It's nothing new but it is a well put together timeline and entertaining watch that covers the background of both the companies, the people behind the companies and a lot of the things they've said and done. You probably don't need the visuals if you just wanted to listen in the background.
Whilst he's very reticent to literally say it's a scam, he does heavily imply that it looks very, very shady. He admits to owning cryptocurrency but (pretty much) comes to the conclusion that if Tether implodes it would probably hurt the crypto world considerably, and for crypto to stand a better long term chance it doesn't need something as (potentially) sketchy as Tether so heavily intertwined.
The only part that I wasn’t aware of is that Tether produced a pie chart of their holdings, which made it immediately clear that Tether’s reserves are simply a hedge fund. But this isn’t breaking news; I just hadn’t kept up on it in a while.
A "hedge fund" seems unnecessarily charitable. The majority of their holding is apparently unspecified "commercial paper", which in all likely is near-worthless IOUs from linked entities like Bitfinex.
To be fair it is 45% of their holdings, not a majority. Which is still a very big amount of money, and more than enough to ruin the stability guarantee of USDT
Tether is "USD-ramp-as-a-service". In the crypto world, there are many anonymously operated exchanges, with no fiat-money banking relationships. Those exchanges tend to offer features that a lot of traders want, like providing a market for any arbitrary token (regulated exchanges tend to be slower with token listings, due to always pondering if something is a security). And yes, if your money is tainted (whether it's because you're trying to move capital out of China, or maybe you're the founder of something USG doesn't like such as Sci-Hub), then you NEED to use a non-KYC, non-AML exchange.
Non-KYC, non-AML exchanges have tended to be shady. There are so many losses over the years. Tether, on the other hand, has maintained its $1 = 1 USDT peg since its inception, except for very brief periods of time. It does what it says, and it's probably the biggest, most liquid, and most stable way to keep dollars outside of the traditional regulated financial system.
Here's the realities about Tether:
• No one has ever been scammed by Bitfinex or Ether. There is no monetary loss, ever.
• When Bitfinex got hacked a few years ago, they worked out a repayment program, and fully repaid all creditors.
• While Tether made misrepresentations after a banking fiasco, they have fully settled their case with NYAG. The USG doesn't tend to settle (in crypto cases) unless they are satisfied.
No, it's not the same at all. Tether is not a bank. Banks are audited and bank deposits are insured. Banks can't print money unilaterally. Tether doesn't have the same regulations apply to it.
It's all about your risk profile. For someone looking to move capital out of China, Tether is safer than the Chinese Yuan in a bank account.
For people dealing with all the anonymously operated, no-KYC exchanges, Tether in your address is far safer than whatever balances you have on those exchanges.
The 'dark' economy is huge, and a lot of capital live in fear of seizure. It shouldn't be a surprise how big Tether's market cap is.
It's basically "USD-ramp-as-a-service", with the only fee being Tether doesn't pay interest, so obviously the operators get whatever interest there is on the float. And this service is VERY valuable, whether you are launching an exchange in a jurisdiction that prevents exchanges (e.g. China), or want to bring about traditionally regulated financial instruments (e.g. derivative swaps) into a relatively unregulated field.
> No one has ever been scammed by Bitfinex or Ether. There is no monetary loss, ever.
Yet. Like all frauds, they succeed until they don't. People thought they made money in Enron, Madoff, etc until it unraveled and there was nothing.
> When Bitfinex got hacked a few years ago, they worked out a repayment program, and fully repaid all creditors.
Tether is so monumentally different. In fact, Bitfinex repaid creditors with tokens, the value of which are denominated in USDT and almost certainly have been inflated through Tether issuance. So basically Bitfinex repaid a hack with massive fraud.
> While Tether made misrepresentations after a banking fiasco
When your core business is trust and transparency, this isn't an "oh well" type of issue.
> The USG doesn't tend to settle unless they are satisfied.
Categorically untrue. Also, the NYAG is not the USG in the slightest. If I were Tether, I would be a lot more concerned about the SDNY USAG than I would be about the NYAG.
> When your core business is trust and transparency, this isn't an "oh well" type of issue.
As a user, the core business prop of BFX/Tether is that they keep my money, and maintain my ability to use the platform without KYC.
If I want a super-duper legit stablecoin, I'd use USDC. Tether is about bringing stability to the chaos of non-KYC, anonymously-operated exchanges, like the 100x leverage ByBit, or the various smaller no-banking, Tether-only exchanges. And they've done that.
When you place copper (Tether) next to burning trash (balances held on anonymously operated exchanges), the former looks like gold. Sure, it's not as good as actual gold, but that doesn't mean it's a scam.
Bitfinex and Tether has weathered and survived a variety of doomsday scenarios, from Crypto Capital, US seizure of bank accounts, the Bitfinex hack, and the NYAG investigation.
I think you're expecting Bitfinex or Tether to be Coinbase. They're not. If you look between the lines, and look at how Tether is used, the whole point is that you can have safe USD without any AML or KYC.
And since 2014, Bitfinex and Tether has fulfilled that promise despite so many obstacles. For someone trying to move capital out of China for example, Tether considerably is safer than Yuan in an onshore bank account. For people prosecuted by the USA, like the founder of Sci-Hub, Tether is safer than any USD bank account.
> If I want a super-duper legit stablecoin, I'd use USDC
They are morphing into Tether. Look at recent legal structure change, attestations, reserves breakdown, etc.
But your core premise (Tether as a dollar substitute for the unbankable) is predicated on there being two states of the universe (USD in risky places vs. Tether) which isn't true and ignores the key issue: all of those Tethers may not hold any value. In the real world, Tether is not the only alternative, nor is USDC. For instance, the Sci-Hub founder can hold any other major currency or frankly any non USD asset.
The crypto world constantly create false equivalencies to justify their casino. Fiat sucks long term? Yeah, by design...money velocity is a good thing, you shouldn't be holding cash, and few people do. This is why there are trillion dollar markets for other productive assets, like equities.
The Sci-Hub founder can hold any other major crypto, sure, but it's volatile. How do you propose she allow international donations? Via a SWIFT bank account? Via cash in the mail to a postal address?
The easiest and most liquid mechanism is for people like her to accept crypto donations (e.g. Bitcoin), and convert it to non-KYC stablecoins like USDT so the purchasing power is preserved.
It's not hard to explain the 60B market cap when you combine "non-KYC" and "stablecoin", and if you believe it's not backed by anything, you can open a short on USDT right now, using DeFi like Compound. Your upside is 100%, your downside is the cost of borrowing (about a few percentage a year).
The market believes $1 = 1 USDT, with a volume of $53 billion in the past 24 hours.
> The Sci-Hub founder can hold any other major crypto, sure, but it's volatile.
Why do you guys do this? It's so painful speaking with crypto die-hards. I said she could hold any other major currency, which of course implies fiat. How about EUR? How about CHF? How about GBP? I don't know enough about her but hell she could hold RUB...still less volatile than crypto.
> How do you propose she allow international donations?
That's her problem. This goes with the territory of running an illegal website, no matter how idealistic you find her cause. But basically once again, crypto's primary use-case (as you've outlined) is skirting laws. That's fine, it's a real use-case. But just quit pretending that crypto is the future of money.
> It's not hard to explain the 60B market cap when you combine "non-KYC" and "stablecoin", and if you believe it's not backed by anything, you can open a short on USDT right now, using DeFi like Compound. Your upside is 100%, your downside is the cost of borrowing (about a few percentage a year).
I agree, it's very easy to explain. That's what this video is all about. As for shorting USDT, that's about the dumbest thing you could do, and your DeFi example is absolutely naive. I want to be short USDTUSD...I can't do that in DeFi. I can be short Tether against something else whose value at the moment is determined by circulating Tethers. If you think DAI survives a Tether implosion, you're dreaming. And if it did, I still need a fiat offramp and if you think Coinbase is a good counterparty in that scenario, well then I am beginning to understand you a little bit. In my career as a hedge fund trader, I don't think I've come across a worse trade than shorting USDT.
> The market believes $1 = 1 USDT, with a volume of $53 billion in the past 24 hours.
Yes, and? If the market didn't believe this, then there wouldn't be a story here.
> Tether provides a means for people and exchanges to transfer units of accounting, pegged to the US dollar, between each other without a hard AML or KYC wall; as Tether is a crypto token.
Pegged by fiat, not by algorithm. Surely the future for such an oracle is an algorithmic peg, as several honest projects continue to forge.
> A token that derives its utility from being shady (an unregulated way to move US dollar without KYC or AML) will obviously have shady elements to it.
I don't think this is sound logic. It's perfectly plausible for a token to be shady in the sense of opacity before inspection and yet be transparent in the sense of its logic and operations. Monero is an example of such a project.
> However, I (and the broader crypto market, going off tbe market ccapitalisation, anple liquidity, and the $1=$1USDT peg maintaining) trust Tether because of their actions and history of preserving the peg, and protecting all deposits.
You may speak for your trust endorsement, but I think you go too far by translating price and liquidity into community trust. It's a calculation based on the small number of plausible available options.
If you tell a starving person that you'll feed her for life if she performs a tapdancing number on an abandoned minefield, she may conclude that the risk is worth it for her. It doesn't mean that she trusts landmines.
> While Tether made misrepresentations after a banking fiasco, they have fully settled their case with NYAG. The USG doesn't tend to settle unless they are satisfied.
A settlement from the office of the NY Attorney General - which it itself not exactly a paragon of truth or justice in the first place - is not an endorsement from the NY or US governments as you seem to imply.
And if it were, this is hardly the authority to which you'd want appeal to if indeed blockchain tech is to be as transformative to society in the long-term as its enthusiasts (yours truly included) hope.
> You may speak for your trust endorsement, but I think you go too far by translating price and liquidity into community trust. It's a calculation based on the small number of plausible available options.
You are very welcome to place a short on the USDT if you believe that view. The only cost of doing so is the interest, which is a few percentage a year. Your reward is 100% if you are right.
The market doesn't believe Tether is a fraud. The volume of Tether was $53 billion in the past 24 hours.
> Tether provides a means for people and exchanges to transfer units of accounting, pegged to the US dollar, between each other without a hard AML or KYC wall; as Tether is a crypto token.
That is probably why Tether was initially created but what Tether is now is a mechanism for insiders to cash out real money while leaving lots of "liquidity" in the market to keep the tasty scam going.
Retail investors (AKA suckers) buy coins from exchanges with real money. The exchanges have a net influx of real money because investors (AKA hodling rubes) will typically not want real money back when they are conducting trades, so the exchanges buy Tethers - I assume at a significant insider discount. Why not? Tethers are free to create, who cares?
Now the exchanges have some of the investors' (AKA marks) money, Tether has some money, the miners (who are actually doing real work) get some money for the relatively rare blockchain transactions. Everyone wins. All the exchanges have to do is carry enough cash so that the relatively rare customer requests for real money can be satisfied. As a quick trip to reddit will confirm, they can't even manage to do that reliably. Luckily for them nobody seems to care so long as the price remains high, which it will because the trades are mostly conducted with very cheap Tethers.
But the end result is that Bitcoin, etc are ultimately priced in Tethers - as I write, Bitcoin is currently priced at 37145 Tethers not $37145. To put it another way, the market is so distorted that bitcoin has become just a complex way for people to turn USD into Tethers. They may hodl the bitcoin for a while but that is the end result.
The situation is more complex than what I describe because there are multiple stable coins and multiple parties involved, but the end result is that real money flows from retail (AKA fools with more money than sense) to a relatively small number of groups while worthless Tethers flow the other way. And nobody seems to mind as long a numbers go up.
The next economic downturn will wipe out the whole exercise.
OK, so if you're saying that the entire crypto world is operating on a giant fake dollar Ponzi scheme, then how can a US-regulated exchange like Coinbase (who operates another stablecoin, USDC) be listed on the NASDAQ?
You'd think no one in the entire US government apparatus would let the SEC know?
> The next economic downturn will wipe out the whole exercise.
People have been calling the demise of bitcoin since 2008.
Don't get me started on things like the Coinbase IPO and Greyscale. These are just other ways for insiders to cash out of crypto without actually removing liquidity from the very thin markets, by effectively selling shares in a pile of crypto without selling the crypto itself.
Both Coinbase and Greyscale are trading at a significant discount at the moment but that doesn't really matter for the insiders. If they cash out 80 cents of real money to 1 dollar of crypto then they are still doing well.
Stablecoins have ridiculous fraud potential. The idea of a crypto that holds 100% of its value in USD is just an unstable business. There's too much cash just sitting there, and it's too tempting to debase the coin just a little bit.
Tether looks like they have been caught with their hand in the cookie jar a few too many times.
I might trust a stablecoin backed by a big bank, but nothing else.
Turning a profit on a $60B cashpile should be easy, even with current rock bottom interest rates. Even more so since Tether reserves the right to deny redemptions, or redeem them in-kind for securities (which would allow them to invest in relatively illiquid investments that might have a higher yield).
Problem: there never was $60B to begin with, and to the extent there was/is some real money, Tether has the nearly impossible task of proving its not related to money laundering, proceeds of crime, etc if they want access to regulated financial markets. But, no one with clean, legitimate cash has any reason to do business with Tether (or any other stablecoin for that matter - exchanges would be more than happy to take clean USD if people want to buy cryptocurrency).
Surly everyone now knows either consciously, or deep in their heart, that Tether is a scam, but just goes along with it because it's a useful way of not paying tax when you want on sell your coins?
People who assume that are in for a rude awakening. The IRS has aggressively been going after records from cryptocurrency exchanges. Now maybe they’re using a DEX or something, but at some point they’re going to have to spend the crypto natively (much of which is now KYCed) or convert to real USD. People who think they’re being clever are trapped.
Do you mean even if people are just converting into USDT the IRS are going to be after them?
FYI I'm just going on what I know friends are doing - no skin in the game! Just see this happening and don't see any other reason why anyone would buy Tether.
The challenge with Tether is that it's basically impossible to prove or disprove their financial status. They don't have audited books, so no-one knows.
So you need to decide whether they're a risk or not. To me, the idea of having what is effectively a bank with a $60b+ balance sheet that has no auditor and no regulators, seems kind of risky.
We also know, via the NYAG case, that they have in the past, said things that were not true (specifically continuing the claim to have a 1:1 USD backing after they no longer had those funds).
The other aspect of Tether is "who's using them"? There are a range of stablecoins available now, multiple of whom are better regulated and audited than Tether. So why would rational organizations place $60b+ with Tether, when the risk is higher, and it's not like this is an investment where higher risk == higher return.
Indeed there were some interesting pieces in that. They would argue that the composition showed that they had the required reserves, others would argue it showed they were insolvent :)
As tether specifies the right to repay any redeemed tokens in securities, assuming the securities they hold actually keep their value, it seems like they'd be fine
From https://tether.to/legal/ "Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves."
Of course the $60b question is, what are all the non-cash reserves they have, and how much are they worth.
The broader historical observation is: given a large amount of money, a requirement to keep it continuously invested, and a cloak behind which to operate, what financial institution in the history of humanity has made good choices?
At best, they're choosing investments incompetently. (Chance Tether's team is equivalent to professionals at major banks?)
At worst, they're choosing investments to maximize personal gain.
Or to put it another way, what sort of company do you think is knocking on Tether's door, offering a good deal in exchange for a few billion "worth" of notes?
It's possible, but given a choice between "flagrantly lying to the New York AG who just investigated you" vs "buying cheap debt no one else would touch and then overvaluing it, because you aren't regulated", the latter seems like a less legally perilous way of keeping things going.
Yes, that might be more likely. I was just framing things "at worst".
Deltec, the bank that Tether bought, has a desk specializing in zombie debt, so it's entirely possible they have loads of debt bought for pennies on the dollar, that they have through accounting/market shenanigans recognized at par as their "commercial paper".
I mean... technically they're completely unregulated, right?
So they don't even have to perform shenanigans.
They can just buy $1 par debt at $0.01 from Bob's Used Cars and value / declare it at $1. It's a super shady move, and would shake confidence if known, but would seem legally defensible. ("We valued it at a fair price. It turned out we were wrong and overvalued it. Oops.")
They could probably declare it at >$1 if they really wanted to, but why do hard fraud instead of easy fraud?
Well if you take that view, then they don't need the $0.01 paper in the first place. If they are indeed totally unregulated, then they can just commit fraud without risk.
They are unregulated, but they're now required to publish a breakdown of their assets.
Before, they could have said "We have billions and billions in assets." Now, they're required to enumerate and value their assets, to the extent required to publish the breakdown, as part of a legal agreement.
So I guess before it could have been riskless fraud. Now, it's more risky fraud. And overvaluing assets seems like an easy way to keep the wheels turning without obviously pissing off a state AG.
The latter would imply they had any cash to buy debt in the first place. One of the most common, and most credible theories is that they issue Tether to exchanges in exchange for short term debt obligations. There's never any actual money changing hands.
All assets liquidated today, what do you think the true value of a Tether is? $.70 USD?
The answer is not clear to me, but it seems like this is an important value.
Also, aren't some of those assets (like treasury bills) interest-accruing? That would seem to offset some of the losses incurred by a short-term, high-volume liquidation event.
In my understanding, part of the issue is that we can't value or risk assess the backing ourselves. This is due to the lack of transparency on whose commercial paper Tether is holding, etc.
Bad mortgage backed securities were the root risk.
The unregulated leverage piled on top of those MBSs (credit default swaps) ballooned the consequences of that risk.
But what really caused the global meltdown was (1) pervasiveness of exposure & (2) consequently, institutional uncertainty and withdrawal of liquidity.
When the MBSs failed, the CDSs multiplied the dollar impact. Which would have been that, except that these assets underpined large portions of institution's balance sheets. And critically, unknown large portions.
The "music stopping" was the breaking of institutional trust in the solvency of their counterparties, and hence evaporation of liquidity.
The sheer opaqueness of the crypto exchanges might actually be an advantage here, as unlike traditional exchanges and the banking system, they're not used to keeping an eye on their counterparties' balances.
That's the key point of course, you don't know and neither do I. Nor does anyone else outside of Tether.
Tether is the No.1 most traded coin (by a decent margin) which makes it a very large part of the ecosystem.
Now if their assets are all high quality low risk treasuries, it's likely all fine.
If however their asset are loans to people who used those loans to buy other crypto currencies, things get a lot more risky.
A large shock to the ecosystem, like Tether going bust, would seem like it would have a large impact on the overall space. We've seen in the last month that something a simple as a tweet can send the market up or down by multiple percent...
Wow, I just checked this and you're right. Tether volume is roughly the volume of BTC + ETH. Wonder why Tether and not DAI. Just not enough DAI available? DAI seems more risky to big traders?
> All assets liquidated today, what do you think the true value of a Tether is? $.70 USD?
Given that only 3% of each dollar is backed by fiat, they can only guarantee $0.03 on each dollar requested.
In the case of a bank run, the commercial paper etc. would be considered valueless, and unlike a real bank, their deposits are not insured.
So the value of a Tether would theoretically fall to $0.03.
In practice however, it is plausible that it would result in them blocking redemption and fleeing the country to avoid jail, so the value would be much closer to $0.
> It would be valued at the current market price it could be quickly cleared at.
To clarify: there are two markets, one is redemption of USDT through the Tether company, the other is independent transaction of USDT vs. payment typically through exchanges.
During asset liquidation, Tether’s assets would not be sold for the users’ redemption, but for the company’s creditors and shareholders. As soon as the suspicion of liquidation is there, there would be a bank run while redemptions still work.
In the case of a bank run, the price of USDT would be dictated by the exchange market exclusively. As a massive number of people sell through redemption, it is clear to the holders that when the cash dries out, redemptions will close. So they will theoretically be ready to sell through the exchange at 3%, because that is the expected value of the return across all USDT holdings.
Can't we excise non-redemptions from this picture? As redemptions are (ultimately) the only way USDT is converted back to USD (regardless of how many times the USDT was traded, or at what price).
That said, at the time of a redemption, isn't Tether legally required to sell or transfer assets to service the redemption (as long as they are able, subject to the timelines and qualifiers promised in their agreements)?
Which is where I'm saying that if Tether holds $0.03 USD + 5 short term notes for every 1 USDT, they are obligated to turn over (or sell) those 5 notes (and $0.03) when a redemption is requested.
While Tether may not be a bank, their users aren't just users: they're holders of Tether credit, subject to the terms that govern it.
> While Tether may not be a bank, their users aren't just users: they're holders of Tether credit
Contractually, they are not considered creditors. Furthermore, liability for any loss is explicitly put on the user. (Whether the contract is valid can be litigated though.)
> isn't Tether legally required to sell or transfer assets to service the redemption
Sadly not… From the contract: “Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.”
In fact, US citizens are already disallowed from redeeming tokens, and have been for years.
The prohibition on US citizens redeeming tokens probably stems from the SEC's declaration that duck typing will be applied to cryptocurrencies trying to avoid classification as securities.
The commercial paper is not “valueless” as long as there is an active market for it. The key question, of course, is who issued the paper. Given Tether’s difficulties obtaining banking services, you have to wonder what capital markets they have access to.
> The challenge with Tether is that it's basically impossible to prove or disprove their financial status.
It's impossible for outsiders to prove or disprove. It would be trivial for Tether to do, which begs the question of why they don't (their reserves pie chart does not qualify).
Tether claims that it's basically the only $60B+ institution in the world incapable of being audited. And given their ludicrously simple business model, it's mind boggling that they can even say this with a straight face.
Of course the real reason they can't be audited is because it would ruin their business. And thus, here we are.
As someone who has worked at a big four accounting firm hearing the clip of Tether’s CEO insisting no one would audit them was infuriating. I don’t know a single public accounting firm that wouldn’t be jumping at the opportunity to do that audit and use it to show how tech-savvy they are in an effort to drum up consulting business.
Unless, of course, while negotiating every potential engagement Tether insisted on exceedingly unreasonable audit restrictions. (That’s assuming Tether has actually tried to engage an independent auditor, and I’m not really convinced they have.) Insane restrictions on the scope of the audit and/or the scope of auditor access is the one and only reason they’d be “unable” to find an accounting firm willing and able to conduct the audit. But lack of skill? Knowledge? Willingness to engage with potentially shady clients? Those are not really things that hinder an accounting firm’s ability to engage a client.
Exactly. What Tether really mean is that nobody will give them the audit and rubber stamp that they want, which is of course different from nobody being willing to audit them.
USDC has been growing at a faster pace. Tether has attraction because it was there first. This reminds me when Bitfinex was the exchange that moves Bitcoin price. Now, it's just another exchange. It'll take time but it'll eventually happen.
USD Coin has indeed increased in use, although given the supposed liquidity of these two assets, you could wonder why the move doesn't happen far faster than it has...
Also there's a very interesting difference between USDC and Tether in terms of volume.
based on https://nomics.com/ Tether has a market cap of $62.85B and a 24 hour volume of $70.19B
USDC has a market cap of $23.90B and a 24h volume of $1.84B
So, for some reason, the velocity of Tethers is about 14 times higher than USDC, which seems unusual given they're nominally the same class of asset operating in similar markets.
I know that was the case in the past, but is it still the case? from a 10 minute look, the 4 largest exchanges by volume (Binance, Coinbase, Huobi, and Kraken) all seem to list USDC
Hmm yeah maybe not, even Bitfinex trades USDC, and anyway they're a much smaller percentage of volume than I thought (jesus binance is huge).
Wonder if it's just network effect then? Big traders use the USDT markets because they're more liquid -> the USDT markets become even more liquid and the cycle continues.
The different volumes could reflect that folks have started to lose trust in Tether vs USDC, and so Tether is used as a big liquidity pool to move between different positions, but no one's endeavoring to hold big Tether positions for longer than necessary. Whereas USDC might be the preferred parking place when folks actually want to spend some time out of market without fully leaving the casino.
They do not need to have 100% USD at Tether. Exchanges buy UDST from Tether, that means that there is an exchange. It would be problematic if they would give it for free to the exchanges.
The exchanges won't give you free USDT either, they charge something in return.
The only way this could be a problem if they would use USDT from within Tether to buy crypto. I have not seen any evidence of this.
A question is, how would you see evidence of this? Wash trading with Tether has been alleged before but, as far as I'm aware, it's not possible to definitively prove or disprove that it occurred.
So to me, that's not a strong signal either way, the operation of Tether and their dealings with exchanges are opaque, you need to take what they say on trust, as there are no external auditors.
Only thing is that you don't ever deal with Tether directly, the exchange needs to have that amount of USD for USDT. Same goes for BTC etc. Later the exchange needs to get USD from Tether if they need liquidity in FIAT?
> Could a sudden pump of BTC while USDT/USD is unpegging be the signature of the downfall itself?
Likely, but that is not bullish BTC. People who hold USDT at a given moment do so because they don't want to hold crypto. So you would likely see BTCUSDT panic bid (until the Tether exchanges presumably stop withdrawals) and relentless selling of BTCUSD. For those who managed to get out, they will have round tripped their USDT to USD, but BTCUSD will be a bloodbath.
>So you would likely see BTCUSDT panic bid (until the Tether exchanges presumably stop withdrawals) and relentless selling of BTCUSD. For those who managed to get out, they will have round tripped their USDT to USD, but BTCUSD will be a bloodbath.
But if they're buying BTC only to convert it back to USD again (at a non USDT exchange), wouldn't the net effect on BTC be zero?
No, it would have the effect of all the BTC on unbanked Tether exchanges being sent to banked exchanges to be sold for fiat. So the price would be high in USDT terms and low in USD terms. This is how the "peg" breaks.
BTC/USDT only goes up because the denominator (USDT) goes to zero.
90 comments
[ 2.5 ms ] story [ 159 ms ] threadIsn't it funny how this anti-Tether garbage is constantly submitted to HN even during the week when a Tether competitor collapsed? Pathetic!
https://www.theregister.com/2021/06/17/iron_cryptocoin_titan...
Anyone got a summary? Is there anything new in here that hasn't already been said in previous tether posts?
It's nothing new but it is a well put together timeline and entertaining watch that covers the background of both the companies, the people behind the companies and a lot of the things they've said and done. You probably don't need the visuals if you just wanted to listen in the background.
Whilst he's very reticent to literally say it's a scam, he does heavily imply that it looks very, very shady. He admits to owning cryptocurrency but (pretty much) comes to the conclusion that if Tether implodes it would probably hurt the crypto world considerably, and for crypto to stand a better long term chance it doesn't need something as (potentially) sketchy as Tether so heavily intertwined.
basically he dig founders schetchy curriculum, bitfinex ties and evolving (scammy) policies around mantaining 1:1 rate with $
Non-KYC, non-AML exchanges have tended to be shady. There are so many losses over the years. Tether, on the other hand, has maintained its $1 = 1 USDT peg since its inception, except for very brief periods of time. It does what it says, and it's probably the biggest, most liquid, and most stable way to keep dollars outside of the traditional regulated financial system.
Here's the realities about Tether:
• No one has ever been scammed by Bitfinex or Ether. There is no monetary loss, ever.
• When Bitfinex got hacked a few years ago, they worked out a repayment program, and fully repaid all creditors.
• While Tether made misrepresentations after a banking fiasco, they have fully settled their case with NYAG. The USG doesn't tend to settle (in crypto cases) unless they are satisfied.
The USA isn't shy about pursuing crypto operators.
It's also hard to call a 0% interest, zero return token, a ponzi scheme.
Much easier if we mention that only 3-4% of the entire Tether supply is backed by actual dollars.
Welcome to fractional reserve banking. It's been this way, with every single account, for decades now.
For people dealing with all the anonymously operated, no-KYC exchanges, Tether in your address is far safer than whatever balances you have on those exchanges.
The 'dark' economy is huge, and a lot of capital live in fear of seizure. It shouldn't be a surprise how big Tether's market cap is.
It's basically "USD-ramp-as-a-service", with the only fee being Tether doesn't pay interest, so obviously the operators get whatever interest there is on the float. And this service is VERY valuable, whether you are launching an exchange in a jurisdiction that prevents exchanges (e.g. China), or want to bring about traditionally regulated financial instruments (e.g. derivative swaps) into a relatively unregulated field.
Yet. Like all frauds, they succeed until they don't. People thought they made money in Enron, Madoff, etc until it unraveled and there was nothing.
> When Bitfinex got hacked a few years ago, they worked out a repayment program, and fully repaid all creditors.
Tether is so monumentally different. In fact, Bitfinex repaid creditors with tokens, the value of which are denominated in USDT and almost certainly have been inflated through Tether issuance. So basically Bitfinex repaid a hack with massive fraud.
> While Tether made misrepresentations after a banking fiasco
When your core business is trust and transparency, this isn't an "oh well" type of issue.
> The USG doesn't tend to settle unless they are satisfied.
Categorically untrue. Also, the NYAG is not the USG in the slightest. If I were Tether, I would be a lot more concerned about the SDNY USAG than I would be about the NYAG.
As a user, the core business prop of BFX/Tether is that they keep my money, and maintain my ability to use the platform without KYC.
If I want a super-duper legit stablecoin, I'd use USDC. Tether is about bringing stability to the chaos of non-KYC, anonymously-operated exchanges, like the 100x leverage ByBit, or the various smaller no-banking, Tether-only exchanges. And they've done that.
When you place copper (Tether) next to burning trash (balances held on anonymously operated exchanges), the former looks like gold. Sure, it's not as good as actual gold, but that doesn't mean it's a scam.
Bitfinex and Tether has weathered and survived a variety of doomsday scenarios, from Crypto Capital, US seizure of bank accounts, the Bitfinex hack, and the NYAG investigation.
I think you're expecting Bitfinex or Tether to be Coinbase. They're not. If you look between the lines, and look at how Tether is used, the whole point is that you can have safe USD without any AML or KYC.
And since 2014, Bitfinex and Tether has fulfilled that promise despite so many obstacles. For someone trying to move capital out of China for example, Tether considerably is safer than Yuan in an onshore bank account. For people prosecuted by the USA, like the founder of Sci-Hub, Tether is safer than any USD bank account.
They are morphing into Tether. Look at recent legal structure change, attestations, reserves breakdown, etc.
But your core premise (Tether as a dollar substitute for the unbankable) is predicated on there being two states of the universe (USD in risky places vs. Tether) which isn't true and ignores the key issue: all of those Tethers may not hold any value. In the real world, Tether is not the only alternative, nor is USDC. For instance, the Sci-Hub founder can hold any other major currency or frankly any non USD asset.
The crypto world constantly create false equivalencies to justify their casino. Fiat sucks long term? Yeah, by design...money velocity is a good thing, you shouldn't be holding cash, and few people do. This is why there are trillion dollar markets for other productive assets, like equities.
The easiest and most liquid mechanism is for people like her to accept crypto donations (e.g. Bitcoin), and convert it to non-KYC stablecoins like USDT so the purchasing power is preserved.
It's not hard to explain the 60B market cap when you combine "non-KYC" and "stablecoin", and if you believe it's not backed by anything, you can open a short on USDT right now, using DeFi like Compound. Your upside is 100%, your downside is the cost of borrowing (about a few percentage a year).
The market believes $1 = 1 USDT, with a volume of $53 billion in the past 24 hours.
Why do you guys do this? It's so painful speaking with crypto die-hards. I said she could hold any other major currency, which of course implies fiat. How about EUR? How about CHF? How about GBP? I don't know enough about her but hell she could hold RUB...still less volatile than crypto.
> How do you propose she allow international donations?
That's her problem. This goes with the territory of running an illegal website, no matter how idealistic you find her cause. But basically once again, crypto's primary use-case (as you've outlined) is skirting laws. That's fine, it's a real use-case. But just quit pretending that crypto is the future of money.
> It's not hard to explain the 60B market cap when you combine "non-KYC" and "stablecoin", and if you believe it's not backed by anything, you can open a short on USDT right now, using DeFi like Compound. Your upside is 100%, your downside is the cost of borrowing (about a few percentage a year).
I agree, it's very easy to explain. That's what this video is all about. As for shorting USDT, that's about the dumbest thing you could do, and your DeFi example is absolutely naive. I want to be short USDTUSD...I can't do that in DeFi. I can be short Tether against something else whose value at the moment is determined by circulating Tethers. If you think DAI survives a Tether implosion, you're dreaming. And if it did, I still need a fiat offramp and if you think Coinbase is a good counterparty in that scenario, well then I am beginning to understand you a little bit. In my career as a hedge fund trader, I don't think I've come across a worse trade than shorting USDT.
> The market believes $1 = 1 USDT, with a volume of $53 billion in the past 24 hours.
Yes, and? If the market didn't believe this, then there wouldn't be a story here.
Pegged by fiat, not by algorithm. Surely the future for such an oracle is an algorithmic peg, as several honest projects continue to forge.
> A token that derives its utility from being shady (an unregulated way to move US dollar without KYC or AML) will obviously have shady elements to it.
I don't think this is sound logic. It's perfectly plausible for a token to be shady in the sense of opacity before inspection and yet be transparent in the sense of its logic and operations. Monero is an example of such a project.
> However, I (and the broader crypto market, going off tbe market ccapitalisation, anple liquidity, and the $1=$1USDT peg maintaining) trust Tether because of their actions and history of preserving the peg, and protecting all deposits.
You may speak for your trust endorsement, but I think you go too far by translating price and liquidity into community trust. It's a calculation based on the small number of plausible available options.
If you tell a starving person that you'll feed her for life if she performs a tapdancing number on an abandoned minefield, she may conclude that the risk is worth it for her. It doesn't mean that she trusts landmines.
> While Tether made misrepresentations after a banking fiasco, they have fully settled their case with NYAG. The USG doesn't tend to settle unless they are satisfied.
A settlement from the office of the NY Attorney General - which it itself not exactly a paragon of truth or justice in the first place - is not an endorsement from the NY or US governments as you seem to imply.
And if it were, this is hardly the authority to which you'd want appeal to if indeed blockchain tech is to be as transformative to society in the long-term as its enthusiasts (yours truly included) hope.
You are very welcome to place a short on the USDT if you believe that view. The only cost of doing so is the interest, which is a few percentage a year. Your reward is 100% if you are right.
The market doesn't believe Tether is a fraud. The volume of Tether was $53 billion in the past 24 hours.
That is probably why Tether was initially created but what Tether is now is a mechanism for insiders to cash out real money while leaving lots of "liquidity" in the market to keep the tasty scam going.
Retail investors (AKA suckers) buy coins from exchanges with real money. The exchanges have a net influx of real money because investors (AKA hodling rubes) will typically not want real money back when they are conducting trades, so the exchanges buy Tethers - I assume at a significant insider discount. Why not? Tethers are free to create, who cares?
Now the exchanges have some of the investors' (AKA marks) money, Tether has some money, the miners (who are actually doing real work) get some money for the relatively rare blockchain transactions. Everyone wins. All the exchanges have to do is carry enough cash so that the relatively rare customer requests for real money can be satisfied. As a quick trip to reddit will confirm, they can't even manage to do that reliably. Luckily for them nobody seems to care so long as the price remains high, which it will because the trades are mostly conducted with very cheap Tethers.
But the end result is that Bitcoin, etc are ultimately priced in Tethers - as I write, Bitcoin is currently priced at 37145 Tethers not $37145. To put it another way, the market is so distorted that bitcoin has become just a complex way for people to turn USD into Tethers. They may hodl the bitcoin for a while but that is the end result.
The situation is more complex than what I describe because there are multiple stable coins and multiple parties involved, but the end result is that real money flows from retail (AKA fools with more money than sense) to a relatively small number of groups while worthless Tethers flow the other way. And nobody seems to mind as long a numbers go up.
The next economic downturn will wipe out the whole exercise.
You'd think no one in the entire US government apparatus would let the SEC know?
> The next economic downturn will wipe out the whole exercise.
People have been calling the demise of bitcoin since 2008.
Both Coinbase and Greyscale are trading at a significant discount at the moment but that doesn't really matter for the insiders. If they cash out 80 cents of real money to 1 dollar of crypto then they are still doing well.
Tether looks like they have been caught with their hand in the cookie jar a few too many times.
I might trust a stablecoin backed by a big bank, but nothing else.
Problem: there never was $60B to begin with, and to the extent there was/is some real money, Tether has the nearly impossible task of proving its not related to money laundering, proceeds of crime, etc if they want access to regulated financial markets. But, no one with clean, legitimate cash has any reason to do business with Tether (or any other stablecoin for that matter - exchanges would be more than happy to take clean USD if people want to buy cryptocurrency).
Yeah, even 3 month US treasuries would yield $24M/year in revenue.
FYI I'm just going on what I know friends are doing - no skin in the game! Just see this happening and don't see any other reason why anyone would buy Tether.
So you need to decide whether they're a risk or not. To me, the idea of having what is effectively a bank with a $60b+ balance sheet that has no auditor and no regulators, seems kind of risky.
We also know, via the NYAG case, that they have in the past, said things that were not true (specifically continuing the claim to have a 1:1 USD backing after they no longer had those funds).
The other aspect of Tether is "who's using them"? There are a range of stablecoins available now, multiple of whom are better regulated and audited than Tether. So why would rational organizations place $60b+ with Tether, when the risk is higher, and it's not like this is an investment where higher risk == higher return.
As tether specifies the right to repay any redeemed tokens in securities, assuming the securities they hold actually keep their value, it seems like they'd be fine
From https://tether.to/legal/ "Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves."
Of course the $60b question is, what are all the non-cash reserves they have, and how much are they worth.
No Basel II capital adequacy requirements here :)
At best, they're choosing investments incompetently. (Chance Tether's team is equivalent to professionals at major banks?)
At worst, they're choosing investments to maximize personal gain.
Or to put it another way, what sort of company do you think is knocking on Tether's door, offering a good deal in exchange for a few billion "worth" of notes?
It ain't Coke.
At worst, they don't have any investments.
Deltec, the bank that Tether bought, has a desk specializing in zombie debt, so it's entirely possible they have loads of debt bought for pennies on the dollar, that they have through accounting/market shenanigans recognized at par as their "commercial paper".
So they don't even have to perform shenanigans.
They can just buy $1 par debt at $0.01 from Bob's Used Cars and value / declare it at $1. It's a super shady move, and would shake confidence if known, but would seem legally defensible. ("We valued it at a fair price. It turned out we were wrong and overvalued it. Oops.")
They could probably declare it at >$1 if they really wanted to, but why do hard fraud instead of easy fraud?
They are unregulated, but they're now required to publish a breakdown of their assets.
Before, they could have said "We have billions and billions in assets." Now, they're required to enumerate and value their assets, to the extent required to publish the breakdown, as part of a legal agreement.
So I guess before it could have been riskless fraud. Now, it's more risky fraud. And overvaluing assets seems like an easy way to keep the wheels turning without obviously pissing off a state AG.
The answer is not clear to me, but it seems like this is an important value.
Also, aren't some of those assets (like treasury bills) interest-accruing? That would seem to offset some of the losses incurred by a short-term, high-volume liquidation event.
The unregulated, debased Tether seems less risky than holding regulated, backed-by-real-property mortgage-backed securities in 2007.
It seems much a-do about not much, to me. But, I guess people need something to worry about.
I'll guess we'll have to wait and see!
Bad mortgage backed securities were the root risk.
The unregulated leverage piled on top of those MBSs (credit default swaps) ballooned the consequences of that risk.
But what really caused the global meltdown was (1) pervasiveness of exposure & (2) consequently, institutional uncertainty and withdrawal of liquidity.
When the MBSs failed, the CDSs multiplied the dollar impact. Which would have been that, except that these assets underpined large portions of institution's balance sheets. And critically, unknown large portions.
The "music stopping" was the breaking of institutional trust in the solvency of their counterparties, and hence evaporation of liquidity.
The sheer opaqueness of the crypto exchanges might actually be an advantage here, as unlike traditional exchanges and the banking system, they're not used to keeping an eye on their counterparties' balances.
I believe the fear is:
1. The price of BTC is high because a lot of people are buying it.
2. A lot of those people buying it are paying with Tether's funny money which there is somehow $60 billion of.
3. If that $60 billion ceased to exist, the price of BTC would fall.
4. $60 billion is a lot of money, so the price of BTC would fall a lot.
Tether is the No.1 most traded coin (by a decent margin) which makes it a very large part of the ecosystem.
Now if their assets are all high quality low risk treasuries, it's likely all fine.
If however their asset are loans to people who used those loans to buy other crypto currencies, things get a lot more risky.
A large shock to the ecosystem, like Tether going bust, would seem like it would have a large impact on the overall space. We've seen in the last month that something a simple as a tweet can send the market up or down by multiple percent...
Given that only 3% of each dollar is backed by fiat, they can only guarantee $0.03 on each dollar requested.
In the case of a bank run, the commercial paper etc. would be considered valueless, and unlike a real bank, their deposits are not insured.
So the value of a Tether would theoretically fall to $0.03.
In practice however, it is plausible that it would result in them blocking redemption and fleeing the country to avoid jail, so the value would be much closer to $0.
It would not be considered valueless.
It would be valued at the current market price it could be quickly cleared at.
That price is substantially less than face value, but probably more than $0. And of course depends on who wrote the note and the terms.
To clarify: there are two markets, one is redemption of USDT through the Tether company, the other is independent transaction of USDT vs. payment typically through exchanges.
During asset liquidation, Tether’s assets would not be sold for the users’ redemption, but for the company’s creditors and shareholders. As soon as the suspicion of liquidation is there, there would be a bank run while redemptions still work.
In the case of a bank run, the price of USDT would be dictated by the exchange market exclusively. As a massive number of people sell through redemption, it is clear to the holders that when the cash dries out, redemptions will close. So they will theoretically be ready to sell through the exchange at 3%, because that is the expected value of the return across all USDT holdings.
That said, at the time of a redemption, isn't Tether legally required to sell or transfer assets to service the redemption (as long as they are able, subject to the timelines and qualifiers promised in their agreements)?
Which is where I'm saying that if Tether holds $0.03 USD + 5 short term notes for every 1 USDT, they are obligated to turn over (or sell) those 5 notes (and $0.03) when a redemption is requested.
While Tether may not be a bank, their users aren't just users: they're holders of Tether credit, subject to the terms that govern it.
Contractually, they are not considered creditors. Furthermore, liability for any loss is explicitly put on the user. (Whether the contract is valid can be litigated though.)
> isn't Tether legally required to sell or transfer assets to service the redemption
Sadly not… From the contract: “Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.”
In fact, US citizens are already disallowed from redeeming tokens, and have been for years.
I guess you're assuming that their assets are truthfully reported, would be sold off, then evenly distributed?
Not worried that someone might run off with the money or something?
It's impossible for outsiders to prove or disprove. It would be trivial for Tether to do, which begs the question of why they don't (their reserves pie chart does not qualify).
Tether claims that it's basically the only $60B+ institution in the world incapable of being audited. And given their ludicrously simple business model, it's mind boggling that they can even say this with a straight face.
Of course the real reason they can't be audited is because it would ruin their business. And thus, here we are.
Unless, of course, while negotiating every potential engagement Tether insisted on exceedingly unreasonable audit restrictions. (That’s assuming Tether has actually tried to engage an independent auditor, and I’m not really convinced they have.) Insane restrictions on the scope of the audit and/or the scope of auditor access is the one and only reason they’d be “unable” to find an accounting firm willing and able to conduct the audit. But lack of skill? Knowledge? Willingness to engage with potentially shady clients? Those are not really things that hinder an accounting firm’s ability to engage a client.
> https://coinmarketcap.com/currencies/usd-coin/
Also there's a very interesting difference between USDC and Tether in terms of volume.
based on https://nomics.com/ Tether has a market cap of $62.85B and a 24 hour volume of $70.19B
USDC has a market cap of $23.90B and a 24h volume of $1.84B
So, for some reason, the velocity of Tethers is about 14 times higher than USDC, which seems unusual given they're nominally the same class of asset operating in similar markets.
Wonder if it's just network effect then? Big traders use the USDT markets because they're more liquid -> the USDT markets become even more liquid and the cycle continues.
I don't know if that's actually true.
The exchanges won't give you free USDT either, they charge something in return.
The only way this could be a problem if they would use USDT from within Tether to buy crypto. I have not seen any evidence of this.
So to me, that's not a strong signal either way, the operation of Tether and their dealings with exchanges are opaque, you need to take what they say on trust, as there are no external auditors.
How are these two things related at all? If an exchange buys Tether with USD, then they will have 1:1 USD backing.
Or... Tether can print and buy crypto, these two scenarios are exactly the same.
Regarding how it would affect the market, it seems all experts automatically assume that it would impact the price of cryptos negatively however:
• Could a panic exit from Tether push people to immediately buyback cryptos at any price?
• Could a flash pump of BTC while USDT/USD is unpegging be the signature of the downfall itself?
• Since stable coins are used for day trading, would their downfall make the crypto-market behave like it was before stable coins were introduced?
Likely, but that is not bullish BTC. People who hold USDT at a given moment do so because they don't want to hold crypto. So you would likely see BTCUSDT panic bid (until the Tether exchanges presumably stop withdrawals) and relentless selling of BTCUSD. For those who managed to get out, they will have round tripped their USDT to USD, but BTCUSD will be a bloodbath.
But if they're buying BTC only to convert it back to USD again (at a non USDT exchange), wouldn't the net effect on BTC be zero?
BTC/USDT only goes up because the denominator (USDT) goes to zero.
Not possible. Tether's terms of service explicitly state they have no obligation to redeem.
Tethers only hold value so long as other people believe they do...which is the definition of a fiat currency.
Which also leads to a scenario where no one wants to hold Tether
> Tethers only hold value so long as other people believe they do...which is the definition of a fiat currency.
True, but there's an incredible difference in kind between Tether and the Euro/USD/etc