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Comment by TheAlchemist | Hacker News Reader

How can anybody be surprised ?

The 2 biggest players - Tether and Binance are much worse and still very well alive. Both are several times bigger (on paper) than FTX.

Binance is already banned in most countries and without headquarters. Do anybody believes they have a proper gouvernance ?

Tether was proved to lie about it réserves several times, recently started publishing attestations about reserves - attestations that are obviously false - the numbers don’t really add up.

For all we know, both could disappear tomorrow with all the money and nobody would be able to say where and how it’s gone !

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> both could disappear tomorrow with all the money

If they go then the magic beans are worth $0. In which case - what are the damages? They've ran away with magic beans worth $0.

To quote Monty Python: "I mean, what have you got to lose? You know, you come from nothing. You're going back to nothing. What have you lost? Nothing."

Tether prints tokens in exchange for money. Them disappearing means they took the money and abandoned their magic bean IOUs.

Do they actually exchange them for money or are they just creating them? There has never been a reputable audit of Tether.

Tether's 'market cap' is like 60 billion or whatever, I think most of that was just created out of thin air, but I think some of it was exchanged for real dollars, like a few percent, maybe a couple of billion dollars. In which case, when the fraud comes crashing down, they will have stolen hundreds of millions, to maybe a couple of billion dollars.

Imagine if somebody stole a piece of art worth hundreds of millions of dollars...

The way I always thought about it was they printed Thether and used it to buy other POS/POW tokens like BTC + Eth, and then sold those for real $$$.

> Tether's 'market cap' is like 60 billion or whatever, I think most of that was just created out of thin air, but I think some of it was exchanged for real dollars, like a few percent, maybe a couple of billion dollars. In which case, when the fraud comes crashing down, they will have stolen hundreds of millions, to maybe a couple of billion dollars.

> Imagine if somebody stole a piece of art worth hundreds of millions of dollars...

Buy some bs art for peanuts, get bs appraisal that it's worth millions, donate it to some bs gallery and reap tax deductions. Art was turned into a tax evasion scheme, and it compromised any value it ever had.

They did handle several billion in redemptions without any hiccups when Luna collapsed.

But then again, everyone knows that if Tether blows up, every single crypto entity collapses. If Tether had a hole of a few billion, other entities might have stepped in.

Will they do so again? Hard to tell.

Regardless, Tether is a ticking time bomb.

It would be a fantastic business if they did indeed have all that money. 70B in depsoits. Even in safe short-term t-bills, that's a crap load of risk-free interest income for basically doing nothing.

Yes, of course. In fact its market cap decreased by like 20B at one point.

You'd still have your token though.

Tether and Bitfinex have the same owner. They print the Tethers for free, move them to an exchange, exchange them for Bitcoin or other token, convert that to USD.

As long as it happens slowly enough and with enough steps, that's 1 USDT converted to 1 USD.

The damages are everyone with money in a USDT denominated exchange who believes that the actual USD still exists somewhere in the system. It left months / years ago, the people still playing are the ones holding the empty bag.

They received dollars for the magic beans, and it’s the dollars that are worth something.

It’s a game of musical chairs where people holding the magic beans are dancing around and the dollars are the chairs. There’s only so many dollars to go around when the music stops, and they will go to the exchanges and the ones who “cashed out”.

What's interesting is how little scrutiny was applied to FTX and they're the one who lost people's money. Tether has been under intense scrutiny for years and is still working just fine. No one has lost their money in Tether despite huge outflow events.

There's a lesson in here.

FTX is younger than Tether and it was actually subject to scrutiny.

Tether has also been subject to scrutiny and was found, at the time, to be lying about their reserves and backing. And this was before they printed a lot more! It doesn’t make sense to write them off as having withstood the test of time when they literally failed to stand up to the first legal scrutiny that got access to their books.

The lesson learned is that frauds can go on for a long time. It took decades and a once in a generation market crash to expose Bernie Madoff. Enron spent years running their sketchy accounting. Wirecard was only finally exposed after the German government essentially lobbied on their behalf against the journalists trying to expose the fraud.

These frauds can continue so long as they can continue to grow or at least maintain a steady state. Since they promise higher returns than can be achieved through honest means the liabilities grow faster than assets over time, but so long as nobody tries to realize their gains it's fine.

FTX only came down because they pissed off the Binance guy who dumped his position all at once and exposed the fraud. I'm dubious Tether could survive a similar attack. I also think that at least some people investing in these are completely aware of the situation and are ok with it because it means they can beat the market so long as they get out before the whole thing suddenly collapses. Basically playing financial chicken.

> These frauds can continue so long as they can continue to grow or at least maintain a steady state. Since they promise higher returns than can be achieved through honest means the liabilities grow faster than assets over time, but so long as nobody tries to realize their gains it's fine.

Honestly this sort of comment makes me want to stop reading hacker news comments sections altogether. Could you explain what returns are promised for depositors of USD at FTX international and holders of USDT?

It didn't matter if those holdings weren't making returns, because they were all connected to a Ponzi scheme that was siphoning off the money from the rest of the company.

https://www.theblock.co/post/186187/alameda-promised-high-re...

15% returns, guaranteed, no risk.

It didn't matter that my comment was completely wrong and irrelevant because some other facts I omitted from my comment!

> FTX is younger than Tether and it was actually subject to scrutiny.

What due diligence did Blackrock and SoftBank did before investing in FTX?

Half the people I know trusted FTX just because "Blackrock and SoftBank must have done their homework".

They are under scrutiny, and here are some facts:

- they lied about the reserves and weren't backed at 100%

- they did fraudulent attestations wiring money for the 'snapshot' of accounts for the attestation then moving it back to owners (from Bitfinex exchange if I remember - which is the same people - see a pattern here ?)

- held money in their personal accounts

the above were proven without doubt by the NY AG.

- promised an audit for several years (it's always just a few months away)

- publish attestations that are obviously false. some red flags - in the first one, they claimed to have so much money in commercial paper that would put them in top 10 players - yet, among desks trading those papers, nobody ever heard of them ! In the last 2, if what they published was true, they would already be under water, given the decline of all coins - yet, somehow they are all okay.

- each time an exchange / scam goes down - they publish those papers saying they have 0 exposure to them (recently FTX, Genesis) - this despite findings that Alameda (FTX affiliated hedge found) was on the recepient of >30% of all Tethers

- last I checked, their CEO wasn't seen publicly for several years. Most of their financial 'communication' is done by their AG and 'the IT guy'

There are many more. In case of doubt, watch this interview and judge yourself if this feels like guys legitimately managing 70B real dollars:

https://www.youtube.com/watch?v=ZBEqyiO35cQ

It's all scam - it's so obvious that it's amazing. It will collapse - we just don't know when.

> - each time an exchange / scam goes down - they publish those papers saying they have 0 exposure to them (recently FTX, Genesis) - this despite findings that Alameda (FTX affiliated hedge found) was on the recepient of >30% of all Tethers

Why would this matter? Tether gives out USDT to (almost) anyone who wants it in exchange for cash, and only redeems it for cash if you give them back the USDT... 100% of their USDT could be held by FTX and that would not suddenly cause them to have any exposure to FTX.

It was proven and admitted that they are also issuing Tethers against loans - for example Mashinsky (the guy from Celcius - that collapsed) said in an interview that Tether loaned them 1B.

If Tether is a fraud (likely), it appears to be a simple one that's rather difficult to implode. Because of their widespread use in trading and limitations on fiat trading / capital controls around the world, it would be a challenge to start a run they couldn't cover by just honoring redemption requests. If they only held 10% it could happen, but if it's ~70% as often claimed, I don't see it happening.

I'm not sure what could collapse Tether other than Tether itself saying they're broke and refusing to honor redemptions.

I assume tether is mostly propped up by illegal businesses. I don't hear it discussed much, but what if they do actually have all the money it's just that they got it from drug dealers and oligarchs

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