Comment by Lazare | Hacker News Reader

Comment by Lazare | Hacker News Reader

Don't worry guys, I'm sure Tether is a 100% legitimate operation that just happens to be conducting an ongoing research project to see how much like a scam they can appear. They've got the money, they're just keeping it hidden! ...very hidden! They had to fire their auditors because they were about to find proof the money exists, and that would have ruined the research project!

More seriously, I've got to ask: Why does anyone trust them? Why did anyone trust them? They've never offered the slightest reason to think they're anything else but a particularly lazy fraud.

Is this an "emperor's new clothes" situation where everyone assumes everyone else has proof of Tether's validity, and doesn't want to look dumb by asking? Or a "bigger fool" situation where everyone believes Tether is a fraud, but thinks they can get out and leave someone else holding the bag when it bursts? Raw wishful thinking because a legit Tether would be so useful to the ecosystem that people have collectively decided to pretend it does exist? Or what?

> Why does anyone trust them? Why did anyone trust them?

Greed. I get why people would trust BTC, Ether (before the DAO hardfork, that is) or Dogecoin, as these had real value and usecases (e.g. Bitcoin for getting high quality weed, ecstasy or guns, and Dogecoin for having fun + a quick-and-easy donation way on Reddit other than gold). But the other ~1.5k coins listed on https://coinmarketcap.com/? What in blazes? People stuck billions of dollars into altcoins!

Not really: just because the market cap of an altcoin is in the billions doesn't mean there's more than a tiny fraction of that amount actually invested (as in, bought with fiat) into it.

Yeah, I can make a coin with $10T supply and sell one for $1 and imply a $10T market cap.

…Which makes trading volume a very important statistic to monitor.

He could proceed to have a bunch of bots throw coins around randomly, also, so trading volume gives you nil reliable info, either.

This sort of behavior only works on exchanges with zero or extremely low trading fees.

The trading fees would merely have to be lower than the appreciation in the value of your own holdings as a result of the apparent legitimacy.

At 0.05% fee (public rate for Binance, is probably lower for people in the know), it is a four-figure USD investment to get your coin in the top 100 volume chart for a day. Then when real people start buying in, you can sell a tiny fraction of your holdings to finance more fake volume.

It also works when you own the exchange. There's pretty good reason to believe wash trading is happening at several exchanges...possibly performed by the exchange themselves. I'm more willing to believe Bitfinex is doing the BTC wash trading that's happening on their exchange, rather than some whale doing it (the very close connection between Tether and Bitfinex, sharing several founders and C-levels, makes this seem even more likely).

Volume is just as gamable with a bit more effort. One person can create $1B volume by moving $1M between two coins 1000 times. And consider that $1M could be inflated by a major creator/miner of the coin as discussed above. Get yourself up the volume and market cap charts with this inflation and people outside the scam will buy in. There you go, the basic anatomy of a pump and dump.

Yeah but the trading volume shows that there is substantial activity on a boatload of altcoins. Of course it may be artificially inflated but I do believe that a lot of people did invest back in the coincraze last December - and for what its worth now that prices are more down-to-earth it may be possible that the more adventurous want to buy in as long as the prices are low...

LTC, Bitcoin cash: similar reasons to doge.

Monero: anonymity.

Monero is the real deal. Once they reinitialize zcash through trustless setup and somehow can audit the money supply it might come close.

But monero also tries to become practical too, which is huge plus

> Greed.

How it's relevant? Tether has fixed price: 1 USDT = 1 USD, you can't become rich by buying it.

Large amounts of Tether is being printed to buy bitcoin, particularly when bitcoin has lost value quickly. Unsurprisingly, this tends to help the price rebound.

When they print the Tether to purchase BTC, who's keeping the BTC that's bought?

Assuming this is an actual fraud going on and not real USD being held to back each Tether 1:1.

People don't really trust them, but it's not like you have a choice if you want to be in crypto. It's more of a calculated risk that you have to take.

The explanation behind them putting off the audit might have nothing to do with tether. It could be concerns about what an investigation could uncover in their creative bookkeeping, being an incredibly profitable, offshore, unregulated company and all.

In the end, the whole situation boils down to

1) Did people really wire them the equivalent of the entire tether market cap?

2) Did they use the money?

I don't think it's unrealistic that ~1.5B has entered the market in the last few months.

I also don't think it's impossible they didn't need to touch that money, given that they seem to pocket 8 figures in fees daily. That's not even counting all the other things they can legally do as an unregulated exchange, like front-running, liquidation fishing with unlimited assets, etc.

Stupid question: Why don't you have a choice if you want to be in crypto? People were exchanging bitcoin before tether was created; what changed?

The most popular exchanges these days are crypto only. Thus if your a trader that wants to trade against the dollar, you have to do USDT, not the actual dollar

Doesn't this mean that all the market values on crypto only exchanges are kind of suspect? Because if you eventually want to get out of crypto and into dollars (to, you know, buy stuff in the real world) there is a good chance you won't be able to because no one is actually there willing to give you dollars for tethers?

But they will give you dollars for bitcoin or ether. However, I agree, I never trade tether because that is the last bag you want to hold if the crypto market collapses

While I'm mindful that all of this is always one fateful day away from collapsing, at the moment it's not a problem. A number of exchanges will trade tethers for any of the major coins (BTC, ETH, LTC) and any major exchange will give you dollars for those, at least on days when withdrawals are functioning.

The U.S. government started enforcing AML/KYC laws against crypto-to-fiat exchanges.

> That's not even counting all the other things they can legally do as an unregulated exchange, like front-running, liquidation fishing with unlimited assets, etc.

Unregulated does not mean that they can ignore the law. Fraud is illegal either way. In fact, most businesses used to be unregulated and just had to follow the same laws as everyone else. That should be the natural state.

I'm just waiting for the musical rendition of USDT. Matt Stone and Trey Parker can re-use half of The Book of Mormon.

Just replace golden plates with USDT.

I'm guessing you haven't seen The Book of Mormon. It is not about the story told in the actual Mormon bible. That is just a southpark episode.

I have. Relevant quotes include:

> But don't let anybody see these plates except for you...

> They are only for you to see...

> Even if people ask you to show the plates to them, don't

> [...]

> Even though this might make them question if the plates are real or not... "

I think similar thoughts about basically all cryptocurrencies.

Because interest rates are ridiculously low and VAST amounts of money are looking for ANYTHING to invest in.

The more interesting question is why has Tether been allowed to run wild for so long?

Imagine if you were part of the current elite that had control over the current fiat currency system and something like bitcoin appeared. You could ignore it and hope it and its kindred doesn't catch on with the population, or you could allow a fraudulent scam like Tether to run that pushes up the price into the stratosphere and then allow the bubble to burst tar-and-feathering the whole concept of crypto currencies. It is not like hundreds of trillions of dollars are at risk if we move away from fiat currencies.

What I don't get about these conspiracy theories about the "current elite", is if they thought bitcoin was such a threat they could just put money in it.

Until I hear otherwise, I assume Hanlon's razor is at play here: regulators in all jurisdictions are still figuring out what to think about cryptocurrencies. US regulators have their hands tied in the case of Tether because they've gone to lengths to avoid US jurisdiction. Other regulators around the world may be less resourced.

> they've gone to lengths to avoid US jurisdiction.

can you offer some details about what you're describing?

Most governments really doesn't like people issuing anonymous assets that are "as good as dollars" like Liberty Reserve or Tether.

The entire point of Tether is to help cryptocurrency exchanges avoid AML/KYC laws (because it's expensive to comply with them) and their problems appear to stem from that. IIRC Tether is based in Taiwan and their mystical $2B bank account is presumably in some "offshore" jurisdiction. If Tether ever released an audit they'd have to reveal either that they have no money or what bank they're using and then that bank would be pressured to close their account.

They deny service to US customers.

No, because the value of controlling a fiat currency is that you can issue more. It is not any one crypto currency that is a threat, but the idea. To kill the idea you can't just ban something, you have to burn everyone so they hate it.

Since when has something being outside of US regulators sphere of authority stopped the US government from acting?

I know this is sacrilege to cryptocurrency believers, but the primary value of controlling a fiat currency is the ability to stabilize your economy. It permits you to decouple the unit by which you measure economic value, from fluctuations in the total economic value in your economy.

If you think of a currency unit as the unit of measurement for economic value, then when the economy shrinks you will need less of them, and when it grows you will need more of them. Fiat currency is desirable for the same reason a tape measure is more useful than a yardstick.

This is directly observable in the economic history of the United States. If you chart constant-dollar annual GDP growth from 1930 to today, there is an obvious decrease in volatility.

Yes this is right, but it is more than that. For example, you can use control of the currency to control the split between labor and capital, or save institutions such as the large banks in a GFC situation (look at the difference in how the owners of the banks faired in 2008 verses 1933).

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