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Last week CFTC fined both Tether and Bitfinex $42.5M for allegedly not holding enough reserves and colluding together. https://www.cftc.gov/PressRoom/PressRele

Last week CFTC fined both Tether and Bitfinex $42.5M for allegedly not holding enough reserves and colluding together. https://www.cftc.gov/PressRoom/PressReleases/8450-21 https://www.cftc.gov/PressRoom/PressReleases/8450-21 Seems like a fairly small fine in grand scheme of things no? If the critics are right and $70B+ supply is just made up paper money, then it'll be huge losses for all Tether holders. I'd conjecture it would tank the entire crypto market - and possibly the equity market too.

omgwtfbyobbq 5y ago
Why do you think it would tank the equity market?
- PKop 5y ago
  It's all tied together. If one asset class is crashing people sell others to grab cash. Another way, according to Janet Yellen, that Tether and other stables can destabalize markets, is that they have large portions of reserves in corporate debt, a crisis in these coins would cause a fire sale of billions of corporate debt they hold, itself probably cascading into all risk markets.
  - bduerst 5y ago
    Crypto markets maybe, but not main indexes. Experienced financial players smell tether for the scam it is and don't touch it, or I'd they do, they're in on the grift. Laymen who bought the hype stand to lose a lot though.
    - Breza 5y ago
      My understanding is that Tether has bought a bunch of bonds and other financial instruments. If they need to raise cash, they would sell those instruments for whatever price they could get. That could lower the prices, which could have negative effects.
      - bduerst 5y ago
        Tether keeps moving the buck. First it was all USD backing, then when pressed, they said they actually have it all in bonds/securities, which is just as nebulous and doesn't make it any more authenticated. It's not verified by third parties at all, and they're printing non-stop, which is why many people can spot it for the scam it is.
  - paulpan 5y ago
    +1 and my thought exactly. Spillover effect could be fairly significant given that more investors now hold crypto.
exdsq 5y ago
Or people will accept it as paper dollars and carry on regardless. Honestly this wouldn't surprise me - it'll just be a representation of the dollar that things use as an intermediary step.
- Traster 5y ago
  Well, if Tether isn't backed by dollars, then there's some pretty big questions to answer - for example: "When people buy tether using fiat currency, they hand $1 to bitfinex, and in return get 1USDT. Where did that real $1 go?"
  - arthurcolle 5y ago
    back to the money store (https://vimeo.com/215534945 https://vimeo.com/215534945)
legutierr 5y ago
There is one scenario in which the 70 billion was at one time made-up money, but where it won't ever actually tank the crypto market: 1. Tether prints $1 billion with no backing. 2. Tether buys $1 billion of Bitcoin with the the fraudulent tokens. 3. Bitcoin triples in price. 4. Tether sells 1/3 of their position in exchange for hard currency, and holds that money in their reserves. 5. Tether now has 100% reserves backing the tokens they created, and is also holding $2 billion in Bitcoin. Maybe they sell the extra Bitcoin to diversify. 6. Rinse and repeat. Under this scenario, what these guys did was to take a massive uncollateralized loan from ordinary consumers, use it to buy buy Bitcoin, and sell off the Bitcoin in order to pay back the loan. Basically an uncollateralized version of what most DeFi borrowers are doing right now, but at a massive scale. As long as the price of Bitcoin is going up, the scheme a surefire way to make a lot of money. If the price of Bitcoin starts going down before they can cash out, then it can easily bankrupt them and crash the market—which is also a big risk with DeFi. It could be that we are passed that point with Tether, though. With as much scrutiny as they are under right now, if Tether ever defaults, the people who run Tether are going to be wanted for criminal prosecution in dozens of countries. They will be running and hiding for the rest of their lives. I can't believe that a few more billion dollars in the bank is worth the risk—especially if they won't be able to access those billions. If you look at the rate of issuance of Tether since June 1 of this year, it has flattened out dramatically.[0] Could it be that the people at Tether have realized that the jig is up, and are now just trying to get things in order so they can walk away clean? Maybe. Or, it could be that they printed so much funny money last year that the amount of Bitcoin they need to sell is more than the market can accept without tanking the price of Bitcoin, given current market liquidity. Maybe they aren't generating more Tether for themselves because they figured out that whenever they try to sell the Bitcoin they need to sell in order to replenish their reserves, they crash the Bitcoin market. Maybe they're stuck. Or it could be that Tether is fully backed, that they have never minted any Tether that didn't correspond to $$ in their bank account, and the reason that Tether's growth has slowed is only because people are now buying USDC and other stablecoins instead. (Not likely, in my opinion.) [0] https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/
- thebean11 5y ago
  If the 95% crash in 2017 didn't kill Tether I'm not sure what kind of price action could, unless they are in a materially worse position now than they were in 2017 (the accusations were already super common).
graeme 5y ago
Tether claimed their excess reserves were $160 million. So the fine is a quarter of that.
- VHRanger 5y ago
  Tether has claimed their excess reserves is almost exactly $160m for more than a year. Two ways to confirm: - Go look at the wayback machine on their transparency page - Look at the difference in their attestations This implies they loot the interest rate yield on their reserves

omgwtfbyobbq 5y ago

Why do you think it would tank the equity market?

PKop 5y ago
It's all tied together. If one asset class is crashing people sell others to grab cash. Another way, according to Janet Yellen, that Tether and other stables can destabalize markets, is that they have large portions of reserves in corporate debt, a crisis in these coins would cause a fire sale of billions of corporate debt they hold, itself probably cascading into all risk markets.
- bduerst 5y ago
  Crypto markets maybe, but not main indexes. Experienced financial players smell tether for the scam it is and don't touch it, or I'd they do, they're in on the grift. Laymen who bought the hype stand to lose a lot though.
  - Breza 5y ago
    My understanding is that Tether has bought a bunch of bonds and other financial instruments. If they need to raise cash, they would sell those instruments for whatever price they could get. That could lower the prices, which could have negative effects.
    - bduerst 5y ago
      Tether keeps moving the buck. First it was all USD backing, then when pressed, they said they actually have it all in bonds/securities, which is just as nebulous and doesn't make it any more authenticated. It's not verified by third parties at all, and they're printing non-stop, which is why many people can spot it for the scam it is.
- paulpan 5y ago
  +1 and my thought exactly. Spillover effect could be fairly significant given that more investors now hold crypto.

exdsq 5y ago

Or people will accept it as paper dollars and carry on regardless. Honestly this wouldn't surprise me - it'll just be a representation of the dollar that things use as an intermediary step.

Traster 5y ago
Well, if Tether isn't backed by dollars, then there's some pretty big questions to answer - for example: "When people buy tether using fiat currency, they hand $1 to bitfinex, and in return get 1USDT. Where did that real $1 go?"
- arthurcolle 5y ago
  back to the money store (https://vimeo.com/215534945 https://vimeo.com/215534945)

legutierr 5y ago

There is one scenario in which the 70 billion was at one time made-up money, but where it won't ever actually tank the crypto market: 1. Tether prints $1 billion with no backing. 2. Tether buys $1 billion of Bitcoin with the the fraudulent tokens. 3. Bitcoin triples in price. 4. Tether sells 1/3 of their position in exchange for hard currency, and holds that money in their reserves. 5. Tether now has 100% reserves backing the tokens they created, and is also holding $2 billion in Bitcoin. Maybe they sell the extra Bitcoin to diversify. 6. Rinse and repeat. Under this scenario, what these guys did was to take a massive uncollateralized loan from ordinary consumers, use it to buy buy Bitcoin, and sell off the Bitcoin in order to pay back the loan. Basically an uncollateralized version of what most DeFi borrowers are doing right now, but at a massive scale. As long as the price of Bitcoin is going up, the scheme a surefire way to make a lot of money. If the price of Bitcoin starts going down before they can cash out, then it can easily bankrupt them and crash the market—which is also a big risk with DeFi. It could be that we are passed that point with Tether, though. With as much scrutiny as they are under right now, if Tether ever defaults, the people who run Tether are going to be wanted for criminal prosecution in dozens of countries. They will be running and hiding for the rest of their lives. I can't believe that a few more billion dollars in the bank is worth the risk—especially if they won't be able to access those billions. If you look at the rate of issuance of Tether since June 1 of this year, it has flattened out dramatically.[0] Could it be that the people at Tether have realized that the jig is up, and are now just trying to get things in order so they can walk away clean? Maybe. Or, it could be that they printed so much funny money last year that the amount of Bitcoin they need to sell is more than the market can accept without tanking the price of Bitcoin, given current market liquidity. Maybe they aren't generating more Tether for themselves because they figured out that whenever they try to sell the Bitcoin they need to sell in order to replenish their reserves, they crash the Bitcoin market. Maybe they're stuck. Or it could be that Tether is fully backed, that they have never minted any Tether that didn't correspond to $$ in their bank account, and the reason that Tether's growth has slowed is only because people are now buying USDC and other stablecoins instead. (Not likely, in my opinion.) [0] https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/

thebean11 5y ago
If the 95% crash in 2017 didn't kill Tether I'm not sure what kind of price action could, unless they are in a materially worse position now than they were in 2017 (the accusations were already super common).

graeme 5y ago

Tether claimed their excess reserves were $160 million. So the fine is a quarter of that.

VHRanger 5y ago
Tether has claimed their excess reserves is almost exactly $160m for more than a year. Two ways to confirm: - Go look at the wayback machine on their transparency page - Look at the difference in their attestations This implies they loot the interest rate yield on their reserves