Tether ordered to produce documents showing backing of USDT [pdf] | Hacker News Reader

Tether ordered to produce documents showing backing of USDT [pdf]

storage.courtlistener.com

403 pointsseo-speedwagon366 comments

(IANAL) Tether was trying to claim that requesting essentially a complete financial report for Tether and Bitfinex was overbroad, but has so far refused to produce any example of a more specific and limited set of information, so the court said "open your books":

  ...In the absence of agreement between the parties (id., Ex. 1 at 5
  ("Plaintiffs remain open to considering an alternate proposal ... but
  cannot do without some indications of what the B/T Defendants intend to
  produce[.]")), the Court finds that Plaintiffs' financial records RFPs
  are not overly broad, particularly given that Defendants have had
  opportunities to make sample productions of the financial records RFPs,
  but have failed to do so despite Plaintiffs' agreement to such proposal
  (id., Ex. 1 at 5). Plaintiffs plainly explain why they need this
  information: to assess the backing of USDT with US dollars, and to
  allow a forensic accountant to assess the USDT reserve...
  
  The documents sought in the transactions RFPs appear to go to one of
  Plaintiffs' core allegations: that the B/T Defendants engaged in
  cyptocommodities transactions using unbacked USDT, and that those
  transactions "were strategically timed to inflate the market."...

  Accordingly, the Court ORDERS the B/T Defendants to produce documents in
  line with the revised RFPs 22-25, 29, 31, and 72

I found this format of a court order to be rather unique. I've never before seen a court order that reproduces a document from the docket (#245), and appends the actual order (with no header or anything) to the end.

It's normal[1] to give a judge a proposed order they just have to sign.

Judges don't have to care about formatting and headers. Each judge generally gets to write their own rules for how they want lawyers to format filings in their cases.

[1] Or at least I often see them when browsing through cases as an interested layperson and I've heard lawyers discussing doing it in a tone that suggests it's the norm.

you're right, in fact in California state courts it's required to submit a proposed order with a motion.

But no, each judge generally does NOT get to write their own rules of formatting. Districts (at the federal level) go to great lengths to ensure that things are uniform in that jurisdiction, for the ease of the clerk's office. Someone looking at this PDF would likely not immediately know it was an order. State courts are even more uniform, with statewide rules on typeface, font size, margin width, whether something must or can be included in a single document or broken out into a separate filing, number of lines of empty space at the top of a page, etc etc

Certainly proposed orders are very normal, especially (but not exclusively) if a resolution has been agreed to by both parties (e.g. settlement, or order by mutual stipulation).

But this was very much not that. A proposed order would match what was being argued in the attached brief, and this did pretty much the exact opposite, rejecting the arguments in the attached letter.

I've seen some that are a letter from one side, and the judge has scribbled a note at the top accepting it and signed that.

I've been practicing for 28 years across the country, admitted in two states and nine federal district courts. I've never seen an order like this and in fact have never seen a judge permit a "letter brief" like the original filing. (I suspect this is an SDNY quirk.)

Not saying there's anything improper about it, but it looks really bizarre to me. Why the judge didn't have one of her clerks slap it into a Word document with a short caption and file that on ECF is totally beyond me. And as a matter of style, it seems amateurish and haphazard.

With some financial engineering, an "absolutely 100% dollar-backed" asset can be backed by a "more than 99% for-sure" mix of assets, which are in turn backed by a "96% good in even the worse case" mish-mash, which are in turn backed by a "I'd bet my left arm that more than 91% are okay" heap of stuff, which are in turn backed by a "we have checked on 84% of 'em" pile of smelly things, which are in turn...

Much less the case after 2008.

And definitely was never the case if that chain of assets had the same par value.

E.g. a 100% dollar-backed worth $1000 can never be backed by $1000 of B-rated mortgages. It would have been e.g. $2000 of B-rated mortgages. Obviously, this still had a massive flaw as we saw.

The point still stands though that USDT's profits are probably all based on it's float, so they want to go as risky as possible to generate more profits. They get all the upside of high-yield assets, and not the downside.

To elaborate:

The problem in 2008 is correlated risk — basically, the difference between rolling once per mortgage (uncorrelated defaults) or just once that impacts all the mortgages (correlated defaults). Creating a “more secure” investment out of nominally more “less secure” for investments depends on the risk being uncorrelated, ie every risky investment is a separate roll.

But as we saw in 2008, many people may default at once if the economy becomes unhealthy.

> problem in 2008 is correlated risk — basically, the difference between rolling once per mortgage (uncorrelated defaults) or just once that impacts all the mortgages (correlated defaults)

It was ignoring solvency != liquidity. Most of the structured mortgage products paid out fine. You really can skim cream off crap through payment prioritisation. But that was not clear ex ante. If you’re leveraged or in dire straits, that a security will pay as promised over the coming decade is little comfort when it’s going at a dime on the dollar.

The problem with the securities may have been correlated risk, but that didn't cause 2008. 2008 did not have a single problem, it had a lot of problems.

Yup.

-JUST- on the housing side you had Inflated assessments (A lot of places got in trouble for this in the aftermath,) a tendency to do ARMs and being unprepared for an interest spike, NINJA loans, and the general expectation by too many people (both securities handlers and homeowners) about correlated vs individual risk.

On the homeowner side, correlated risk and the subsequent drop in their home's value resulted in a good number of defaults, leading to a second drop in values (lest we forget the 'goodbye parties' some of these people threw in their temper tantrums on defaulting, a coworker of mine was able to buy one of those on the cheap but it needed a lot of repairs.)

We cannot forget however that general the whole populace, both citizen and corporation, were drunk on 'cheap' credit. (Which is my biggest concern about our current situation, I think some people still are.) When they were unable to refinance existing debt on terms as good as before, or rates on other lines of credit went up, it became harder to service said debt.

I can think of at least two cases where 'expansion' efforts in the age of cheap credit (In one case it was expanding a chain, in another it was launching a new line of business,) led to death spirals of the companies in question.

Well, you're only required to mark to market if there's some regulation applicable to you saying you need to mark to market. Otherwise you're being sloppy and foolish, but the only way they can really go after you is to show that you knew it was outright misleading.

I can’t tell if this is a joke about financial engineering tether slowing lowering its backing publicly? Maybe a double entendre?

Tether was originally 100% ‘backed’ and after more and more pressure, they literally did that exact same thing with the percent that was backed in USD.

“It’s 100%. Okay, it’s absolutely backed by 99% usd. JK, 96! I think they are at like 74% now publicly backed by USD?

All AAA mortgages, I'm sure.

AAA NFT mortgages in the metaverse.

It's all zuckerberg's one meta-house remortgaged a million times...

Is AAA even meaningful? Shit ratings were a major part of the 2008 meltdown, but we've all collectively decided to ignore that and keep relying on the big three's Divinely Inspired Appraisal. Sounds odd.

It is only meaningful in a relative sense - AAA is less likely to be allowed to fail (or maybe actually fail?) than BBb or whatever. Usually.

S&P & Moody's would not lie!/s

NFTs All The Way Down...

You've just described the entire (USD-backed or otherwise) world financial system - unless that is - if you have hard assets buried in a hole somewhere in the ground in a place only known to you as well as enough firepower to prevent anyone from taking it by force when you try and access it.

> we have checked on 84% of 'em" pile of smelly things, which are in turn...

For the posterity of this thread American banks are no longer required to hold any reserve requirements at all[1].

Though I guess that is a "different" issue depending on who you ask here.

Ask yourself this - can everyone in the country take their money out at the same time

For these shitty stablecoins: nearly everyone

For the actual money you use everyday: Maybe 2-3% of people can cash out of the system properly.

A system built on trust works until it doesn't.

[1] https://www.federalreserve.gov/monetarypolicy/reservereq.htm

> For the posterity of this thread American banks are no longer required to hold any reserve requirements at all[1].

That is misleading. Banks are no longer required to hold a certain fraction of their deposits in their bank account at a Federal Reserve bank--that's the reserve requirement that was reduced to 0%. Keep in mind that only money in the bank account qualifies as reserves that requirement; a literal pile of dollar bills would contribute not one cent.

Instead, banks are required to keep on hand sufficient equity for a percentage of their risk-weighted assets--money that, if the assets go to 0, can be raided to make up the losses. The requirement here starts at I believe 8%, and increases if you're a more important bank.

(If I'm computing it correctly, Tether has disclosed a capital ratio of approximately 0%, FWIW. Were Tether actually held to the same standards as a bank, Tether would be considered dangerously undercapitalized if not outright insolvent.)

> are required to keep on hand sufficient equity for a percentage of their risk-weighted assets

Define "sufficient", give it an actual number...

> Tether has disclosed a capital ratio of approximately 0%

NYAG accounted for 90% of their assets with that big case last year didn't they?

You didn't say "banks are no longer required to keep sufficient reserves". You said they were no longer required to keep reserves at all.

Depositor insurance is why people don't try to take out all their money at the same time.

Stablecoins don't offer that. They have their own stabilizing mechanism where in a crisis, the peg collapses so quickly that it's not even worth trying to take any out after considering peak traffic tx fees.

Bwaha, you had me in the first half.

Glorious.

What's so funny?

The FDIC has a track record of payouts and they keep meticulous of every bank they insure, going back to the program inception in 1933.

What I found funny (but apparently was easily misunderstood) is how the poster I replied to was talking so seriously and correctly about stabilizing mechanisms in real (as in world) currencies in the first half, then gave the details on the ‘stabilizing’ mechanism of the ‘stable coins’ - which is they collapse and die if the gap gets too big, and it’s impossible to ‘withdraw’ without spending more on tx fees than you’d get out.

Which, I believe is correct and also about as stabilizing as a deadman’s switch on an explosive vest held by an gorilla. Which, hey, gorillas are pretty smart, if they know they aren’t supposed to let go, they’ll try. But it’s not a good idea to spend much time in their vicinity in such a situation.

I’d assumed it was an attempt at dry humor, straight man/ad-absurdism style, which I appreciated.

Which is why FDIC insurance is a thing.

It's financial snake-oil though. You do not want to any own dollars if it ever gets invoked on a big enough scale with a major bank.

They simply do not have your money nor could they realistically insure every persons savings if their was bankruns, it's a system built upon nothing more than trust. When that trust dwindled in recent times, they brought in FDIC to create more trust out of thin air.

This is misleading to those who read "plain English" meanings and not familiar with jargon. Banks call "Capital" or "Equity" the unencumbered safe assets like cash they hold.

Banks do have strict Capital requirements.

The "reserve" requirement going to zero is different.

It's not backed. Once the Tether scam unravels, it's not clear how badly it will affect Bitcoin's price. But it's going to be bad.

There's a chance that Tether has been pumping BTC.

Well, it's possible "backed", in the sense that there are dollar-denominated assets backing it. They've already admitted that it's not actual dollars, and that some of them at least are foreign assets.

Which probably means it's Chinese dollar-denominated debt, perhaps stuff like Evergrande bonds that you could get for $0.05 on the dollar. So, it is "backed", perhaps, in that there are dollar denominated assets.

But, functionally, it's probably not backed in a way that does anyone any good. So your basic point is correct. At some point, people rush for the exits, and when they do, BTC may collapse with it.

A close friend of mine does banking in Nassau, Bahamas and works with Tether, and according to him Tether is where they sling all of their lowest rated junk chinese bonds.

He has been telling me to go nowhere near it for the last 5 years and I have not.

How has Tether prevented information leaks?

Ex-employee, whistleblower, service dependency, . . .

With billions at stake, there are highly motivated players. Similar to paying for dirt on mudge: https://news.ycombinator.com/item?id=32823548

I have seen detailing, possibly on HN, a few years back of how tether's asset base was fabricated. The report used intra-day banking movements to show that it was fiscally impossible for tether to be backing their assets at the rate they were minting using the banks they claimed. The report further correlated tether minting to Bitcoin price action. It showed in fairly clear and granular detail how tether was used to pump and subsequently dump Bitcoin and other cryptos. This was back at least 3 years ago. The pump and dump works to allow tether to profit enough to actually get the assets though. And it works until it doesn't. USDT can support Bitcoin price long enough for the minters of tether to extract USD for what they minted as long as their are other buyers getting in.

It is a traditional ponzi scheme but with an additional layer that makes it far more resistant. It's essentially the same thing as government central banking but for crypto and without the threat of violence to control valuations.

They only have seven employees.

I wouldn't be surprised if it were even worse than that, e.g. promissory notes from Bitfinex (themselves)

If it's good enough for the SSA why not for tether?

This will be a useful analogy if/when bitfinex gains sovereign power along the lines of the US government.

Cause Uncle Sam has a machine that can make portraits of George.

What are these dollar-denominated assets? US treasury bonds?

> US treasury bonds?

It’s hard to accumulate $100bn Treasuries without the dealers noticing.

From [1]

- U.S. Treasury Bills: $28,856,434,491

- Commercial Paper and Certificates of Deposit: $8,402,426,505

- Money Market Funds: $6,810,253,431

- Cash & Bank Deposits: $5,418,232,067

- Reverse Repurchase Agreements: $2,992,015,954

- Non-U.S. Treasury Bills: $397,150,678

- Corporate Bonds, Funds & Precious Metals: $3,486,896,735

- Other Investments: $5,551,836,303

- Secured Loans: $4,494,373,260

- Total: $66,409,619,424

[1] https://assets.ctfassets.net/vyse88cgwfbl/2xJyKdUKicdRUWpC9b...

Thanks for the reference. Although I'm not able to judge the validity of the report, looks like around half of Tether's assets (not necessarily half of their market cap) are held in dollar-denominated securities (T-bills and cash).

> US treasury bonds?

Would you accept the lowest rated Chinese junk bonds instead?

Asking for a friend…

No.

What are they then?

> Once the Tether scam unravels

We've all been saying this for literally years now and yet here we are. The crypto market doesn't make any sense at all.

It has to crash sometime, right? I mean it is obvious to anybody paying any attention that tether is a scam. How has it gone on this long? What will finally do it in?

1. The people using it don't care if it is, as they may be trying to grift each other anyway, or be using it for short term holding, transferring between crypto accounts.

2. We would only see this on a massive sell off when Tether can't prop up the price fast enough with their reserves (by buying USDT with USD). This almost happened on May 11 of 2022.

3. The Madoff scam went years and years before finally being outed in 2008. Decades perhaps?

Tether is hard coded to bounce between their float. Tether made a mega fuck ton of money when that float widened and so did all the hft firms. Most of the tether is held by insiders and they can utilize that tether to obtain 100x leverage. You can literally see on chain when the yield widened back in may 11th, that sythetix and other leverage platforms got a huuuge influx of USDT and they used that USDT to purchase more USDT on the low… and guess what? Made a killing.

They are too powerful with too much money and too much centralized collusion to fail on their own. And the US policy still can’t define crypto, let alone police it properly. Only the full might of the US judicial system will make tether fail.

> We would only see this on a massive sell off when Tether can't prop up the price fast enough with their reserves (by buying USDT with USD). This almost happened on May 11 of 2022.

This did not almost happen. Do you enjoy writing fiction?

Madoff kept it going for 17 years.

If you pay low or no interest, a Ponzi can be kept going for a long time. Eventually, though, the end of growth plus ongoing withdrawals catch up.

I was short on Tether for years. Had to give up my position because “Markets can stay irrational longer than you can stay solvent."

What’s it usually cost to short a tether for a year?

At least it’s a non-productive asset so that’ll keep the cost down a bit, no?

That or you were just straight up wrong and bought into the fantasy that gets played out on HN every month.

Tether was taking other end of bitcoin shorts for 5 years. Its fantastically profitable and you bought the manufactured story that they are about to collapse any moment.

Indeed. Especially when the west in question is systemically important. How were you shorting?

I gave up my Chinese Market shorts for the same reason

A ponzi can keep going indefinitely if all the investors HODL without cashing out and no regulators check the books to trigger a run. As soon as enough people try to cash out their paper returns, the scheme unravels very quickly.

I agree, but we can't all cash out all of our money from US banks either. That much money simply does not exist. These comments have a lot more faith in FDIC than me, so maybe I'm missing something.

Maybe you have missed the US government's reputation of paying its debts and the FDIC's near 100 year history of paying out? It's hard to miss but I'm sure for some people it's possible.

It doesn't 'exist' now but it could be printed.

Things which cannot go on forever, will stop.

Unfortunately, it is very difficult to know when.

There's no way it's fully backed. I doubt that if Tether liquidated all their assets, they could cover even 90% of outstanding Tether. But they can spin all kinds of BS about how those assets are really worth more on paper...

the whole of the US stock exchanges and many of the supporting assets, are already like that.

Stocks aren’t pegged to the dollar, you’re comparing apples and wrenches. Tether is much more like a money market fund than an equity or bond.

If your point is that there isn’t infinite liquidity at the current market price for an equity or bond, you’re correct, but it’s irrelevant since tether is nothing like an equity or bond.

+1 on all of the above, and to add: there isn't infinite liquidity on securities, and that's ok. And that's exactly the problem: Tether is pretending not be be an security, even though it transparently is.

Heck, to generalize on this, this is kind of the ur-problem with crypto generally: a bunch of things pretending to be currencies but are actually securities. The whole subterfuge is intentional, to foist risky assets on people by lying about their nature, and to avoid the (hard fought and hard justified) regulations around said risky assets.

yes, the distinctions you make are relevant; my point is exactly that there is NOWHERE NEAR the liquidity in ordinary markets.. I was too quick to object and with insufficient distinction, I stand corrected

Ok but US money markets are not backed by Evergrande debt

Wouldn't Tether have unraveled during the huge amount of withdrawals during the Luna collapse? I thought it was going to, but surprised that it appears to have made it through processing everyone's withdrawals.

Tether (and the various exchanges that use it) has enough liquidity to process withdrawals, and likely has enough slack in the system to process periods of higher then normal withdrawal amounts.

As long as Tether has some liquidity, things will keep operating as normal. However, if the amount of money withdrawn is greater then the amount deposited, eventually Tether's reserves will dry up. Once that happens, anyone with outstanding USDT will be stuck with a worthless asset. Only Tether knows how close we are to that point, and they aren't saying.

They are likely not solvent (i.e. they have enough liquid funds to cover everyone withdrawing their money all at once), but they apparently can cover a high percentage of USDT withdrawals. It is still very fishy b/c if you look at the lending rates on Bitfinex there is currently an 18.825% APR for USD. If there was really zero risk with USDT I think you'd see a whole lot more volume pumping through that system.

How much of those are to cover the leverage of customers?

Very few people converted to cash. It was mostly crypto to crypto iirc (Luna -> Terra -> Tether -> BTC/ETH)

Also Terra was the algorithmically pegged stablecoin to Luna (not Tether in case that was the confusion)

There was sufficient pressure on USDT, as well as cashing out to the point of USDT briefly dropping in price by a few cents, so this isn't quite accurate.

UST is the algostable, terra is the chain

USDT experienced it's longest de-pegging event ever during the Luna collapse. It didn't drop as low as previous events but it went on a long time.

>USDT experienced it's longest de-pegging event ever during the Luna collapse.

This is not true: https://trading.bitfinex.com/t/UST:USD

A $1 stable coin being worth 99 cents is a depeg, and it was at that price for nearly a month after Luna/Terra collapse.

How do we know they processed withdrawals to plain USD and how much? Is there any tracker on that? Thanks!

I think a good way is to check out CoinMarketCap's Market Cap tracker. Let me elaborate.

I think Market Cap = (value per asset) * (total # of assets in the market). So the Market Cap of USDT SHOULD BE roughly equal to the number of Tethers on the market (assuming the price of a single Tether is stable, which isn't a bad assumption right now).

Since "every Tether is backed 1:1 by USD" and Tether is (more-or-less) pegged 1:1 to USD, if you see the market cap drop by a significant margin, it's likely that the drop was an outflow to currency. If we check the Luna crash event (~early May - ~early June 2022), we can see that USDT lost ~18B in market cap over that period. So (I think) we can assume that there was (roughly) 18B of dollar outflow over that period.

If any of my statements here are incorrect, please correct me. I'm a software engineer, not a finance artist or an MBA, and the last business class I took was summer school in High School in like 2006.

> we can assume that there was (roughly) 18B of dollar outflow over that period

Couldn’t Tether burn tokens it holds on its own or affiliates’ books to create that impression?

> "every Tether is backed 1:1 by USD"

Tether does not make this claim, I'm not sure why you put it in quotes

When the casino admits it doesn't have the cash to back the chips out on the floor - pandemonium ensues.

I wonder what percentage they consider “lost” every year and book as revenue?

USDC is the only reliable stable coin. Some dislike it because they have shown that they will use the blacklist feature (which USDT has too, to be fair) but frankly, I'd prefer my bank backed stablecoin is compliant with US law.

Tether is highly backed by BTC and only partially by cash. Then they print Tether to buy Bitcoin which pumps the backing value..

> There's a chance that Tether has been pumping BTC.

A chance? It's an absolute certainty.

Not only most exchanges have only a USDT:BTC pair and not a USD:BTC pair, but if you look at recent (~1.5 years) sudden spikes in BTC price, they correspond almost always to a new supply of USDT being released by Tether.

The only upward momentum Bitcoin has had since the last ATH has been due to Tether printing money, so it's safe to say that not only it's pumping it, but it's probably contributing 80%+ of its value.

If Tether dies, it's the end of cryptocurrency, period.

I agree that Tether has certainly been pumping BTC with money they don't have, but

> if you look at recent (~1.5 years) sudden spikes in BTC price, they correspond almost always to a new supply of USDT being released by Tether.

is what you would expect to see even if Tether was 100% legit. As you say, most BTC liquidity is in USDT, so people buying Bitcoin would first buy (mint) USDT from Tether, and then use that to buy BTC.

Seems kinda obvious. New Tether is issued because people typically want to onboard into crypto assets.

> If Tether dies, it's the end of cryptocurrency, period.

That's what I thought about MtGox. How wrong I was.

> That's what I thought about MtGox. How wrong I was.

It's mind boggling how long this has gone on, really. I've been following the crypto scam for like 10 years now and it just keeps going.

It's almost like it's not all a scam isn't it?

MtGox involved few thousands people. There's more than 100M people at least who speculated on crypto.

It’s end of cryptocurrency as a wild speculative asset. Ethereum and decentralised apps will still exist, which is all that matters.

Bitcoin is a failed open source project turned Ponzi. I can’t wait for tether to take it to the absolute bottom and end the current epoch of crypto-as-speculation. Crypto will have its uses as a decentralised application platform.

is there a decentralized app you like that isn't a defi exchange or play2earn "game" ?

just curious because I haven't seen a practical use for the EVM, it just seems like the slowest, most expensive VM ever conceived.

I’m really tired of people assuming decentralized = eth derivative. The practical use cases of federated and decentralized apps have been shown (no one source of truth, tampering or failure) but practical apps aren’t going to use a cryptocurrency why the hell would they.

At scale we’ve been building completely decentralized applications for a decade and a half. They’re just internal to some organization not public. Taking this and placing the database in the users hands is an interesting way to go but not exactly an order of magnitude more complex at that point.

But this doesn’t require some dumbass blockchain currency and ethereum is super forced.

Yes. NFTs have actually solved a real problem in the art world. I've said it many times before here so you can browse through my comment history to see why.

Spoilers: - saying "but there is fraud" is not an argument agaisnt NFTs, because actually an automated solution for NFT fraud is conceivable. And the fact that there is fraud does not take away from the thousands of artists using it legitimately. Plus, authenticating you are buying from a real artist in the NFT space is actually not that hard.

> Ethereum and decentralised apps will still exist, which is all that matters.

Will they, when ETH collapses to being worth less than 10 bucks because you can't exchange it for funny drug money and it's only usable as funny slow distributed computer coins ? When users can't speculate on it, when stakers lose money on running a node because they're getting 5 bucks worth of rewards every other month ?

Thankfully for the Ethereum Foundation, they conveniently prevented people from taking out their stake then did the merge, so that now that someone is in Ethereum, they cannot back out of it. Some might say it was something that only a malicious actor would do, but then again, the crypto community has never really been that bright when it comes to detecting scams.

This is essentially FUD, since it's obvious that withdrawals are the next thing in the list for the Foundation. No one forced anyone to stake either. Users did that knowing there was uncertainty on when it would be activated.

In my crypto investing thesis, I simply can't explain what role Bitcoin and its outdated technology can play. But I know not to bet against it. It's still the music to the merry-go-round.

What part of bitcoin tech stack is "outdated"?

You say that, but the only plausible non-substitutable use of bitcoin I've seen is sending money overseas or buying drugs. If its monetary value collapses, I don't see these other uses at all replacing it. It could just die, though more likely some marginal stuff will continue indefinitely trying to recapture lost glory.

NFTs have actually solved a real problem in the art world. I've said it many times before here so you can browse through my comment history to see why.

Spoilers: - saying "but there is fraud" is not an argument against NFTs, because actually an automated solution for NFT fraud is conceivable. And the fact that there is fraud does not take away from the thousands of artists using it legitimately. Plus, authenticating you are buying from a real artist in the NFT space is actually not that hard.

I actually think there is a huge potential to decentralized applications, but this is essentially faith for now so I won't add much more to the discussion.

Isn't correlation also what you would expect in an honest scenario as well? If there's demand for acquiring tether to trade Bitcoin, and it has to be printed, so it is, and then it's used for Bitcoin trading, I don't understand where the fishy-ness is. At least not from that one timing perspective.

People buy Bitcoin with regular money, not with USDT. People exchange from cryptocurrency to USDT because they really want USD, but that is significantly harder to convert to.

As people are pointing out elsewhere in this thread, the biggest liquidity for BTC is in BTC/USDT markets

So when people want to buy BTC they often do exchange from USDT.

Sure, but that's irrelevant as far as the scam goes. What matters is real money entering the markets for fake money, e.g. USD for cryptos. That people after that can trade back and forth between different fake moneys is irrelevant, although it naturally keeps the illusion alive that these are valuable assets. USDT stands out because it's marketed as almost the same thing as USD, which it of course isn't.

Criminals still need to launder money. Suburbanites still need to buy drugs. Cryptocurrencies won't completely disappear.

> Suburbanites still need to buy drugs

Lol, you think these transactions done with crypto? Don't be silly.

You are saying the Silk Road and the numerous clones aren't real?

The fun begins!

> It’s not backed.

Then again, neither is a typical bank account.

Absolutely wrong. Typical bank accounts in the US are FDIC-insured.

Which is not the same as backed 100% by real dollars. It’s just another level of guarantees, just like the guarantees given by Tether. Obviously it’s very reasonable to trust one more than the other, but neither are backed 100% by real money.

> just like the guarantees given by Tether

The only similar is that they are guarantees.

The FDIC can't run out of money because Congress would just re-fund it in the unlikely (and extreme) event that its current funding ran out.

Bank accounts with FDIC insurance are literally backed by the people who create dollars.

Dollars are created by the Federal Reserve, not Congress.

Banks are backed by FDIC insurance which, although it has been able to pay each claim ever filed, did get cold feet in the 2015 crisis and obviously does not hold a dollar for each insured dollar. In fact some cursory research shows they hold about $6 for every $10000 and in a major collapse like the 2015 crisis, which could have been even worse, they could very well get in trouble.

A promise from a well known con artist and a promise from a centuries-reliable government aren’t actually usefully similar.

Up to any amount of deposits?

Each account is insured up to $250k, and you can open as many accounts as you wish.

Source: https://www.fdic.gov/resources/deposit-insurance/faq/index.h...

Nononono!!!!

> Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category

If you want have more than $250k insured in regular accounts, spread it across multiple banks (or put some in a joint acct, but that has its own risks).

Opening a chequing account and a savings account at the same bank doesn’t give you $500k of coverage if you were to put 250k in each.

The typical bank account is backed by a properly regulated financial institution, whereas USDT is backed by some shady foreign company.

Isn’t tether USDT built on ethereum? How does it affect btc exactly? Can you buy BTC with USDT or am I missing something about the connection between the two?

It's generally assumed that if USDT collapsed it would drag down the entire crypto market.

What's wrong? They are doing fractional reserve banking.

Fractional reserve banking means that banks must reserve a fraction of the deposits. They lend out the rest. The deposit is still on record and the obligation to repay it still exists.

If a bank never takes deposits, they have nothing to lend out. If Tether was printing Tethers without having deposits in place, they're not doing fractional reserve banking.

Admittedly, unless the reserve amount required is 0

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

> As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.

--- Feel free to correct me on this; my financial knowledge is only just a bit higher than that 0% rate noted above.

The reserve requirement was removed because banks were holding too many reserves for the feds liking.

Every US bank still has asset & liability requirements including having at least as many assets as liabilities and stringent rules on what the assets are. Further they have reporting requirements as well.

Do you think they have no money kept? Because if they kept fractions then it's fractional.

Fractional reserve banking still means having assets that cover your liabilities; those assets simply may not be liquid (i.e. they are loans that will be paid back over a period of years).

If you don't have assets on your books, and have instead either walked with or lost a large portion of the money, then you're not doing fractional reserve banking, you're running a confidence scheme.

If Tether, as suspected, was largely "backed" by crypto assets and Bitfinex shares, then they're gambling with the bank funds... and the recent losses in the crypto markets mean that they have been losing those bets.

(I edited the last portion of this substantially to make it more concise.)

Two cases

1. You deposit $100 in the bank. It keeps $30 as cash and lends out the rest to someone. The money is still there on the balance sheet (but with a risk that it might not be returned)

2. You deposit $100 with Mr. Paulo in return getting 100USDT. Mr. Paolo spends $70 on private jets and ho*kers. If you ever want back more than $30, you're out of luck.

No, a tether is not accompanied with an iou to the "bank". In fact it's the other way around. If they're not fully covered its simply theft.

Stop spouting lies and non-sense. There is no evidence whatsoever that Tether is a "scam" or that it has been "pumping" BTC. You might as well claim that 911 was an inside job and we didn't go to the moon. Same type of people spout these "truths". Claiming something to be true in the complete absence of evidence, or contrary to existing evidence, makes you a nutjob.

Tether is an integral part of the whole cryptocurrency ecosystem, and it's insane to claim that the global industry operates closely with a "scam that soon unravels" without the industry players being worried at all. Large exchanges are not some shadowy operations which can just close their eyes when they are exposed to risk.

You'd think that after 2008 it would be obvious that even experienced financial institutions can be fooled into ignoring red flags when money is on the line. Greed is a hell of a drug.

This same comment could have been posted about LUNA and large crypto investors like 3AC 6 months ago.

> LUNA/UDT is an innovative part of the whole cryptocurrency ecosystem, and it's insane to claim that the global industry operates closely with a "scam that soon unravels" without the industry players being worried at all. Large investors are not some shadowy operations which can just close their eyes when they are exposed to risk.

The red flags around Tether are many, but the biggest is that it would be easy for them to prove that USDT is backed 1:1 with USD if it actually was. The fact that they've consistently avoided offering such proof is all the evidence I need. It's the same reason no one believes Craig Wright is Satoshi.

They have provided transparency reports with third-party audits: https://tether.to/en/transparency/#reports

There is no evidence that they have been fabricating those numbers.

The difference between what this transparency report provides and what a money market fund provides (cusip level detail on everything it holds) is not evidence it’s fabricating numbers but it’s certainly alarming.

If you had a fund that provided that report instead of their normal reports it would have investors headed for the hills (independent of the regulatory requirements).

> Large exchanges are not some shadowy operations which can just close their eyes when they are exposed to risk.

is this sarcasm? because the 2008 mortgage crisis showed that yes, large non-shadowy institutions can absolutely keep their eyes closed.

It makes sense if you consider all of crypto as a scam (greater tulip theory).

We changed the URL from https://finance.yahoo.com/news/stablecoin-issuer-tether-orde... to the ruling it points to, since the latter is readable enough and the former doesn't really add anything.

Here's the docket that links to this order and the other filings in the case if anyone wants context.

https://www.courtlistener.com/docket/16298999/in-re-tether-a...

(I'm posting this because it's slightly unintuitive to go from the PDF download back to the page it came from if you're not familiar with the site)

I'm sure they will be able to produce those documents, just so long as there are no followup questions or inquires into their actual account status.

I don't know why they would stop lying now.

They literally invented their own non-GAAP system of accounting!

Doesn't GAAP have some obviously stupid rules about crypto? I don't mean to excuse scam accounting but I don't consider GAAP automatically optimal either. (Putting aside that Tether shouldn't be backed by crypto.)

Yeah - GAAP definitely doesn’t work with crypto. Is eth an asset, currency, or inventory? If I’m a big crypto firm and I regularly use eth for chain fees, do I calculate that as a sale of an asset? If my eth has appreciated since it’s purchase, did I just make a sale?

When I’m adding liquidity to a common pair that I utilize a lot and get a divergent loss between the two assets, should that be impairment at the time of the transaction or only when all the coins are converted to USD?

I can go on and on and on about the impossibility to comply with tax regulations and crypto. I’m an avid crypto user, I like making bots for all the games, I think NFTs are cool and always like meeting the programmers turned artists, I participate in 10+ exchanges and 50+ liquidity pools across the map.

When it came time to do my taxes this last year, I had to hire a crypto specific tax person. His advice was that every time I transfer crypto off an exchange, it is ‘sold’ for that price and I have to pay taxes on the minuscule difference between my purchase price and the 10 seconds it take me to transfer into the meta verse. It’s literally impossible to do it otherwise.

I think the rules are "stupid" only in that it would expose too much fraud if the companies followed them. Crypto currencies are no different than any other speculative asset for tax purposes. Treat them like stocks.

What if you burn some ETH on gas fees while interacting with a contract? Is that considered "sold"? Can you write it off as a loss? Does that contribute to wash-sale limits? People like to jump to analogs because it's easier to make sense of, but maybe we just need a new treatment of crypto altogether?

Transaction fees are completely normal. In-kind transaction fees are maybe a little less normal, but they're definitely something that happens. GAAP will have rules for dealing with these things.

For context, Bloomberg's "Anyone Seen Tether's Billions?" is a fun read, and was discussed here: https://news.ycombinator.com/item?id=28784745

While I find Tether super-shady, it's also one of the longest-going stablecoins which has stayed strong while many others failed catastrophically.

Not to defend them or anything for sure, I find them and their Bitfinex/price manipulation schemes super shady too, but it's also a success that they came this far when many people expected them to collapse for years.

I think this is the correct sentiment. I would be shocked if there's nothing shady going on at Tether, but given the 5 years of apocalyptic tether predictions while Tether plugs on through things like the Terra collapse with zero issues, it seems very likely to me that the sentiment is overly negative, not that the risk is understated.

> Tether plugs on through things like the Terra collapse with zero issues

Being more stable than Terra is not a very high bar.

It's a binary event. It's either stable or it isn't stable. It isn't "more stable than Terra". It's stable (so far).

Not really, unless you're being overly reductive. For example, I think I would call a 10% backed stablecoin less stable than a 100% backed stablecoin, but more stable than a 1% backed stablecoin (or 0% in the case of something like UST, at least initially).

Tether should be making money though right? You give Tether $1b USD, they issue some tethers you can redeem later, and in the meantime, they invest those tethers, in say treasuries, and earn 4% or something? You earn no return, so don't they basically have an interest free loan of 60B or whatever? So unless they are incredibly greedy, they can just sit around making bank, without actually having any good reason to take on too much risk?

That's the idea. It's not unreasonable that such an organization that simply takes deposits and provides some service _could_ exist without losing money (after all, that's the fundamental premise of banks), it's whether they followed through on their promise or managed it poorly and no longer have 100% backing.

> unless they are incredibly greedy

That's the crux of it, isn't it? A lot of people think that they are greedy. Also, most tethers were created in 2020, when short term treasuries we're yielding nothing. Which made the incentive to "cheat" much higher than with the present rates.

Tether is run by incompetent people so I wouldn't be surprised if they have lost money on their investments. At least they're not gamblers like Mashinsky.

If you own Tether right now, and you don't liquidate immediately, you 100% deserve to lose all your money. This thing is going to collapse. There's no reason why Tether would keep its holdings secret unless it's hiding a secret. So be warned, if you don't want to suffer the same fate as Terra you need to liquidate right now.

Very few people hold Tether so it’s not a very helpful warning: most ”USDT” exists within exchanges and is used to transact.

The Luna fiasco was a consequence of Luna specifically encouraging people to hold UST, encouraged with unsustainable incentives. That dynamic doesn’t exist in the context of USDT, there’s no benefit to holding USDT.

The problem with USDT is that so much of the current cryptocurrency market has been propped up by USDT that probably isn’t backed by any real assets.

Tether print $1bn of USDT -> buy $1bn worth of BTC on an exchange that uses USDT (e.g: their own…) -> price goes up and increases the market cap by orders-of-magnitude more than $1bn.

If you have exposure to the cryptocurrency market (whether you hold USDT, or BTC or own $COIN stock) and tether blows up, you will very probably be hurt in the fallout. Buying BTC with any USDT held is a false sense of security.

If you don’t want to be exposed to the tether blowup contagion, sell everything now into cash-in-your-bank-account (not “cash” on an exchange) and wait.

Want to buy a USDT put? I'll send someone to meet you in SF. $10k min, if you're okay with in-person. Premium discussed when you suggest expiry date.

If you want the smart contract, I'll do a $25k min. Once you give me the money, I'll do this:

1. Load a smart wallet with 1.2x equivalent value of ETH (which I'm long)

2. Tie it to a smart contract using a price oracle that will liquidate the ETH if the ETH/USDC price (using some combination of high-volume exchanges) drops to 1.01x of the amount of USD you should get

3. At any point of time, you can transfer in your strike USDT to exercise the option and receive USDC in return

This way I get to be long ETH and you get to be short USDT so long as you trust USDC (which is audited)

If Tether blows up, all of the exchanges with USDT pairs will be holding bags of various sizes. Where do you expect one would be able to redeem the USDC without significant risk of the exchange folding before paying out your USDC redemption? If the past is anything to go by, in quick order, exchanges will limit withdrawls ("cash" balances included).

You could mean two things:

1. I won't be able to liquidate the ETH to USDC and transfer it to you => We can force me to liquidate using a DEX or Uniswap pool. Alternatively, if you're very worried about this, I'll just charge a higher premium and post USDC into the account. That's just a pricing problem

2. You won't be able to redeem the USDC I give you => You'll have to trust Circle here, yeah. If you don't trust their audits, we can use another stable coin, but I think USDC is more trustworthy than BUSD and there aren't pairs for ETH to very many other stable coins that have enough volume to keep the spread down so I can safely liquidate

USDC can be perfectly fine and 100% backed, but if the only places it can be redeemed at are exchanges, when shit hits the walls all withdrawls will be turned off (cash balances included). What makes you think USDC would be redeemable?

Expiry in 12 months 100K smart contract. Premium?

All right, I'm having someone price this. Want to meet in SF to chat?

It'll be in the range of $20k roughly. More if I can't find a way to do this whole thing without locking in the safe funds. If you're in and we can meet, I'll model more precisely.

I would LOVE to buy a USDT put but I would only do it on a known exchange. Not some back-alley mechanism where I would likely get scammed. As far as I'm concerned, the entire crypto ecosystem is at risk, and all it will take is BTC below $15k to see a lot of fallout and collateral damage.

I'm sure it's 100% backed by a lot of magic fairy dust and somehow I also imagine rainbows and unicorns in the asset list.

Line up for free ice cream, kids!!!

https://www.youtube.com/watch?v=YbYWhdLO43Q

I don’t understand why people get so up in arms about Tether. They are obviously doing illegal/scammy things (fractional reserve, etc), so why don’t people just stop buying Tether because it’s obviously a terrible investment.

They’re not exactly killing puppies here, they are just lying about funny internet money. There are plenty of other more reputable stablecoins out there if you insist on holding onto stablecoins for whatever reason instead of US dollars themselves.

Usually when you ignore liars they eventually stop talking. Why can’t we just ignore Tether until it goes away?

Everyone is going to be surprised when it’s revealed that Tether is backed by the remains of a massive pirate ship full of Spanish gold.

How much time do they have to produce these documents? Can they legally avoid doing so for now, via an appeal of some sort?

IANAL but it looks like the default is 30 days:

https://www.law.cornell.edu/rules/frcp/rule_34

How the hell do governments sleep for years on this sort of stuff?

A month ago someone here suggested the hilarious theory that Tether is being used for crime in a way easily traceable by the government, so certain agencies are propping it up so they can keep the operations going. Meaning that the criticisms a) "Tether is insolvent" and b) "Tether is used for crime" effectively cancel each other out...

https://news.ycombinator.com/item?id=32588210

my guess is they let novel ideas play out for a while, since most every innovation that endures starts as a crazy idea?

That sounds about right, but when it gathers about a billion dollars in it I'm a bit shocked it's still "just a start-up".

Correct me if I'm wrong, but didn't the JPM/NYAG report essentially say USDT isn't [sufficiently?] backed, but doing something about it might collapse the financial system because of, among other reasons, This One Weird Trick To Print Free Bitcoin in China That Satoshi Really Hates?

You are not wrong.

Virtually every take I read on this forum is uninformed. To hear it straight from the horses mouth, here's Matt Levine + SBF getting into the realities of tether (skip to 48 minutes): https://open.spotify.com/show/1te7oSFyRVekxMBJUSethH?si=05bd...

I agree with the general sentiment around tether acting very opaque / shady. That said:

1. creation/redemption of tether (read: actual USD wire transfers) has been done on the magnitude of billions of dollars a time by major players in the space

2. during UST collapse, something like $15b of tether was redeemed in less than 2 weeks. so they obviously had that much cash on hand at the time.

3. the academic paper that attempted to show that tether was being created to pump up bitcoin has an extremely simple alternative explanation: as bitcoin went up, holders of bitcoin sold it for tether on centralized exchanges on the way up.

so, IMO they could very likely have some bad commercial paper on their books, but i think its much more likely than tether is worth 90 cents on the dollar and not 0, and in the case that it is worth 90 cents on the dollar, it would be extremely likely to continue to trade at par as there's very unlikely to be a scenario which forces any kind of large-scale redemptions.

Taking SBF’s word as gospel is about the least informed thing you can do. Do you notice how they say things like “redeemed” and “backing” which are very vague terms. In a normal security, redemption is clearly defined. But Tether isn’t normal. We know from players like Celsius that Tether will issue loans collateralized by crypto. You say yourself it’s likely they have other toxic assets on their balance sheet.

So imagine this scenario:

1. I issue a note for $1B to Tether and they send me 1B USDT.

2. I go about my business, trading crypto, doing whatever, and hopefully I end up with more than 1B USDT.

3. When I redeem, I send my 1B USDT back and Tether retires my note (or sends me back my crypto collateral) likely less some fees.

No actual dollars changed hands. And yet this fits in exactly with their narrative and language.

I mean hell they have issued a huge amount of USDT over weekends when you couldn’t possibly have wired any money (mayyybe some people banked at Deltec and could transfer between accounts, or via Finex…maybe)

I think people dont fully understand the risk of debanking in crypto. If you go to the regular players with a billion dollars in cash, say you are cryptocurrency firm and would like a bank account they will turn you around.

This is such a major factor with every cryptocurrency company. Especially 5 years ago when tether was made.

Tethers ‘dodgy’ investments is partially driven by there being no other options.

For those who are like me, wondering what the hell is SBF, it stands for Sam Bankman-Fried [0]. He is the founder of cryptocurrency exchange FTX.

[0] https://en.wikipedia.org/wiki/Sam_Bankman-Fried

If their backing were as solid as you suggest, it is difficult to understand why they have been so unwilling to demonstrate that fact, given how much uncertainty exists around it. Their willingness to sue in NY to keep their backing out of public record, does not suggest that they are at ~90%.

Having looked into tether really deeply I think they're between 50% and 90% backed as you stated.

https://www.singlelunch.com/2022/06/14/the-state-of-stableco...

Tether depegging would be an apocalypse nonetheless

This mentions the Celsius loan without mentioning that it was overcollateralized and liquidated with no loss to tether (confirmed by tether at the time and by Celsius's lawyers in court filings).

As noted in the article, they announced that the loan was liquidated at a date where the difference in BTC price between when the loan was emitted and the loan was liquidated was greated than the overcollateralization ratio.

It's a fairly easily checkable lie.

This is just nonsense. Please show your math including sources for the purported ratio and dates.

definitely agree that if there were a ~50% depeg in tether things would get very, very ugly in crypto

If Tether was 50% backed and there was a depeg it would probably be much worse than 50%. Presumably USDT would be redeemed at $1 until Tether's reserves were almost gone at which point Tether would have to stop accepting redemptions and the price of USDT could fall arbitrarily close to $0 in a short time.

SBF is not the horse, and he has a vested interest in ensuring that the market believes that the market is not built on sand.

Bitfinex and Tether have a history of fraud, of losing money, for Tether to be backed today would mean Bitfinex/Tether did a complete 180 and went legit after years of bad dealings. Even if you believe they did a 180, how did they rectify the mess from before they went legit? How did tether become solvent?

Even if Tether is 90% backed (a wild supposition) - if there is a run on the bank - they don't have liquid assets, and they'd have to cash out at WAY less than 90%.

This is why banks can't be backed by 100% MBSes.

Tether will implode. It's just a matter of time.

and btw there are liquid tether credit risk products you can trade if you believe that tether is going to collapse that cost around 20bp / month (so something like 40x payout on annualized premium if tether goes to 0).

> as bitcoin went up, holders of bitcoin sold it for tether on centralized exchanges on the way up.

How does this work exactly? Who is the counterparty selling tether here, and how come it wasn't newly minted USDT?

Do you know by what mechanism Tether gets CP for USDT? Would they be paying CP issuers with USDT directly? What would they do with it?

I believe you're right just curious about the mechanism.

They would be paying CP issuers with USD out of a bank account (the same USD used for creation/redemption of USDT).

So in that theory they do get sufficient USD to cover USDT (as opposed to printing it out of thin air) but are using it to buy questionable CP.

I think many people believe they don't even have enough USD to start with, eg because some of their assets are loans collateralised by crypto (such as the Celsius 1B loan).

I believe both are true - Tether printed USDT against non-cash, and used some of the actual cash to buy dodgy assets for more yield.

It's important to note that a lot of the demanded records don't exist.

e.g., we know from the CFTC settlement that for a while, Tether didn't keep anything so tawdry as "accounts" - the only documentation of the reserve was a single shared spreadsheet.

> Tether didn't keep anything so tawdry as "accounts" - the only documentation of the reserve was a single shared spreadsheet.

There are soooo many red flags with crypto. So many shady people at the top of its pyramid. It is amazing how people can be so blinded by greed so as to not see how big of a scam crypto is. It is truly impressive.

The question is not whether Tether is backed by USD, everyone knows it’s not.

The question is whether Tether is too big to fail.

At this stage it’s unclear how many decision-making people have skin in Tether staying afloat.

I don't think it is that hard to believe that some people have been tricked into believing that "USDT" has some relationship with the US Government.

How can i short Tether?

not a defi expert, but I think the most common way to do this is to use Aave:

  1. borrow Tether
  2. swap it for USDC (or stablecoin of choice)
  3. wait for Tether to crash
  4. pay off your Tether loan at a fraction of its original value

risk is that your tether loan will be accruing interest (currently 1.4%) so if it doesn't crash or takes too long to crash you could be liquidated.

There's also the risk that USDC (or alternate) will lower in value due to Tether crashing, even if they were merely also crypto. It may be necessary to convert to non-crypto assets instead.

Of course, then there's the risk that non-crypto assets will be affected by the same…

Do not short Tether.

Doing so is betting against The House.

Not just any house, The House. The House in which all other houses are built.

You _cannot_ win shorting Tether.

Well Tether can only have two stable states $1 or $0. A Tether is never going to be worth $2 so at worst i am paying interest on the short.

> Well Tether can only have two stable states $1 or $0.

Instability is often what kills short sellers.

On average the sea is flat.

If Tether goes to zero your counter-party risk goes to infinity.

In the meantime it has all the hallmarks of a scam manipulated asset. Shorting it will get you liquidated at the whim of the manipulators.

Not my house. I use kraken so I think I will remain less affected than users of other, less credible, exchanges.

Cryptocurrency has been working just fine before tether, and it's going to work just fine without it. We've seen ups and downs. So I don't think it's that crazy when the house has failed many times in the history of cryptocurrency.

Tether is The House. It doesn't matter what exchange you trade on, the price of Bitcoin (and by extension all crypto) is settled in Tether.

Take a loan in tether, sell it for real USD. Wait for tether to crash. Buy tether back and pay back your loan.

Why should I care about BTC when shorting tether?

If you need to ask this question you should not be doing this. It's been plugging away without issues for years. What makes you think you can suddenly outtime the market on its collapse?

Attention by regulators.

You haven't gained any competitive advantage in timing though unless you have some unique insight. You just read a press release that is available to every other market participant, some of whos full time job is to do things like analyze balance sheet risk.

Anyway good luck, just beware that you aren't making some kind of smart money play.

Tether has lost one or more cases already.

On FTX you can short the USDT-PERP future. You pay about 4% a year in funding fees while the position is open.

That’s more than an actual spot margin loan.

Be careful with this, tether is semi-regularly manipulated to briefly go way above $1 in order to squeeze shorts.

So many small positions. Got it.

The places you can do so have a vested interest in keeping tether afloat. Do not play in a rigged casino

Sell short USDTUSD on Kraken https://www.kraken.com/prices/tether?quote=usd

Have several million to invest and ask an investment bank to write you a tether swap. It won't be cheap.

Exit any position and then ignore it.

I think you can do it on Kraken.

Sell your tether, sell your other crypto, move out into the forest, build a log cabin, hunt wild game

The good thing about Tether is that you can look at Tether, then look at the Federal Reserve's behavior.

Tether throws into sharp relief the excess of the Fed.

The Federal Reserve is a US government created organization, with specific public mandates, and has the full backing of the entire US and global financial & monetary systems.

Tether is a private company, controlling $67B in assets, with less than 10 FT employees, a CEO who hasn't been seen in public for years, with no transparency into their backing, has been caught lying multiple times in court, and has been involved in multiple civil and criminal investigations.

There's no comparison.

full backing with what exactly? You are joking right? Only powerful US army is backing it, nothing else.

Oh that's all.

But wait, what about the Navy, the Air Force, and the entire US economy?

The vested interest of many countries

the fed never promised they were backed by cash

Also, the Fed doesn't print money to buy coke in hookers.

It prints money so the US government can use it (you can argue to what degree that is waste).

But the Fed's balance sheet is solid and highly liquid.

Crypto and Covid are 2 great examples of how the less information people have, the more sure they are.

There are already 2 comments here that are 100% sure tether has zero dollars backing it. I am not saying it has a 100% backing, or any other value. I do not know. But that fact people are so sure they know and know exactly and at the very extreme of the possible range is very telling...

Occam's Razor. If it was backed then they would have produced the evidence long ago instead of dancing around the issue for years and doing phony "audits".

That's different than saying they have zero dollars, like the sibling comment that the parent was probably alluding to. In fact, there have been ~$20 billion in withdrawals during the last few months as the market has turned bearish and the market is reacting to a likely collapse below market capitalization in Tether's non-dollar-backed assets [0]. Are they backed 100%? Probably not during bear markets because they seem to be doing discretionary trading with deposit money. But the options aren't limited to "they have $0" and being 100% backed.

[0] https://coinmarketcap.com/currencies/tether/

Serious skeptics of Tether are not claiming they have $0. Just much less than they claim to have.

I dont get why people think the assurance reports they make are phoney.

https://assets.ctfassets.net/vyse88cgwfbl/2xJyKdUKicdRUWpC9b...

Its not like BDO are going to stick their neck out for tether here

That is fine, as long as it is your belief and you admit you might be wrong.

The issue is when you say Occam Razor is a form of proof and you are "certain"...

Occam's razor is an heuristic for proceeding in the absence of certainty. Anyone claiming otherwise doesn't understand it.

As for Tether I'm certain enough to advise anybody investing it or any currency supported by it to not invest money they can't afford to lose.

cer·tain (sûr′tn) adj.

3. Established beyond doubt or question; indisputable: What is certain is that every effect must have a cause.

5. Having or showing confidence; assured:

When someone says, "I am certain .." they are are clearly using definition 5. and especially in this context. Your insistence that they are using definition 3. is unreasonable, especially since you KNOW they came to this opinion via Occam's Razor.

> There are already 2 comments here that are 100% sure tether has zero dollars backing it.

Yes, that's a silly claim. Pretending that's anything near the average criticism of Tether is also silly.

It's a common occurence on HN. My theory is that people make authoritative comments, even when they should know better, because those comments tend to attract more up votes. This is especially problematic on topics that can't be easily verified.

> Crypto and Covid are 2 great examples of how the less information people have, the more sure they are

Funny because this applies to people who are big time into crypto and those who bought completely into the Covid narrative. If those people did even a small amount of research they’d understand why skeptics are probably right to be skeptical. If they did their homework they wouldn’t lose all their money to scammers and they wouldn’t flush two years of their very short life down the toilet because some “expert” told them to freak out.

What is even the point of this comment? You say you have no clue what the truth is, but still twirl your mustache on the oh-so-very-nuanced stance that it's more likely a 50% scam than a 100% scam.

Why is the letters and words garbled to an unreadable level especially on the first page?

Tether asked for proof reserve is backed with dollars, not just ketamine.

I highly doubt they have given out Tethers for free, exchanges paid dollars for them. And even banks don't have all their money in stock. That is why it is illegal to incite bankruns.

> I highly doubt they have given out Tethers for free, exchanges paid dollars for them.

Tether and Bitfinex (one of the biggest exchanges) are both owned by the same people: iFinex. They're effectively one in the same.

Not coincidentally, both of them have already been caught and fined for Tether not being fully backed and for commingling reserves and customer funds: https://www.cftc.gov/PressRoom/PressReleases/8450-21

Also, you can't assume that exchanges paid dollars for them. Tether could print a lot of Tethers, transfer them to exchanges, and exchange them for crypto. No dollars are involved in the transaction and it all relies on everyone believing that Tethers are worth $1 because Tether says they are.

Bitfinex has 42 times less volume than Binance so it likely doesn't add up to all that much of the total exchange USDT usage to make a big difference.

0. https://www.coingecko.com/en/exchanges

You assume the published volume is legit. I have my doubts.

Crypto is a scam. Nothing about it should be trusted.

They can print Tether for free and use it to buy crypto. This pumps the price and then they can sell.

Also, Tether is owned by Bitfinex, which enables them to print Tether to cover their own losses.

> They can print Tether for free and use it to buy crypto.

Ah yes, they can just operate a classic ponzi scheme!

They can use new investors money to cover for the ficticious assets that previous investers were told that they hold!

> They can print Tether for free and use it to buy crypto. This pumps the price and then they can sell.

I've never understood this theory. It implies that the market moves when they buy, but not when they sell?

If you're unscrupulous and you have a money printer, you don't need to resort to market manipulation to print money, you just... print money. And you can offer a 20% APR to people who are willing to pay real USD for your money, to keep the music from stopping too early.

> I've never understood this theory. It implies that the market moves when they buy, but not when they sell?

That's not an unreasonable assumption when the asset isn't held and bought mostly by professionals trading based on its fundamentals, but by people that get very excited by "line goes up" and diehard HODLers. This isn't specific to Tether, it's standard pump and dump behaviour. Printing money is great, but getting further gains on your printed money (and a plausible "massive growth in crypto interest" story to make your printed money seem more real) is better still.

Plus chances are Bitfinex did the pump bit but actually holds onto a lot of the crypto it bought anyway.

You can do the same if you have a lot of USD in the first place or alternatively with reserves. Printing Tether isn't required and it is questionable if a pump and dump at quite this basic of a level is profitable on average.

"There is this other scam you can commit with less work" is not an argument that the first scam isn't happening.

The mechanism of a pump-and-dump like this is to spend your company's assets to boost the price of your personal (crypto) holdings. The exchange and the coin don't profit from the scheme; they lose money, while the owners of Tether/Bitfinex win big with their personal assets.

It's a way of cashing out company funds.

Not for free, but they very likely exchanged Tether for assets that are not dollars and whose value has since dropped. In some cases we know that those assets were very dubious and they had trouble getting the money back.

Banks have losses too. But they raise money by selling stock, which provides a cushion against losses. The stockholders lose money first.

> but they raise money by selling stock

How does this work with credit unions? The one I joined I had to “buy a share” for 5$ and keep that minimum of one share (5$) to keep my account active. The credit union is not publicly traded so the shareholders are the account holders.

Good question. Looks like technically, you are a shareholder and get dividends instead of interest for a "share draft account" [1] which is backed by share insurance. [2]

I don't understand how that can work as risk capital. Maybe it just isn't.

[1] https://www.investopedia.com/terms/s/share-draft.asp [2] https://www.ncua.gov/support-services/share-insurance-fund

> I highly doubt they have given out Tethers for free, exchanges paid dollars for them.

Why do you doubt that? They have motive and opportunity, and they're obviously not on the level so any appeal to general assumptions of honesty go out the window.

USDT wouldn't be fully backed if they gave it out for free. Having USDT be fully backed is their motive.

> Having USDT be fully backed is their motive.

Your source for that is what, blind trust that they're being honest? When they've already been caught in numerous lies?

It's less direct than that. Some crypto fund has say 10M$, they want to buy a lot of BTC, so they borrow 20M$ denominated in USD but settled in USDT from iFinex treasury, and use it to buy BTC. iFinex can now claim that they are backed by USD assets, crypto fund effectively has taken a leveraged BTC long position, pushing BTC up, everybody is happy. Until BTC goes down too much or everybody tries to withdraw USDT, or both, then everything unravels.

You can also replace "crypto fund" by any crypto project that uses leverage to deliver extraordinary returns - as long as everything goes up.

They may have spent or lost some of those dollars though!

Tether does not have USDT backing. Some people are going to end up in prison for life.

Url changed from https://finance.yahoo.com/news/stablecoin-issuer-tether-orde..., which points to this.

Oops. [Tether web site turns into nginx install page.]

There isn't a single dollar in a vault. They've been a scam since the beginning.

They clearly did NOT have any assets when they were pretending to be audited or they would have completed the audit.

This is just a cartoonishly naive take. This is like saying the Fed or JP Morgan is insolvent because they don't have the sum of their balance sheet located in some metal vault with dollar bills inside of it. It turns out having stacks of paper in a metal cage isn't how solvency is defined in 2022.

Their whole promise is having a dollar in a vault for every tether issued.

Well, you are wrong. But ok.

I think some of the most extreme criticism doesn't go that far.

Bitcoin crowd doesn't like less than 100% backing. The argument isn’t that they have nothing.

When Tether had disrupted fiat redemptions and lost banking, people would find the banks they likely moved to by looking at massive increases in the bank’s reported deposits.

Nobody likes 0% backing. Yes, the argument is that they have NOTHING, zero, $0. Never did.

Crypto is growing up. The little tyke we got to know in 2014 is getting its first meaningful encounters with the consequence of young adulthood.

Growing up is hard, but the outcome can be positive.

How is tether considered a cryptocurrency here? It's centrally minted and controlled.

Because the control and ownership uses cryptography and USDT is a currency. Hence it is a cryptocurrency.

As of 2021, their reserves consist of:

Cash & Cash Equivalents & Other Short-Term Deposits & Commercial Paper (75.85%):

- Commercial Paper (65.39%)

- Fiduciary Deposits (24.20%)

- Cash (3.87%)

- Reverse Repo Notes (3.60%)

- Treasury Bills (2.94%)

Secured Loans (none to affiliated entities) (12.55%)

Corporate Bonds, Funds & Precious Metals (9.96%)

Other Investments (including digital tokens) (1.64%)

Anyone saying Tether is not backed in any way is illiterate or a conspiracy theorist.

I would guess that the lawsuit alleges either:

a) These percentages are true, but they don't actually add up to the amount of tether issued.

b) This was true in 2021 but is no longer true

c) This numbers were not an accurate representation.

I'll borrow 100 bucks from you, they'll be backed too:

- $25 in my gas tank (50.0%)

- $10 in a crumpled bill in my pocket (20%)

- $15 of groceries that are in my fridge (40%)

don't worry about how much it adds up to or if it's liquid, it's backed

I love that these percentages add up to 110%, and even more so when comparing the dollar amount and associated percentages in relation to the original $100 and to each other.

But the numbers do add up?

The percentages add up. Are you certain that for every $100 in USDT they issue, they acquire another $2.94 in T-bills, $3.87 in cash, take out a secured loan for $12.55, and so on?

They could indeed have all of those percentages, in exactly that relationship, all combined worth... a million dollars. That would be far, far, far, far short of what it should be.

..what's the worth of that commercial paper? What's the _trustworthiness_ of it? Who is it from?

From [1], the value of that commercial paper was $24,165,815,363. $23,615,946,340 of it was rated A-2 (Tier-2) or better (A-1/Tier-1 and A-1+/Tier-1+). This is equivalent to BBB or better (A to AAA) rated bonds. The report does not specify the CP issuer.

Tether's consolidated reserves have since changed composition. [2] The most recent report shows (approximate percentages):

- US Treasury Bills (43.45%)

- Commercial Paper and Certificates of Deposit (12.65%)

- Money Market Funds (10.25%)

- Cash & Bank Deposits (8.15%)

- Reverse Repos (4.5%)

- Non US Treasury Bills (0.59%)

- Bonds, Funds, Metals, Other, Loans (20.37%)

So the commercial paper was so far trustworthy enough to allow them to rotate out of much of their CP position and into US Treasury bills.

[1] https://assets.ctfassets.net/vyse88cgwfbl/4hiNJsZ98LlZqCJHKz...

[2] https://assets.ctfassets.net/vyse88cgwfbl/2xJyKdUKicdRUWpC9b...

Since April of this year USDT has lost ~20% of its market cap. Presumably, this was tethers being redeemed for USD. Would be interesting to know which of the listed assets Tether sold off to fund these redemptions and whether they had to sell any of them at a loss.

It was likely Tether being swapped for other stablecoins, or Tether swapped as a TETHER/USD pair on a centralized crypto market.

Allegedly.

And I'm sure it's partially backed by something, the issue how much is it really backed and by what.

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