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Comment by darawk | Hacker News Reader

...except that Tether long predates Bitfinex's wire issues. They're usable on many of the major exchanges (Bittrex, Poloniex, for example). Tether was explicitly created for the purpose of equalizing prices across exchanges. It's indeed possible that they're insolvent, but there is no real evidence of that, just lots of people speculating incessantly without much justification.

Basically everything about the parent comment is factually incorrect. I'm not sure why it's so upvoted. I guess people just like scandal in the cryptocurrency world and would prefer to believe what comports with their preconceptions.

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Just because tether predates the big USD wire problems does not mean it's creation was unrelated. One of the biggest risk any exchange has is compliance, specifically with the US regulators (and banks).

Even if BFX did not know this before they build their exchange, this most likely became clear from day 1. Tether is a great hedge against this (politics aside).

Could you address anything that you think is "factually incorrect"?

The post I was responding to claimed Tether was specifically created to address Bitfinex's wire issues. That is false. It may be that they created it to address theoretical, speculative wire issues that they might someday encounter in the future, but there is no evidence to support that hypothesis. Secondly, there is plenty of reason to create something like Tether independently of any wire issues (specifically: to normalize prices between exchanges).

Come on man..

> The post I was responding to claimed Tether was specifically created to address Bitfinex's wire issues. That is false.

It does not claim that it was "specifically created for that", it claims that "Their solution" to the wire problems was "Tether". It does not state anything about why Tether was created in the first place.

> Secondly, there is plenty of reason to create something like Tether independently of any wire issues (specifically: to normalize prices between exchanges).

People will arb the effiencies away anyway, regardless of what tools the exchanges provide them. Besides tether a lot of people in Taiwan are arbing through the traditional banking system [0].

But you are right, it IS important that there are ways to flow money in and out. Which is exactly what Tether is for according to OP's argument.

[0] https://steemit.com/bitcoin/@kingscrown/living-in-thaiwan-yo...

I read the patio11 post as implying very strongly that Bitfinex was responsible in some way for Tether, when in fact that couldn’t be further from the truth.

https://twitter.com/Bitfinexed/status/932139909237833728

http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC...

> I, J.L. van der Velde, hereby declare as follows:

> 1. I am the Chief Executive Officer for iFinex Inc. (“iFinex”), BFXNA Inc. (“BFXNA”), BFXWW Inc. (“BFXWW”), and Tether Limited (“Tether”). I have personal knowledge of the facts set forth below, and if called and sworn as a witness, I could and would testify competently thereto.

> 2. iFinex, through its subsidiaries BFXNA and BFXWW, owns and operates a leading global Virtual Currency platform called Bitfinex.

Bitfinex is responsible for Tether.

> It does not claim that it was "specifically created for that", it claims that "Their solution" to the wire problems was "Tether". It does not state anything about why Tether was created in the first place.

Read the post, man, very first paragraph:

> Bitfinex was cut off from the US financial system, which makes it impossible for them to clear USD-denominated wires...Their solution: issue a cryptocurrency which is claimed to be 100% backed by USD and say that it is redeemable 1-to-1 for dollars... we just can't actually physically give you the dollars.

> People will arb the effiencies away anyway, regardless of what tools the exchanges provide them. Besides tether a lot of people in Taiwan are arbing through the traditional banking system [0].

That's true, except you probably have never tried to actually execute that kind of arbitrage before. I have, so let me tell you the problem tether solves: speed. If you do arbitrage through the banking system, you have to wait for wire transfers to clear. That can take days to weeks. That means you have to wait for the spreads to be large enough and stable enough to compensate you for the enormous risk of being exposed to the vicissitudes of the crypto markets during that time. And that's assuming you already have the accounts setup in the right countries. Tether makes all that instantaneous. That is an enormous benefit to arbitrageurs equalizing prices, and inter-exchange liquidity.

> Read the post, man, very first paragraph:

I've read it a few times now, still can't find where they say they specifically created tether (the system) for this exact purpose. Keep in mind that the issuance of tether is not the creation of the complete tether blockchain/system (they are issuing new tether around the clock).

> That's true, except you probably have never tried to actually execute that kind of arbitrage before. I have, so let me tell you the problem tether solves: speed.

You are right, I have never tried arbing through the banking system. I am doing small/mid scale arbing in cryptomarkets, however I stay away from anything that touches any bank / FIAT.

Though my point is that: yes arbing through banks is slow, inefficient and very dangerous. People will do it nonetheless because of the margins you can make. The exchange does not care how hard it is or how people do it, just that there is some guy somewhere (potentially flying around with suitcases of cash) who is doing it.

So yes I 100% agree with:

> That is an enormous benefit to arbitrageurs equalizing prices, and inter-exchange liquidity.

But bfx only cares about the latter, not really about the people doing it.

> I've read it a few times now, still can't find where they say they specifically created tether (the system) for this exact purpose. Keep in mind that the issuance of tether is not the creation of the complete tether blockchain/system (they are issuing new tether around the clock).

Right there. patios11 claims that Bitfinex's "solution" to their wire problems was issuing Tether. That is demonstrably false, because Tether predates Bitfinex's wire issues by more than a year.

If it is raining outside and I take an umbrella with me, I can say it's a solution to the rain. That doesn't say anything about whether I bought the umbrella specifically for today and if I had it longer than today I am lying...

"Their solution: issue a cryptocurrency" implies they issued Tether to solve their wire issues. This is false. They issued it long before.

Do you think that bitfinex didn't know they'd potentially have wire problems before being officially cut off?

I don't think they knew 1.5 years before.

I have no idea really but from the discussion I get the impression that one side assumes some amount of Tether could be issued at will, more or less, whereas the other seems to think to issue means to invent the ... whatever that even is.

Lots of people use git as a solution to their source control problem who only started writing code after it was invented.

> Basically everything about the parent comment is factually incorrect. I'm not sure why it's so upvoted.

patio11 is well respected in this community, so I guess the post is upvoted just because of the author. I personally respect patio11 on quite many topics as a very knowledgeable, but when it comes to Bitcoin and cryptocurrencies he seems to have some personal issue with them, which makes his posts on the topic not that objective.

He has been a bitcoin bear for a long time. Like many people that have been anti bitcoin, they keep jumping on new reasons why it’s a scam or not going to work when their old reasons become irrelevant.

It is probably very painful following it closely and not investing from the around $10 prices or so. Makes you mentally even more tied to the non-investment, and makes you invent better arguments on why you didn't invest.

Regardless of your feelings towards patio11 and his views on Bitcoin, this is not appropriate. Speculating about his emotions like this is a misdirection that dances around de-legitimizing his views without a real rebuttal to his point. Moreover, he’s on this forum, so you don’t need to talk about him like this, as if he isn’t here.

If you have a substantive rebuttal to make, do that instead of engaging in passive aggressive character assassination. What you’re doing is probably satisfying, but it doesn’t convince anyone else that you’re correct who doesn’t already side with you, and it’s insidious in that it steers the course of the conversation away from an individual’s point and onto their identity.

I've been in Bitcoin for over 7 years. This type of back and forth is exactly what happened to Mt Gox. And you know what? My friend got the fuck out of Mt Gox before it burst.

When you have to choose between following a pre-bankrun rumour or following unsubstantiated pushback, follow the rumour. It costs you maybe 5% to get out vs 100% if you're wrong and banks / money holders compete on assuring people that there is less risk with their solution so if Tether can't provide assurance then that is their problem. Cut and run.

On a side note, the fact that bank runs are rational decisions and that no FDIC-style agency exists to change the incentives seems bad for cryptocurrency in general.

(Possible responses include both "the traditional financial system and fiat currency is actually pretty good" and "someone should run a reliable FDIC equivalent as a business for new exchanges and new coins".)

Isn't a bank run only an issue if the bank is using a fractional reserve? Cryptocurrency exchanges aren't banks; they're not supposed to keep a fractional reserve. If everyone suddenly demands all their coins at once, the exchange should have no trouble complying with that.

The only problem is that there's no way to know for sure whether an exchange is running on a fractional reserve or not.

The issue is that they do run fractional reserves, even if they aren't supposed to. Much like banks of the 1600s.

They claim that they don't. If they do, that is a serious problem. Some of the exchanges have, but there is no evidence i'm aware of that points to any of the current major exchanges running a fractional reserve.

The issue is that once there is evidence there is a bank run. Mt Gox wasn't supposed to, but they did. And there are others out there that I hear rumours about having 5 or 10% of their reserves stolen from hot wallets. Sure it's fine if there is never a run, but it's worth pointing out that this is a real threat vector.

Ya, no argument from me there. It's definitely a threat. I just don't think it should be stated as fact that they do run fractional reserves without evidence of that.

I was around during MtGox too. This is nothing like MtGox. The difference is frozen funds. MtGox froze people's money. Bitfinex hasn't. Simple as that.

Huh? This is pretty much exactly like Mt. Gox. At first Mt. Gox only suspended people's ability to withdraw USD, like Bitfinex. Then they suspended people's ability to withdraw BTC (apparently people have been experiencing delays getting crypto withdrawals to go through on BFX recently?). Even then they still allowed people to send money between accounts within the exchange, which resulted in a secondary market of people buying "Goxbux" from other people with money stuck in the exchange (at a discount, of course; basically betting that Mt. Gox was actually solvent).

I can withdraw crypto from Bitfinex just fine and have done so recently. Taiwanese fiat withdrawals process just fine. In this case, we have confirmation that their foreign wire transfers are legitimately frozen. They're not lying about that. I don't see much comparison to MtGox at all.

> without much justification.

Well, they've never proved it. Just a literal: "Hey, we promise we have the money."

So, can't really say; it's basically a Schrödinger's cat to everyone on the outside. We will only know when it booms — or busts.

You're absolutely right. I'm not saying they're solvent. There just isn't any evidence that they aren't.

They just got hacked for $30 mil. Pretty safe to say they are in the red at this time.

They may not be. $30 mil is a small percentage though. Bitfinex makes a few million per day in volume. It's not unreasonable to think they might still be solvent, even with a 30 million dollar loss. But they also might not. However, they definitely won't be if their fix to block the stolen Tethers goes through.

Bitfinex got hacked for 119,756 BTC last year, and Tether got hacked for $30 mil today.

Both are owned by iFinex LTD, and had the same CEO till earlier this year. Total amount they have lost comes out to $1 Billion.

How are you still claiming "They may not be"?

I was a Bitfinex customer when they got hacked. I lost 30% of my funds on that day. I couldn't be happier with how they handled it. They paid me back in full and did the best they could with the situation they had. People being upset with them over it is insane to me. As far as I can tell, it's mostly people who had nothing to do with it spectating from the sidelines. If an exchange you use ever gets hacked, I certainly hope they do exactly what Bitfinex did, for your sake. And you should too.

Bitfinex already fully financially recovered from the 119k BTC theft by repurchasing the last of the BFX debt tokens a few months ago.

...with suspiciously issued Tethers, which is kinda the whole point here.

But it doesn't matter. From a legal aspect, customers who accepted to sell their BFX tokens are no longer creditors to Bitfinex.

and those tokens were traded at how many pennies to the dollar ?

They were redeemed by Bitfinex at full face value.

At the time Bitfinex was hacked, they automatically converted the "hacked" BTC balance to USD. It was around $650 I believe at the time of the hack. It would be unfair to measure the hack in today's BTC value because they converted the liability in customers' accounts in USD.

Tell that to the Mt Gox account holders... they don't seem too happy that their BTC claims have been converted to JP¥

They were plenty happy with it when BTC was crashing. People just like to whine. Converting to JPY in MtGox's case and USD in Bitfinex's case was the reasonable thing to do. Denominating massive debts in cryptocurrency is an insane thing in a market this young and volatile.

I don't think this was terribly good for them when bitcoin was crashing either, because it still ate into the amount they'd get paid out since the underlying assets were still partially in bitcoins. The bankruptcy trustee basically gave Mark Karpeles free options on bitcoin with all the customers he'd screwed over as forced counterparties.

No. They blacklisted the stolen tethers, and all they now have to do is issue a new batch of $30 million worth of tethers. In no way this puts them in the red.

As as been pointed out above they can't unilaterally blacklist tethers, the other parties have to accept the modified client.

But since Tether Limited are the ones who back the tokens with real dollars, they can effectively unilaterally pressure anyone to upgrade the client. Those who don't upgrade and accept stolen tethers will be left with worthless unredeemable tokens.

Read this lawsuit: Tether only has $50 mill and their wires have been frozen by Wells Fargo since March 2017. So the remaining $600 mill tokens are backed by nothing.

http://article78againstnydfs.com/docs/317-cv-01882-BitfinexC...

That was filed back in April when there were only $50 million Tether in existence: https://coinmarketcap.com/currencies/tether/ Also, the money that's supposedly backing Tether is in Taiwanese banks, not Wells Fargo, and their problem with Wells Fargo should only affect international wires.

Stolen Tethers were transferred to a known Bitfinex Exchange deposit address. The hackers bought Bitcoins within an hour and took off with their loot.

Reversing Tether tx does nothing to recover those Bitcoins.

Source?

Edit: found this: https://www.reddit.com/r/btc/comments/7e1840/the_30000000_us...

It seems like people did in fact notice the $30m being deposited on Bitfinex and being used to buy Bitcoin, all before it was known to be stolen. Difficult to confirm a thing like this, but I wouldn't bet against it.

In all fairness, this isn't much different from commodity ETFs promising that they have a warehouse of gold or silver somewhere that matches the market cap of the fund. There's no easy way to completely, 100% verify this, so people just trust them.

That’s what auditors are for - solving exactly that problem. Well mostly - like everything else it’s imperfect

And their previous CEO just 'forgot' to update his twitter status for two years of not being the CEO.

And the company officers are currently actually bitfinex people?

Total coincidence.

Who owns and operates Bittrex and Poloniex? How are the licensed? Do they keep customer funds segregated from operating funds?

Bittrex is owned and operated by US actors. You can go talk to them in their slack. They're on their with their real names, and they all have linkedin profiles with real work histories at US companies.

Poloniex is owned by a guy named Tristan D'Agosta. He's a little bit less easy to track down, but does seem to be a real, known person with a real history and life.

I don't know how they each separate customer and operating funds, but i'm sure the Bittrex guys at least would probably be happy to tell you if you ask in their Slack channel, assuming they don't consider it a security risk.

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