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Comment by graeme | Hacker News Reader

> But the Justice Department investigation is focused on conduct that occurred years ago, when Tether was in its more nascent stages. Specifically, federal prosecutors are scrutinizing whether Tether concealed from banks that transactions were linked to crypto, said three people with direct knowledge of the matter who asked not to be named because the probe is confidential.

Notably this is for events some time ago. Investigators haven’t gotten far enough ahead to formally file anything relating to the events of March 2020 to present, when Tether added ~$60 billion in tokens and claimed to be one of the largest commercial paper holders in the world.

(No one in the commercial paper sector has heard of them)

To be clear, by saying it is from some time ago I am not dismissing it. This is extremely serious for Tether.

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This thread speculates that Tether’s commercial paper may be in Chinese real estate, which is currently suffering huge losses…

https://twitter.com/TheLastBearSta1/status/14183024655571107...

Or more likely tether isn’t backed by anything at all. The auditor they hired quit before completing their audit. Seems legit to me.

These dudes are a complete scam but as long as BTC goes to the moon nobody seems to care.

lol

Given that you're not allowed to redeem tether for dollars I never quite understood why it mattered.

edit: Note the difference between "trade" for dollars and "redeem" for dollars

The whales can redeem, in minimum chunks of $100,000. Mostly these are exchanges. Thus the peg is supported by the reserves in a roundabout way.

If Tether can’t redeem, and trades break the peg, then ultimately either exchanges go insolves or anyone holding tether has to write off their holdings. Or both.

> The whales can redeem

Show me the burns.

I think they only had two big ones. One was around the time they had no banking, the other was when Phil Potter left.

My point wasn’t that the redemptions routinely happen. My point was that it does matter if no one can redeem, because eventually that will cause the peg to break and USDT to become worthless.

I wasn’t arguing redemptions will be honoured en masse.

Though interestingly Tether supply has gone very slightly down since June.

They can redeem, but not necessarily in dollars. The terms of service specifically give Tether the option of redeeming in basically whatever they want.

Also, I say "they can", but we have zero proof of this ever happening.

Indeed, people have posted bounties for anyone willing to come forth with evidence that they have redeemed Tether for USD.

No-one has claimed them (and, IIRC, some are in the order of $5K USD, so not too trivial).

Can they though?

(1) US persons and entities cannot redeem, period, so that leaves out all of Coinbase doesn't it? [edit] originally I mentioned FTX but of course they're based on Antigua and Barbuda and Hong Kong. [1 - Section 3/ and 3/3].

(2) Only individuals Tether deems as customers at their sole discretion are permitted to redeem. [1 - Section 9/ - "Tether in its absolute and sole discretion may determine that you are a customer of TIL or TLTD"]

(3) Tether may delay redemptions arbitrarily at their sole discretion. [1 - Section 3/]

(4) Tether may substitute whatever is in their reserves in lieu of cash at their sole discretion, and themselves admit to only having 3% of the cash needed to satisfy the "obligations" (and I air-quote say that because ... [1 - Section 3/]

(5) Holding tether tokens is not a claim to any backing assets. Any redemptions are strictly goodwill.

(6) Tether has identified their absconding with all the funds as a risk in their white paper [2 page 10].

This is all on their website. [1] Roughly speaking nobody has tried to redeem any - for obvious reasons. They know they can't.

To your point it's the largest exchanges with their hands in this particular cookie jar, and their fates are entwined. The exchanges are holding the bags, Binance alone has 17,000,000,000 USDT. They won't do anything to potentially upset the peg, and are incentivized to do whatever they can to maintain it. Otherwise, to your point, RIP.

[1] tether.to/legal

[2] https://tether.to/wp-content/uploads/2016/06/TetherWhitePape...

> Roughly speaking nobody has tried to redeem any - for obvious reasons. They know they can't.

Usually you at least come up with FUD that sounds reasonable to an outsider.

Obviously many people (some that I know personally) have "redeemed" USDT for a USD wire via Tether. Tether may be fraudulent but it wouldn't have held up until now without some aspect of credibility. There are many 8 figures+ redemptions going on, sometimes multiple times a day.

> Obviously many people (some that I know personally) have "redeemed" USDT for a USD wire from Tether. Tether may be fraudulent but it wouldn't have held up until now without some aspect of credibility. There are many 8 figures+ redemptions going on, sometimes multiple times a day.

I have not seen a single piece of evidence of this, and I have not seen any burns to line up with this. If you'd like to provide some I'll happily retract my statement.

For what it's worth 8 figures is small potatoes, Bitfinex literally grabbed 800M worth of their reserves one time, so we know they have some money in the piggy bank. They have some cash, but way, way, way less than they would require for a semblance of actual legitimacy.

Otherwise, everything I posted is directly from their legal page and whitepaper.

Bitfinex was able to do this because they are owned by the same individuals as the people who own teather.

800m is still a drop in the bucket compared to the 64billion issued tether.

Won’t we expect to see token burns to match redemption? That should be easy to point to on the blockchain. Such a low cost way to just blow away all FUD.

What bank did the wires come from?

One reason that roughly nobody tries to redeem, other than the operational issues, opportunity cost of waiting for bank wires, need for a non-US entity, etc. is that Tether is usually trading at a premium to $1. So when there's profit to be had, it's usually by creating Tethers, not redeeming them.

what are you talking about? you absolutely can redeem USDT for dollars...

> Or more likely tether isn’t backed by anything at all.

In order to believe this, you have to believe that Leticia James got the data from the NYAG subpoenas, and then ignored the fact that Tether has no backing.

So no, not "more likely".

Did you read the settlement? [1]

> New York Attorney General Letitia James’ office says it found that Tether sometimes held no reserves to back its cryptocurrency’s dollar peg. It said that, from mid-2017, the company had no access to banking and misled clients about liquidity issues. [2]

It also depends on what you believe the role of that settlement was. Some speculated it was a trial balloon for a federal suit.

[1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

[2] https://www.cnbc.com/2021/02/23/tether-bitfinex-reach-settle...

> Did you read the settlement?

Yes. It says that tether held securities/receivables denominated in dollars rather than actual dollars, despite Tether's claim that they held dollars.

I could not find anywhere that the settlement claimed "no reserves", despite CNBC's quote. [edit: It came out of the AG press release, not the settlement. As near as I can tell the settlement makes no representation that tether is unbacked, only that it is unbacked directly by US dollars, which was the Tether advertising up until 2017.]

They lost all access to banking meaning that there was no physical way for them to create redeem Tethers. That makes it de facto un-backed. This is addressed in 14/ through 18/. They lost access to banking, and continued to issue Tethers.

> 18/ Because Tether did not have a significant bank relationship in its name from at least March 2017 until September 15, 2017, it could not directly process any fiat deposits for purchases of Tethers by customers on either the Tether website or via the Bitfinex trading platform.

And yet in that period they issued some 400M tethers.

> That makes it de facto un-backed.

It makes them un-backed by US Dollars in a bank account.

It does not make them un-backed by securities denominated in US dollars, which was my point. It's also likely why she never pursued a fraud case.

That was a settlement for fraud under the Martin act. Fraud was the charge settled.

Fine, a criminal fraud case. Nobody went to jail.

do you have any reasonable justification to move the goalposts like that?

The standard of evidence is very different between civil cases (preponderance of the evidence) and criminal cases (beyond a reasonable doubt).

Is the distinction meaningful in the course of reaching a settlement? Both parties agree on the facts at hand. I suppose you could make that case were the judge to make the determination on the basis of evidence, but the Tether folks signed the agreement of their own volition with the NYAG. At that point the evidence shouldn't be in question - and hence the standard isn't in question - simply their admission, no? Ok, not an admission, maybe an acquiescence.

I would say the evidence in a settlement or plea deal would be of equivalent quality whether a criminal or civil trial.

Further, I'd suspect the majority of folks who accept plea deals in criminal matters don't end up in prison either.

LOL

>>They lost all access to banking meaning that there was no physical way for them to create redeem Tethers.

Temporarily being unable to transfer USD to fulfill redemption requests is not the same thing as being unbacked. Having USD-denonimated commercial paper backing the tether is still having something of value backing it, which is in a different universe from tether being unbacked.

People need to be more careful to not make inflammatory accusations, that are not substantiated, about an operation. This is true even if there are numerous red flags associated with the operation.

They were also unable to receive deposits, and issued Tethers anyways. Ones they claimed on their website for years were backed 1:1 with dollars in a bank account they controlled. This is the substantiated fraud outlined in the settlement.

The fraud was they said, on their website, for years, that they had 1 USD in their bank accounts as liquid currency for every USDT outstanding. They unequivocally did not - at numerous times.

> “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system." - Letita James, NYAG.

Their new wording about 'reserves' was not in place at the time. They changed the wording in March of 2019. The wording at the time was:

> "Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USDT is always equivalent to 1 USD."

This was also the wording at the time Bitfinex grabbed $800M out of their bank account and left them an IOU.

That was a lie, and it's not my claim, it's Letitia James'

Finally re: commercial paper, I haven't seen a shred of evidence they own a single scrap of it. In fact the FT seems to be unable to find anyone else who has seen evidence of it either, despite their being ostensibly the 6th or 7th largest holder of commercial paper in the world sandwiched up between Vanguard and JP Morgan. Could they be? I guess. On a scale of 1 to 10 how likely do I think that is? About a zero.

>>This is the substantiated fraud outlined in the settlement.

That there is evidence of fraud does not justify making an unsubstantiated allegation that the tether was unbacked. No reasonable reading of "unbacked" would find it consistent with the tether being backed by USD-denominated commercial paper as opposed to USD.

I am not here to defend Tether, just careless language used when criticizing a party.

>>Finally re: commercial paper, I haven't seen a shred of evidence they own a single scrap of it.

That's an entirely fair statement. Like I said, I am not here to defend Tether. If anything, being careless with criticisms undermines the credibility of critics, and makes it harder for their salient arguments to be heard. So if you do have a good case against Tether, I'd suggest sticking only to the facts so that the case gets a fair shake.

For the record I do see what you're saying about my choice of language. I personally see my reading in line with that of CNBC and in line with the wording in the settlement - although I can certainly choose to hold myself to a higher or at the very least a more conservative standard. Thanks for keeping the conversation honest and grounded :) and thanks for clarifying your position.

My pleasure and thank you for keeping an open mind and showing civility.

Most bank notes aren't "backed by anything". Reserve requirements are now zero for banks.

Source: https://www.federalreserve.gov/monetarypolicy/reservereq.htm

Government is something. They can tax and print money.

You have to pay the taxman on April 15. He’s going to want US dollars. If you don’t pay up, the men with guns come.

That’s “backing” more real than shiny yellow metal.

So one could say the US dollar is backed by violence? Also, you didn't address reserve requirements.

The Tether attestation earlier this year is by my fund's auditor, and they seem in my experience to be sufficiently diligent.

>These dudes are a complete scam but as long as BTC goes to the moon nobody seems to care.

Chuckles... I'm in danger.

LOL Evergrande is a ticking time bomb. Assets frozen by a Chinese bank just a week ago, and before that they were peddling CP in the range of 12% annual... It's about to explode.

>This thread speculates that Tether’s commercial paper may be in Chinese real estate

The simpler answer is Tether's commercial paper was issued by Bitfinex, or some shell company owned by Bitfinex.

IMO this feels more like they know they can get them on these crimes, easily, without involving other countries. Lying to banks is pretty trivial to nail them to the wall for. "Hey I'm a real estate company" - "sir these look like crypto deposits?" - "no, I don't think so." That kind of thing.

It's like getting Capone on tax evasion.

Once they've got them behind bars they can start untangling the clusterf*ck.

Thing is untangling the clusterf*ck is likely a multinational, mutli-party, multi-year effort but lying to Wells should be cut and dried. Remember it took 17 countries cooperating to unwind Liberty Reserve and that was a fraction of the scale and audacity. This will allow them to end it the fastest way possible.

Update. Tether has replied here. This site is down, but this tweet has it: https://mobile.twitter.com/bitcoinsguide/status/141969423526...

URL for if their site comes back online: https://tether.to/tether-responds-to-bloomberg-article/

"Open dialogue with law enforcement agencies" is a pretty funny way of describing that relationship.

Yes I've had similar such dialogues with law enforcement when caught speeding.

I wonder if this is a situation where there is reason to be concerned about this given event, but it's also an easy path for an investigation to proceed / check if it has happened even further?

Pull this stunt once, maybe twice, more?

How did you survey the commercial paper sector?

This has been widely reported, see eg Matt Levine's recent take: https://www.bloomberg.com/opinion/articles/2021-07-22/privat...

This is great:

"“Given our portfolio composition in commercial paper, we believe that it is quite important to respect the privacy of the banking partners that we work with.” That’s not a thing! That’s not a thing at all! Every money-market fund just lists all of its holdings, by size and issuer and CUSIP! Tether has broken new ground in the concept of commercial-paper privacy rights!"

...

"Tether has traded between $0.9996 and $1.0009 over the last seven days, including during yesterday’s interview. That’s a pretty tight range given that, you know, anyone can watch the interview."

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