Federal investigators probe Tether
wsj.com
wsj.com
If Tether is sanctioned, they can't hold most dollar-denominated assets. Certainly none of the safe or liquid ones. Figuring out why it failed may take some digging. But causing it to fail is trivial.
Being speculated about is not the same as “known”. In fact every tether investigation seems to end up showing they are even over capitalize and hold more than 1:1!
My understanding of the audit situation was that the big accounting firms have refused to do it, presumably due to pressure from someone to not get involved.
The one adversarial investigation I know of found the opposite [1].
> presumably due to pressure from someone to not get involved
Not how audit works.
[1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
It’s funny how the no-coiner crowd keeps pushing the idea that Tether is some crypto scam destined to collapse, yet every single investigation, including the NYAG’s, has failed to back up that narrative. The reality is Tether has proven time and again that their USDT is fully backed and their business is profitable. The desperation to prove otherwise is just not supported by the facts.
My guess is nobody can get them on not being 1:1 but this idea of AML violations as the attack vector makes a lot of sense.
We had precisely the same amount of information about FTX's Bitcoins as we do for Tether, for what it's worth.
Isn’t that the public Tether bitcoin address with over 75K coins?
https://platform.arkhamintelligence.com/explorer/address/bc1...
That's precisely A LOT more than anyone knew about FTX's non-existent Bitcoin.
To be clear, I am not saying Tether is committing fraud. Just that to the extent there have been investigations, they came up short, and that them being short is not even among the main risks to their existence.
Regardless of whether that is true or not, seems like a terrible idea. Tether doesn't need backing on the crypto side of the ledger - they can create new tether there. If there is a depeg, it'll be from a large amount of money flowing from Bitcoin -> USD or the like. It is highly likely that will correlate to the price of bitcoin dropping (possibly substantially in the event of a Tether depeg). So I'd expect the valuation of their reserves to correlate in a bad way with the chance of them needing to sell those reserves.
Presumably they're doing this for operational reasons but I wouldn't put much weight to it in a discussion on Tether's resilience.
Plus, being a cynic I'd treat that as evidence against Tether being fully backed. Crypto that Tether owns directly could easily have been purchased without any fiat money entering the crypto ecosystem.
Tether publishes their reserves [1], only 4% are Bitcoin. 84% is "cash & cash equivalents & other short-term deposits", 3% is precious metals, 5.55% is "secured loans". They report $5B in net equity, ~4.2%. So basically, if their collection of assets declines in value by 4.2%, they become unable to redeem every coin. There are a _lot_ of ways for that to happen with 87% of their assets in T-bills and money market funds. If the shortest T-bill is 4 weeks to maturity, they have plenty of time to incur interest rate risk (e.g.: Silicon Valley Bank).
My calculations show that for a 4 week to maturity T-bill, the duration is approximately 0.077, meaning that if interest rates go up by 1%, it loses 0.07%. So even if rates go up by 5% in a week, they only lose 0.35%.
The problem with SVB is they weren’t holding very short dated bonds. Pretty much every large company has to deal with interest rate risk but as long as they keep the average duration low it doesn’t tend to be an issue.
https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYg...
Edit: to save people a click, the report shows 125 Billion in assets vs 113 Billion in liabilities. Approx 81 Bil in T-bills
As far as I know, there is no evidence that they are doing anything else. (There is some evidence that they did something else in the past, when interest rates were way lower.) But this hasn't stopped tons of people from speculating that they are.
But it’s more complicated because the current trading value of a bond is not the same as the expected return you’d get if you hold it to maturity. Last year Silicon Valley Bank and others got into trouble for this reason.
Let’s say you invested $100M into a 10-year bond when interest rates were at 2%. With interest, you’ll be getting back about $122M in ten years. Nice.
But what if you’re a bank and suddenly every depositor wants to withdraw that $100M? You can’t wait ten years. You need to sell the bond. Now you face the problem that interest rates are at 4%. Somebody with $100M can invest it in a 10-year bond that will return $148M instead of your measly $122M. So nobody will pay full price for your 2% bond because they can get a better return elsewhere.
There is a lot of evidence they aren't just buying Treasuries. The only times people looked, the money was being held in weird stuff, including frozen deposits at non-FDIC insured banks and private loans [1].
[1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
It would not be "very simple" for them to do this. No commercial bank lets you walk up to the teller with $1B and ask to deposit it, much less $93B. The financial system doesn't work that way. They have to cycle it through bonds on the repo market, which is what most huge firms do.
Tether makes the most profit per employee of any company in the world. Their transparency, speed, and market success is renown.
This thread is full of tether truthers living in 2017.
That amount of money is a huge amount of work to manage no matter what you are trading.
The simple explanation of how they do this is that they don't have anything close to 120 billion to manage.
It is really a sociological and network experiment of how long fraud can persist when the fraud is in the short term interest of all nodes of the network.
I suspect the reason Bernie Madoff was able to persist for so long is that many of the investors thought he was front running trades because of his position with Nasdaq. People tend to be fine with fraud if they are directly benefiting from the fraud and only risking their capital in the process.
Time is not a good measure of non-fraud. That is just a rationalization because any crypto investor has to basically keep the idea of a tether fraud out of their head at this point considering the risk to the ecosystem would be so catastrophic.
What does actually grow in time is the risk to the network.
They delegate much of those issues to multiple regulated third parties.
The much referenced NYAG settlement in this discussion never shows they were committing massive fraud. There were periods when reserves included assets like receivables or funds temporarily seized by authorities but there was no finding that USDT wasn’t fully backed. The link to that settlement is thrown around with the implication that “see they are fraudulent” for those who don’t read the details.
I used to think exactly like all the anti-Tether people and conspiracies but the fact is that there exists no evidence for massive fraud and much evidence it isn’t.
Its well known in the legal space and has already been addressed by multiple US courts. They're not looking for that and this isn't controversial.
Those court cases already happened in 2018-2020. Tether just needed to update its language. A financial institution not backed 1:1 to USD isn't a problem in any part of the banking sector, they just need a disclaimer that says that, and Tether updated their's and moved on. Those court cases were also about specific periods of time and were very intelligent and more nuanced than the Tether discourse in crypto spaces. Tether has periodically had more assets available, and its only controversy was about whether those were USD and US Treasuries amongst other things.
This is a probe about violating AML laws and sanctions. Which would likely only involve specific addresses in crypto and some onramps. But otherwise crypto-crypto trading won't be a part of this.
You think a dollar stablecoin won't be affected by being prohibited from touching dollars or the dollar financial system?
The result of this probe likely won't be that as the DOJ is just emboldened by their Binance and CZ conviction, where the founder spent a couple months at a Southern California Federalbsummer camp and the DOJ got a few billion dollars, and Binance continues to operate as before and no further regulatory overhang is above them and all the money coming in and out is magically seen as clean.
I think the article also points to the origins of the FTX fraud: was Sam Bankman Fried involved in these BTC manipulations? Or inspired by it to create his own exchange?
https://web.archive.org/web/20180620111632/https://medium.co...
Once BTC was obtained from the pumps of these currencies, it was then sold immediately for USD, which ‘flooded’ the market and depressed the price of BTC."
Tether is an operation that is a money printing machine on its own. They absolutely don't need to play pump'n'dump tricks to make money. It doesn't make any sense. Pump'n'dump schemes are risky. Tether has many options to make money with way less risk.
My people in the space now believe that they have made up the hole thanks to juicy interest rates (where Tether keeps all the yield).
Personally I don't think these tether conspiracy theories were ever true. Maybe they aren't 1:1 backed, but they have always been financially well off enough to keep the company running. And after the interest rates went up, they are probably making a killing. Typical bank has minimal reserves compared to them, and everyone is fine with that.
That’s completely untrue, and Tether isn’t a bank.
In contrast, Tether has historically admitted to having as little as $100.20 in assets per $100 in liabilities [0], with a significant fraction of it in crypto and other assets that effectively wouldn't even count toward banks' capital requirements. It has probably dropped below $100 in assets per $100 in liabilities - i.e., been insolvent - at some point, and even taking its latest audit [1] at face value, it has far less capital than would be needed for a bank with the same asset profile in the US or other developed countries.
[0] https://assets.ctfassets.net/vyse88cgwfbl/1np5dpcwuHrWJ4AgUg...
[1] https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYg...
This has been a complete failure of U.S. regulatory bodies.
[1] https://www.investopedia.com/terms/t/tether-usdt.asp
[2] https://coinmarketcap.com/currencies/tether/
[3] https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...
A "bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans" [1]. Tether doesn't offer demand deposits--withdrawals are subject to a minimum and fee [2]. It's thus not a bank, but a bank-like shadow bank [3].
[1] https://en.wikipedia.org/wiki/Bank
I don't follow crypto lately, but it seems that Tether is printing money in high interest rate period.
But back before that, it was a complete joke - it was so apparent that they published only made up numbers that didn't really add up, pretended to get legitimate transfers of billions of $ on Sundays etc.
They were investigated once by a US A.G. and found out to have lied on the reserves in the past, but nothing really serious happened. They got a fine and were forced to published a pseudo balance sheet, which was a joke (still a bit better than FTX's Excel spreadsheet).
For this to mean much (unfortunately), we have to know how many legitimate companies are being constantly reported as fraudulent. Similar to the FBI's flawless "they were on our radar" after every mass shooting event... if everyone is on the radar then it's not that informative that this person was too.
Madoff's returns were so egregious that they definitely should've been looked into despite any of this^ though. Arguably Tether should be looked into if only because of the systemic risk it (allegedly?) produces for the crypto universe more broadly. But then again... no one seems to eager to spend a bunch of investigative resources to bail out an economy of anti-government gamblers/degenerates.
However, the actual difference between assets and liabilities was significantly less than 120bn for those banks. With Tether, I imagine the collapse will go from 1:1 redemptions day 1 to "oops all gone" day 2.
So I expect Tether to be the largest "bank" failure in US history by terms of loss of value.
Historically, or purely in the context of this article, assuming it's true?
That kind of research could have earned you some good money.
Also, I can cherry pick too:
1st Jan 2023 - 31st Dec 2023: 256%
Cherry picking is meaningless. Research and knowledge are where the (digital?) gold is.
However, they must have been sitting on so much interest up to now given where rates went recently that, provided they ran a fairly conservative operation, they should have plenty of reserves.
"Oh, you're banking $700M PER DAY in deposits for Tether? Sounds legit to me!"
It does appear that tether holds short-term maturity treasuries, and I don't know how that fits into the larger demand picture.
https://assets.ctfassets.net/vyse88cgwfbl/63oJePOHqIvrcnXWMP...
https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYg...
https://ticdata.treasury.gov/resource-center/data-chart-cent...
If that's all there is, it's not a great defense. Maybe they felt like the WSJ article was just so unfair it didn't deserve a response, but then... just don't respond. This kind of righteous indignation with no actual rebuttal isn't persuasive.
This used to be a non-serious question. But now we've got presidential candidates calling for national debt ceilings that will result in a default on US debt, and therefore crash the US dollar. Bitcoin's getting integrated into every payment app as if these companies are readying for an eventual modern equivalent of a run on the banks. Except with everyone moving their money to crypto instead of getting 'real dollars' to stuff into their mattresses.
There's a 99.99%+ likelihood that Satoshi just.. lost his wallet one day, or died, or whatever.
BUT -- assume a 0.01% possibility that there is something else at play with that early-mined bitcoin. Assume the _impact_ of a negative outcome with it will eventually be on the order of entire economies.
If you use common practice to calculate security risk by multiplying the likelihood of risk by it's potential impact, there is certainly enough at play here to justify the US government putting a couple agents on a search for a week to figure out who this guy is/was, and who now controls all of those apparently-lost coins.
BTW, Tether probably is backed 1:1 or better because they bought $XXB of US treasury bonds at >4% which return billions in profit per year. BTC is also (currently) near all time highs. Whatever hole they had was probably filled in.
Tether is in a country that has a long history of doing monkey business, including monkey business with drug trafficking money and arms trafficking money. Even the CIA was tied to that monkey business.
To me there's zero doubt there's actual money laundering ongoing and I really wouldn't be surprised if, once again, some three letter agencies were implicated in monkey bahamian business.
I never forget the farcical interview with Deltec Bank's "Deputy CEO":
At the start of 2021, according to their website, it was a 55 year old bank. By the end of 2021, it was a 70 year old bank!
The bank's website is a WordPress site. And their customers must be unhappy - online banking hasn't worked for nearly two years at this point - take a look at the HTML source, there's no way it could actually work.
Anyway, their Deputy CEO gave this hilarious interview from his gaming rig. A 33 year old Deputy CEO, who by his LinkedIn claimed to have graduated HEC Lausanne in Switzerland with a Master of Science at the age of 15... celebrating his graduation by immediately being named Professor of Finance at a university in Lebanon. While dividing his spare time between running hedge funds in Switzerland and uhh... Jacksonville, FL.
The name of his fund? Indepedance [sic] Weath [sic] Management. Yeah, okay.
In this hilariously inept interview, he claimed that people's claims about Deltec's money movements being several times larger than all the banking in their country was due to them misunderstanding the country's two banking licenses, the names of which he "couldn't remember right now" (the Deputy CEO of a bank who can't remember the name of the banking licenses where they operate), and he "wasn't sure which one they had, but we might have both".
Once the ridicule and all this started piling on, within 24 hours, he was removed from the bank's website leadership page. When people pointed out how suspicious that looked, he was -re-added-.
The bank then deleted the company's entire website and replaced it with a minimally edited WordPress site, where most of the links and buttons were non-functional and remained so for months thereafter.
I mean fuck it, if the cryptobros want to look at all that and say "seems legit to me", alright, let em.
CEO of Tether - “As we told to WSJ there is no indication that Tether is under investigation. WSJ is regurgitating old noise. Full stop.”
Tether CEO additional statement on X - “At Tether, we deal regularly and directly with law enforcement officials to help prevent rogue nations, terrorists and criminals from misusing USDt. We would know if we are being investigated as the article falsely claimed. Based on that, we can confirm that the allegations in the article are unequivocally false.”
Someone tipped off the WSJ, and more will probably be developing
The criminal investigation, run by prosecutors at the Manhattan U.S. attorney’s office, is looking at whether notes "tethered" to the Federal Reserve's "dollar" have been used by third parties to fund illegal activities such as the drug trade, terrorism and hacking—or launder the proceeds generated by them.
The Treasury Department, meanwhile, has been considering sanctioning the Federal Reserve because of the Bureau of Engraving and Printing's currency notes' widespread use by individuals and groups sanctioned by the U.S., including the terrorist group Hamas and Russian arms dealers. Sanctions against the Federal Reserve would generally prohibit Americans from doing business using the notes.
Good news can also drop, but there is a major asymmetry favoring bad news and liquidations, and consequently sudden drops of the Bitcoin price. You don't have to work at a hedge fund to find great methods like this.
It also shows why Bitcoin is an inferior investment compared to tech stocks, in which investors do not have to worry about these regulatory risks (except for antitrust, which is a slow, drawn-out process and this can be mitigated with diversification). QQQ has far outperformed Bitcoin even as far back as 2020.
U.S. "jurisdiction is triggered when a payment in U.S. dollars [takes] place and the U.S. financial system [is] used" [1].
EDIT: Tether withdrew from New York State's jurisdiction as part of its settlement with the New York AG [2], not to be confused with the U.S. attorney based in Manhattan.
[1] https://www.ziv.unibe.ch/unibe/portal/fak_rechtwis/c_dep_pri...
[2] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
Timing its collapse is foolhardy. Concluding it must collapse isn't. It's a shadow bank run without deposit insurance nor AML.
One, because the consequences of an AML failure are immediately catastrophic: a dollar stablecoin can't reasonably survive without access to the dollar financial system. Tether's unregulated status means enforcement options are zero or ban. (Banks can be fined and put under compliance regimes.) Running a perfect AML programme indefinitely is impossible. There is no indication Tether runs much of an AML programme at all.
Two, because bank-like structures are inherently unstable. Asset values fluctuate. The banks they hold cash or assets at will fail, sometimes beyond deposit insurance limits. Unlike banks, Tether has the benefit of being able to block redemptions. But they can only do that so many times before a regulator takes notice.
In summary, Tether exists at the pleasure of American regulators and the consequences of losing favour are collapse. They're compliance-wise and financially unstable. The consequences of a single failure won't be catastrophic. But eventually they will fail for the same reason every bank without deposit insurance will, eventually, fail.
Other commenters have hinted the path is “sanctions” for not enforcing some controls..
Personally I can’t wait for governments to go after stable coins, then Bitcoin will really “moon”!
There are plenty of regulated stablecoins [1]. Hell, my state is launching one [2].
Governments usually have to subpoeana banks to get transaction records. With a stablecoin, those records are centralised.
[1] https://home.treasury.gov/system/files/136/StableCoinReport_...
[2] https://www.ledgerinsights.com/state-of-wyoming-plans-stable...
If it happens, accumulate.
Depending on the reason, I'd also say it would be worth buying Meta, NVDA, TSLA, etc. on a 20% dip, especially if they were going into a season where, historically, they makes their largest gains.
Source? I'm seeing Fitzgerald say "Cantor Fitzgerald manages 'many many' of" Tether's assets (not all) and that he can vouch for their balance sheet [1]. But not that Cantor manages all of its assets nor that it's all in Treasuries.
[1] https://www.bloomberg.com/news/articles/2024-01-16/tether-s-...
I personally would take this with a grain of salt as they have a direct financial interest in Tether looking solid and prestigious and continuing its present operations.
I am old enough to remember when investment banks touting their mortgage backed securities business before the collapse in 2008.
What I am getting is that he simply said that he holds some of tether’s assets. Why and how would that make him privy to the entirety of tether’s balance sheet?
He says that Tether can redeem any request because his company holds their money. If Tether is unbacked this is security fraud
"Do you know how many disadvantaged minorities are invested in crypto? Especially after we allowed them to invest their social security into it, with matching contributions from the state if they agree to hodl? Are you a racist monster?"
Meanwhile 90% of black people will have 90% of their savings in crypto, accounting for less than 2% of all crypto holdings.
FTX so far was barely a speedbump. All it taught politicians is that there's a lot of money in doing what crypto whales say, and absolutely no consequences even if it goes belly up in the worst way.