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Comment by randomopining | Hacker News Reader

How do you invest in Tether? I thought it was just like a dollar peg for btc for inter-exchange operations.

In theory, if you give Tether some dollars, they will store those dollars in reserve and issue you new Tethers. In practice, there is no evidence that any part of that happens aside from the minting new tethers part. Most likely there is some amount of money and/or crypto held in reserve, but despite allegedly having several tens of billions of dollars in reserve, they refuse to do an audit.

I think the currently most plausible answer for how Tether works is: 1 )Tether issues tokens to OTC exchanges in exchange for an IOU 2) The exchange buys BTC with it 3) The exchange sells that bitcoin for dollars, and pays off that IOU. This almost certainly wont fly with regulators, and has many ways it could explode, hence the investigations.

What's the best guess on where the actual cash sits in the meantime, or long term?

Impossible to know. 30 billion Tethers ago, it was at 74% according to a filing from Tether with the New York Attorney General.

In my opinion, best case scenario: Tether is buying Bitcoin and other assets with Tether, and has been able to sell them at a profit as prices rise, leaving their reserves at or above 100%. This sort of initially unbacked issuance may be a crime in and of itself, but its possible Tether holders would have a legitimate claim on any assets if Tether fails or is shutdown and wouldnt take a loss (though it could take years to get back their money).

Worst case scenario: its entirely, or almost entirely fraudulent, and Tether insiders have embezzled and spent as much of Tethers available hard currency as they can.

Your best case scenario is worse than what most people in the industry consider the truth..

Or rather, what most people in the industry pretend doesn't exist, because they know it's a systemic risk and everyone's in way too deep at this point.

Look, it's easy, just phone up Paolo and get us an audit, you seem to imply you're connected.

Then we'll move on! I'll eat my hat and apologize to everyone I've ever told Tether is anything other than the most legitimate entity in the entire world. I'll borrow from the r/wsb folks and tattoo a Tether logo on my backside, even.

Not sure this aged like you think it would:

> Or rather, what most people in the industry pretend doesn't exist, because they know it's a systemic risk and everyone's in way too deep at this point.

Are you referring to the NYAG here?

Consider their T&Cs are very clear - owning USDT gives you no rights or claims on their reserves. They can also arbitrarily, and indefinitely, delay/postpone your withdrawal request. They can also substitute whatever they want from their assets to satisfy your claim. They can also just tell you to go pound sand.

Owning a USDT gives you as much right to cash from the Tether treasury as owning a Chuck-E-Cheese token gives you right to the coins in the cash drawer at your local fun-a-torium.

Why would they sell their bitcoin? I think that the most plausible explanation is that they're almost completely backed with bitcoin. In a bull trend, they're able to keep issuing more Tether because their collateral value increases. They can buy unlimited amount of bitcoin as long as the bull trend continues. In a down trend, they'll liquidate/sell the bitcoin.

> most plausible explanation is that they're almost completely backed with bitcoin.

Even if that's true it would be a direct contradiction to what they promise to their customers, that Tether is fully backed by USD. Any angry customer can then sue them for fraud.

They don't promise that. From their website: "Every Tether token is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”)."

That's a recent change, and come about since they've been taken to court.

They originally claimed that every USDT issued was backed by cold hard USD cash. No 'cash equivalents', no 'other assets', no 'loans'. The wayback machine can give you a historical view on their pages and their claims.

Bank accounts in Shell companies around the world. They are pretty good at this game, but it's pretty risky one.

That's how CryptoCapital operated after all. It's a pretty standard approach to money laundering.

> but despite allegedly having several tens of billions of dollars in reserve, they refuse to do an audit.

They don't refuse this, instead they fail to find an auditor that people actually trust that wants to work on a big crypto project. They are very open about this.

The big problem about Tether is the amount of FUD and misinformation going around as common knowledge.

> I think the currently most plausible answer for how Tether works is

As someone who deals with Tether as well as all the big exchanges that run Tether markets, this is about as real as Alice in wonderland.

> They don't refuse this, instead they fail to find an auditor that people actually trust that wants to work on a big crypto project. They are very open about this.

Claiming you don’t trust any auditors so you can’t do an audit is certainly one way of refusing an audit.

> They don't refuse this, instead they fail to find an auditor that people actually trust that wants to work on a big crypto project. They are very open about this.

No no, let's not rewrite history.

Tether hired Friedman LLP to audit them in ~2017/2018. Friedman literally walked out of the audit [1] because, and I assume this is true, it was just too squeaky clean to bother finishing.

Friedman claims to be a specialist in this area [2], and I believe they're actually involved with GBTC [3].

In retrospect it makes sense Friedman ran about as fast as they could. The New York AG lawsuit indicates at the time, Tether knew they were only 74% backed by assets. Boy, that'll make it tough to pass an audit when your website says you're actually backed 1:1 with actual humanly usable physical dollars.

Remember, Bitfinex banked with a money launderer, CryptoCapital, and had $850 million dollars seized by authorities, so they just reached into the Tether kitty to plug the hole. [4] At the time Bitfinex and Tether were of course denying they even had any relationship at all - let alone a "friends with mutually accessible bank accounts" relationship - but we found out thanks to the Paradise papers. [5]

Tether is "very open" about absolutely nothing. Claiming otherwise is the biggest misleading statement in this entire thread, intentional or not.

Let's stick to the facts, Mike.

[1] https://www.coindesk.com/tether-confirms-relationship-audito...

[2] https://www.friedmanllp.com/industries/digital-currency

[3] https://www.friedmanllp.com/insights/congratulations-to-gray...

[4] https://www.bloomberg.com/news/articles/2019-04-30/tether-sa...

[5] https://www.icij.org/investigations/paradise-papers/paradise...

> Tether hired Friedman LLP to audit them in ~2017/2018. Friedman literally walked out of the audit [1] because, and I assume this is true, it was just too squeaky clean to bother finishing.

Reading the source you linked it looks like tether's main criticism of Friedman is that they were 'too detailed'.

God forbid that an auditor actually wants to get into the detail rather than just taking Tether's word for everything.

Circle/USDC has ~$7B of coins issued and makes available monthly attestations of assets (an attestation isn't an audit, but its better than nothing). Tether claiming that they cant get an audit because of the haters on twitter is laughable.

The claims I have seen from you and from e.g. Sam Trabucco amount to basically "Tether is legit because we create and redeem tethers regularly." This is not real evidence, in the same way that "Bernard L. Madoff Investment Securities LLC is legit because I deposit and withdraw funds regularly" is not real evidence.

I am guessing people park their money in tether during periods of instability without needing to pay a broker to transfer into fiat. It looks like a place for temporarily hedging against crypto generally.

They don't invest in tether, it's just a means of moving money between exchanges like you say or temporary hold between trades.

Kraken will sell you some if you like.

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