[satvikpendem]

Ah, finally, will Tether get its day in the litigious sun? It's well known in cryptocurrency circles that their coin is not backed 1:1 to USD, similar to FTX, only that FTX crashed and this was found out the easy way. Cracking Tether will be much harder as they resist audits.

[fallinditch]

Here's a fascinating piece of history that sheds light on the Bitfinex/FTX/Tether shenanigans. Originally a Medium post that was removed at some point, here's an archived copy. It details how Bitfinex/Tether manipulated BTC to make serious $$.

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...

[fallinditch]

TL:DR "USDT was used to pump other traded pairs in order to avoid raising the price of BTC directly.

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."

[earnesti]

As the article states, nothing has been proven. Didn't read further than that.

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.

[popcalc]

Pump'n'dumps are far less risky than running a massive ponzi?

[yieldcrv]

> It's well known in cryptocurrency circles that their coin is not backed 1:1 to USD

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.

[JumpCrisscross]

> 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?

[yieldcrv]

I didn't say that, that statement doesn't imply that or suggest that.

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.

[JumpCrisscross]

Fair enough. That said, Binance can co-operate with authorities in a way Tether may be technically limited in being able to.

[JumpCrisscross]

> Cracking Tether will be much harder as they resist audits

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.

[moat]

It was formerly understood that Tether was not backed 1:1.

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).

[jiggawatts]

How is that possible? They were thought to have less than half of the dollars they’re supposed to be holding!

[earnesti]

Banks have like 10% or even less the dollars that they are supposed to be holding, but still are doing all fine.

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.

[whamlastxmas]

Banks have extreme requirements on that ratio though, and have been regulated to death (for good reason) for a hundred years

[sgammon]

> Banks have like 10% or even less…

That’s completely untrue, and Tether isn’t a bank.

[Spivak]

Yeah, banks hold much less than 10%, as of 2020 the reserve requirement is 0%.

[tfehring]

Reserve requirements are completely different from capital requirements. US banks are required to hold about $108 in assets for every $100 they hold in deposits, and their actual holdings are typically in the range of around $110 to $115 in assets per $100 of deposits. Central bank reserves are one type of asset that commercial banks can hold; a 0% reserve requirement just means that commercial banks can hold all of that ~$108 in other assets if they choose to.

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...

[alchemist1e9]

> It's well known in cryptocurrency circles that their coin is not backed 1:1 to USD, similar to FTX, only that FTX crashed and this was found out the easy way.

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.

[JumpCrisscross]

> every tether investigation seems to end up showing they are even over capitalize and hold more than 1:1

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...

[alchemist1e9]

The NYAG settlement you keep posting didn’t find that Tether was unbacked or below 1:1. It focused on transparency issues and the fact that funds were not always properly segregated. There were periods when reserves included assets like receivables or funds temporarily seized by authorities (e.g., Crypto Capital), but there was NO finding that USDT wasn’t fully backed. In fact, Tether has often shown it holds more than the necessary reserves, as evidenced in various attestations and reports post-settlement, and even in the report you keep posting NEVER they claim USDT isn’t fully solevent!

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.

[jujube3]

It would be very simple for Tether to just hold $1 for each 1 Tether coin. They could invest their cash in safe assets like treasury bills that yield 4% or more. Meanwhile, they pay no interest in Tethers. So they get a 4% return for doing nothing at all.

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.

[JumpCrisscross]

> there is no evidence that they are doing anything else

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...

[alchemist1e9]

How about you find anything other the NYAG settlement that you keep mischaracterizing?

[treyd]

> It would be very simple for Tether to just hold $1 for each 1 Tether coin.

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.

[jujube3]

This seems like annoying pedantry. Holding same-as-cash assets is not rocket science, there are plenty of professionals who could help you with that. On Vanguard you can buy things like T-bills with a few clicks. (I am not suggesting that they're using Vanguard specifically)

[a_dabbler]

HSBC has had money laundering scandals with amounts in excess of 1b$

[shadowmanifold]

You can't run a 120 billion dollar bond trading operation with like 4 people.

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.

[alchemist1e9]

> You can't run a 120 billion dollar bond trading operation with like 4 people.

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.

[from-nibly]

If it was that easy then we'd probably see more banks that do just that.

[pavlov]

That is what banks do.

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.

[from-nibly]

But banks also make loans, and do fractional reserve banking, so obviously owning bonds isn't enough.

[jujube3]

The Fed doesn't let banks do this because it would be "too safe"

https://en.wikipedia.org/wiki/Narrow_banking

[delabay]

What you describe is their actual business model.

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.

[cool_dude85]

Can you link one of these investigations that show that tether is backed more than 1:1 with the USD?

[alchemist1e9]

I will try to find it. I would also point out they hold excess reserves in Bitcoin.

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.

[roenxi]

> I would also point out they hold excess reserves in Bitcoin.

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.

[bombcar]

Isn't the whole argument against Tether that they print Tether out of nothing, buy Bitcoin with it, and now have Bitcoin (and increased the price of Bitcoin)?

[alchemist1e9]

Actually, the NYAG settlement doesn’t support that conspiracy theory. The investigation found no evidence that Tether printed USDT ‘out of nothing’ to manipulate Bitcoin. The issues raised were about transparency in Tether’s reserves during specific periods when funds were managed by third parties, not about unbacked issuance. Tether has since updated its policies, making clear the types of assets backing USDT.

[JumpCrisscross]

> they hold excess reserves in Bitcoin

We had precisely the same amount of information about FTX's Bitcoins as we do for Tether, for what it's worth.

[alchemist1e9]

bc1qjasf9z3h7w3jspkhtgatgpyvvzgpa2wwd2lr0eh5tx44reyn2k7sfc27a4

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.

[JumpCrisscross]

That is a wallet with a lot of Bitcoins in it. We don't know to what degree it's controlled by Tether. We don't know the degree to which it's otherwise encumbered. If I recall correctly, FTX also pointed to wallets with Bitcoins in them from time to time.

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.

[timssopomo]

The issue is that "stablecoin" doesn't mean anything legally. US regulators have collectively abdicated their responsibility to create fair rules that encourage innovation while protecting investors and creditors.

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).

[1]: https://tether.to/en/transparency/?tab=reports

[stephenbez]

One metric of how bonds are susceptible to interest rate changes is duration [1].

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.

[1] https://en.m.wikipedia.org/wiki/Duration_(finance)

[jdenning]

This is the most recent one linked on their site[1]:

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

[1]https://tether.to/en/transparency/?tab=reports

[lottin]

This is just Tether's unaudited financial statements.