I don't understand why this is something they can settle rather than something that gets them completely shut down.
All the CFTC can do is levy a fine, so both parties are fairly indifferent as to whether that money comes from a judgement or from a settlement. There could be some minor benefit of not having to admit any "wrongdoing" for press release purposes, but overall it makes no difference.
Fraud is a crime.
CFTC does not prosecute crimes. CFTC could make a referral to DoJ, but where a regulatory agency can both engage in civil enforcement actions and make criminal referrals, even when it does both in the same case, the civil action will usually be filed and often resolved before any visible action (indictment, etc.) on the criminal referral.
So, the resolution of the civil case doesn’t mean anything with regard to any potential criminal charges.
Per the CFTC's Enforcement website, they can bring civil enforcement actions in court--without the other party present aka ex-parte--seeking to freeze and enjoin the operations of a person or entity they can convince a judge is violating the Commodity Exchange Act.
From [0]: "At the conclusion of an investigation, the Division may recommend that the Commission initiate administrative proceedings or seek injunctive and ancillary relief on behalf of the Commission in United States District Courts around the country. Administrative sanctions may include orders imposing civil monetary penalties, suspending, denying, revoking or restricting registration and exchange trading privileges, and orders of restitution. The Commission also may obtain temporary restraining orders and preliminary and permanent injunctions in Federal court to halt ongoing violations. Other relief may include appointment of a receiver, a freeze of assets, restitution, and disgorgement of unlawfully acquired benefits. The CEA also provides that the Commission may obtain certain temporary relief on an ex parte basis (that is, without notice to the other party). When those enjoined violate court orders, the Division may seek to have the offenders held in contempt. When the Division obtains evidence that criminal violations of the CEA have occurred, it may refer the matter to the Department of Justice for prosecution.
[0] https://www.cftc.gov/LawRegulation/Enforcement/OfficeofDirec...
Here's an example: https://www.investmentexecutive.com/news/from-the-regulators...
The lending rates are determined by a separate mechanism and reflect the probability of a future departure from the peg.
In the depths of a crash, the potential is definitely there. Last time Bitfinex bailed out Teather when its reserves came up short. So to really see Teather fail, we probably need a crypto crash and a weakened Bitfinex.
This is why people still use Teather. Even though it is risky, the current market dynamics make a failure unlikely.
IMHO failure due to embezzlement (Teather reserves stolen by an inside man) is a real possibility. The management team has already proven to be very shady...
How much crypto is borrowed on platforms like Compound against USDT? That collateral takes a 5% haircut, we’ll see painful liquidations. 10% or 20%? Fire sale everywhere.
Close to zero. Compound, Aave, Maker - none of them allow folks to use USDT as collateral to borrow against. You can lend it for yield, and borrow it from others, but you can't use it as collateral.
There are some riskier protocol that allow it (rari, cream) but those are much smaller.
https://compound.finance/markets/USDC
https://compound.finance/markets/USDT
For example, on October 7, it shows USDT at over (sorry, "north of") 13%, while USDC was (sorry, "clocked in at") ~5%.
The demand for Tether comes mostly from Binance and the other centralized Asian exchanges. The demand for Circle dollars comes from the DeFi ecosystem and FTX.
I would speculate that the premium is because of USDTs network effects -- the USDT/crypto trading pairs are the most liquid on centralized exchanges.
There is no reason that holding any "worthless" commodity by itself should incur any premium on the market.
Edit: More details in my other comment: https://news.ycombinator.com/item?id=28882422
The price BTC shooting up right now (it is around $61k as I write this) is probably because lots of USDT holders are starting to realize what a bad idea that is.
If you were in their shoes ... what would you be doing right now?
That's assuming other stablecoins are:
a) actually backed up by non-risky assets, Quite a stretch.
b) can easily be exchanged to USD in large quantities
c) can be purchased with USDT
If I was holding USDT right now (I am not, thank god), my preferred exit route would most definitely be BTC. And in very short order.
Now they claim to be backed by cash and cash equivalents, namely a lot of "commercial paper" (short term debt obligations), which is widely believed to be in Chinese markets.
For some reason though, they won't reveal exactly what it is they hold. It could be that they think the market will not react kindly to the kind of assets they hold, or that they entered some kind of weird agreement no to reveal them.
I highly doubt they're not backed by assets whose face value adds up to the total UST distribution, because multiple auditors have said they were fully backed. But it is possibly that some of these assets are junk that won't (or have a high risk not to) redeem at face value.
Even in very bad scenarios, UST could fall to 0.8$ if 20% of Tether's asset default (and they burned through profits). Problematic but not quite such as a risk as it going to zero, which is why people still hold it.
"Pump and dump" refers to promoting some investment by other means, usually spreading some false news.
I beg to differ. The Securities and Exchanges Act of 1934 criminalizes all sorts of things that are deemed market manipulation, and inflating the price of a security by false trading, i.e. selling it to yourself or a conspirator, is one of the very things it was created to prohibit.
Tether got few attestations from an unknown company a few times, but they have also been caught red handed by NYAG for moving funds a day before attestation snapshot is taken, and moved it the day after.
For the uninitiated, attestation verifies a single point in time, so it's easy to game it. And this is something tether has done.
Which auditors? The only ones I know of quit before making a statement (which is a very bad sign).
So you hold USDT in a wallet instead of transferring it back to the bank. It's also a lot faster to transfer money using stablecoins then it is with banks.
I'm a Tether sceptic. I wouldn't want to be the regulator (note: not prosecutor, different standards) to shut it down.
There was a moment when I suspected Tether may hold U.S. dollar money market securities. That would mean a collapse could spill to our financial markets. But that doesn't seem to be the case. The only people who would get hurt in its wake seems to be those who choose to keep using Tether despite the screaming warnings.
Those same people would make you public enemy No. 1 for bringing down the house of cards. So given the problem is contained to the people who oppose its solution, there isn't a great argument for allocating regulatory resources to this over anything else.
It’s incredible - they had 4x as much Tether as dollars backing it and lied about audits taking place that never happened.
https://pbs.twimg.com/media/FBwhKnmXEAE1whT?format=jpg&name=...
A similar thing was done when upgrading national currencies to the Euro: https://europa.eu/european-union/about-eu/euro/exchanging-na...
* Tether, the company, can freeze specific Tethers they have issued, making them unusable as currency. Whoever shuts them down might be able to force them to do this en masse.
If Tether goes away, any value goes with it, like a gift card to Blockbuster's.
Fwiw, it's likely just the pretence of redemption that would go away - it may never have been really there. Tether is explicit that they only redeem Tethers at their discretion. While they also specify that they will only redeem them for high value, non-US parties, I suspect this is misdirection.
There is no evidence of any appreciable redemption going on, though they have announced the burning of $1.5 billion Tethers - all in the last six months. According to Tether, this is because they just 'keep them for later'.
https://cointelegraph.com/news/tether-explains-why-it-hasnt-... https://cointelegraph.com/news/bitfinex-is-constantly-printi...
If the federal government decides Tether needs shut down, it won't be a struggle.
OFAC sanctioned Suex, a crypto exchange based in the Czech Republic, less than a month ago[1]. As far as I can tell it is gone from the face of the earth. Here's why:
> As a result of today’s designation, all property and interests in property of the designated target that are subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. Additionally, any entities 50% or more owned by one or more designated persons are also blocked. In addition, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action.
suex.io. 676 IN SOA ns-648.awsdns-17.net. awsdns-hostmaster.amazon.com. 1 7200 900 1209600 86400
They used to take Visa & Mastercard[2] – even if they were online today, they wouldn't find a payment processor in the world willing to touch them: that would expose the payment processor to OFAC sanctions which is as close to "existential risk" as you can get in finance.
Suex was listed on the SDN list[3]. As a result no US based exchange can touch any crypto from those addresses. If, say, you wanted to cash out that crypto by sending it to Coinbase, they'd be legally required to freeze it and deny you access to it: otherwise, they're at risk of OFAC sanctions.
Every bank in the US monitors the OFAC SDN list, and as a result, they will be monitoring transactions. If Suex attempted to move their money into a bank account controlled by the US, they'd be blocked. But most likely their accounts are already frozen, because OFAC jurisdiction attaches when funds pass through any US financial institution or any foreign financial institution owned by a US person.
OFAC has recently decided that the mere presence of US dollars in a financial transaction is sufficient to establish jurisdiction: if Suex had their entirely foreign owned bank process any transactions in dollars, this would cause a US counterparty to indirectly provide financial services to an SDN. This risks sanctions at their foreign-owned bank.
At the end of the day, most global financial institutions assume a US nexus is present and deny any service to targets of US sanctions – the risk is much lower.
To wrap this up, OFAC has published an interesting guide[4] to sanctions that directly relate to cryptocurrency, and it's well worth a read.
[1]: https://home.treasury.gov/news/press-releases/jy0364
[2]: https://web.archive.org/web/20210414074952/https://suex.io/
[3]: https://home.treasury.gov/policy-issues/financial-sanctions/...
[4]: https://home.treasury.gov/system/files/126/virtual_currency_...
Thanks for the post.
Among the points you mentioned, the most significant one is Visa and Mastercard. These are effectively the only 2 payment processors out there today, and if they deny you service, you are dead. AWS can be replaced and you don't need an intermediary exchange if you can find a payment processor.
You are talking about a country that managed to force foreign banks to rat on US citizens accounts abroad. You are talking about a country that conducts drone assassinations on their own citizens overseas, without trial.
USA has de-facto authority on a lot of country where they feel entitled to (hard power), save maybe from Russia or China and India mainly. Russia because they actually have little ties with USA economically and politically since the war in Libya, China because of the exact opposite as it poses a systemic risk to USA, India because they don't trust the US who are "allied" with Pakistan.
Often when USA and the EU clash, ultimately the EU tend to bend the knee (soft power). The Trump era was a significant exception.
Why would misleading statements ever result in a shutdown of a company instead of a fine?
Just one article I found: https://www.google.com/amp/s/micky.com.au/irredeemable-why-i...
When we’re talking about organizations who exist solely in the realm of toying with people’s finances, a “misleading statement” is nothing more than a lie. They were misleading people. There is a reason some things come along with incredibly complex language to explain the nuances of what is actually happening as accurately as possible.
We can’t attempt to downplay “misleading statement” in an effort to misdirect away from why they were misleading people.