7 ms·

Exposing Tether [video]

100 points by tenslisi 5y ago

Proven 5y ago
Nobody cares. It's fractionally funded just like 99.999% of banks. Nothing to see here, move on. Isn't it funny how this anti-Tether garbage is constantly submitted to HN even during the week when a Tether competitor collapsed? Pathetic! https://www.theregister.com/2021/06/17/iron_cryptocoin_titan/ https://www.theregister.com/2021/06/17/iron_cryptocoin_titan...
gruez 5y ago
>35 minutes Anyone got a summary? Is there anything new in here that hasn't already been said in previous tether posts?
- iamben 5y ago
  I watched this yesterday. It's nothing new but it is a well put together timeline and entertaining watch that covers the background of both the companies, the people behind the companies and a lot of the things they've said and done. You probably don't need the visuals if you just wanted to listen in the background. Whilst he's very reticent to literally say it's a scam, he does heavily imply that it looks very, very shady. He admits to owning cryptocurrency but (pretty much) comes to the conclusion that if Tether implodes it would probably hurt the crypto world considerably, and for crypto to stand a better long term chance it doesn't need something as (potentially) sketchy as Tether so heavily intertwined.
- kwere 5y ago
  >Anyone got a summary? basically he dig founders schetchy curriculum, bitfinex ties and evolving (scammy) policies around mantaining 1:1 rate with $
- jkhdigital 5y ago
  The only part that I wasn’t aware of is that Tether produced a pie chart of their holdings, which made it immediately clear that Tether’s reserves are simply a hedge fund. But this isn’t breaking news; I just hadn’t kept up on it in a while.
  - Clewza313 5y ago
    A "hedge fund" seems unnecessarily charitable. The majority of their holding is apparently unspecified "commercial paper", which in all likely is near-worthless IOUs from linked entities like Bitfinex.
    - notwedtm 5y ago
      This is the real story.
    - loulouxiv 5y ago
      To be fair it is 45% of their holdings, not a majority. Which is still a very big amount of money, and more than enough to ruin the stability guarantee of USDT
dannyw 5y ago
Tether is "USD-ramp-as-a-service". In the crypto world, there are many anonymously operated exchanges, with no fiat-money banking relationships. Those exchanges tend to offer features that a lot of traders want, like providing a market for any arbitrary token (regulated exchanges tend to be slower with token listings, due to always pondering if something is a security). And yes, if your money is tainted (whether it's because you're trying to move capital out of China, or maybe you're the founder of something USG doesn't like such as Sci-Hub), then you NEED to use a non-KYC, non-AML exchange. Non-KYC, non-AML exchanges have tended to be shady. There are so many losses over the years. Tether, on the other hand, has maintained its $1 = 1 USDT peg since its inception, except for very brief periods of time. It does what it says, and it's probably the biggest, most liquid, and most stable way to keep dollars outside of the traditional regulated financial system. Here's the realities about Tether: • No one has ever been scammed by Bitfinex or Ether. There is no monetary loss, ever. • When Bitfinex got hacked a few years ago, they worked out a repayment program, and fully repaid all creditors. • While Tether made misrepresentations after a banking fiasco, they have fully settled their case with NYAG. The USG doesn't tend to settle (in crypto cases) unless they are satisfied.
- readams 5y ago
  Ponzi schemes always seem great until the final collapse.
  - dannyw 5y ago
    Do you really think the New York Attorney General would have settled with a "ponzi scheme" with a $62 billion market cap? The USA isn't shy about pursuing crypto operators. It's also hard to call a 0% interest, zero return token, a ponzi scheme.
    - freeAgent 5y ago
      The NYAG isn’t the only US law enforcement agency and the NYAG investigation only covered through 2019 when ISDT was much smaller.
    - 5y ago
pclmulqdq 5y ago
Stablecoins have ridiculous fraud potential. The idea of a crypto that holds 100% of its value in USD is just an unstable business. There's too much cash just sitting there, and it's too tempting to debase the coin just a little bit. Tether looks like they have been caught with their hand in the cookie jar a few too many times. I might trust a stablecoin backed by a big bank, but nothing else.
- ac29 5y ago
  Turning a profit on a $60B cashpile should be easy, even with current rock bottom interest rates. Even more so since Tether reserves the right to deny redemptions, or redeem them in-kind for securities (which would allow them to invest in relatively illiquid investments that might have a higher yield). Problem: there never was $60B to begin with, and to the extent there was/is some real money, Tether has the nearly impossible task of proving its not related to money laundering, proceeds of crime, etc if they want access to regulated financial markets. But, no one with clean, legitimate cash has any reason to do business with Tether (or any other stablecoin for that matter - exchanges would be more than happy to take clean USD if people want to buy cryptocurrency).
  - nly 5y ago
    > Turning a profit on a $60B cashpile should be easy Yeah, even 3 month US treasuries would yield $24M/year in revenue.
jonplackett 5y ago
Surly everyone now knows either consciously, or deep in their heart, that Tether is a scam, but just goes along with it because it's a useful way of not paying tax when you want on sell your coins?
- thebean11 5y ago
  There are alternatives like DAI and USDC which should be just as easy to avoid taxes with.
- freeAgent 5y ago
  People who assume that are in for a rude awakening. The IRS has aggressively been going after records from cryptocurrency exchanges. Now maybe they’re using a DEX or something, but at some point they’re going to have to spend the crypto natively (much of which is now KYCed) or convert to real USD. People who think they’re being clever are trapped.
  - jonplackett 5y ago
    Do you mean even if people are just converting into USDT the IRS are going to be after them? FYI I'm just going on what I know friends are doing - no skin in the game! Just see this happening and don't see any other reason why anyone would buy Tether.
    - xref 5y ago
      Yes, any exchange of coins is a taxable event. Going BTC->USDT is the same to the IRS as going TSLA->AAPL. It’s a sell and a buy on the books.
raesene9 5y ago
The challenge with Tether is that it's basically impossible to prove or disprove their financial status. They don't have audited books, so no-one knows. So you need to decide whether they're a risk or not. To me, the idea of having what is effectively a bank with a $60b+ balance sheet that has no auditor and no regulators, seems kind of risky. We also know, via the NYAG case, that they have in the past, said things that were not true (specifically continuing the claim to have a 1:1 USD backing after they no longer had those funds). The other aspect of Tether is "who's using them"? There are a range of stablecoins available now, multiple of whom are better regulated and audited than Tether. So why would rational organizations place $60b+ with Tether, when the risk is higher, and it's not like this is an investment where higher risk == higher return.
- overtonwhy 5y ago
  Tether actually was forced to release a break down of their assets and they have <4% cash reserves. So yeah, now everyone knows they're insolvent: https://www.coindesk.com/tether-first-reserve-composition-report-usdt https://www.coindesk.com/tether-first-reserve-composition-re...
  - raesene9 5y ago
    Indeed there were some interesting pieces in that. They would argue that the composition showed that they had the required reserves, others would argue it showed they were insolvent :) As tether specifies the right to repay any redeemed tokens in securities, assuming the securities they hold actually keep their value, it seems like they'd be fine From https://tether.to/legal/ https://tether.to/legal/ "Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves." Of course the $60b question is, what are all the non-cash reserves they have, and how much are they worth.
    - notwedtm 5y ago
tiku 5y ago
They do not need to have 100% USD at Tether. Exchanges buy UDST from Tether, that means that there is an exchange. It would be problematic if they would give it for free to the exchanges. The exchanges won't give you free USDT either, they charge something in return. The only way this could be a problem if they would use USDT from within Tether to buy crypto. I have not seen any evidence of this.
- raesene9 5y ago
  A question is, how would you see evidence of this? Wash trading with Tether has been alleged before but, as far as I'm aware, it's not possible to definitively prove or disprove that it occurred. So to me, that's not a strong signal either way, the operation of Tether and their dealings with exchanges are opaque, you need to take what they say on trust, as there are no external auditors.
- albntomat0 5y ago
  It could also be an issue if a large number of people try to redeem a large amount of Tether for USD. Ideally, it would be easy and high trust to go from Tether to USD and back. This requires high confidence that the various backings of Tether are low risk, which we cannot establish given the minimal information Tether has provided.
  - tiku 5y ago
    Only thing is that you don't ever deal with Tether directly, the exchange needs to have that amount of USD for USDT. Same goes for BTC etc. Later the exchange needs to get USD from Tether if they need liquidity in FIAT?
  - qeternity 5y ago
    > It could also be an issue if a large number of people try to redeem a large amount of Tether for USD. Not possible. Tether's terms of service explicitly state they have no obligation to redeem. Tethers only hold value so long as other people believe they do...which is the definition of a fiat currency.
hubadu 5y ago
I agree on the massive risk associated with the usage of Tether and stable coins in general. It's working until one day the music stops. Regarding how it would affect the market, it seems all experts automatically assume that it would impact the price of cryptos negatively however: • Could a panic exit from Tether push people to immediately buyback cryptos at any price? • Could a flash pump of BTC while USDT/USD is unpegging be the signature of the downfall itself? • Since stable coins are used for day trading, would their downfall make the crypto-market behave like it was before stable coins were introduced?
- qeternity 5y ago
  > Could a sudden pump of BTC while USDT/USD is unpegging be the signature of the downfall itself? Likely, but that is not bullish BTC. People who hold USDT at a given moment do so because they don't want to hold crypto. So you would likely see BTCUSDT panic bid (until the Tether exchanges presumably stop withdrawals) and relentless selling of BTCUSD. For those who managed to get out, they will have round tripped their USDT to USD, but BTCUSD will be a bloodbath.
  - gruez 5y ago
    >So you would likely see BTCUSDT panic bid (until the Tether exchanges presumably stop withdrawals) and relentless selling of BTCUSD. For those who managed to get out, they will have round tripped their USDT to USD, but BTCUSD will be a bloodbath. But if they're buying BTC only to convert it back to USD again (at a non USDT exchange), wouldn't the net effect on BTC be zero?
    - qeternity 5y ago
      No, it would have the effect of all the BTC on unbanked Tether exchanges being sent to banked exchanges to be sold for fiat. So the price would be high in USDT terms and low in USD terms. This is how the "peg" breaks. BTC/USDT only goes up because the denominator (USDT) goes to zero.
yawaworht1978 5y ago
I don't even understand tether, can it be cashed out for USD at any time? Who issues them? Who creates them? Why do the people trust it at all?

100 points by tenslisi 5y ago

Nobody cares. It's fractionally funded just like 99.999% of banks. Nothing to see here, move on. Isn't it funny how this anti-Tether garbage is constantly submitted to HN even during the week when a Tether competitor collapsed? Pathetic! https://www.theregister.com/2021/06/17/iron_cryptocoin_titan/ https://www.theregister.com/2021/06/17/iron_cryptocoin_titan...

gruez 5y ago

>35 minutes Anyone got a summary? Is there anything new in here that hasn't already been said in previous tether posts?

iamben 5y ago
I watched this yesterday. It's nothing new but it is a well put together timeline and entertaining watch that covers the background of both the companies, the people behind the companies and a lot of the things they've said and done. You probably don't need the visuals if you just wanted to listen in the background. Whilst he's very reticent to literally say it's a scam, he does heavily imply that it looks very, very shady. He admits to owning cryptocurrency but (pretty much) comes to the conclusion that if Tether implodes it would probably hurt the crypto world considerably, and for crypto to stand a better long term chance it doesn't need something as (potentially) sketchy as Tether so heavily intertwined.
kwere 5y ago
>Anyone got a summary? basically he dig founders schetchy curriculum, bitfinex ties and evolving (scammy) policies around mantaining 1:1 rate with $
jkhdigital 5y ago
The only part that I wasn’t aware of is that Tether produced a pie chart of their holdings, which made it immediately clear that Tether’s reserves are simply a hedge fund. But this isn’t breaking news; I just hadn’t kept up on it in a while.
- Clewza313 5y ago
  A "hedge fund" seems unnecessarily charitable. The majority of their holding is apparently unspecified "commercial paper", which in all likely is near-worthless IOUs from linked entities like Bitfinex.
  - notwedtm 5y ago
    This is the real story.
  - loulouxiv 5y ago
    To be fair it is 45% of their holdings, not a majority. Which is still a very big amount of money, and more than enough to ruin the stability guarantee of USDT

dannyw 5y ago

Tether is "USD-ramp-as-a-service". In the crypto world, there are many anonymously operated exchanges, with no fiat-money banking relationships. Those exchanges tend to offer features that a lot of traders want, like providing a market for any arbitrary token (regulated exchanges tend to be slower with token listings, due to always pondering if something is a security). And yes, if your money is tainted (whether it's because you're trying to move capital out of China, or maybe you're the founder of something USG doesn't like such as Sci-Hub), then you NEED to use a non-KYC, non-AML exchange. Non-KYC, non-AML exchanges have tended to be shady. There are so many losses over the years. Tether, on the other hand, has maintained its $1 = 1 USDT peg since its inception, except for very brief periods of time. It does what it says, and it's probably the biggest, most liquid, and most stable way to keep dollars outside of the traditional regulated financial system. Here's the realities about Tether: • No one has ever been scammed by Bitfinex or Ether. There is no monetary loss, ever. • When Bitfinex got hacked a few years ago, they worked out a repayment program, and fully repaid all creditors. • While Tether made misrepresentations after a banking fiasco, they have fully settled their case with NYAG. The USG doesn't tend to settle (in crypto cases) unless they are satisfied.

readams 5y ago
Ponzi schemes always seem great until the final collapse.
- dannyw 5y ago
  Do you really think the New York Attorney General would have settled with a "ponzi scheme" with a $62 billion market cap? The USA isn't shy about pursuing crypto operators. It's also hard to call a 0% interest, zero return token, a ponzi scheme.
  - freeAgent 5y ago
    The NYAG isn’t the only US law enforcement agency and the NYAG investigation only covered through 2019 when ISDT was much smaller.
  - 5y ago

pclmulqdq 5y ago

Stablecoins have ridiculous fraud potential. The idea of a crypto that holds 100% of its value in USD is just an unstable business. There's too much cash just sitting there, and it's too tempting to debase the coin just a little bit. Tether looks like they have been caught with their hand in the cookie jar a few too many times. I might trust a stablecoin backed by a big bank, but nothing else.

ac29 5y ago
Turning a profit on a $60B cashpile should be easy, even with current rock bottom interest rates. Even more so since Tether reserves the right to deny redemptions, or redeem them in-kind for securities (which would allow them to invest in relatively illiquid investments that might have a higher yield). Problem: there never was $60B to begin with, and to the extent there was/is some real money, Tether has the nearly impossible task of proving its not related to money laundering, proceeds of crime, etc if they want access to regulated financial markets. But, no one with clean, legitimate cash has any reason to do business with Tether (or any other stablecoin for that matter - exchanges would be more than happy to take clean USD if people want to buy cryptocurrency).
- nly 5y ago
  > Turning a profit on a $60B cashpile should be easy Yeah, even 3 month US treasuries would yield $24M/year in revenue.

jonplackett 5y ago

Surly everyone now knows either consciously, or deep in their heart, that Tether is a scam, but just goes along with it because it's a useful way of not paying tax when you want on sell your coins?

thebean11 5y ago
There are alternatives like DAI and USDC which should be just as easy to avoid taxes with.
freeAgent 5y ago
People who assume that are in for a rude awakening. The IRS has aggressively been going after records from cryptocurrency exchanges. Now maybe they’re using a DEX or something, but at some point they’re going to have to spend the crypto natively (much of which is now KYCed) or convert to real USD. People who think they’re being clever are trapped.
- jonplackett 5y ago
  Do you mean even if people are just converting into USDT the IRS are going to be after them? FYI I'm just going on what I know friends are doing - no skin in the game! Just see this happening and don't see any other reason why anyone would buy Tether.
  - xref 5y ago
    Yes, any exchange of coins is a taxable event. Going BTC->USDT is the same to the IRS as going TSLA->AAPL. It’s a sell and a buy on the books.

raesene9 5y ago

The challenge with Tether is that it's basically impossible to prove or disprove their financial status. They don't have audited books, so no-one knows. So you need to decide whether they're a risk or not. To me, the idea of having what is effectively a bank with a $60b+ balance sheet that has no auditor and no regulators, seems kind of risky. We also know, via the NYAG case, that they have in the past, said things that were not true (specifically continuing the claim to have a 1:1 USD backing after they no longer had those funds). The other aspect of Tether is "who's using them"? There are a range of stablecoins available now, multiple of whom are better regulated and audited than Tether. So why would rational organizations place $60b+ with Tether, when the risk is higher, and it's not like this is an investment where higher risk == higher return.

overtonwhy 5y ago
Tether actually was forced to release a break down of their assets and they have <4% cash reserves. So yeah, now everyone knows they're insolvent: https://www.coindesk.com/tether-first-reserve-composition-report-usdt https://www.coindesk.com/tether-first-reserve-composition-re...
- raesene9 5y ago
  Indeed there were some interesting pieces in that. They would argue that the composition showed that they had the required reserves, others would argue it showed they were insolvent :) As tether specifies the right to repay any redeemed tokens in securities, assuming the securities they hold actually keep their value, it seems like they'd be fine From https://tether.to/legal/ https://tether.to/legal/ "Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves." Of course the $60b question is, what are all the non-cash reserves they have, and how much are they worth.
  - notwedtm 5y ago

tiku 5y ago

They do not need to have 100% USD at Tether. Exchanges buy UDST from Tether, that means that there is an exchange. It would be problematic if they would give it for free to the exchanges. The exchanges won't give you free USDT either, they charge something in return. The only way this could be a problem if they would use USDT from within Tether to buy crypto. I have not seen any evidence of this.

raesene9 5y ago
A question is, how would you see evidence of this? Wash trading with Tether has been alleged before but, as far as I'm aware, it's not possible to definitively prove or disprove that it occurred. So to me, that's not a strong signal either way, the operation of Tether and their dealings with exchanges are opaque, you need to take what they say on trust, as there are no external auditors.
albntomat0 5y ago
It could also be an issue if a large number of people try to redeem a large amount of Tether for USD. Ideally, it would be easy and high trust to go from Tether to USD and back. This requires high confidence that the various backings of Tether are low risk, which we cannot establish given the minimal information Tether has provided.
- tiku 5y ago
  Only thing is that you don't ever deal with Tether directly, the exchange needs to have that amount of USD for USDT. Same goes for BTC etc. Later the exchange needs to get USD from Tether if they need liquidity in FIAT?
- qeternity 5y ago
  > It could also be an issue if a large number of people try to redeem a large amount of Tether for USD. Not possible. Tether's terms of service explicitly state they have no obligation to redeem. Tethers only hold value so long as other people believe they do...which is the definition of a fiat currency.

hubadu 5y ago

I agree on the massive risk associated with the usage of Tether and stable coins in general. It's working until one day the music stops. Regarding how it would affect the market, it seems all experts automatically assume that it would impact the price of cryptos negatively however: • Could a panic exit from Tether push people to immediately buyback cryptos at any price? • Could a flash pump of BTC while USDT/USD is unpegging be the signature of the downfall itself? • Since stable coins are used for day trading, would their downfall make the crypto-market behave like it was before stable coins were introduced?

qeternity 5y ago
> Could a sudden pump of BTC while USDT/USD is unpegging be the signature of the downfall itself? Likely, but that is not bullish BTC. People who hold USDT at a given moment do so because they don't want to hold crypto. So you would likely see BTCUSDT panic bid (until the Tether exchanges presumably stop withdrawals) and relentless selling of BTCUSD. For those who managed to get out, they will have round tripped their USDT to USD, but BTCUSD will be a bloodbath.
- gruez 5y ago
  >So you would likely see BTCUSDT panic bid (until the Tether exchanges presumably stop withdrawals) and relentless selling of BTCUSD. For those who managed to get out, they will have round tripped their USDT to USD, but BTCUSD will be a bloodbath. But if they're buying BTC only to convert it back to USD again (at a non USDT exchange), wouldn't the net effect on BTC be zero?
  - qeternity 5y ago
    No, it would have the effect of all the BTC on unbanked Tether exchanges being sent to banked exchanges to be sold for fiat. So the price would be high in USDT terms and low in USD terms. This is how the "peg" breaks. BTC/USDT only goes up because the denominator (USDT) goes to zero.

yawaworht1978 5y ago

I don't even understand tether, can it be cashed out for USD at any time? Who issues them? Who creates them? Why do the people trust it at all?