The Tether Conundrum: a look into a suspicious cryptocurrency
tonyarcieri.com
tonyarcieri.com
1) Tether is supposed to be backed 1:1 by USD.
2) There are now $1.7 Billion in tehters outstanding
3) They were turned down by all reputable banks they approached.
4) They have printed $450 million of tethers in the past week
https://coinmarketcap.com/currencies/tether/historical-data/...
Just ask yourself honestly..... do you really believe that there is a reputable bank anywhere in the world that would allow them to hold $1.7 Billion in an account and additionally make a deposit of $450 million in a single week?
Ocams razor says this can't possibly be true.
What happened instead was that they printed more Tether (450MM) when the bitcoin price was collapsing.
The risk of holding a tether should be reflected in its price. If the underlying asset is bitcoin, the risk profile of a tether would be the same as bitcoin, and thus the price should tightly correlate with (or be tethered to bitcoin, rather than USD).
If Tether tells people the token is backed by USD when in fact it's backed by bitcoin, that's fraud.
Fractional Reserve Banks currency also usually exhibits natural demand on the account of being the currency required to pay taxes and accepted by stores/businesses in that country.
Yes, fractional reserve banking is bad. But at least the central banks have somewhat a clue how to control it and a legal framework to do so. Whereas for bitcoin exchanges, they just make it up along the way.
Some important differences:
- Your bank tells you it's fractional reserve, Tether tells you they're full-reserve (deception for financial gain is fraud)
- Bank accounts are protected from bank insolvency by FDIC insurance
- Bank risk appetite is modulated by the rates they pay for that FDIC insurance
- The Fed acts as a lender of last resort, guaranteeing the liquidity of your deposits, in order to prevent a bank run
The Fed has the muscle to keep fractional reserve banking propped up. Tether may be lying about being full-reserve, and don't have the muscle to stop a tether run, which could get ugly.
This would be explicitly against their own T&Cs, even the new ones. If they’re going to lie, why bother backing it with anything?
As second guessing Bitfinex is now a popular sport, my totally unsubstantiated guess is that they do have fiat to cover external, primary purchasers. Specifically, if you go to the site and buy tether with real money, they may well keep the reserve.
Their T&Cs don’t actually say they’ll honour the secondary market, just account holders. So, as long as they can meet that demand, they can print as much as they like themselves because they’ll never try to redeem it.
Dodgy as fuck but quite clever. No idea if it’s correct of course.
People always refer to Tether 'printing money out of thin air', but they never consider the prospect that investors are wiring money to exchanges, having Tether printed for their use, and then using that USDT to purchase cryptocurrencies.
Bitfinex is huge. Bitfinex also has an OTC counter, which has been known to broker trades in excess of 10-50M USD. USDT is often the medium for which these trades are executed, so it makes sense that a lot of Tether needs to be printed when BTC is crashing, as that's when the larger players decide to buy in the most.
There is a lack of transparency, and I wouldn't be surprised if things don't look perfect behind the scenes, but that doesn't mean the entire thing is a billion dollar scam conspiracy that the largest exchanges are all in on. Not all transparency is in the users' advantage in this area either. Do you know why Bitfinex doesn't tell you exactly where their servers and wallets are located? Probably because they hold over a billion USD in BTC in a single address.
Keep in mind that the market clearly values Tether at around $1USD, almost always. That's a good sign that the market as a whole does not think Tether is going to suddenly collapse and take the entire ecosystem into it at any point in time.
It's important to read criticism like this and consider it, but not believe it blindly. There are a lot of feasible middleground scenarios between "is a complete fraud and scam" and the exact opposite.
The article made provably true observations about Tether. You have made the most stretchingly feasible counterpoints that have no demonstrable proof or transparency. Who is believing something blindly here?
This isn't an alternative explanation. This is the same explanation.
Investors are printing USDT and using it to buy BTC.
I can imagine that there are bank accounts out there full of USD that, let's say, wouldn't pass KYC/AML. Those people can't use Coinbase/Gemini, but maybe they are welcome at Bitfinex.
You have $1M in dirty money. Wire it to Tether for some Tethers. Go on Bitfinex and buy lots of bitcoin. Transfer the bitcoin to a legitimate exchange. Sell for clean USD.
This could be a very valuable (and lucrative) service in certain circles, I have no doubt. One thing that could jeopardize the livelihood (...and lives?) of people running a business in this space would be a steeply falling Bitcoin price. They would probably do anything to keep the price up. Like issuing more magic tethers and buying Bitcoin with them.
Why USD -> USDT -> BTC -> USD?
Why not USD -> BTC -> BTC -> BTC -> USD?
What does the extra layer of USDT really add legally, except for some added obfuscation that a few extra "intra-bitcoin" transactions would add as well?
(Genuine question, this is one of the more fascinating stories I've heard in a while :-)
USD -> USDT and back is traceable using standard investigations of books and banking transcripts of entities dealing with Tether's managers.
Also, Tether is by now an internet-wide phenomenon. It's in the spotlight. And yet it keeps growing.
> OTC counter, which has been known to broker trades
How do we know this?
> clearly values Tether at around $1USD
It's currently slightly above $1USD, which makes no sense for a risk-bearing asset. Tethers probably correspond best to an open-ended zero-coupon $1 bond. Why do they have negative yield? I can just about understand CHF gov bonds having negative yield but negative tether yield? Really?
If you have USD you can just buy BTC directly, you don't need to deal with Tether. There is no reason to wire $100,000,000 to a mysterious company to get USDT to then buy BTC. I think it's much more likely they're simply making up new Tethers and using those to bid up the market during downturns--that's why Bitfinex won't give you USD when you sell and instead gives you USDT.
This is not the industry to make some sort of "efficient markets" argument. Bitconnect was an obvious ponzi scheme and was valued highly up until it collapsed a few days ago. Same for any number of these coins. And for Internet stocks in 1999. And housing in 2007. People are FOMOing and flooding money into the sector, buying random Alts that a friend told them about, without any clue of what they are. It's not surprising that nobody is thinking critically about Tether.
In the meantime (if you like gambling), wait for another big down day and watch for Tether issues. The market will start to climb shortly afterwards. Just make sure you're playing with USD and not USDT!
This one added something that I hadn't seen previously, which was Tether's behavior during the recent "crash."
Is this possible. Am I missing something?
Can anyone explain why Tether's price never drops significantly below a dollar?
https://en.wikipedia.org/wiki/Confirmation_bias#Persistence_...
Then he should file a complaint with the regulators. Knowingly participating in and profiting from a fraud isn’t something good, or simply law-abiding, people do. Absent such a report, you are posting unsubstantiated rumours.
The problem is when it changes value and fees are taken. The math can get pretty insane when taxes between the crypto organization are taken and users realize their gains.
I did some math, looked alright. But I'm worried about the unknowns, unexpected fees that MUST be taken by the users, and mostly taxes.
If I need to "trust" you that I can get <something> in exchange for my cryptocurrency, then that's not much of a cryptocurrency is it? It may as well be a MySQL database controlled by you, as that's what it amounts to anyway.
Like chips in a casino can be exchanged with the house for cash, but I don't need to tell the house that I'm giving some chips to my friend.
The problem is that that's not really a currency. It's zillions of IOUs. I don't know how to make transactions between two nodes that don't trust each other or how to come up with one number for someone's net worth.
> Graeber proposes that money as a unit of account was invented the moment when the unquantifiable obligation "I owe you one" transformed into the quantifiable notion of "I owe you one unit of something". In this view, money emerged first as credit and only later acquired the functions of a medium of exchange and a store of value. [1]
The value will surely go "to the moon".
I wonder if it would be possible just through statistical or network analysis of all tether transactions on omni layer, without knowing the full narrative of Tether, to get some idea of the game.
2) Set up an exchange on which customers can buy into crypto with fiat currency, but can only cash out into your invented fake-fiat currency. Do not under any circumstances allow them to cash out into real fiat. Don’t worry, they really want to believe they’re going to be billionaires, so no one will ever question their total inability to realize their paper gains.
3) Wait for a drop in crypto prices, print a bunch of your fake-fiat, and put it in your pocket.
4) Buy a ton of crypto with fake-fiat while the crypto price is low. This infusion of demand will pump the price of crypto.
5) Once you’ve sufficiently pumped the price, sell the crypto you just bought, preferably in exchange for real fiat from the customers on the exchange that you own.
6) Repeat, a lot.