11 ms·

The trillion-dollar lawsuit against Tether

349 points by prostoalex 7y ago

bhouston 7y ago
Question: Who was the dumper in this pump-and-dump game? Tether was clearly the pumper. Second: The claim that the they are liable for the damages of the loss from the peak is a bit weird. IF it was a pump and dump scheme, and I at least agree with the pump side of things, then the values were all inflated falsely anyhow. There should be punishment, but basing it on the losses from peak is very strange and not realistic.
- philipov 7y ago
  Basing it on the peak means they get punished in proportion to how much they pumped it, which makes sense to me. The drawdown/damage they caused includes both the dump and the pump.
  - saalweachter 7y ago
    I think where it loses me is that they are basing it on the nominal "market capitalization" of cryptocurrencies, which as is usually brought up on HN, are sketchy as hell. I'm not sure what a better way to compute the "volume" of the manipulation would be, however.
- SI_Rob 7y ago
  > There should be punishment, but basing it on the losses from peak is very strange and not realistic. Isn't this the usual protocol for damage suits in general? As I understand it, plaintiffs should plan for a 10x or even 100x reduction in damages awarded even under ideal suit outcomes, so you put as big a number on the table as possible (as big as can plausibly be derived from discovered metrics), as it is likely to be decimated anyway.
- nostrademons 7y ago
  Largely long-time Bitcoin holders and smart ICOs. Anyone who's a real (not paper) Bitcoin millionaire probably got that way by selling near the peak. Ditto anyone whose salary has been paid by a crypto firm that collected millions in an ICO. Most of the engineers working for companies like Consensys, Brave, Filecoin/IPFS, etc. are indirect beneficiaries of the 2017 Bitcoin bubble. The ICO boom had an interesting triple-pyramid-scheme structure that accelerated both the rise and the fall. If you bought into Ethereum in the early days, you probably paid with Bitcoin; it wasn't possible to buy ETH direct until ~2017. And similarly, if you bought into ICOs in 2017, you bought with ETH. That meant that the folks investing their money in ICOs weren't actually putting $200M into Filecoin; they were putting ETH that they had spent maybe $20M (in aggregate) in, which was likely purchased from someone who had bought it with $2M in Bitcoin. The eye-popping ICO valuations attracted more people into the market, which allowed smart ICOs to unload their ETH immediately at inflated prices and convert it into a big corporate war chest. Once the bubble popped, this mechanism worked in reverse (a bunch of dumb ICOs that had held onto their ETH all try to sell to capture the tiny pool of inflowing capital, which does nothing except force down the price of ETH), leaving folks who bought at the top of the bubble and ICOs that forgot to sell holding the bag. Ironically, this mechanism holds the basics of a functioning financial system: money was transferred from people who weren't doing anything with it to pay salaries of people doing productive but speculative work. It was transferred pretty clumsily, with a lot of people losing their shirt and a fair bit of waste and scams in the receiving projects, but if any of the receiving projects deliver, it succeeded.
  - SI_Rob 7y ago
    > it wasn't possible to buy ETH direct until ~2017 not even with paper wallets? I realize this would be uncommon given the late start of, ahem, intheoreum, but this should have still been common at meetups and such. Also, mining is essentially paying for ETH with only one layer of indirection, but without passing through Bitcoin.
    - nostrademons 7y ago
      If you're doing a localbitcoins-style swap, sure. Nothing stops you from finding someone you want to trade with, sending crypto to their wallet address, and receiving cash in hand. Well, other than finding a counterparty to make the transaction. ETH didn't really get listed on exchanges that also handled fiat currency until around 2016, though.
- ceejayoz 7y ago
  Tether can be both pumper and dumper. Pump up BTC price with Tether. Use Tether to buy BTC. Sell BTC for USD (or hold onto it - it's free!). Doesn't matter that the Tether either never actually existed or were seized by governments.
  - semiotagonal 7y ago
    The pumper and the dumper are generally the same entity in any pump and dump. Which mode that entity is in is a matter of timing.
- lightedman 7y ago
  "Question: Who was the dumper in this pump-and-dump game? Tether was clearly the pumper." Look at who holds the most crypto holdings AND has the ability to manipulate the market due to sheer size of operations. China. This isn't really a big secret, either. Anyone that can read/write/speak Mandarin knows about this. Just watch their crypto boards and you'll find the manipulation very, VERY easily. Answer solved.
  - bhouston 7y ago
    Seriously? Is there any accessible write ups on this with proof? I think all internet-based stock boards contain scams and minor pump and dumps. I am sort of doubtful that any large scale pump and dumb would be coordinated out in the open, even if it was in Mandarin.
- deleted 7y ago
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osiaq 7y ago
Why not 3 or 5? Or, dunno, 20?
asdfasgasdgasdg 7y ago
I'm all in on the concept that Tether is a fraud. However, isn't it slightly premature to file a lawsuit over losses? The latest price charts still have tether at $1~=1USDT. If you have Tether and are worried about its liquidity, shouldn't you just sell Tether to someone who wants it in exchange for something else? Or is there some kind of problem with doing that transaction that I'm not aware of? Maybe some limitation that's not reflected in the price charts? Edit: I see that this is not actually about Tether's liquidity at all. Instead, the accusation is that Tether was used to pump and dump Bitcoin, and those who suffered damages under this theory are people who bought Bitcoin at the top.
- deleted 7y ago
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- MuffinFlavored 7y ago
  Can you spell out (maybe ELI5) why the concept of Tether is a fraud? Why is it not possible to back cryptos to a stabilized "1:1" "medium/currency" (which itself is another crypto it seems) and finally the USD dollar ?
  - Animats 7y ago
    Because there really aren't substantial hard assets behind Tether. Even Tether now admits this. What keeps this going is a net inflow of cash into Tether. If that ever switches to a net outflow, the Ponzi scheme collapses.
    - teknopurge 7y ago
      Where does Tether admit this?
      - JumpCrisscross 7y ago
        > Where does Tether admit this? A New York State court filing [1]. (They’re under criminal investigation by the U.S. and New York.) [1] https://www.bloomberg.com/news/articles/2019-04-30/tether-says-stablecoin-is-only-backed-74-by-cash-securities https://www.bloomberg.com/news/articles/2019-04-30/tether-sa...
brenden2 7y ago
It seems extremely unlikely they will be able to prove much of anything. The Bitcoin markets in particular are extremely complex: lots of disparate exchanges, actors, and entities all vying for a piece of the pie and some of them are not necessarily acting in line with regulations or norms. How can you possibly prove that one entity is responsible for a global phenomenon that happened over a period of several months? How do you even establish evidence that what happened on one exchange affected another?
- lightedman 7y ago
  "It seems extremely unlikely they will be able to prove much of anything" Proof isn't exactly a requirement in a civil lawsuit as this is demonstrated to be, given the lawsuit title and the demand for a jury trial. In this case, more of a preponderance of the evidence, circumstantial or not, oddball or not, is what is weighed instead of factual elements of any crime (although those are also considered.) It is up purely to the jury to decide unless they asked for Bench Trial. Proving anything in this case is moot, it depends upon the jury and their thoughts, not what they interpret as law by required element-based prosecution.
- cortesoft 7y ago
  Same way you find evidence for other crimes... emails, texts, messages, witness testimony, etc describing their plan.
- qtplatypus 7y ago
  That is what Forensic economics is all about.
hectorr1 7y ago
Tether is the FUD that never stops giving, anyone remember Bitfinexed from 2017? Do people try to manipulate price? Of course they do. Sometimes it works, retail investors get excited and pile in. Sometimes it doesn't, and whales get rekt. Markets are messy. How do we fix this? Stop barring Bitcoin companies from working with mainstream banks, and USDT volume will dry up.
- semiotagonal 7y ago
  If Bitcoin companies maintained an adequate level of know-your-customer/anti-money-laundering compliance, maybe the mainstream banks would work with them. But as it stands, the banks have no reason to take any risks in dealing with them. If people resort to Tether and get burned, it's not the banks' problem.
  - yashap 7y ago
    Indeed. The crypto dream often involves being able to move huge sums of money around the world, with no ability to trace it to real people. This is the opposite of what established financial systems want. Of course they don’t want to legitamize crypto currencies, they’d be introducing a massive vector for crime and tax evasion.
    - jacobush 7y ago
      Yep. The honest actors don't want anything to do with money laundering, the shady actors want these vectors for themselves so they can take a cut. https://www.forbes.com/sites/heatherfarmbrough/2019/03/29/swedbank-faces-escalating-money-laundering-scandal/ https://www.forbes.com/sites/heatherfarmbrough/2019/03/29/sw...
- biggestdecision 7y ago
  Bitfinexed is looking a lot more legitimate since US regulators have started investigating Tether over the same accusations that Bitfinexed levelled against them.
sp332 7y ago
I think this is a much clearer explanation of the fraud involved in Tether's valuation. https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ Lots of discussion https://news.ycombinator.com/item?id=21377892 https://news.ycombinator.com/item?id=21377892
- jiofih 7y ago
  The article actually links to it midway. How would you know, if you clearly haven’t read it...
  - Terr_ 7y ago
    Come now, surely there's a difference between the due-diligence of "reading the article" versus going beyond that with "checking the identity of every link it contains."
- naringas 7y ago
  that explanation is linked from this article.
csomar 7y ago
> If anybody asks questions (“Where did all those Tethers come from? Prove to me they’re collateralized”), sell some of your inflated Bitcoins for real US Dollars at a profit, stick those dollars in your bank account, and then say "Look! Here they are! Just like we promised." This makes no sense. The money has to come from somewhere. Sure it can be fake money in Tether $$ but once you cashed out somewhere (in cash or your bank account) then the money should be real. Tether market cap right now is $4bn. The proclaimed value created/destroyed is $450bn. The market cap of all crypto at the beginning of 2017 is $18.3bn and the market cap right now is $246bn. The difference is massive (around $220bn). Now let's look at the market depth, because this is something everyone likes to claim: The order books are thin. This is far from being true. Looking at Gdax, the market bids to a 10% discount is around $12m. From my experience, trading crypto markets, it'll take around three times that much dollars to take the price to these levels. Many things kick off: 1. Hidden buy orders and 2. Bots arbing with other exchanges and 3. Fast bid makers who use neither visible or hidden bids. That's around $35m that you can dump on a single exchange for a 10% discount. That doesn't take into account: 1. You can use multiple exchanges 2. You can use private sales or OTC and 3. If you are selling $100m of crypto (or even stocks), you'll probably do it over the course of a few days unless you think the instant discount is less than the stretched one. If Tether created a $300bn market from a $4bn of cash, then that's genius, no? But wait, that's not what the author saying. The OP is saying that these $4bn don't even exist. Then Bitfinex/Tether created a $300bn market out of nothing. Uhh, no. I'm having a hard time believing that. tl;dr: Dude goes on a lengthy non-sense rant and has no real proof backing his facts.
- semiotagonal 7y ago
  It makes sense if Tether buys BTC with USDT that it just created out of nothing, then sells those BTC later for real dollars. Those real dollars can be used to collateralize the USDT "after the fact", and if the price went up between the two transactions, Tether keeps the difference. It's sort of like an uncovered short of USDT - they take a negative position, buy BTC, sell BTC, then cover the negative position. (Except "cover" in this case really means "collateralize the USDT that someone else is holding".) EDIT: I have no idea if that's what they were actually doing, but that's my interpretation of the author's interpretation of the lawsuit.
juped 7y ago
Gemini created an audited, 100% reserve stablecoin; no one uses it. This suggests that there is no genuine demand for stablecoins and that Tether has been entirely scam and hype driven. Dollar amounts in a litigation complaint and headlines about "sued for $X million!" are not usually that meaningful; remember your Gell-Mann amnesia.
- eindiran 7y ago
  Admittedly, I believe Gemini released their stablecoin well after the end of the 2017 bull cryptocurrency market. It was much easier to get people to try your shitty new coin in 2017 than it is now, so demand for any new coin will be lower. I agree that Tether was a hype-driven scam, but I don't think the relative unpopularity of the Gemini stablecoin reveals that.
- lacker 7y ago
  This suggests that there is no genuine demand for stablecoins That just suggests that "audited" and "100% reserve" are not the most important features to people using stablecoins. What is more important is having a deep market on Binance, which is where most BTC <-> stablecoin trading happens. Despite these terrible news articles, which are indeed reporting accurately that there are terrible flaws in Tether, you can still trade Tether for $1 right now. A hundred dollars worth of Tether is still more valuable than a hundred dollar payment made via a credit card.
  - teej 7y ago
    > What is more important is having a deep market on Binance It sounds like you are arguing that being popular is what matters more to being popular
    - hanniabu 7y ago
      Yes, and being where the users are being available for users to use it without performing KYC.
    - deleted 7y ago
      [deleted]
travisoneill1 7y ago
How could there possibly be $1.4t in damages when the market cap of BTC maxed out at around $400b? Also, while I don't deny that there was probably fraud here, just because a security is lightly traded and illiquid that doesn't make its price "fake".
- thedudeabides5 7y ago
  Author specifically says the damages would be treble the underlying loss, as per RICO and antitrust law. I've no idea if this is true. But interesting nonetheless. Hard time seeing a court awarding the loss to the entire peak to trough market to market, especially if the fraud was part of the money that inflated the bubble, but who knows.
paulpauper 7y ago
this author's argument falls apart upon even slight scrutiny. If tether caused bitcoin's huge 2017 rally, what about 2013 when bitcoin went from $100 to $1000 in the end of the year? Or 2016 when it went from $200 to $600? maybe it was just people buying. Coins that had nothing to do with tether, such as eth and ripple, on other exchanges besides bitfinex, also went up huge. I think tether's contribution to the 2017 bull market was negligible.
- mumblemumble 7y ago
  Your unstated major premise here seems to be that every jump in BTC's price must have the same cause.
- catalogia 7y ago
  > " what about 2013 when bitcoin went from $100 to $1000 in the end of the year? Or 2016 when it went from $200 to $600?" Are we obliged to believe that each of these independent events must have had an identical trigger?
- wmf 7y ago
  what about 2013 when bitcoin went from $100 to $1000 in the end of the year? That was caused by very similar scamming by different people at MtGox.
neiman 7y ago
From the post: "Allegation #1: The 2017 Bitcoin Bubble was market manipulation, and Tether was how they did it Allegation #3: They might’ve gotten away with it, too, if they hadn’t gotten robbed while busy scamming" But the big Bitfinex hack was in 2016, while the bubble in 2017. What do I miss here?
- vkou 7y ago
  Between 2017 and 2019, they sent hundreds of millions of dollars to a money launderer (Crypto Capital), who outright stole 10% of them, and had much of the rest frozen by the SEC. Bitfinex currently claims that the IOUs they have from Crypto Capital are worth the paper they are printed on. I have strong doubts about the accuracy of this claim.
  - neiman 7y ago
    Thanks!
- wmf 7y ago
  Crypto Capital Corp stole/lost $850M from Tether/Bitfinex in 2018. https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/
atemerev 7y ago
USD is printed in necessary quantities to satisfy market demands, and is used by its issuers to buy some privately issued assets on the market, injecting liquidity into the stagnating ecosystem. This is called “quantitative easing”. If USD works this way, why shouldn’t USDT?
- wpietri 7y ago
  Two main reasons. Holding a US dollar is a bet on the US economy, the US government, and the US banking system. Those have their flaws, but there's a lot of built-in checks and balances that keep them reasonably accountable. The other is that the Fed does all of its currency management very much in the public view. Whereas the USDT management has been somewhere between needlessly opaque and flat-out fraudulent.
  - atemerev 7y ago
    The second one is important, thanks. I don't think that government money have any more sanctity than any other, but yes, transparency and well-defined RoE and accountability are important.
- briatx 7y ago
  1) Tether is not the Fed. 2) Tether claimed in the beginning that they had $1 USD in the bank for every 1 Tether issued. 3) Given (2), printing Tether out of thin air that isn't backed by USD deposits is fraud.
- qtplatypus 7y ago
  Because Tether said that it wasn’t doing that.
EGreg 7y ago
What about DAI? Will SEC have a good case that it is a security, if it’s proven to be a stablecoin? No expectation of profit.
granaldo 7y ago
The overcollaterized approach is by makerdao is surely interesting in comparison to tether And in spite, it is not widely accepted in most major exchanges https://www.coingecko.com/en/coins/dai https://www.coingecko.com/en/coins/dai But tether strength sound to be due to recognition and deep order which is what makes a currency getting value from "nothing"
JackFr 7y ago
> This is not just “we are upset that we lost our crypto money and we’d like to sue someone” Yeah...no, that's exactly what this is.
xxpor 7y ago
Civil RICO is almost always a joke. https://www.popehat.com/2016/06/14/lawsplainer-its-not-rico-dammit/ https://www.popehat.com/2016/06/14/lawsplainer-its-not-rico-... "Dupes play along by describing RICO claims as "charges," and generally by acting like a RICO claim suggests that there's already been a finding that someone did something wrong."
flyGuyOnTheSly 7y ago
It's frustrating to read these allegations as somebody who has spent the better part of the past year studying various exchange trade execution data feeds, and writing an algorithmic trading bot. Yes, Bitfinex lead the market a lot of the time in the 2017 Bitcoin bull run. Yes, Bitfinex "printed" hundreds of millions of dollars worth of tether, which was initially distributed to large players on Bitfinex and Bittrex exchanges, also poloniex I believe was in on the issuance contracts. But that doesn't mean that Bitfinex fraudulently pumped up the price of Bitcoin. In fact, that would be impossible, even if they tried to fake the price higher... as they would lose tons of real money to arbitrageurs in the process... The (nano)second that any one single exchange gets out of line in terms of price, there are trading bots out there that notice that, immediately buy up as much BTC as they can on every other exchange that is below that price, and then immediately dump 100% of what they just bought on the exchange that is out of whack (Bitfinex). And if they weren't losing real money to the arbitrageurs, (presumably because they restricted USDT withdrawals which has never happened for more than a few days straight at most), then the arbitrageurs wouldn't be buying up Bitcoin on every other exchange that is not Bitfinex and selling it for USDT or USD fiat... they would simply ignore bitfinex as a fake volume exchange.. like 50% of the exchanges listed on coinmarketcap currently are. There is a reason that Bitfinex was leading the price pumps... they were the main gateway to millionaires the world over buying into the crypto ecosystem. You had to give iFinex at least $100,000 cash wire in exchange for USDT to get into the game, and there was a waiting list for that "privilege". Some exchanges shut down their registration page for months because the KYC processing backup was so severe. There was real demand for Bitcoin back in 2017. Finance is difficult for most people to understand. High frequecy traded crypto finance ecosystem with synthetic-USD, USDT, USD, TUSD, USDC, etc. is especially so.
- aidanlister 7y ago
  I'm not sure what you're understanding what the article claims - Bitfinex wasn't just increasing the price on their exchange by showing a fake price. They created money out of thin air and handed this out to players to buy BTC with. Those players then bought BTC in quantities that drove the price up. They created price-inelastic demand out of nothing (you don't care about the price as much if you're buying them for free).
glofish 7y ago
These guys are geniuses. Just like that - leveraging their platform and influence they have minted 4 billion USD worth of new kind of money. Out of thin air. What will be the ultimate kicker if it ends up working - in the sense that there is a need for a stable coin, and it fills that need.
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biolurker1 7y ago
that's one of the most resilient conspiracy theories lasting for years. The drama attracts all kind of Bitcoin haters although factually there is not much to it.

349 points by prostoalex 7y ago

Question: Who was the dumper in this pump-and-dump game? Tether was clearly the pumper. Second: The claim that the they are liable for the damages of the loss from the peak is a bit weird. IF it was a pump and dump scheme, and I at least agree with the pump side of things, then the values were all inflated falsely anyhow. There should be punishment, but basing it on the losses from peak is very strange and not realistic.

philipov 7y ago
Basing it on the peak means they get punished in proportion to how much they pumped it, which makes sense to me. The drawdown/damage they caused includes both the dump and the pump.
- saalweachter 7y ago
  I think where it loses me is that they are basing it on the nominal "market capitalization" of cryptocurrencies, which as is usually brought up on HN, are sketchy as hell. I'm not sure what a better way to compute the "volume" of the manipulation would be, however.
SI_Rob 7y ago
> There should be punishment, but basing it on the losses from peak is very strange and not realistic. Isn't this the usual protocol for damage suits in general? As I understand it, plaintiffs should plan for a 10x or even 100x reduction in damages awarded even under ideal suit outcomes, so you put as big a number on the table as possible (as big as can plausibly be derived from discovered metrics), as it is likely to be decimated anyway.
nostrademons 7y ago
Largely long-time Bitcoin holders and smart ICOs. Anyone who's a real (not paper) Bitcoin millionaire probably got that way by selling near the peak. Ditto anyone whose salary has been paid by a crypto firm that collected millions in an ICO. Most of the engineers working for companies like Consensys, Brave, Filecoin/IPFS, etc. are indirect beneficiaries of the 2017 Bitcoin bubble. The ICO boom had an interesting triple-pyramid-scheme structure that accelerated both the rise and the fall. If you bought into Ethereum in the early days, you probably paid with Bitcoin; it wasn't possible to buy ETH direct until ~2017. And similarly, if you bought into ICOs in 2017, you bought with ETH. That meant that the folks investing their money in ICOs weren't actually putting $200M into Filecoin; they were putting ETH that they had spent maybe $20M (in aggregate) in, which was likely purchased from someone who had bought it with $2M in Bitcoin. The eye-popping ICO valuations attracted more people into the market, which allowed smart ICOs to unload their ETH immediately at inflated prices and convert it into a big corporate war chest. Once the bubble popped, this mechanism worked in reverse (a bunch of dumb ICOs that had held onto their ETH all try to sell to capture the tiny pool of inflowing capital, which does nothing except force down the price of ETH), leaving folks who bought at the top of the bubble and ICOs that forgot to sell holding the bag. Ironically, this mechanism holds the basics of a functioning financial system: money was transferred from people who weren't doing anything with it to pay salaries of people doing productive but speculative work. It was transferred pretty clumsily, with a lot of people losing their shirt and a fair bit of waste and scams in the receiving projects, but if any of the receiving projects deliver, it succeeded.
- SI_Rob 7y ago
  > it wasn't possible to buy ETH direct until ~2017 not even with paper wallets? I realize this would be uncommon given the late start of, ahem, intheoreum, but this should have still been common at meetups and such. Also, mining is essentially paying for ETH with only one layer of indirection, but without passing through Bitcoin.
  - nostrademons 7y ago
    If you're doing a localbitcoins-style swap, sure. Nothing stops you from finding someone you want to trade with, sending crypto to their wallet address, and receiving cash in hand. Well, other than finding a counterparty to make the transaction. ETH didn't really get listed on exchanges that also handled fiat currency until around 2016, though.
ceejayoz 7y ago
Tether can be both pumper and dumper. Pump up BTC price with Tether. Use Tether to buy BTC. Sell BTC for USD (or hold onto it - it's free!). Doesn't matter that the Tether either never actually existed or were seized by governments.
- semiotagonal 7y ago
  The pumper and the dumper are generally the same entity in any pump and dump. Which mode that entity is in is a matter of timing.
lightedman 7y ago
"Question: Who was the dumper in this pump-and-dump game? Tether was clearly the pumper." Look at who holds the most crypto holdings AND has the ability to manipulate the market due to sheer size of operations. China. This isn't really a big secret, either. Anyone that can read/write/speak Mandarin knows about this. Just watch their crypto boards and you'll find the manipulation very, VERY easily. Answer solved.
- bhouston 7y ago
  Seriously? Is there any accessible write ups on this with proof? I think all internet-based stock boards contain scams and minor pump and dumps. I am sort of doubtful that any large scale pump and dumb would be coordinated out in the open, even if it was in Mandarin.
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osiaq 7y ago

Why not 3 or 5? Or, dunno, 20?

asdfasgasdgasdg 7y ago

I'm all in on the concept that Tether is a fraud. However, isn't it slightly premature to file a lawsuit over losses? The latest price charts still have tether at $1~=1USDT. If you have Tether and are worried about its liquidity, shouldn't you just sell Tether to someone who wants it in exchange for something else? Or is there some kind of problem with doing that transaction that I'm not aware of? Maybe some limitation that's not reflected in the price charts? Edit: I see that this is not actually about Tether's liquidity at all. Instead, the accusation is that Tether was used to pump and dump Bitcoin, and those who suffered damages under this theory are people who bought Bitcoin at the top.

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MuffinFlavored 7y ago
Can you spell out (maybe ELI5) why the concept of Tether is a fraud? Why is it not possible to back cryptos to a stabilized "1:1" "medium/currency" (which itself is another crypto it seems) and finally the USD dollar ?
- Animats 7y ago
  Because there really aren't substantial hard assets behind Tether. Even Tether now admits this. What keeps this going is a net inflow of cash into Tether. If that ever switches to a net outflow, the Ponzi scheme collapses.
  - teknopurge 7y ago
    Where does Tether admit this?
    - JumpCrisscross 7y ago
      > Where does Tether admit this? A New York State court filing [1]. (They’re under criminal investigation by the U.S. and New York.) [1] https://www.bloomberg.com/news/articles/2019-04-30/tether-says-stablecoin-is-only-backed-74-by-cash-securities https://www.bloomberg.com/news/articles/2019-04-30/tether-sa...

brenden2 7y ago

It seems extremely unlikely they will be able to prove much of anything. The Bitcoin markets in particular are extremely complex: lots of disparate exchanges, actors, and entities all vying for a piece of the pie and some of them are not necessarily acting in line with regulations or norms. How can you possibly prove that one entity is responsible for a global phenomenon that happened over a period of several months? How do you even establish evidence that what happened on one exchange affected another?

lightedman 7y ago
"It seems extremely unlikely they will be able to prove much of anything" Proof isn't exactly a requirement in a civil lawsuit as this is demonstrated to be, given the lawsuit title and the demand for a jury trial. In this case, more of a preponderance of the evidence, circumstantial or not, oddball or not, is what is weighed instead of factual elements of any crime (although those are also considered.) It is up purely to the jury to decide unless they asked for Bench Trial. Proving anything in this case is moot, it depends upon the jury and their thoughts, not what they interpret as law by required element-based prosecution.
cortesoft 7y ago
Same way you find evidence for other crimes... emails, texts, messages, witness testimony, etc describing their plan.
qtplatypus 7y ago
That is what Forensic economics is all about.

hectorr1 7y ago

Tether is the FUD that never stops giving, anyone remember Bitfinexed from 2017? Do people try to manipulate price? Of course they do. Sometimes it works, retail investors get excited and pile in. Sometimes it doesn't, and whales get rekt. Markets are messy. How do we fix this? Stop barring Bitcoin companies from working with mainstream banks, and USDT volume will dry up.

semiotagonal 7y ago
If Bitcoin companies maintained an adequate level of know-your-customer/anti-money-laundering compliance, maybe the mainstream banks would work with them. But as it stands, the banks have no reason to take any risks in dealing with them. If people resort to Tether and get burned, it's not the banks' problem.
- yashap 7y ago
  Indeed. The crypto dream often involves being able to move huge sums of money around the world, with no ability to trace it to real people. This is the opposite of what established financial systems want. Of course they don’t want to legitamize crypto currencies, they’d be introducing a massive vector for crime and tax evasion.
  - jacobush 7y ago
    Yep. The honest actors don't want anything to do with money laundering, the shady actors want these vectors for themselves so they can take a cut. https://www.forbes.com/sites/heatherfarmbrough/2019/03/29/swedbank-faces-escalating-money-laundering-scandal/ https://www.forbes.com/sites/heatherfarmbrough/2019/03/29/sw...
biggestdecision 7y ago
Bitfinexed is looking a lot more legitimate since US regulators have started investigating Tether over the same accusations that Bitfinexed levelled against them.

sp332 7y ago

I think this is a much clearer explanation of the fraud involved in Tether's valuation. https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ Lots of discussion https://news.ycombinator.com/item?id=21377892 https://news.ycombinator.com/item?id=21377892

jiofih 7y ago
The article actually links to it midway. How would you know, if you clearly haven’t read it...
- Terr_ 7y ago
  Come now, surely there's a difference between the due-diligence of "reading the article" versus going beyond that with "checking the identity of every link it contains."
naringas 7y ago
that explanation is linked from this article.

csomar 7y ago

> If anybody asks questions (“Where did all those Tethers come from? Prove to me they’re collateralized”), sell some of your inflated Bitcoins for real US Dollars at a profit, stick those dollars in your bank account, and then say "Look! Here they are! Just like we promised." This makes no sense. The money has to come from somewhere. Sure it can be fake money in Tether $$ but once you cashed out somewhere (in cash or your bank account) then the money should be real. Tether market cap right now is $4bn. The proclaimed value created/destroyed is $450bn. The market cap of all crypto at the beginning of 2017 is $18.3bn and the market cap right now is $246bn. The difference is massive (around $220bn). Now let's look at the market depth, because this is something everyone likes to claim: The order books are thin. This is far from being true. Looking at Gdax, the market bids to a 10% discount is around $12m. From my experience, trading crypto markets, it'll take around three times that much dollars to take the price to these levels. Many things kick off: 1. Hidden buy orders and 2. Bots arbing with other exchanges and 3. Fast bid makers who use neither visible or hidden bids. That's around $35m that you can dump on a single exchange for a 10% discount. That doesn't take into account: 1. You can use multiple exchanges 2. You can use private sales or OTC and 3. If you are selling $100m of crypto (or even stocks), you'll probably do it over the course of a few days unless you think the instant discount is less than the stretched one. If Tether created a $300bn market from a $4bn of cash, then that's genius, no? But wait, that's not what the author saying. The OP is saying that these $4bn don't even exist. Then Bitfinex/Tether created a $300bn market out of nothing. Uhh, no. I'm having a hard time believing that. tl;dr: Dude goes on a lengthy non-sense rant and has no real proof backing his facts.

semiotagonal 7y ago
It makes sense if Tether buys BTC with USDT that it just created out of nothing, then sells those BTC later for real dollars. Those real dollars can be used to collateralize the USDT "after the fact", and if the price went up between the two transactions, Tether keeps the difference. It's sort of like an uncovered short of USDT - they take a negative position, buy BTC, sell BTC, then cover the negative position. (Except "cover" in this case really means "collateralize the USDT that someone else is holding".) EDIT: I have no idea if that's what they were actually doing, but that's my interpretation of the author's interpretation of the lawsuit.

juped 7y ago

Gemini created an audited, 100% reserve stablecoin; no one uses it. This suggests that there is no genuine demand for stablecoins and that Tether has been entirely scam and hype driven. Dollar amounts in a litigation complaint and headlines about "sued for $X million!" are not usually that meaningful; remember your Gell-Mann amnesia.

eindiran 7y ago
Admittedly, I believe Gemini released their stablecoin well after the end of the 2017 bull cryptocurrency market. It was much easier to get people to try your shitty new coin in 2017 than it is now, so demand for any new coin will be lower. I agree that Tether was a hype-driven scam, but I don't think the relative unpopularity of the Gemini stablecoin reveals that.
lacker 7y ago
This suggests that there is no genuine demand for stablecoins That just suggests that "audited" and "100% reserve" are not the most important features to people using stablecoins. What is more important is having a deep market on Binance, which is where most BTC <-> stablecoin trading happens. Despite these terrible news articles, which are indeed reporting accurately that there are terrible flaws in Tether, you can still trade Tether for $1 right now. A hundred dollars worth of Tether is still more valuable than a hundred dollar payment made via a credit card.
- teej 7y ago
  > What is more important is having a deep market on Binance It sounds like you are arguing that being popular is what matters more to being popular
  - hanniabu 7y ago
    Yes, and being where the users are being available for users to use it without performing KYC.
  - deleted 7y ago
    [deleted]

travisoneill1 7y ago

How could there possibly be $1.4t in damages when the market cap of BTC maxed out at around $400b? Also, while I don't deny that there was probably fraud here, just because a security is lightly traded and illiquid that doesn't make its price "fake".

thedudeabides5 7y ago
Author specifically says the damages would be treble the underlying loss, as per RICO and antitrust law. I've no idea if this is true. But interesting nonetheless. Hard time seeing a court awarding the loss to the entire peak to trough market to market, especially if the fraud was part of the money that inflated the bubble, but who knows.

paulpauper 7y ago

this author's argument falls apart upon even slight scrutiny. If tether caused bitcoin's huge 2017 rally, what about 2013 when bitcoin went from $100 to $1000 in the end of the year? Or 2016 when it went from $200 to $600? maybe it was just people buying. Coins that had nothing to do with tether, such as eth and ripple, on other exchanges besides bitfinex, also went up huge. I think tether's contribution to the 2017 bull market was negligible.

mumblemumble 7y ago
Your unstated major premise here seems to be that every jump in BTC's price must have the same cause.
catalogia 7y ago
> " what about 2013 when bitcoin went from $100 to $1000 in the end of the year? Or 2016 when it went from $200 to $600?" Are we obliged to believe that each of these independent events must have had an identical trigger?
wmf 7y ago
what about 2013 when bitcoin went from $100 to $1000 in the end of the year? That was caused by very similar scamming by different people at MtGox.

neiman 7y ago

From the post: "Allegation #1: The 2017 Bitcoin Bubble was market manipulation, and Tether was how they did it Allegation #3: They might’ve gotten away with it, too, if they hadn’t gotten robbed while busy scamming" But the big Bitfinex hack was in 2016, while the bubble in 2017. What do I miss here?

vkou 7y ago
Between 2017 and 2019, they sent hundreds of millions of dollars to a money launderer (Crypto Capital), who outright stole 10% of them, and had much of the rest frozen by the SEC. Bitfinex currently claims that the IOUs they have from Crypto Capital are worth the paper they are printed on. I have strong doubts about the accuracy of this claim.
- neiman 7y ago
  Thanks!
wmf 7y ago
Crypto Capital Corp stole/lost $850M from Tether/Bitfinex in 2018. https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/

atemerev 7y ago

USD is printed in necessary quantities to satisfy market demands, and is used by its issuers to buy some privately issued assets on the market, injecting liquidity into the stagnating ecosystem. This is called “quantitative easing”. If USD works this way, why shouldn’t USDT?

wpietri 7y ago
Two main reasons. Holding a US dollar is a bet on the US economy, the US government, and the US banking system. Those have their flaws, but there's a lot of built-in checks and balances that keep them reasonably accountable. The other is that the Fed does all of its currency management very much in the public view. Whereas the USDT management has been somewhere between needlessly opaque and flat-out fraudulent.
- atemerev 7y ago
  The second one is important, thanks. I don't think that government money have any more sanctity than any other, but yes, transparency and well-defined RoE and accountability are important.
briatx 7y ago
1) Tether is not the Fed. 2) Tether claimed in the beginning that they had $1 USD in the bank for every 1 Tether issued. 3) Given (2), printing Tether out of thin air that isn't backed by USD deposits is fraud.
qtplatypus 7y ago
Because Tether said that it wasn’t doing that.

EGreg 7y ago

What about DAI? Will SEC have a good case that it is a security, if it’s proven to be a stablecoin? No expectation of profit.

granaldo 7y ago

The overcollaterized approach is by makerdao is surely interesting in comparison to tether And in spite, it is not widely accepted in most major exchanges https://www.coingecko.com/en/coins/dai https://www.coingecko.com/en/coins/dai But tether strength sound to be due to recognition and deep order which is what makes a currency getting value from "nothing"

JackFr 7y ago

> This is not just “we are upset that we lost our crypto money and we’d like to sue someone” Yeah...no, that's exactly what this is.

xxpor 7y ago

Civil RICO is almost always a joke. https://www.popehat.com/2016/06/14/lawsplainer-its-not-rico-dammit/ https://www.popehat.com/2016/06/14/lawsplainer-its-not-rico-... "Dupes play along by describing RICO claims as "charges," and generally by acting like a RICO claim suggests that there's already been a finding that someone did something wrong."

flyGuyOnTheSly 7y ago

It's frustrating to read these allegations as somebody who has spent the better part of the past year studying various exchange trade execution data feeds, and writing an algorithmic trading bot. Yes, Bitfinex lead the market a lot of the time in the 2017 Bitcoin bull run. Yes, Bitfinex "printed" hundreds of millions of dollars worth of tether, which was initially distributed to large players on Bitfinex and Bittrex exchanges, also poloniex I believe was in on the issuance contracts. But that doesn't mean that Bitfinex fraudulently pumped up the price of Bitcoin. In fact, that would be impossible, even if they tried to fake the price higher... as they would lose tons of real money to arbitrageurs in the process... The (nano)second that any one single exchange gets out of line in terms of price, there are trading bots out there that notice that, immediately buy up as much BTC as they can on every other exchange that is below that price, and then immediately dump 100% of what they just bought on the exchange that is out of whack (Bitfinex). And if they weren't losing real money to the arbitrageurs, (presumably because they restricted USDT withdrawals which has never happened for more than a few days straight at most), then the arbitrageurs wouldn't be buying up Bitcoin on every other exchange that is not Bitfinex and selling it for USDT or USD fiat... they would simply ignore bitfinex as a fake volume exchange.. like 50% of the exchanges listed on coinmarketcap currently are. There is a reason that Bitfinex was leading the price pumps... they were the main gateway to millionaires the world over buying into the crypto ecosystem. You had to give iFinex at least $100,000 cash wire in exchange for USDT to get into the game, and there was a waiting list for that "privilege". Some exchanges shut down their registration page for months because the KYC processing backup was so severe. There was real demand for Bitcoin back in 2017. Finance is difficult for most people to understand. High frequecy traded crypto finance ecosystem with synthetic-USD, USDT, USD, TUSD, USDC, etc. is especially so.

aidanlister 7y ago
I'm not sure what you're understanding what the article claims - Bitfinex wasn't just increasing the price on their exchange by showing a fake price. They created money out of thin air and handed this out to players to buy BTC with. Those players then bought BTC in quantities that drove the price up. They created price-inelastic demand out of nothing (you don't care about the price as much if you're buying them for free).

glofish 7y ago

These guys are geniuses. Just like that - leveraging their platform and influence they have minted 4 billion USD worth of new kind of money. Out of thin air. What will be the ultimate kicker if it ends up working - in the sense that there is a need for a stable coin, and it fills that need.

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biolurker1 7y ago

that's one of the most resilient conspiracy theories lasting for years. The drama attracts all kind of Bitcoin haters although factually there is not much to it.