[arzt]

"Players in the crypto ecosystem will be shocked, shocked to know it got this bad, this quickly, but this has been an open secret for over a year."

----

I'm not entirely in agreement the crypto world will be shocked tether is insolvent. As long the the fiat gateways exist to exit the system with gains intact, most could care less about tether. It's musical chairs.

[Sniffnoy]

See Redoubt's comment. The use of "shocked, shocked" is meant ironically, in reference to a scene from Casablanca. In general when you see the word "shocked" doubled like that it basically always means this.

[ufo]

https://youtube.com/watch?v=SjbPi00k_ME

A memorable performance by Claude Rains

[nostrademons]

Yeah, people have been saying that the Tether stuff is super shady and just waiting for the bubble to pop for the better part of 3 years. It's very much been an open secret.

[Redoubts]

https://www.quora.com/What-is-the-origin-of-the-phrase-I-am-...

[cwyers]

Yeah, I think people are missing the joke here.

[Analemma_]

This is pretty revisionist. My own experience lurking in crypto communities (and reading the replies to @Bitfinixed), was to insist that everything was fine and furiously deny that Tether was a scam, and accuse me of being a dirty fiat shill for pointing out that Tether was a scam, right up until Tether starting admitting under oath in court that they were never backed by reserves, at which point the conversation switched to "we knew it was shady all along".

This sort of thing is pretty common in Bitcoin land. Mt. Gox was also totally fine, nothing wrong, how dare you accuse them of wrongdoing, right up until they declared bankruptcy and then suddenly everyone had known all along they were insolvent and only a fool would've put their money there.

[nostrademons]

Both viewpoints exist, loudly. You'll find plenty of people today that say that the Tether stuff is fine and completely ordinary, and if it hasn't popped by now it probably won't. (Hell, you could read my original comment in this thread that way.)

What changes is which side you look at. Think of it like a Rorschach test: there is no truth, but there's a smattering of contradictory evidence that can be interpreted both ways. Your brain can't deal with the contradiction, and then picks a side based on the preponderance of evidence it sees. It can flip sides if strong new evidence comes out, but in general the brain discounts evidence that contradicts its initial hypothesis and amplifies evidence that confirms it.

[nullc]

> admitting under oath in court that they were never backed by reserves

Huh. Did I miss something? If they were never backed by reserves how could $800 million of their funds ended up seized?

[wmf]

Never 100% backed. Clearly there was some money.

[nullc]

Still missing the context on that, because AFAICT the reports seem to show that it was at one point 100% backed.

It's very possible that I'm missing something, since this isn't something I've paid a lot of attention to (as it always seemed obvious that it would eventually end up in this state).

[vkou]

Suppose that you became a bank. I create an account, and deposit $100 into you.

You take that $100, keep $20, and then lend the other $80 to a heroin-addled homeless person. He swears he'll give it back next year, plus interest. And gives you a receipt and everything.

Now, suppose that you are dragged up into a courtroom, over your mishandling of customer funds. You point out that no funds were mishandled - you have $20 in cash... and an $80 IOU from a junkie. You are fully capitalized! Solid as houses!

Reality: You're not. Any independent auditor with two brain cells to rub together will not value that $80 IOU at face value (The chap is highly unlikely to pay you back.) Your bank is actually insolvent.

Tether Reality: Bitfinex/The Tether Corporation played a shell game, such that they are '100% capitalized' if you add up their cash reserves + IOUs. The IOUs aren't worth the paper they are printed on.

It's possible that at some point in the distant past, they were 100% capitalized, but given their resistance to external audits, it's highly unlikely that it has been the case.

The most amazing thing about this entire adventure is that USDT/USD still trades at par. It seems like BitFinex could host a press conference, with the entire leadership team wearing T-Shirts that say "WE STOLE ALL YOUR MONEY", and it wouldn't move the market (The 'bitcoin enthusiasts' would obviously interpret it to be a sarcastic dig at all the bad publicity surrounding them.)

[revel]

Crypto communities are a lot more credulous than financial communities. Every institution I ever talked to had approximately zero trust in tether. Some of them chose to do business with bitfinex anyway. I'm guessing they regret that decision enormously

[lawn]

You mean you've been swarmed by comments from a loud minority. Tether supporters employ large troll armies, to make it appear to be a popular opinion while it might not be.

[spurdoman77]

Yeah, this kind of sensationalist articles start to be more like advertisements for tether since it has kept its peg for so long.

[dmitrygr]

> As long the the fiat gateways exist to exit the system with gains intact

Basically the entire article points out that this is in fact impossible, only the first ones to run will be able to do this. Much like a bank run, there is not enough cash to back a tether exodus.

[revel]

It's like 2007/2008 again. Everyone savvy knew there was fraud in the mortgage market at the retail level but they didn't know how pervasive it was. To some extent the Chinese commercial real estate market is the same way: nobody trusts the numbers but no one is sure how bad it is. The author is right that there is this pressure to win the money back and that this is where things can get really out of control. Of course, there is a remote chance they can pull a rabbit out of a hat and make enough money legitimately to pay back all the people they owe, but I doubt it.