Fears grow over Tether ‘printing press’ as auditors part ways | Hacker News Reader

Fears grow over Tether ‘printing press’ as auditors part ways

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111 pointsvanburen61 comments

Are there actually people in the world who think Tether's USDT pricing is legitimate? I can't figure out how in the hell it could be. It doesn't make any sense at all.

I have to admit that I didn't consider it's effect on the price of Bitcoin as a whole. If it really is inflating the bubble that hard then yeah, it's going to pop at some point. Probably sooner rather than later.

It is /possible/ that their books add up, in a technical sense which would make wall street blush.

They never claim that USDT are backed up by USD. They claim that every USDT is backed up 1:1 by "Assets."

Here's the scene: BFX is hacked, loses banking, and has tens of thousands of crypto millionaires ready to sue them. What they /do/ have is cold storage of lots of crypto under their control.

Say they start with 0 holdings of their own, generate 100M in USDT, and use it to buy up e.g. 10k bitcoin. However, due to that price movement, those are now worth 120M. That gives them 20M of "assets" which are not 1:1 matched to their tether, so they print 20M more. The cycle continues ad infinitum (until it doesn't). Every time It becomes more effective as their previous crypto holdings also increase in value.

Technically they are always "backed" 1:1 by "assets" for as long as they sustain upward momentum on crypto prices. But really it only needs to last long enough to dip set.

They absolutely used to claim that each tether is backed up by 1 USD in their reserve account, and that’s precisely what the audits were supposed to prove. Maybe they are backpedaling away from that now, but it’s not right to say that they never claimed this. This was the whole point of Tether.

From their homepage: Every tether is always backed 1-to-1, by traditional currency held in our reserves

Read the legal fine print... They say it's backed yes, but they did not say how to redeem. (hint: they have full right of controlling how usdt is "redeemed")

I'm not arguing that they're genuine, the quote was simply to show that they do in fact claim to hold $/£/etc to back the tokens, and not just general 'assets' that the parent comment described.

Your quote says "traditional currency", but now you are claiming that it is dollars and euros. That's not what they said. Maybe they mean gold coins.

As an aside, I decided to google "traditional currency" and found that Google has absolutely no clue how to do searches any more.

https://imgur.com/a/3I5Ok

https://www.google.com/search?q=traditional+currency

Seems ok to me. There was nothing to compare "traditional currency" to before crypto currency came along, therefore no one would have been searching for it

The fact the small print relieves them of any contractual obligation to ever redeem USDT for anything doesn't mean they don't claim - almost certainly fraudulently - in the middle of their home page that "Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD"

traditional is not a technical qualifier, as far as i'm aware.

If you were trying to assert that something was equivalent to dollars, and were backing it by dollars, would you say "traditional currency"? or would you say "US Dollars"?

You're describing a one-man Ponzi scheme, and it cannot work in the long run - it only works as long as more money is coming in, which requires the value of BTC to rise indefinitely.

Consider what happened in your scenario when BTC lost ~40% of it's value essentially overnight. Did BFX have enough extra BTC reserves to cover? What if they did but it had dropped 50, 60, or 70%?

It doesn't take much work to see the impossibility of 'backing' a stablecoin with an asset other than what it's value is tied to...

I think the parent poster is well aware that this is a pyramid scheme that can only keep going as long as Bitcoin is growing in price.

But here's an important thing - even if BTC drops in price, they aren't obligated to give you a broken penny for your tether. It is unredeemable for USD.

Tether claims on its main webpage to be 1:1 backed by "by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD."

If they are really just "backing" it with bitcoin then it is fraud.

I hear the claim that tether is inflating the bubble all the time so please help me understand. This is the main use case for tether AFAIK:

Scenario A: I fear that a bear market is coming so I move my coins from binance/bitfinex to coinbase/gemini, exchange them for USD and wait for the price to drop so I can buy in at a later time.

Scenario B: I skip the step of sending to coinbase and I exchange directly with tether in binance/bitfinex and wait for the price to drop so I can buy in at a later time.

How are those two any different in their effect on coin prices?

This should be simple - either Bitfinex has ~$2.4B USD sitting in banks somewhere, or it doesn't. It should not take too much auditing to figure that out.

It's not the amount of auditing. Nobody wants to be associated with it. It's just not worth it from the auditor's perspective.

No, Tether fired the auditor because they were trying to actually do work.

> Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of tether, it became clear that an audit would be unattainable in a reasonable time frame.

I swear, if this doesn't set off blaring red sirens in your head you should not be trusted with money.

"We had to fire our accountant because he was trying to do his job."

Next time they'll know better and hire Accenture like they should have in the first place.

Yeah, it's because competent auditors aren't just going to verify the current balance, they'll look at where all the money came from and where it went, and so on. Auditing does take a lot of effort, but that's what it takes to prove legitimacy. Firing an auditor is a big red flag.

That's how Tether is spinning it. It's not confirmed who ended it. The more like version is that Friedman ended it.

Source: Auditor.

There are alternatives to Tether/USDT.

TrueCoin is most similar to Tether. It's new, and they promise "transparency", and hopefully they learn from Tether's mistakes. Being completely transparent is the only option for any stablecoin claiming to be backed by real USD.

Alternatively, you can look into those trying to build smart coins pegged to USD that use other means of backing.

Personally, I use bitUSD when I need to. BitUSD on the BitShares platform is backed by users staking BTS as collateral for margin trading. For example, I borrow $1,000 bitUSD from the network by putting up at least 1.75x BTS at the current exchange rate. Normally, I put up 6x due to volatility. If your collateral ratio is low, you can be "force settled" where your collateral is sold at the dropping price, so most people try to stake as much as possible to keep their margins high. bitUSD is then used for easy trading between assets on the DEX. Very transparent, but I wouldn't treat bitUSD as long term savings account. It's not like it's FDIC insurance or anything.

MakerDAO has the "Dai", which sounds promising, but I don't know enough about it to comment.

> Being completely transparent is the only option for any stablecoin claiming to be backed by real USD

U.S. dollar backed "stable coins" share an inherent flaw. There is no way to safely house large quantities of U.S. dollars without knowing their beneficial owners. It's prima facie what anti-money laundering laws are meant to prohibit. If a country wanted to flout American international jurisdiction that boldly, they'd do better simply re-permitting anonymous numbered bank accounts.

I have to say I was skeptical but this sounds pretty legit, far beyond some shady Chinese company registered in BVI at least. https://blog.trusttoken.com/trueusd-faq-18dbc563fb67

Of the 103 coins currently trading on Bitfinex[0], the exchange most likely to be full of users who need this kind of coin, I don't see TrueCoin listed. Am I missing it, or has TrueCoin not been added to Bitfinex?

0. https://coinmarketcap.com/exchanges/bitfinex/

How's Kraken doing? They have a market for USDT/USD, and claim they will do a wire transfer to a US bank for $5. Do they actually deliver on that? Or do they stall and make excuses?

It would be worthwhile for some trader to deposit a few hundred dollars worth of Bitcoin with Kraken, convert it to USD, and order a wire transfer. Repeat this every few days to see how well the process works.

(In the real world, when you order a wire transfer from a stockbroker, the money gets transferred within hours. Even for big amounts.)

I'm fairly sure Kraken is ok. They just treat USDT as another coin. They also let you short USDT, the only place you can I think.

I don't understand why Bitcoin will crash if Tether is indeed a scam.

Those who exchanged Bitcoin for Tether will be holding worthless Tether tokens and will want to quickly exchange it for something else... like Bitcoin or some other cryptocurrency.

Shouldn't the converse be true: Bitcoin price starts to rise as more and more people start to realize Tether is worthless?

There is speculation that bitcoin's price is propped up by Tether being printed, and sold for BTC.

If counterfeit Tether has been used to prop up the market the losses of the comparatively few people who actually hold Tether will be a drop in the ocean compared to the affect on BTC price. The bitcoin price is a function of demand, if Tether tuns out to be a scam, and has been used to artificially inflate that demand, then the price can only go down. There is also the problem that if Tether collapses, there will be a run on all exchanges that accept Tether, particularly Bitfinex, and the resulting panic will send BTC through the floor.

Yes, the price in USDT terms will rise as everyone holding USDT sells it and buys something else to transfer to another exchange. But that's only in USDT terms, not in USD terms. So let's say the BFX price doubles as people come to this realization. You pay $20k BTCUSDT and send to an exchange where it's still trading $10k (or rather, you just start marking it in BTCUSD terms). That's an instant 50% loss. And that's assuming that BTCUSD doesn't sell off as people get spooked.

Bitfinex will likely be forced to sell bitcoin on USD markets to get dollars so they can buy tether to prop the price up.

So prices on bitfinex will go up as prices elsewhere go down.

They can't though for compliance reasons, that's why they invented Tether.

> Those who exchanged Bitcoin for Tether will be holding worthless Tether tokens and will want to quickly exchange it for something else... like Bitcoin or some other cryptocurrency.

One could unwind USDT slowly. It needs to in the end be converted to USD to actually unwind. Does Tether.io have $2.4B ready to be cashed out?

If you exchange USDT to another cryptocurrency someone is still holding USDT.

I would think that the orgs / people holding Tether would be the ones to suffer the most, not the holders of BTC.

And who is holding the Tether that was exchanged for BTC? Probably Bitfinex, right? So, if Tether does turn out to be not backed by USD, they would be left holding worthless Tether. The BTC is already transferred out and gone.

I think this is much more realistic assessment on the risk to Bitcoin:

> Julian Hosp, co-founder of cryptocurrency payment service TenX, has listed tether as one of four big risks, with a 10 per cent likelihood of a crash this year which could pull the market down by 15 per cent.

So, 10% chance that Tether is a scam, and if so, it would hurt BTC (and probably other coins too) by 15%. That seems much more realistic to me.

> I would think that the orgs / people holding Tether would be the ones to suffer the most, not the holders of BTC

They will suffer, but the ~$2.4B in tether value is tiny compared to the value of BTC that it's been driving/propping up.

If tether dies BTC would only have to drop about 1% to take another $2B off the table. If it drops 10, 20, or 50% there will be blood.

> > Julian Hosp, co-founder of cryptocurrency payment service TenX, has listed tether as one of four big risks, with a 10 per cent likelihood of a crash this year which could pull the market down by 15 per cent. So, 10% chance that Tether is a scam, and if so, it would hurt BTC (and probably other coins too) by 15%. That seems much more realistic to me.

I'm not sure that I'd take the word of a crypto insider as gospel on the chances of a Tether crash... Unless he's seen the bank statements with the $2.4B USD in them, he doesn't have any authority there.

Given the thinness of every crypto market and the rampant wash trading, there's a real chance of something bigger than the magic the gathering exchange fiasco

Bitfinex is Tether, they are basically the same company. I wouldn’t worry about them getting screwed on this one, they are the ones doing the screwing.

Most exchanges shouldn’t be holding Tether because the exchange itself isn’t supposed to be on the other side of the trade. Every time you buy BTC with Tether you are buying it from someone else. So someone is holding Tether, and when they realize it’s not real money they will start dumping it.

If Tether is not legitimate, wouldn't Tether holders sell their Tether for BTC and other crypto assets which would increase the prices of crypto assets?

Does it matter if Tether is not backed by USD if none of the exchanges will let you trade fiat for Tether anyways? What if people just want to believe that its backed by USD?

What if Tether not being legitimate is already priced into BTC?

Wouldn't the supply of Tether need to be orders of magnitudes higher in order to be a systemic problem to BTC and other crypto assets? Its market capitalization isn't even 1% of the total crypto market.

> What if Tether not being legitimate is already priced into BTC?

Then that would be evident in the difference between USDT/BTC prices and USD/BTC prices and, would either also be directly reflected in the USDT/USD price or there'd be a huge arbitrage opportunity.

I think the main trouble is centered directly on Bitfinex, the exchange that mints Tether. According to Bitcointy's charts[0], Bitfinex trading volume over the past 30 days is roughly 1.59M BTC as of this post – that equates to over 30% of the BTC trading market. As I understand it, despite this massive volume Bitfinex will not convert to/issue any fiat in the form of withdrawals. This is why they created Tether (USDT) with 1:1 parity to USD. (I'm sure you know all of this, but I am much less knowledgable about modern crypto markets so I have to explain it to myself as I type – sorry if I am coming off as patronizing.)

If Tether is not legitimate, and the price suddenly crashes, I think the effects would be hard to predict. My assumption is that Bitfinex is not liquid enough in any coin to cover the losses of a crashed Tether as trust in their entire exchange is tied to that particular coin. But at this point I have no idea what would happen, I don't think anyone really does. If there was a run on Bitfinex, the world's largest BTC exchange, I think the effects would be pretty dramatic.

0. https://data.bitcoinity.org/markets/volume/30d?c=e&t=b

Bitfinex have been offering real USD withdrawals to bank accounts for a few months now, in theory at least, though there's a certain amount of shadiness surrounding them.

>If Tether is not legitimate, wouldn't Tether holders sell their Tether for BTC and other crypto assets which would increase the prices of crypto assets?

It would increase the price of BTC in tether. But the tether to dollar peg would fail. All the BTC stored in tether based exchanges would move to fiat based exhanges. If people decide to hold onto BTC because it is safer, it might cause a price increase for a short time.

But people who held tether, would likely be interested in selling BTC for real cash. The whole point of tether was to avoid the price instability of other coins.

Plus, if tether really has printed a billion dollars or more of fake dollars, the disappearnce of that will cause the price to drop over the long term.

And don't discount pure panic.

Market cap is a stupid measurement for currencies. Two billion of fake money could distort the "market cap" by hundreds of billions.

You also have to wonder if shady exchanges just decide they are better off stealing all the coins now. Because without tether, a lot of them won't survive.

Who is going to sell their BTC for Tethers once it becomes obvious that Tether is insolvent and the coins are worthless?

See more David Gerard in r/buttcoin and the Something Awful YOSPOS bitcoin thread, which is now basically free of anyone supporting any of this idiocy

can someone explain to me why USDT's price is related to BTC?

A number of exchanges don't actually trade $/BTC they trade USDT/BTC. This accounts for enough of the market that the apparent $/BTC price is perceived as largely being driven by the USDT/BTC price, such that a correction in $/USDT price would see a similar correction in $/BTC price.

(In theory, this could be wrong, and a correction in $/USDT price could instead be reflected in opposite motion in USDT/BTC price, but the theory is that USDT has largely served as a vehicle to inject a bunch of fake dollars into Bitcoin trading, artificially inflating the in-dollars price of BTC.)

Tetherreport.com, for example, suggests about half of BTC's price rises last year resulted directly from newly printed USDT being converted into BTC.

If you consider the other half of that price rise from <$1000 to $>10,000 in 2017 includes many inexperienced traders deciding to dive in after seeing big jumps in the BTC price over the course of the year, the overall contribution of Tether market manipulation to BTC's price change might be much greater than half of BTC's current price, of course

Who takes the other side of the trade? If someone is using a lot of USDT to buy Bitcoin, don't there have to be a lot of people who trade Bitcoin for USDT and then hold on to it?

On the other hand, seems like the Bitcoin price would rise due to people being skeptical about this newfangled Tether thing.

Well there's a notional $2.2bn worth of Tether that someone's holding on to, which is certainly enough to have got the price of a perceived buy-and-hold asset like BTC moving a lot.

If you can issue yourself newly minted Tether notionally worth a dollar and exchange your own BTC for it on your own exchange it's also dead easy to start pumping the price with wash trades (in theory you could do this by faking USD transactions on your exchange too, and some exchanges probably have done at various periods in the past, but printing USDT would allow you to actually increase your BTC holdings by buying from real traders at the same time, without having to worry about honouring the dollar payments)

How does a wash trade pump the price any differently than just using a large buy order?

Much easier to generate a pattern or even a sustained history of price rises and trading volume increases via fake trades than try to nudge the price up by spoofing buy orders. Of course, if you're printing your own dollars you can actually execute large buy orders as well, but if you can pump the price some more afterwards, then why not?

Large buy orders are normal and may execute leading to you buying stuff. Wash trades are fakery to make it look like money's being invested when it isn't.

Hmm. I get that except the part about "without having to worry about honouring the dollar payments." Wash trades aside, as soon as they buy Bitcoin from someone else, they have to give them something.

Or really, since it's all accounting entries in the exchange's database, what it means is a number in that trader's account needs to go up. If the Bitcoin price is high, this number has to go up a lot. And they'll expect to cash that out someday.

I don't see why Tether makes this any easier or harder? The basic security flaw is using an untrustworthy exchange.

> Well there's a notional $2.2bn worth of Tether that someone's holding on to, which is certainly enough to have got the price of a perceived buy-and-hold asset like BTC moving a lot.

This is what I don't get - who on Earth thinks that being long USDT is a good idea. Are they expecting the USD to dissapear? USDT to go to the moon?

I understand having to own USDT to get your money out of exchanges that don't deal with fiat... But you need a counterparty on the other side of the trade - someone who will give you perfectly good USD for USDT. How has that ecosystem managed to absorb $2.2bn?

Is anyone on Hacker News long USDT? If so, why?

Every time Bitcoin/Eth/etc is discussed, there's always people admitting to holding on to it because they expect it to increase in price. I don't agree with them, but that's speculation - you can still make money, even if you disagree with the fundamentals.

Why Tether? There's no speculative gains, and there's no fundamentals.

People are holding Tether and don't realize it. Most BTC/USD exchanges aren't BTC/USD exchanges, they're BTC/USDT exchanges, but that "T" is stuffed behind an asterisk. People that want to make profits don't realize they're not actually cashing out for $10k, they're cashing out for 10k USDT.

As soon as they wired USD to one of these exchanges, they were stuck holding USDT. They could take the BTC and run to another exchange like Kraken, but that has transaction fees associated with it and they don't want to lose ~10% of their investment.

That is amazing. So, the exchanges turn USD into USDT, and the reason they sucker people into that trade is because you can buy more BTC on them... Because BTC is the only way that you can get wealth out of the exchange.

So, USDT is not actually useful to anyone, except people trying to fleece crypto-traders. I love we are re-inventing all the best parasitic parts of the fiat financial ecosystem.

Well not really - the main reason exchanges use USDT rather than USD is so as to not to have to deal with KYC like regulations associated with holding USD.

The fees for cashing out via Kraken are way less than 10%.

Also checking just now bitcoin is trading for about usd 8100 on Kraken and usdt 8060 on Kucoin so there doesn't seem much problem at the moment there.

That is the key question, I think - especially since the people trading Bitcoin for USDT would've been doing so at prices which value USDT for slightly above face value. (That is, on all but a handful of occasions they could've got more by selling their Bitcoin for actual USD on Coinbase. The main exceptions were after the Tether hack and during this recent bout of negative news coverage, if I remember correctly.)

> A number of exchanges don't actually trade $/BTC they trade USDT/BTC

It's even worse: a number of exchanges use a pegged USDT/USD price of 1 and transparently comingle BTCUSDT and BTCUSD markets.

Once USD Bitcoin buyers will realise that other buyers are buying Bitcoin with (possibly) fake money (USDT), they will SELL and SELL

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