The Blockchain Brief: I'm Calling Bullshit on Tether
![tether.jpg](https://steemitimages.com/640x0/https://steemitimages.com/DQmaEXwAdcyjCChn3LmCUqzr7CXoVq8GWnTyZHec5o9psYZ/tether.jpg)
Steemit! I've mentioned before that I'm part of a crypto enthusiast group called Game Theory Group, created to bring together blockchain evangelists and enthusiasts from across the globe. We are based in Boston, New York City and Hong Kong. One of the top offerings of Game Theory Group is the Blockchain Brief newsletter, where I'm an editor. Here's the latest post about the Tether fiasco.
Are you an investor in cryptocurrency?
If you are, and you haven't heard of Tether ($USDT) then I highly urge you to sit up and take notice. Things are about to get a little crazy in crypto-land, to the tune of up to $2 billion dollars of assets turning into vapor. This would dwarf last weeks $500M+ hack of Japanese cryptocurrency exchange Coincheck.
Tether is a cryptographic token owned by the Tether Corporation
They haven't fully disclosed this, but it seems likely that the corporation is actually operated by the same folks behind the popular exchange Bitfinex. Tether was deployed as a "StableCoin" so that traders wanting to hold their money in a stable asset (but not USD) could easily do so within exchanges. $1 Tether ($USDT) is supposed to always be equal to $1 USD. In order to achieve this valuation, every amount Tether releases in digital currency should be backed by exactly equivalent real USD in their accounts. Reportedly, most exchanges literally hard-code the $1 USDT to $1 USD exchange rate on their order books, instead of letting the value float based on supply and demand.
By trading into an asset with low volatility like Tether, one could ride out a bear market, hold dry powder for an ICO, take a vacation from crypto-investing or any number of reasons one would want to be temporarily "out" of a market position.
Seems pretty stable, right? (green line is dollar price)
![Screen+Shot+2018-01-28+at+2.47.07+PM.png](https://steemitimages.com/DQmRBRveSE35aBukZk6N9oK8cxgdCuBe8tzmya35oGB4vJS/Screen%2BShot%2B2018-01-28%2Bat%2B2.47.07%2BPM.png)
And, sure, it is. Remember, every $USDT is mimicking a USD held in reserve, as investors who want to withdraw a "StableCoin" into USD should be able to do so, right? The money has to be there.
Logic follows that if the market cap of Tether is $2.2 billion, as seen above, then somewhere the Tether Corporation is holding that much money in USD.
LOL, yeah right.
To create new $USDT at the rate we're seeing, Tether would need to be receiving tens of millions of dollars of institutional funding every single week, sometimes every day. Wallets with an enormous amount of Tether are being discovered on a near-weekly basis -- literally created out of thin air.
Why would that many sophisticated investors invest so much into an off-shore, previously hacked, dubiously operated company? No major institutional investors I could find have announced any partnership with Tether. In addition to that major question mark, Tether has currently turned off most forms of redeeming USDT into USD directly into a bank account. You can, of course, easily sell your Tether to someone else on a exchange -- swapping Tether between traders but never redeeming it directly from the Tether bank account.
Over $2B of Tether capital, printed at opportune times, can do quite a bit to prop up the price of Bitcoin. And Bitcoin price correlates with AltCoin price. To some degree, Tether is propping up a small but significant piece of the entire cryptocurrency market.
If Tether were any other currency, like Monero ($XMR) for example, then this wouldn't be such an issue.
People believe in the value of $XMR because they believe in the teams, the product, the developer community, and the network effect. Tether has a completely different psychology; Tether is "stable" and a safe haven on an exchange. If it continues to print Tethers at will and if the general public believes there are assets to the tune of $1 for $1, it could potentially never collapse even if the assets in the Tether vault don't exist.
But the crypto market is moving beyond the general public, and crypto investors are becoming more sophisticated. These investors want to ensure that if they store their assets in Tether, there's something to back it up. As the market cap of Tether skyrocketed in the final months of 2017 calls for an audit into their balance sheet began to mount.
Demands for Tether to hire a third party auditor heated up in November of 2017
After enormous pressure, they caved and hired Friedman LLP to conduct a full audit and prove they had the assets they said they had. After months of promising to release an audit and silence, CoinDesk reports on January 27th that Friedman and Tether have "dissolved" their relationship. Here, I believe, is where the market psychology begins to unravel.
If (when) Tether fails to provide a concrete and believable reason for this relationship with an auditor to unravel so spectacularly and unexpectedly, consumers could lose confidence in the entire thing. A quick look at the Tether subreddit does little to inspire confidence. If exchanges were to stop the BTC/USDT trading pair... over two billions dollars worth of assets might become illiquid, with regular traders holding much of that amount.
I don't know when this will happen, and I can't say with absolute certainty that Tether doesn't have the billions in assets they claim they do. All I can do is raise a yellow flag for those reading this newsletter.
Sign up for the Blockchain Brief newsletter right here!
What do you think of the possibility that Bitfinex CEO who is also the CEO of Tether (at least according to Cointelegraph) is using funds from Bitfinex to back Tether?
Or at the very least Bitfinex could send funds to Tether bank accounts to fill them with USD equivalent of the Tether market. Bitfinex likely has billions in funds if e.g. Coincheck can somehow pay out 400M USD to their users after the hack.
I hope we can have a discussion here @davidpakman , let me know your thoughts
"Tether has currently turned off most forms of redeeming USDT into USD directly into a bank account."
When exactly did they do this, do you have any source for this?
Good friend
Got my full upvote and resteemed, great content.
👍
Just in: "U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether" - https://www.bloomberg.com/news/articles/2018-01-30/crypto-exchange-bitfinex-tether-said-to-get-subpoenaed-by-cftc
This is fucking huge, by the way, this basically connects the dots because that's right before they went on their mega pumping spree. Exit scamming at its finest. Get ready people, shit got real.
The subpoena date was 2 months ago. Interesting how the story broke one day before futures settle 🙄
So it would be pretty safe to say i should withdraw all my funds out of bitfinex? Which exchange do you recommend?
This is not advice, but I am told that Bittrex and Binance are more reliable than bitfinex, although MORE safe doesn't necessarily mean totally safe
I'd recommend the BitShares DEX. It has a bit of a learning curve as it's a decentralized exchange, but it's worth it! With Bitshares you own the keys to your crypto assets, on a centralized exchange like BitFinex you own nothing but an IOU from the exchange.
@tonypeacock made an excellent how-to tutorial the other day for beginners:
https://steemit.com/bitshares/@tonypeacock/bitshares-how-to-tutorial-video-1-setting-up-a-wallet-on-the-bitshares-dex
I first saw Tether when I signed up for Binance. It looks good, to be honest. The ability to quickly go to a stable token on an exchange without having to sell to USD makes sense. But all of the news trouble behind Tether also makes sense to me. I don't really know what opinion to have. For right now, I'll continue using it on Binance. But if it disappears one day, then I'll know why.
Davidpakman: Good content, I think Tether is a pump and dump. They are not concrete or transparent. Not a good project in my opinion. Thanks for posting this. Im going to follow you, feel free to return the favor. I post very similar content. Lets grow this steemit community!
This sounds like a disaster. The government is going to have to step in and regulate before people start getting killed. I'm going to resteem this and follow both of you guys. Thanks.
I think it might be kind of obvious by this point that they let them operate for a while knowing it would break down confidence in crypto.
Yeh I agree with that too.
My thought is that it is good that a regulator intervene as they have not been transparent enough with the concept of tether. Tether is not a bad concept if done responsibly and transparently; it is very similar to money market funds which serve as short term investments for investors "parking" cash in the short term. If something is not being done right with investor money, then it should come to light so that investors can make informed decisions with their money. I personally avoid USDT and rather have the money in fiat or one of the bigger cryptos like BTC, BCH, LTC or ETH. I also have these positions in hardware wallets to protect me from the exchanges.
With fees, Tether are actually making a ton of money every day, right? This is the part that I'm most interested in reading about, but can't find much info on it anywhere.
Thanks for sharing your thoughts from the newsletter over here on Steemit for us all to read.
Exchanges profit on the trading fees as well as the transfer fees if I'm not mistaken. Don't see how Tether benefit from this.
According to the fees section on the Tether website, Tether charges a 0.1% fee any time USD is converted into Tether, or converted from Tether to USD.
Ah right thanks for the info. However, USD to USDT trading accounts for less than 2.7% of all Tether trading currently according to CMC so the fees they garner from that are negligible I reckon.
👍 DP for timely Tether ♨ All OK w proper credit line to cover mass liq, but that conflicts with Decentral ideals. Counterpoint just create Tether out of thin air and then use this counterfeit to Pump Crypto? Some work to do before Lambo owners team with Bentley owners but masses pray for relief from Evil Banker Yellon who owns their Chevys 🤕