuer's bank accounts in
| USD.
|
| If both number are equal, congrats, your stablecoin passed the
| audit.
|
| It really should be that simple.
|
| I'm oversimplifying, of course. But a stablecoin should really
| not be an investment fund and shouldn't have its deposits in
| illiquid assets at all, not even t bills.
|
| The issuer should only charge a small fee when the stablecoin is
| created or redeemed. Given the sheer volume and scale of
| stablecoin trades, this fee can easily run into tens of millions
| of dollars in revenue.
| seoaeu wrote:
| No, #2 should be: "Calculate the value of deposits across
| issuer's bank accounts in USD _and subtract any debts that the
| issuer has._ "
| mike_d wrote:
| Debts would be #1 in parent posts example.
|
| Based on the independent audit from earlier this month, they
| have combined liabilities of ~$82 billion in issued tokens
| and $75 million in other. Total assets exceed total
| liabilities by $162 million.
| seoaeu wrote:
| Issued coins aren't the only possible kind of debt. They
| might also have taken out loans that wouldn't show up on
| the blockchain but enable them to inflate their bank
| account balances
| mike_d wrote:
| That is the $75m in "other liabilities."
| ceeplusplus wrote:
| Short-term T-bills are essentially risk-free and absolutely
| should be liquid. In the event of a catastrophic market crash
| the Federal Reserve has stepped in as the buyer of last resort
| in every case (2008, 2020 COVID, etc.). Also, generally during
| a crash Treasuries spike in price because people flock to them
| for safety. That means there should be a liquid market for
| stablecoin issuers to dump into.
| bhouston wrote:
| The issue is figuring out which assets they have and are they
| the true owner. If you have assets distributed across dozens of
| banks and other parties who are holding them for you, this
| becomes incredibly difficult and rife for abuse, especially
| when you have other non-professional/non-traditional
| intermediaries holding assets for you, or for whom you are
| exchanging favors with.
|
| Basically compiling the list of the assets they hold and
| verifying it is the biggest issue here. It is definitely not at
| all simple -- in fact it may be deliberately obfuscated for
| "reasons."
| salawat wrote:
| >in fact it may be deliberately obfuscated for "reasons."
|
| In accounting/auditing, the words "it's complicated" is
| generally the first place you look for detailed documentation
| and process.
|
| If it is not there... Red flag.
| audleman wrote:
| I don't understand your point. If a stablecoin issuer has
| trouble compiling a list of their assets that's a red flag.
| If a competitor comes out with simpler accounting I'll switch
| to them.
| dixie_land wrote:
| Step 0: it's crypto so it's a pyramid scheme, case closed
| puranjay wrote:
| that very well might be
|
| some aspects of crypto though are pretty interesting. NFTs do
| offer a ton of use cases for ownership, licensing,
| memberships, etc. - if you can look beyond the current dumb
| trend of monkey pictures.
| Peritract wrote:
| > NFTs do offer a ton of use cases for ownership,
| licensing, memberships, etc.
|
| NFTs are _claimed_ to offer a ton of use cases. To date, I
| 'm not aware of any that are both meaningful and actually
| _require_ NFTs.
| puranjay wrote:
| To be fair, its a very new tech - the ERC-721 NFT
| standard was introduced in 2018. Whatever could be built
| or not on it was lost in the madness of the bullrun.
|
| I remain on the fence, but can't dismiss it entirely.
| mike_d wrote:
| #2 is really hard when you have 50 billion dollars.
|
| Most Fortune 500 companies don't actually know how much money
| they have. When I worked for a big one they generally knew
| within a $100 million margin of error.
| baq wrote:
| Stablecoins or other central banks running their currencies
| should know better than the average Fortune 500, given that
| it's pretty much their only job...?
| puranjay wrote:
| But if you're in the business of issuing stablecoins, that's
| precisely what your job is - to know where your (or rather, a
| client's) money is.
|
| It's a core competency. Not a treasury management issue as
| with Fortune 500 cos.
| uoaei wrote:
| Causality seems backward, but the sentiment holds. Grifters and
| fraudsters have an eye for recognizing settings and circumstances
| where their exploits may go unnoticed until they're off with the
| goods. It's what makes them good at their trades. Novel
| accounting methods -- and more broadly the financialization of
| financialization that defines modern speculative finance --
| especially obscure and technical ones, are great venues for
| fraud.
| jandrese wrote:
| I find it plausible that Tether was forced to create their own
| accounting system because GAAP would have exposed their lies.
|
| They can't find an accounting firm that "understands" that they
| need to ignore the lies and only report what Tether wants them
| to report.
| oldgradstudent wrote:
| They should consider Friehling & Horowitz. A reliable firm
| with a lot of auditing experience.
| IX-103 wrote:
| Especially if they have unfortunate names, like iFAP. I about
| had a stroke or two when I saw that. Either someone dropped the
| balls on marketing or there's some _serious_ trolling going on
| for them to be swinging this around in our faces like that.
| AlexandrB wrote:
| > iFAP
|
| In a way it's brilliant marketing. I'm sure the true
| believers love it. The skeptics would not be convinced by
| this no matter what you called it.
| debo_ wrote:
| I would like to express appreciation for the innuendo in your
| post.
| jrvarela56 wrote:
| I agree with these examples, but to avoid taking the principle
| too far: EBIDTA was once a made up metric. Sometimes new views of
| a system do enrich our understanding.
|
| Check the "John Malone and the Invention of EBITDA" section in
| this post for the story of how it was created:
| https://commoncog.com/blog/cash-flow-games/
| hammock wrote:
| The timing (1972) of the invention of EBITDA is interesting. It
| would seem EBITDA was not used for thousands of years and was
| not useful until the end of the gold standard in 1971 and the
| beginning of a new era of central bank currency manipulation
|
| Edit: bring on the downvotes without context. Or, engage
| meaningfully: what conditions existed that enabled EBITDA to
| emerge as an invention and gain traction?
| seoaeu wrote:
| How do you know that Dwayne Johnson didn't cause EBITDA? He
| was born in 1972 so the timing fits even better than the
| ending of the gold standard
| hammock wrote:
| I replied with the specific reasoning as it relates to
| central bank policy.
| lamontcg wrote:
| I was born in 1971, so clearly I'm the answer to
| "wtfhappenedin1971"
| cuteboy19 wrote:
| I choose to believe EBITDA exists because of Bangladesh,
| which also came into existence in 1971. In fact if you track
| the prominence of EBITDA and the GDP of Bangladesh, the
| correlation is crystal clear
|
| In any case crypto is far more manipulated than any normal
| currency thanks to BitfinexTether.
| [deleted]
| AlexandrB wrote:
| Can you elaborate? How are these things connected? Why
| wouldn't EBITDA be a useful financial framing for "growth"
| companies while the country was on the gold standard? Just
| because it happened around the same time, doesn't mean
| there's any causal relationship here.
| hammock wrote:
| Wall Street newly accepting EBITDA (cash flows) over DTI or
| net income, as told in the link above about the cable
| utility, is logical in an environment of a rapidly
| expanding money supply driven by unencumbered Federal
| Reserve.
|
| In the loose/free money era, financing cash flows with more
| and more debt is incentivized and in some respects the
| default mode of operation.
|
| Growth over value.
|
| Alternately, when the credit environment tightens, you see
| moves back to value and away from growth
| clairity wrote:
| note that EBITDA isn't directly equivalent to cash flows,
| and can be wildly different depending on how creative the
| accounting is. EBIT/EBITDA can be useful is some
| comparative valuation exercises as an idealized cash flow
| substitute (especially when comparing companies or time
| periods under differing tax regimes), but it's not actual
| cash in minus cash out, as the term "cash flow" implies.
| justin66 wrote:
| Earlier this morning for some reason Youtube recommended a
| video that was funny and relevant, called _Charlie Munger:
| 'Every time you hear 'EBITDA' substitute it with 'bull**
| earnings''_
|
| https://www.youtube.com/watch?v=l82kIjqBtqw
| jrvarela56 wrote:
| Haha I see your appeal to authority and raise you another:
| besides Malone (billionaire) the other famous example for
| EBIDTA is Jeff Bezos (and many others I'm sure).
|
| Jeff Bezos was always criticized because Amazon was
| 'unprofitable'. He was just playing a similar strategy to
| Malone's and mocked journalists who didn't understand what he
| was up to.
| lamontcg wrote:
| Bezos was all about free cash flow.
| oh_my_goodness wrote:
| I'd go even further. EBITDA is still a made-up metric.
| jmonger wrote:
| Those pesky expenses always getting in the way.
| [deleted]
| Animats wrote:
| "Earnings before all the bad stuff".
|
| Have you ever seen an annual report where "adjustments to
| earnings" made the earnings worse?
| xboxnolifes wrote:
| All metrics are made up. Some of them are useful.
| RC_ITR wrote:
| EBITDA was new, but free cash flow was GAAP and everything good
| about EBITDA is captured in "it's an easy way to estimate free
| cash flow"
|
| Everything _else_ about EBITDA is sort of fraud.
| Animats wrote:
| That Tether's assets are being questioned in so many places means
| it's time to get out of USDT. After all, there is zero upside and
| a huge downside.
| cowtools wrote:
| I don't even understand what the purpose of USDT is. Why use it
| over a stablecoin that is backed by your crypto exchange?
| baq wrote:
| Edit: misread. Usdt is the common coin to transfer between
| exchanges and exchange coins.
|
| Tax avoidance in some countries and bypassing KYC rules.
| mike_d wrote:
| Think of an exchange issued stablecoin as a gift card, it is
| issued by one store and only good as long as that store is in
| business. Tether is more like a dollar or euro and good
| across multiple stores.
|
| I have USDT that is in my own wallet and not on an exchange
| that I could send directly to you if I wanted.
| scotty79 wrote:
| But the price of tether is still guaranteeled by a single
| entity.
|
| If that entity is lying or goes bust you are still holding
| your usdt's but they are worth nothing now.
| cowtools wrote:
| Okay, but you already have a business relationship with
| your exchange. so there are fewer points of failure.
|
| >I have USDT that is in my own wallet and not on an
| exchange that I could send directly to you if I wanted.
|
| I suppose, but this "Tether" currency is still minted by a
| centralized entity. It could be worthless tomorrow. I don't
| see how self-custodialship of this centralized monopoly
| money matters. You might as well just use a centralized
| currency if you trust this centralized entity not to
| inflate the currency.
|
| When I use an exchange-backed currency like BUSD, USDC or
| Kraken's USD, I don't intend to exchange it peer-to-peer at
| all. The whole point of exchange in the first place is that
| you use the cryptocurrencies for peer-to-peer transfers.
| The only thing a stablecoin has to do is:
|
| 1) Accept (cash, bank, CC) deposits
|
| 2) Allow (cash, bank, CC) withdrawls
|
| 3) Allow me to exchange it for cryptocurrency with others
|
| 4) Don't lose my money in the process
|
| If you trust some institution to do #1-3, why would you
| want to have some other, less credible institution to
| handle #4 as well?
| Animats wrote:
| Take a look at Tether's market cap chart.[1] Click on
| Overview->Market cap-> 1 month. You can see the cashouts.
| Between 5:09 AM and 5:14 AM on May 27, 2022, the market cap of
| USDT suddenly dropped by $750 million dollars. Somebody just
| exited.
|
| There have been five huge cashouts like that since May 13th.
|
| [1] https://coinmarketcap.com/currencies/tether/
| woodpanel wrote:
| Thoughts on Tether calling their accounting method "iFAP" of all
| choices:
|
| There's a saying amongst investigators that some criminals, as
| ever more time passes with them not getting caught, start to
| behave as if they were taunting police to finally catch them.
| Animats wrote:
| There's a white collar crime investigator who has a sign in his
| interrogation room: "If you're here, you're not as smart as you
| thought you were."
| throwaway0a5e wrote:
| > There's a white collar crime investigator who has a sign in
| his interrogation room: "If you're here, you're not as smart
| as you thought you were."
|
| Sounds like typical bullshit that you get in a profession
| where everyone kisses your ass because you can ruin their
| life on a whim even if they didn't do anything wrong.
|
| I'm sure the boot-licking "everyone accused is probably
| guilty of something" crowd loves it.
| jstarfish wrote:
| Academics do this stuff too though. SATAN was a network
| security tool. Linnaeus himself abused the taxonomy system he
| invented to name pest species after people he didn't like.
| jandrese wrote:
| Did these techbros seriously call their accounting system "iFAP"?
| wly_cdgr wrote:
| Lol, right? Such a barefaced troll
| defterGoose wrote:
| Yeah, my immediate thought was, "You've gotta be jerking me..."
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