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Comment by elliekelly | Hacker News Reader

> DeversiFi — a non-custodial exchange that spun out of Bitfinex in 2019 — said the transaction originated via its platform, which offers access to DeFi protocols "without paying gas fees." These transaction fees, it turns out, are paid out through one of Bitfinex's main wallets, which ended up footing the bill.

Am I understanding correctly that Bitfinex is subsidizing DeversiFi transactions? How does this work? And why does Bitfinex do this?

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If the money laundering theories in this thread are correct, then could be related to that.

But also Biftinex/Tether benefit if people lock up their USDT into earning schemes rather than trying to redeem them for fiat. It reduces withdrawal pressure and allows Tether to keep the game going.

(This is assuming the common theories that Tether is unbacked/poorly backed are true. In a ponzi, managing withdrawals is paramount, and all the crypto high yield earning on stablecoins provides a way to discourage withdrawals)

I haven’t thought through the trading aspect though or why that would be subsidized. I guess it does soak up USDT as well.

Edit: a couple other facts came forward.

Deversifi was originally called Ethfinex, a Bitfinex spinoff

The miner that got the fee is owned by Christopher Harborne, Bitfinex shareholder: https://protos.com/bitfinex-tether-digfinex-shareholder-harb...

> The miner that got the fee is owned by Christopher Harborne, Bitfinex shareholder

Oddly enough I looked at DiversiFi’s twitter[1] right after reading your update and they re-tweeted[2] someone mentioning DiversiFi’s founder, Will Harborne. Are they related?

[1]https://mobile.twitter.com/deversifi

[2]https://twitter.com/dltfanboy/status/1442429899235479555?s=2...

Looks like a strong probably. This person on twitter says the linked issue of Private Eye says they are father-son:

https://mobile.twitter.com/Turloughc/status/1442705583979831...

I misinterpreted a tweet. Chris Harborne did not own the miner. His son (I think), Will Harborne, runs Deversifi, formerly Ethfinex.

Not at all red flags in this little thread. I work in a bank, my heart is skipping a few beats just reading this ahah

Sorry. How do you know the miner is owned by Christopher Harborne?

They don't allow redemption of tether for dollars. There is no withdrawal pressure, right?

You can't redeem tether for dollars from Tether themselves, yes, but when you swap tether for dollars at a third party exchange then Tether has to pump some dollars into the trade to support the peg.

Do they? Anyone who believes in the peg could provide that liquidity.

Reduces pressure to withdraw USDT for fiat on exchanges. Tether has to support those pegs or they break. Same difference

Do they? Genuine question. How much does bitfinex support the price at $1 on exchanges?

I’m not sure if they do, but if there was sell pressure they would have to or peg would break. Possible there is not sufficient sell pressure at moment.

When you sell USDT for USD on exchange, someone is providing that dollar. If no private market participant willing, then peg slips. You would expect fiat withdrawals in downturns and peg slippage absent support.

>How much does bitfinex support the price at $1 on exchanges?

An open question. Several attorneys general have ongoing investigations regarding the tether peg.

A really grim and cynical person might make the case that exchanges want something like tether to exist, and are incentivized to fudge the public-facing numbers regarding tether trade volume and its order book.

I think what you're saying here is that if there was a run on tether, bitfinex might stop supporting it. And sure, I think that's probably true. But I'm asking how much of a role do they play in actively supporting it day to day. Are they the principle buyer of the currency when people want to liquidate? Or is it other people?

If you asked Bernie Madoff on December 10th 2008 how well his investment fund was doing, he would say "Excellent, thank you."

The set of people who have inside information on how tether functions and the set of people who would actually tell the truth about it are entirely disjoint.

Ask the Bank of England about their desire to maintain Breton Woods

Kraken.com smelled the bad fish years ago. They made tether a normal exchange rate. If there is a "rush out of the door". The value would just drop :)

Theoretically, what is stopping BitFinex from supporting the peg predominately on BitFinex and letting arbitrage traders take care of the rest?

Who's "they" here? Remember, Bitfinex == Tether

Well, they officially don't guarantee that they will redeem Tethers, but in practice they do, at least for the time being. So any withdrawal pressure would be de facto rather than de jure

In practice they do?

Last time I checked, there were significant "limitations" (to be charitable... that you could only redeem holdings above $100K, only if you were a non-US person, and subject to 90-180 day holding periods.

People have also offered bounties for proof of people having redeemed Tether, and those bounties are still outstanding.

My suspicion is that if anyone has actually redeemed Tether, they are either institutional (and Bitfinex doesn't want to piss them off) or an insider/"friend".

Institutions are happy to provide arbitrage on tether -> any other crypto since they can redeem. Sure there's an extra step involved, but there's essentially no difference between selling to an institution for $1 of crypto and redeeming for $1.

The founders of CMS holdings talk about redeeming tether all the time. It's literally just the same as redeeming USDC or any other stable coin. And before you say they're insiders, Dan (one of the founders) used to work with the creators of USDC.

So they're an institutional investor. Like I said.

An institutional investor with ties to their biggest competitor, bit different.

Yes and no.

Yes, USDC and USDT are different "securities".

But that's like saying that in the regular market that because Charles Schwab and Fidelity are competitors, they don't have a whole lot of cooperation - they do, because at that scale (and with the amount of arbitrage and speculation in crypto), you need to cooperate with your competitors, or you will be iced out.

Note that DeversiFi uses StarkWare's StarkEx Ethereum scaling technology, and does so in off-chain data mode.

This means that Ethereum transaction fees for DeversiFi's end-users are extremely small because they use almost no marginal L1 Ethereum gas.

So, Bitfinex subsidizing DeversiFi's users' gas fees is not as expensive as it may sound.

In this case, the $23.7M fee was likely in error and unlikely to be money laundering because the fee was paid to a random miner.

If you're interested in Ethereum's state-of-the-art scaling technologies https://starkware.co

(This is not meant to be a critique of you, just a rant about a particular strain of blockchain evangelism)

It never ceases to amaze me that blockchain aficionados on one hand praise the supposedly revolutionary transparency of the blockchain, while on the other hand extolling that the "state of the art" concept of a ledger that isn't on the blockchain, is going to be what finally makes crypto "scale" and become viable for the masses.

This is like saying that anything not directly querying the root DNS nodes is not really using DNS. DNS responses are cached from said DNS nodes, and served by the myriad of DNS servers.

In a similar sense, blockchains with layer 2 scaling, result in all address balances being stored in the central blockchain, while people can transact with each other directly and instantly in a zero-trust, cryptographically secure manner. When either party in the transaction is "done", one of the parties will commit the address balances to the blockchain for the world to see. (The only model that makes sense, and actually allows for scaling, is a hub-and-spoke model, where everyone connects to a "node", much like with DNS, and lets the node handle the routing. This way users could keep accounts open while transacting with many different people / businesses.)

StarkEx is a blockchain, it’s just a blockchain that gets its security from another blockchain and has configurations for how to handle data availability.

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