This settlement only covers up until February 2018. At that time they only had $2B-ish in issued Tethers (as compared to $65B ish now). $850M of their assets were seized in an AML sting shortly after that, in mid 2018 [1], they've been fined $42.5M [this article and 2] by the CFTC and another $18.5M by the NYAG [3].
Basically they've had to forfeit almost half of their assets up to [edit] Mid-2018.
They remain under investigation for bank fraud by the DOJ [4] and for something unspecified by the SEC. [5]
I suspect this party is just beginning.
[edit] By the way, I love how each party here is framing this.
> Tether: "As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times."
> CFTC: "In fact Tether reserves were not “fully-backed” the majority of the time."
> Tether: "As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times."
So, they were fully backed by dollars, except some of those dollars were not-dollars, and some of those dollars and not-dollars were not actually owned by the entity that was supposedly backing tether?
the $850M number you're talking about is the amount that Bitfenix gave Tether through Crypto Capital to cover for losses and/or missing money. the $18.5M was the fine they paid the NYAG for covering up that transaction.
That's the amount that Bitfinex took from Tether to remain solvent after the $850M was seized from Crypto Capital Corp in the money laundering sting. Bitfinex wrote them an IOU for it. But of course that money didn't exist anymore, it was taken by various world governments, and BFX and Tether have the same owners.
Bitfinex and Tether are the same company, roughly speaking, and I do believe they co-mingled their funds at times.
This is covered in section III of the NYAG settlement [3].
Do we know the money was actually seized? Last I’d heard the Tether (or maybe Bitfinex?) CEO had told the NYAG office the missing $850 million kept in a Panama(?) bank had been seized in an AML sting but I’m not sure whether that story was ever corroborated?
> Further, at
least until 2018, Respondent’s internal accounting system for tracking fiat balances, including
bank balances for USDt reserves, primarily consisted of a spreadsheet (the “Reserve
Spreadsheet”). The Tether executive team was ultimately responsible for the Reserve
Spreadsheet. The Reserve Spreadsheet required manual updates and was not always kept up to
date in real time. Respondents were aware of the limitations of the Reserve Spreadsheet. For
example, in an internal chat on June 15, 2016, Tether’s then-Chief Strategy Officer informed
Respondents’ CFO and other employees stated that the: “transparency page needs to be dealt
with ASAP . . . I am surprised the issuance address is not updated dynamically, btw . . . and how
often does the bank balance get updated?”
Have you ever heard of "The Narcissist's Prayer"? It goes like this:
That didn't happen.
And if it did, it wasn't that bad.
And if it was, that's not a big deal.
And if it is, that's not my fault.
And if it was, I didn't mean it.
And if I did...
You deserved it.
Tether defenders are really working their way through the steps here.
18 months ago, it was "That didn't happen." (Tether is 100% backed by USD cash.)
6 months ago, it "wasn't that bad." (It might not be 100% USD cash, but it's cash-equivalent assets like short-term commercial paper.)
Now that there's strong evidence the commercial paper is just fake money shuffling between Tether/Binfinex/other shady crypto investments we get "that's not a big deal." (Look at the way banks work! They only need 4% collateral! Tether's probably got at least that much...)
Next step is finding out that their actual liquidity isn't capable of holding up under a real-life stress test, and the defenders will be talking about "not my fault." (This was a once-in-a-lifetime crash, they couldn't have foreseen it, crypto's still way better than the fiat banking system!)
When thousands of people lose their retirements in a gigantic defi crash, it'll be "you deserved it." (Everyone knows crypto is risky, you shouldn't have believed Tether was the same as USD.)
> Now that there's strong evidence the commercial paper is just fake money
Tether is issuing loans of USDT against collateral in the form of crypto and calling that "commercial paper".
The whole idea that anyone would be sending $70B of actual USD to Tether is now "fucking ludicrous". But the idea that anyone is selling $70B of crypto to Tether during a massive bull market in crypto (and it should be now quite apparent that this is still a bull market) is also "fucking ludicrous". There's no counterparty that massively stupid for either side of those trades.
What makes sense is that people sitting on large cold wallets of BTC are using that as collateral to get USDT loans. They then trade it between themselves and any retail "investors" on a USDT exchange. The loans are USD denominated which provides an incentive to maintain the USDT-USD peg. Since they're loans against collateral and aren't redeemable that removes a lot of the risk of a run on the bank.
It is still crypto-backed wildcat banking script, which won't end well.
I don't understand why so many people who are Tether-skeptics believe them that their commercial paper is something the banking system would regard as commercial paper.
And try graphing Tether issuance denominated in BTC rather than $USD and it is much more stable at around 1M BTC.
Would those loans be called commercial paper by any accountant’s definition? We have two data points:
* Moore Cayman, the auditing firm doing Tether’s attestations, says they have commercial paper. They risk penalties for blatant lies
* Bloomberg reporter Zeke Faux say Tether’s accounts and said they have “a lot” of Chinese commercial paper
The massive loophole in the attestation regarding CP is Tether management policy is to value it at redemption value, even if the CP trades below par. So, they could buy the worst quality CP, for say $5 billion, with a redemption value of $30 billion, and the accountants would say “yup, $30 billion of CP per management policy”
That seems easier than a pure lie. NYAG has also seen the statements for recent months. I suspect a total lie would carry more risk than the blatant misleadingly accurate statements I outlined above.
Some of the paper could also be to crypto exchanges, collateralized the way you say. Then it would technically be CP. Tether has denied taking CP from affiliated entities but they use a narrow definition. Only majority ownership counts as affiliated I believe, since they consider their loans to Celsius non-affiliated despite part owning celsius.
Also those Celsius loans are USDT denominated with crypto collateral.
Everybody knows Tether is a scam - and it will probably take down crypto once it implodes. But the people 'with knowledge of the matter' have 0 incentive to expose it, and they have every incentive to keep it as it is. People are making hundreds of millions of dollars on it. Until the music stops, they will keep dancing.
Anyway, it's fascinating ! As Patrick McKenzie put it ""we are living in the middle chapters of a Michael Lewis book."
Why do people think that Tether will take down crypto if it implodes? The market survived the implosion of Mt Gox, which was much more severe.
By this point everybody knows that Tether has junk status. Much ink has been spilled about the matter. It's hardly a secret.
A few years ago when Tether was the only stablecoin, then yes it's implosion would have been catastrophic. But now anybody using Tether clearly has some (good or bad) reason to do so. There's simply not enough people living under rocks to be surprised when the thing collapses.
I am commenting here, because I want to save this "And if.." list, because it is beautiful in its simplicity and yet we see it played out over and over again.
> When thousands of people lose their retirements in a gigantic defi crash
Do we have any evidence this would happen? That ordinary people who didn't know they were investing in Tether would lose money in its collapse? (Honest question.)
I own a bunch of crypto and often people ask me questions.
I endlessly have to warn then to never hold tether. The problem is people don't understand what tether is, they assume it is just USD and use it because it is the most popular in many platforms or the outright default settings.
Tether crash will be very, very ugly when a lot of people leaving money on their "default" account realise the money all went poof.
Meanwhile BTC is racing towards a new all time high, I simply can't wrap my head around this. What on earth is going on? Does anyone have a clue? I'm genuinely interested.
The unlicensed offshore exchanges that use Tether to avoid USA banking regulation and AML/KYC don't let you cash out real money. You have to buy crypto and hope that they let you transfer it out before their real asset reserves run out. Now that people have the data that Tether has <5% in cash reserves it's a race to get converted into BTC etc and get it out before the insolvency stops everything.
"Defend" is a four letter word; I wouldn't paint with such a broad brush.
I hold the position that you need to be careful to distinguish between a) "every Tether statement is true/in good faith" vs "b) Tether will fail to produce sufficient backing value, sending crypto into a secular crash", and that a) is false but b) is false as well. That is enough to get me labeled a "defender" in some contexts.
Disclosure: I hold liquidity pools that have Tether and have borrowed Tether against BTC via DeFi.
Has Sam Bankman-Fried changed his tune? Last I heard on Odd Lots, he was conceding that their optics were poor, but still seemed to claim that they were legit.
Not by a mile. USDC are emitted by a consortium which the HN unicorn Coinbase is a major part of. They have something like 73% of USDC in actual USD and the rest are corporate bonds / money markets and things like that. It's not 100% USD, but they're 100% backed.
Coinbase is a reputable US company ran by US citizens.
USDT is operated by shady people with an history of fraud from shady micro countries on the dark list of fiscal havens.
They are nothing similar.
I do believe there are actual people wiring a lot of real USD / EUR to Coinbase's bank accounts to buy crypto. I'm really not so sure there are people actually wiring lots of money to Tether's bahamas bank accounts. I'm not sure many ever did.
I really don't get this: Coinbase is a HN unicorn. Do you think it's a gigantic fraud / scam and there aren't a shitload of real people putting a shitload of freaking real money to Coinbase's very real bank accounts?
The 24hr trade volume for BTC alone is just over $50 billion.
If all tether were to completely turn to dust, it would not lead anywhere close to a “gigantic defi crash”. This is in no way a defense of Tether. I’m just zooming out from the hyperfocus on Tether as the pseudo foundation of crypto. That is just simply not the case.
If all retail investors were not allowed to buy or sell stocks anymore what would that do to the stock market? Its only 10% of transaction volume, but critical to so many liquidity dependent financial instruments, it would be catastrophic for the market.
Pretty big and popular strawman you got there.
Tether has been a boogie man since forever, the traditional system is infinite times more corrupt. Top voted hackernews comment like this? Probably a pretty amazing time to buy some more and short some yc. edit: remember eth being mentioned here for the first time 6 years ago, how the cycles roll.
My stance has always been "Tether is a scam, but no worse than the US dollar and normal banking fractional reserves... and even if it collapses, who cares, there are other stablecoins not built on a house of cards."
Tether isn’t some new innovation that is it’s own animal. We know what to compare it to. The right comparison isn’t “the US Dollar.”
The right comparison is money market funds - they are very highly regulated. If a money market fund said “we are backed by very highly rated short term debt,” but they weren’t, that is 100pct a scam that has huge fines.
Just because Tether is in the crypto world doesn’t mean it’s now a magical novel currency. Still just a money market fund in a slightly different form.
2 differences:
1. You have to have USD to pay taxes, which most Americans have to do.
2. The feds will bail out depositors in banks that have screwed up badly.
Not sure if it's bots or hackernews sentiment changing but pretty much this. I guess that's what happens when the disruptors become the corporate. But yes it's like the classic democracy quote about it being the worst but better than all the other alternatives. If this is the slap for running an unregulated exchange for 10-15 years which today traded $350 mil everyone here not building that including me is the idiot.
I really would like to see an attempt to defend Tether (and by extension most of the cryptocurrency ecosystem in practice) that doesn't require me to buy into ultra-libertarian ideology. Most people, including me, do not in fact believe that the US dollar is a scam.
The important thing about all these Tether settlements is that they are for very specific periods of time, which were well before the most recent parabolic issuance in USDT.
It's anyone's guess what they are currently sitting on.
> Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018
With how shady they acted I would have assumed that number was 0%. A bit shocked it wasn't a total scam to be honest, even if they did misrepresent that it was in fiat not risky investment assets.
CFTC/FDIC/OCC/NYAG/Congress/all bank users: Collateral requirements for everything we regulate are like 4%. You need $4000 to trade with $100,000.
Also everyone: omg tether was not 100% collateralized by fiat dollars at all times, sometimes, but also not at all times!
I just feel like the arguments are weak. Tether was controversial because it was centralized at all and requires ongoing trust and its collateral is not verifiable except by the state's subpoenas. Then the argument moved to something much more .... tolerant of their existence but requires completely ignoring how all the rest of finance works to make it an issue with Tether. Strange. At this point I can acknowledge that the market can bear it. Tether, like everything non-crypto, are vulnerable to bank runs, and that works. If people actually wanted fiat, then Tether could be in trouble. But Tether users do not want fiat and redemptions barely occur. People don't want to accept the reality that Tether actually works as stated. Like if you just assume it works as described, using the investigations of multiple US agencies, then it makes sense! Tethers are created when people deposit fiat on Bitfinex, deposit directly with the Tether issuer, sometimes by Tether issuer when Tether trades at a premium (in exchange for other cryptos that are not dollars), and sometimes arbitrarily. But its better to assume the first 3 everytime a big tether print occurs, than to always assume the last one, because the formers are what all the US regulators and enforcement agencies have also found to have occurred most of the time. Not that hard. It is a trusted system, like everything else we are used to. They change their contract to reflect any deviation from 100% usd collateralization and that's not that controversial. Fractional systems also work. Ideology doesn't make something else suddenly not work.
Once again, this demonstrates a complete misunderstanding of fractional reserve banking. Fractional reserve banking is how new money enters the financial system. When you borrow money for, say, a mortgage, new money is created - alongside a liability on the banks books. [edit: This liability is what gives fiat value - money is always 100% backed by the demand for that money].
As you pay off your loan, the new money that was created is destroyed.
This is how the money supply is actively managed, it's not some tinfoil hat conspiracy haha.
There is also a 1/2 trillion dollar fund (FDIC) and a further 1/2 trillion dollar line of credit at the Fed to ensure depositor funds are secure.
The federal reserve, created via act of congress, exists to manage the money supply - to maintain a low, fixed rate of inflation and maximum employment. These two features are correlated, by the way, as you can see in the Philips curve.
Now, Tether on the other hand is just printing fake money to pump up the market to benefit themselves and a small cabal of crypto holders who recognized early on the liquidity did not exist to support their desired level of wealth.
They lie about it regularly - in fact their announcement of this settlement included a bald faced lie.
> Tether: "As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times."
> CFTC: "In fact Tether reserves were not “fully-backed” the majority of the time."
This is the central bank of crypto, 85% of all trading volume is against USDT, and they have shown themselves to be the least trustworthy entity in the world. Just a new Liberty Reserve.
> Also everyone: omg tether was not 100% collateralized by fiat dollars at all times, sometimes, but also not at all times!
The key point is that it wasn't fully backed and Tether represented that it was: "Tether misrepresented to customers and the market that Tether maintained sufficient U.S. dollar reserves to back every USDT in circulation with the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. In fact Tether reserves were not “fully-backed” the majority of the time."
Tether can either do a sort of fractional banking or not, but what they're getting fined for is lying about it.
I sympathize with the observation of hypocrisy, but disagree that this excuses Tether. The USD note once featured the words, "This certifies that there has been deposited... payable to the bearer on demand". At least in this case the offending text was removed.
>In February 1965, President Charles de Gaulle announced his intention to exchange its U.S. dollar reserves for gold at the official exchange rate. He sent the French Navy across the Atlantic to pick up the French reserve of gold and was followed by several countries. As it resulted in considerably reducing U.S. gold stock and U.S. economic influence, it led U.S. President Richard Nixon to end unilaterally the convertibility of the dollar to gold on August 15, 1971 (the "Nixon Shock"). This was meant to be a temporary measure but the dollar became permanently a floating fiat money and in October 1976, the U.S. government officially changed the definition of the dollar; references to gold were removed from statutes.
There is some irony in the US gov objecting to Tether's methods. While the USD is backed by what exactly? What are these reserves of the Federal Reserve? Meanwhile, the 1 trillion dollar platinum coin is being proposed. Yes, it is fair to say Tether is guilty of having insufficient reserves. But how meaningful is it to say that they have insufficient reserves of an unbacked currency?
Yeah! And the reserve requirements were suspended during the pandemic for banks anyway. Tether is, at least on chain, completely open and auditable. You can trace every token, in ways the global banking system is opaque. A fine, some regs and compliance, and capital still flows.
This is a slap on the wrist. Tether's current market cap is $68.5 billion of printed money that users assume is really held in bank reserves.
Expect a massive cryptocurrency crash if Tether's regulatory downfall finally occurs; a majority of exchange trading pairs are between currencies and USDT. (not financial advice)
It's not about trading pairs, those can easily switch to USDC or other stables. The big challenge will be the futures markets which are nearly exclusively with USDT. If tether collapses so do all those futures, which presumably will cause chaotic algorithmic driven effects as hedging positions evaporate.
>a majority of exchange trading pairs are between currencies and USDT. (not financial advice)
Is that actually true? In my (limited) experience I have seen ETH and USDC much more frequently than USDT.
There also seems to be a recent migration to algorithmic stablecoins like RAI which aren't pegged to the dollar but are (supposedly) designed to limit fluctuation in value. I suspect that without regulatory action against both USDC and decentralize stable tokens that crypto would recover from a Tether collapse.
I agree that prices would recover after a short term Tether-induced crash, and markets would almost certainly shift to DAI and similar decentralized stablecoins.
People on reddit and twitter are like, "great, now that Tether FUD is over, leave it behind and go for $100k!" - of course it is over. U in FUD stands for Uncertainty, and now it is Certain that Tether is a fraud.
The only thing I can't understand is why the price still pumps.
Same reason why prices went way up before MTGOX collapsed. People have "assets" in Bitfinex that they can't cash out for something with real value except by buying crypto and hoping it gets transferred out before reserves are depleted. They can't cash out actual fiat. So fiat prices on the failed exchange go up up up until the legit regulated exchanges eventually decouple and then the house of cards comes down.
Can you convert those assets to Gemini's stablecoin, GUSD? Gemini is regulated as a trust company in New York State and has pass-through FDIC insurance. You should be able to sell GUSD on Gemini and wire transfer the proceeds out. Gemini claims no limits on the size of wire transfers. This is useful, because most other exchanges make large withdrawals difficult.
It's hard to convert USDT to GUSD. Coinbase does't list GUSD. Changely says they will do it for a 2% fee. Bequant has a market, but US$20,000 would wipe out their order book. Hotbit claims a deeper market but has a US$10,000/day withdrawal limit. Bitfinex has de-listed GUSD. Probably because it was too convenient a way to convert Tether to real US dollars. Gemini does not list USDT.
It's striking how difficult it is to convert large amounts of USDT to a hard currency.
Are there delays on Bitfinex transfers currently? And were people able to transfer out of MTGOX at all?
I had wondered if there were parallels in the runup, but haven’t heard widespread reports of people being able to transfer out yet. Or rather, more than the usual number of such reports, there are always some.
> The only thing I can't understand is why the price still pumps.
I know for a fact that there are private banks, the traditional ones (think Swiss banks), working on funds that'd let their HNWIs invest in crypto. We're talking about entry tickets to the tune of 1 million EUR minimum. It's not private/confidential infos: it's information some private banks are relaying to their very wealthy clients.
There are a lot of people who want to get in but have zero clue as to how to do that: now their traditional banks are going to let them do that.
There are simply people out there who want to buy.
Seriously - Bitcoin is more than 8% up today and about 50% up compared to 3 weeks ago. It's almost back to the all-time high from April. How does anyone explain any of this?
Bitcoin's price "in USD" makes more sense as a price "in USDT". It's completely unsurprising that Bitcoin went up relative to USDT after this news.
The big question is when the peg of 1 USDT ~= 1 USD (or USDC) is going to break. Tether is going to do everything they can to maintain that peg as long as possible.
I could tell you, but because this information could reduce my purchasing power, I’m choosing to keep quiet.
I’m not willing to share the short/medium term philosophy, catalysts, and predictable patterns. But I’ll reshare the long term philosophy since I’ve already written about it 4 months ago:
And crypto manipulators are trying to spin the recent price increase as positive news with absolutely no regard to how a similar price ramp up happened on MTGOX before it went down completely from insolvency. Has Bitfinex pricing decoupled from the prices on legit exchanges yet?
I wondered if the runup was like MTGOX. It’s plausible, but if so then someone is providing the dollars for everyone selling into USD on Coinbase etc. Whereas MTGOX’s prices were all self referential right? By the time it started freezing up
One other possibility is that Tether is playing the CME futures and making money from the pump up. I suspect they’re insolvent but it’s possible they aren’t and are merely crooks. The crypto markets interface with real money now
MTGOX was essentially one large bug bounty for any hacker that had the means and ways of collecting the jackpot. Once the bug bounty was several million dollars…
Readit News
Basically they've had to forfeit almost half of their assets up to [edit] Mid-2018.
They remain under investigation for bank fraud by the DOJ [4] and for something unspecified by the SEC. [5]
I suspect this party is just beginning.
[edit] By the way, I love how each party here is framing this.
> Tether: "As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times."
> CFTC: "In fact Tether reserves were not “fully-backed” the majority of the time."
[1] https://fortune.com/2019/05/03/cryptocurrency-new-york-attor...
[2] https://www.coindesk.com/policy/2021/10/15/cftc-fines-tether...
[3] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
[4] https://www.cnbc.com/2021/07/26/doj-reportedly-probes-crypto...
[5] https://www.coindesk.com/policy/2021/09/24/sec-hints-at-teth...
Truly a bizarre statement for Tether to make. are they counting bank accounts in other people’s names? How would that affect the question at hand.
This sounds like junkie logic.
How it is that Tether trades on par with trustworthy alternatives like USDC, Paxos and Gemini, I have no idea.
[1] Not really though
[2] Yours really
[3] Not in a way you'd think
[4] Approx but we can't tell you exactly how much
[5] ish
yes, it was a personal account in the name of iFinex general counsel Stuart Hoegner.
And various holdings at non-banks, e.g. the $850m that disappeared at Crypto Capital Corp.
So, they were fully backed by dollars, except some of those dollars were not-dollars, and some of those dollars and not-dollars were not actually owned by the entity that was supposedly backing tether?
Bitfinex and Tether are the same company, roughly speaking, and I do believe they co-mingled their funds at times.
This is covered in section III of the NYAG settlement [3].
Depends how you slice it I guess.
> Further, at least until 2018, Respondent’s internal accounting system for tracking fiat balances, including bank balances for USDt reserves, primarily consisted of a spreadsheet (the “Reserve Spreadsheet”). The Tether executive team was ultimately responsible for the Reserve Spreadsheet. The Reserve Spreadsheet required manual updates and was not always kept up to date in real time. Respondents were aware of the limitations of the Reserve Spreadsheet. For example, in an internal chat on June 15, 2016, Tether’s then-Chief Strategy Officer informed Respondents’ CFO and other employees stated that the: “transparency page needs to be dealt with ASAP . . . I am surprised the issuance address is not updated dynamically, btw . . . and how often does the bank balance get updated?”
Dead Comment
That didn't happen.
And if it did, it wasn't that bad.
And if it was, that's not a big deal.
And if it is, that's not my fault.
And if it was, I didn't mean it.
And if I did...
You deserved it.
Tether defenders are really working their way through the steps here.
18 months ago, it was "That didn't happen." (Tether is 100% backed by USD cash.)
6 months ago, it "wasn't that bad." (It might not be 100% USD cash, but it's cash-equivalent assets like short-term commercial paper.)
Now that there's strong evidence the commercial paper is just fake money shuffling between Tether/Binfinex/other shady crypto investments we get "that's not a big deal." (Look at the way banks work! They only need 4% collateral! Tether's probably got at least that much...)
Next step is finding out that their actual liquidity isn't capable of holding up under a real-life stress test, and the defenders will be talking about "not my fault." (This was a once-in-a-lifetime crash, they couldn't have foreseen it, crypto's still way better than the fiat banking system!)
When thousands of people lose their retirements in a gigantic defi crash, it'll be "you deserved it." (Everyone knows crypto is risky, you shouldn't have believed Tether was the same as USD.)
Tether is issuing loans of USDT against collateral in the form of crypto and calling that "commercial paper".
The whole idea that anyone would be sending $70B of actual USD to Tether is now "fucking ludicrous". But the idea that anyone is selling $70B of crypto to Tether during a massive bull market in crypto (and it should be now quite apparent that this is still a bull market) is also "fucking ludicrous". There's no counterparty that massively stupid for either side of those trades.
What makes sense is that people sitting on large cold wallets of BTC are using that as collateral to get USDT loans. They then trade it between themselves and any retail "investors" on a USDT exchange. The loans are USD denominated which provides an incentive to maintain the USDT-USD peg. Since they're loans against collateral and aren't redeemable that removes a lot of the risk of a run on the bank.
It is still crypto-backed wildcat banking script, which won't end well.
I don't understand why so many people who are Tether-skeptics believe them that their commercial paper is something the banking system would regard as commercial paper.
And try graphing Tether issuance denominated in BTC rather than $USD and it is much more stable at around 1M BTC.
* Moore Cayman, the auditing firm doing Tether’s attestations, says they have commercial paper. They risk penalties for blatant lies
* Bloomberg reporter Zeke Faux say Tether’s accounts and said they have “a lot” of Chinese commercial paper
The massive loophole in the attestation regarding CP is Tether management policy is to value it at redemption value, even if the CP trades below par. So, they could buy the worst quality CP, for say $5 billion, with a redemption value of $30 billion, and the accountants would say “yup, $30 billion of CP per management policy”
That seems easier than a pure lie. NYAG has also seen the statements for recent months. I suspect a total lie would carry more risk than the blatant misleadingly accurate statements I outlined above.
Some of the paper could also be to crypto exchanges, collateralized the way you say. Then it would technically be CP. Tether has denied taking CP from affiliated entities but they use a narrow definition. Only majority ownership counts as affiliated I believe, since they consider their loans to Celsius non-affiliated despite part owning celsius.
Also those Celsius loans are USDT denominated with crypto collateral.
Dead Comment
Everybody knows Tether is a scam - and it will probably take down crypto once it implodes. But the people 'with knowledge of the matter' have 0 incentive to expose it, and they have every incentive to keep it as it is. People are making hundreds of millions of dollars on it. Until the music stops, they will keep dancing.
Anyway, it's fascinating ! As Patrick McKenzie put it ""we are living in the middle chapters of a Michael Lewis book."
By this point everybody knows that Tether has junk status. Much ink has been spilled about the matter. It's hardly a secret.
A few years ago when Tether was the only stablecoin, then yes it's implosion would have been catastrophic. But now anybody using Tether clearly has some (good or bad) reason to do so. There's simply not enough people living under rocks to be surprised when the thing collapses.
Do we have any evidence this would happen? That ordinary people who didn't know they were investing in Tether would lose money in its collapse? (Honest question.)
I endlessly have to warn then to never hold tether. The problem is people don't understand what tether is, they assume it is just USD and use it because it is the most popular in many platforms or the outright default settings.
Tether crash will be very, very ugly when a lot of people leaving money on their "default" account realise the money all went poof.
Check out comments in this discussion by bpodgursky and vmception, for example. Similar comments come out in every Tether article on HN.
https://twitter.com/BrutalTrade/status/1449035910658600969
Some are paid bots but some are real
I hold the position that you need to be careful to distinguish between a) "every Tether statement is true/in good faith" vs "b) Tether will fail to produce sufficient backing value, sending crypto into a secular crash", and that a) is false but b) is false as well. That is enough to get me labeled a "defender" in some contexts.
Disclosure: I hold liquidity pools that have Tether and have borrowed Tether against BTC via DeFi.
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Coinbase is a reputable US company ran by US citizens.
USDT is operated by shady people with an history of fraud from shady micro countries on the dark list of fiscal havens.
They are nothing similar.
I do believe there are actual people wiring a lot of real USD / EUR to Coinbase's bank accounts to buy crypto. I'm really not so sure there are people actually wiring lots of money to Tether's bahamas bank accounts. I'm not sure many ever did.
I really don't get this: Coinbase is a HN unicorn. Do you think it's a gigantic fraud / scam and there aren't a shitload of real people putting a shitload of freaking real money to Coinbase's very real bank accounts?
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The 24hr trade volume for BTC alone is just over $50 billion.
If all tether were to completely turn to dust, it would not lead anywhere close to a “gigantic defi crash”. This is in no way a defense of Tether. I’m just zooming out from the hyperfocus on Tether as the pseudo foundation of crypto. That is just simply not the case.
I don't see that stance changing.
The right comparison is money market funds - they are very highly regulated. If a money market fund said “we are backed by very highly rated short term debt,” but they weren’t, that is 100pct a scam that has huge fines.
Just because Tether is in the crypto world doesn’t mean it’s now a magical novel currency. Still just a money market fund in a slightly different form.
So tether insures up to $100,000 for every depositor?
It's anyone's guess what they are currently sitting on.
With how shady they acted I would have assumed that number was 0%. A bit shocked it wasn't a total scam to be honest, even if they did misrepresent that it was in fiat not risky investment assets.
Create new tether, declare 1:1 fiat, sell new tether for 1 fiat each.
It only really becomes a problem if they're trying to be completely backed, as new tether isn't an option then.
Also everyone: omg tether was not 100% collateralized by fiat dollars at all times, sometimes, but also not at all times!
I just feel like the arguments are weak. Tether was controversial because it was centralized at all and requires ongoing trust and its collateral is not verifiable except by the state's subpoenas. Then the argument moved to something much more .... tolerant of their existence but requires completely ignoring how all the rest of finance works to make it an issue with Tether. Strange. At this point I can acknowledge that the market can bear it. Tether, like everything non-crypto, are vulnerable to bank runs, and that works. If people actually wanted fiat, then Tether could be in trouble. But Tether users do not want fiat and redemptions barely occur. People don't want to accept the reality that Tether actually works as stated. Like if you just assume it works as described, using the investigations of multiple US agencies, then it makes sense! Tethers are created when people deposit fiat on Bitfinex, deposit directly with the Tether issuer, sometimes by Tether issuer when Tether trades at a premium (in exchange for other cryptos that are not dollars), and sometimes arbitrarily. But its better to assume the first 3 everytime a big tether print occurs, than to always assume the last one, because the formers are what all the US regulators and enforcement agencies have also found to have occurred most of the time. Not that hard. It is a trusted system, like everything else we are used to. They change their contract to reflect any deviation from 100% usd collateralization and that's not that controversial. Fractional systems also work. Ideology doesn't make something else suddenly not work.
As you pay off your loan, the new money that was created is destroyed.
This is how the money supply is actively managed, it's not some tinfoil hat conspiracy haha.
There is also a 1/2 trillion dollar fund (FDIC) and a further 1/2 trillion dollar line of credit at the Fed to ensure depositor funds are secure.
The federal reserve, created via act of congress, exists to manage the money supply - to maintain a low, fixed rate of inflation and maximum employment. These two features are correlated, by the way, as you can see in the Philips curve.
Now, Tether on the other hand is just printing fake money to pump up the market to benefit themselves and a small cabal of crypto holders who recognized early on the liquidity did not exist to support their desired level of wealth.
They lie about it regularly - in fact their announcement of this settlement included a bald faced lie.
> Tether: "As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times."
> CFTC: "In fact Tether reserves were not “fully-backed” the majority of the time."
This is the central bank of crypto, 85% of all trading volume is against USDT, and they have shown themselves to be the least trustworthy entity in the world. Just a new Liberty Reserve.
The key point is that it wasn't fully backed and Tether represented that it was: "Tether misrepresented to customers and the market that Tether maintained sufficient U.S. dollar reserves to back every USDT in circulation with the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. In fact Tether reserves were not “fully-backed” the majority of the time."
Tether can either do a sort of fractional banking or not, but what they're getting fined for is lying about it.
https://en.wikipedia.org/wiki/History_of_the_United_States_d...
>In February 1965, President Charles de Gaulle announced his intention to exchange its U.S. dollar reserves for gold at the official exchange rate. He sent the French Navy across the Atlantic to pick up the French reserve of gold and was followed by several countries. As it resulted in considerably reducing U.S. gold stock and U.S. economic influence, it led U.S. President Richard Nixon to end unilaterally the convertibility of the dollar to gold on August 15, 1971 (the "Nixon Shock"). This was meant to be a temporary measure but the dollar became permanently a floating fiat money and in October 1976, the U.S. government officially changed the definition of the dollar; references to gold were removed from statutes.
https://en.wikipedia.org/wiki/Exorbitant_privilege
There is some irony in the US gov objecting to Tether's methods. While the USD is backed by what exactly? What are these reserves of the Federal Reserve? Meanwhile, the 1 trillion dollar platinum coin is being proposed. Yes, it is fair to say Tether is guilty of having insufficient reserves. But how meaningful is it to say that they have insufficient reserves of an unbacked currency?
Expect a massive cryptocurrency crash if Tether's regulatory downfall finally occurs; a majority of exchange trading pairs are between currencies and USDT. (not financial advice)
Or are you referring to unregulated futures on some crypto exchanges?
So why don't they? Why would literally anyone choose to hold USDT over any other stablecoin?
Is that actually true? In my (limited) experience I have seen ETH and USDC much more frequently than USDT.
There also seems to be a recent migration to algorithmic stablecoins like RAI which aren't pegged to the dollar but are (supposedly) designed to limit fluctuation in value. I suspect that without regulatory action against both USDC and decentralize stable tokens that crypto would recover from a Tether collapse.
I agree that prices would recover after a short term Tether-induced crash, and markets would almost certainly shift to DAI and similar decentralized stablecoins.
Of course, this assumes Tether aren't lying about that too.
Small exchanges could also lose liquidity from bad code that assumes USDT will always equal $1.
The only thing I can't understand is why the price still pumps.
It's hard to convert USDT to GUSD. Coinbase does't list GUSD. Changely says they will do it for a 2% fee. Bequant has a market, but US$20,000 would wipe out their order book. Hotbit claims a deeper market but has a US$10,000/day withdrawal limit. Bitfinex has de-listed GUSD. Probably because it was too convenient a way to convert Tether to real US dollars. Gemini does not list USDT.
It's striking how difficult it is to convert large amounts of USDT to a hard currency.
I had wondered if there were parallels in the runup, but haven’t heard widespread reports of people being able to transfer out yet. Or rather, more than the usual number of such reports, there are always some.
I know for a fact that there are private banks, the traditional ones (think Swiss banks), working on funds that'd let their HNWIs invest in crypto. We're talking about entry tickets to the tune of 1 million EUR minimum. It's not private/confidential infos: it's information some private banks are relaying to their very wealthy clients.
There are a lot of people who want to get in but have zero clue as to how to do that: now their traditional banks are going to let them do that.
There are simply people out there who want to buy.
The big question is when the peg of 1 USDT ~= 1 USD (or USDC) is going to break. Tether is going to do everything they can to maintain that peg as long as possible.
[1] https://www.cnbc.com/2021/10/15/bitcoin-etfs-may-finally-mak...
[2] https://twitter.com/JSeyff/status/1449010847074897933
Suppose you hold a big bunch of USDT (Tethers) right now.
What would be be doing in light of these news?
Exactly.
I’m not willing to share the short/medium term philosophy, catalysts, and predictable patterns. But I’ll reshare the long term philosophy since I’ve already written about it 4 months ago:
https://news.ycombinator.com/item?id=27202204
If you’re smart and knowledgeable, you may be able to piece it out from my comment history.
I wondered if the runup was like MTGOX. It’s plausible, but if so then someone is providing the dollars for everyone selling into USD on Coinbase etc. Whereas MTGOX’s prices were all self referential right? By the time it started freezing up
One other possibility is that Tether is playing the CME futures and making money from the pump up. I suspect they’re insolvent but it’s possible they aren’t and are merely crooks. The crypto markets interface with real money now