If it wasn't obvious from the get go that Tether was a scam, what more do you need.
Slightly less obvious is the fact that Tether and other "Stable coins" are the only "stability" that exists in the crypto marketplace. More than half of all crypto trades involve stable coins.
And exchanges play along (wittingly or not) with the ruse for their own benefit.
So if Tether is a scam, so is bitcoin and the entire crypto marketplace.
Sure, just like they did with AAA-rated mortgage CDOs before the https://en.wikipedia.org/wiki/Subprime_mortgage_crisis.
"The bankers say it's fine" is not the comforting statement you're making it out to be.
https://liquidity-provider.com/news/coinbase-has-dropped-the...
https://ag.ny.gov/press-release/2021/attorney-general-james-...
> Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’
> On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
An actual audit looks at more than a bank balance snapshot.
But they could not release it. Because it was in Mandarin!
You can't make this shit up if you tried.
The interview with a Deltec VP after all that also revealed that Deltec is heavily intertwined. He said "we know they're fully backed because we can see the issuance of Tethers in the internal systems and the corresponding deposits".
Like, interesting, your bank has insights into your internal systems? Curious.
They are absolutely running afoul of banking regulations but that's not exactly catastrophic for the whole market. Unless there's a bank run the only thing Tether actually needs to do is keep the trading value of their coin near $1.
Lebanon’s central bank was found to be engaging in funny business. Its currency crashed. Tether is akin to the central bank of USDT, not another player in the system.
Tether is a scam on a whole other level than this
We’ve seen bank runs before. We’ve seen failed currencies. These aren’t unprecedented events.
With that said, the old Buffett quote “it’s only when the tide goes out that you see who’s been swimming naked” has never been more apt than to this situation.
To take your hypothetical example, you’re correct that the user in question is able to trade on their token to someone else for another asset quickly - but as the article states, issuances outstrip redemptions by 20:1.
That means almost all of these tokens are still in circulation. Someone is on the hook for those losses.
The thing is, who’s liable? If the whole marketplace is a fugazi then it’s probably up to the exchanges to organise haircuts as they deem appropriate.
That isn’t even the real problem though. What’s the value of [COIN] if 95% of the market cap is suddenly revealed to be fake money?
I mean, sure, you can assume everyone will just shrug that off and hold what they have while you sell, but it seems really unlikely.
tldr; this information suggests that most of the value in most of cryptocurrency tokens does not and has never existed.
> Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.
What is actually bad about Tether that doesn't apply to USD and the current largely functional banking system?
Like rake them over the coals for lying about having assets they didn't but if Tether had been from the start open about holding only a small fraction in cash would it be a problem?
Sure. If the Nigerian prince was actually a Nigerian prince and actually gave me $100M, that changes the scenario substantially.
They acquired their dominant position via fraud. Their website claimed audits they never completed. They issued bank attestations showing funds they didn't have legal rights to; transferred from Bitfinex in the day before, and then back out the day after. To this day, there's no way of knowing if that fraud continues; they've yet to complete an audit or provide the transparency promised for years.
You answered your own question. There are no
1. regulations
2. regulators
3. capital requirements
4. backing insurance guaranteesNo.
They still, to this day, have not completed one of their promised audits. As such, we don't know what their current state is, and they have a track record of lying about it. There are rumblings that much of their current holdings are in commercial paper that aren't worth what they're assessed as, because Tether values them at the purchase price rather than the current mark-to-market value.
Even if they're solvent now, getting there via fraud is bad.
> ceejayoz 4 hours ago [–]
> Yup. https://tether.to/legal/
>> Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.
To me, that disclaimer sounds like they are trying to make a scam legal later when a rug is pulled out from underneath everyone and a trap is sprung like darknet drug bazars that shutdown and take everyone's assets once there was enough money on the platform.
> They are absolutely running afoul of banking regulations
> the only thing Tether actually needs to do is keep the trading value of their coin near $1.
How do you propose Tether do that if they don't have financial backing to create a watermark below which the value won't fall? Increase the scam?
At any given moment you just need the ability to pay out the people who come to you and ask which is already teeny tiny (as evident by banks needing less than 5% cash reserves of deposits) and made even smaller since people don't typically cash Tether out directly and do it at exchanges.
> as evident by banks needing less than 5% cash reserves of deposits
You may not be aware, but when you deposit money into a bank, deposits are insured, so it doesn't matter if they have 1% on hand. You will eventually get your deposit back. That is not even close to what Tether is.
1. Retail/Institutional USD/other --> Tether --> BTC
2. {over-minted/under-reserved Tether} --> BTC
I dont see 1 as a problem, as Tether is just a conduit for the actual transaction. I can see the issue in 2, but is that an issue any longer given the current scrutiny?
Which is laughable.
Apple, Microsoft, Google, Verizon Communications and Pfizer COMBINED hold $400B in reserves.
Tether can barely say who they bank with.
An IOU is a promise to pay --- not the same as being paid in hard currency.
"Commercial paper" is a loan, an IOU --- not hard currency/assets.
You can't have your dollars and loan them to others too. If I give Donald Trump an unsecured loan for $1000, I can't "legally" claim to still hold the $1000 in cash.
The idea that an unsecured IOU is without risk and is worth just as much as dollars in hand is pure fantasy. Yet all the exchanges collectively peg USDT at $1.
https://www.wsj.com/articles/tether-says-massive-reserves-he...
That's what I suspect and I'll be shorting more USDT today on AAVE.
Sorry, I don't see how this can work.
USDT is a fraud. Exchanges are active participants in the fraud by pegging USDT at $1.
The only way your short can pay off is if the exchanges stop the "pegging" game. When the pegging stops, the exchanges will likely fold up and disappear.
Who will you collect from for your short?
Deposit ETH on AAVE (this is a DeFi DAPP)
Use this collateral to borrow USDT (~4% APY at current rates)
Trade that USDT for ETH.
If the peg breaks for USDT than I can get USDT for very cheap to pay back the loan and unlock my collateral.
If it doesn't break than I owe ~4% APY for the period that I shorted.
One of the really amazing things about DeFi is that it allows counter-party free financial operations.
Of course that ETH will be worth much less, but long term I am optimistic about ETH.
Short answer --- no. They can just print more tethers --- which exchanges and crypto-fools will readily accept as being worth $1 USD.
You're making a common mistake --- you're assuming that the crypto market is actually a "free market" similar to the regulated stock and currency markets. You're assuming it is free of the inside manipulation that keeps the price of USDT artificially pegged at $1 USD no matter what.
Not a fan of Tether, but I can't understand what your argument is here.
In what way does the fact that a huge chunk of Tether was sold to a liquidity provider and an exchange point to a scam?
Tether is outside of the control of any goverment. It's just another faceless shell company.
I believe you have it the wrong way around.
The Fed's powers come from Congressional legislation, and the Governors are Senate confirmed. They have substantial power over the Fed.
Not saying there’s nothing nefarious occurring, but it also doesn’t scream scam. The whole point of Tether is to supply liquidity to the crypto market. So is it surprising firms specializing in it utilize an outsized share??
The thing is tether is pegged. It’s not like if you buy a million dollars worth you’ll get rich. In fact that money is now tied up in an asset that doesn’t grow and will slowly shrink due to inflation.
What would be much more problematic is tether being used by large criminal organizations to help shelter or launder money, but I haven’t yet seen evidence of that.
I think the point you're missing here is that there is no logical basis for the "pegging".
It's pegged because crypto exchanges play along with the pegging fantasy.
Banks are worse anyway, all banks function on fractional reserve, but we don’t immediately call them scams.
Edit: Haha.. asking legit question for data because I’m curious gets downvoted. Lol. I should know to avoid the crypto discussions here. Lots of emotion and not much useful information getting shared
I would say that’s definitely problematic. Still wouldn’t call it a scam. That’d be like calling Lehman Brothers a scam.
A scam is pretending something is true when it clearly is not --- for financial gain.
The scam here is the fact that the exchanges cooperate to keep the price of USDT pegged at $1 USD --- even after Tether itself has admitted they do NOT have $1 USD for each USDT minted and they are NOT obligated to redeem 1 USDT for $1 USD.
The big miss with tether everyone makes is that it’s not an investment. It’s a tool to support liquidity. The average investor uses it then converts it, buys or sells.
The companies holding it are the ones providing liquidity to investors. So if anyone is getting scammed it’s these large companies offering liquidity services.
That 1 USDT is worth $1 USD.
The entire crypto market is a house of cards built around this fantasy.
Whenever a crypto company uses the word "liquidity" that's a red flag that it's likely some kind of a scam. It's the same way that pyramid schemes call themselves "multi-level marketing" companies or say that they are "sales driven".
Be careful friend.
That’s really not the case. If you deal with investments on any real scale the utility of liquidity becomes very clear.
If for any reason I decide I need to move a large sum of money (let’s say 100k), and god forbid I need to do that internationally, you’re going to have to wait. (too bad if it’s the weekend) Meaning your cash isn’t as liquid as it could be.
Tether and other stable coins primarily make moving sums of money within minutes internationally possible. If I see an investment opportunity and want to act, waiting on a wire might be a no go.
The vast majority of Tether and stable coin use is for that. People holding tether as some kind of investment is practically nil (it’s a horrible horrible investment even if it’s backing was physical dollar bills in a vault)
The reason services like Nexo provide 12% interest is not to hold, it’s to facilitate trade and moving in and out. If I want to have cash available for trading, moving it as USD is very hard. Moving it as stable coin is simply and allows trading quickly. The 12% is a bonus/hedge so you don’t feel like you have to immediately convert your liquid positions (dealing with taxes etc). With the interest, one can keep some stable coin on hand for trading and minimize losses. With Nexo, people are also taking out collateral loans. If you take that as USD, then tour waiting on banks to use it. Take it as stable coin you can use it immediately. The 12% also offsets the loan interest so you don’t need to pay it back immediately.
So maybe tether’s strength as a stable coin can be scrutinized, it could be more arable with better backing… but again the concept isn’t a scam, and certainly nothing to do with pyramid schemes etc.
Most people who talk about tether as a scam (or other stable coins) have no experience in using it.
You can't just declare yourself a bank and turn a million dollars into ten million dollars, say.
US (and many other) Banks have capital requirements, regulations, regulators, and insurance that covers the deposits!
Reserve requirements were lowered to zero percent in 2020 to ease lending during the pandemic:
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
Also a good read on the implications… basically banks can keep loaning out to infinity.. a situation that doesn’t seem a whole lot better than tether in my opinion:
https://www.forbes.com/sites/bobhaber/2020/03/16/the-fed-fir...
And perhaps you have noticed inflation starting to creep up.. this and QE5 very likely a source
https://www.usinflationcalculator.com/inflation/current-infl...
Nothing has yet shown that is a problem or that’s not being done.
Go deposit 1 million in a bank, and then ask for it in cash the next day. You won’t get it.
If there is a run on Tether tomorrow it will collapse. You won’t get your money. Assets will need to be liquidated, and some of them might be junk.
Here’s a discussion from may, “Tether says its reserves are backed by cash to the tune of 2.9%”
But, you will get it. Try that with Tether, and you might just get laughed at. They would have already put your million dollars to other uses outside of being a deposit for you.
https://www.linkedin.com/pulse/when-i-tried-withdraw-20000-m...
https://www.cleveland.com/business/2012/04/man_who_wants_to_...
https://grantcardonetv.com/ever-withdraw-1000000-in-cash-fro...
https://finance.zacks.com/federal-banking-rules-withdrawing-...