Tether — the stablecoin that could destroy crypto.
Tether is the often-ignored little brother of Bitcoin and Ethereum and stands at a marketcap of over $78 billion, making it the 4th largest cryptocurrency. Unlike its peers, though, Tether acts solely as a means to purchase other cryptocurrencies and convert fiat to crypto seamlessly. The process of redeeming USDT is as follows:
- First, the user deposits a certain amount of dollars in the bank account of Tether Limited.
- Tether Limited then generates and credits the USDT tokens to the user’s account. These are created in a 1: 1 ratio with respect to the deposit made.
- Then, already with the active USDT funds, the user can use them like any cryptocurrency.
- In order for the user to exchange their USDT tokens, they must deposit them in Tether Limited accounts to exchange them for dollars.
- Finally, Tether Limited destroys the USDT tokens and sends fiat currency to the user’s bank account. Users can also obtain other currencies or cryptocurrencies using other means of exchange.
However, Tether may not be entirely worth the effort needed to acquire it. Here’s why:
MASSIVE lack of transparency & a history of lying.
For instance, in 2014, Tether announced a partnership with cryptocurrency exchange Bitfinex. In 2017, however, the leak of the Paradise Papers established that the same people control both Bitfinex and Tether.
“Tether and Bitfinex are two different businesses and groups with two different objectives,” a Tether spokesperson told the Verge when they asked about the relationship between the two. Of course, this was untruthful.
In addition, for some time, their website read: “Every tether is always backed 1-to-1, by traditional currency held in our reserves.”
In February 2019, this text changed to: “Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, ‘reserves’).”
They changed their statement. So what? Here’s the bombshell. In 2019, New York state Attorney General Letitia James said, “Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.” Tether’s lawyer then admitted that USDT was only 74% backed.
In the settlement agreement, the office of the attorney general found that Tether had no reserves to back the stablecoins in circulation for certain periods of time, and thus barred them from doing business with anyone in New York.
The top Tether executives are prone to spreading misinformation.
Two Bitfinex & Tether execs recently addressed persistent questions over what exactly backs their enigmatic stablecoin.
It was a bumpy ride from the get-go. Ardoino, Tether’s CTO, promptly falsified that USDT is “always redeemable” with dollars, despite Tether’s terms showing its right to delay redemptions altogether — and even redeem tokens with some other asset in its reserves.
As we know, Tether backs most of its value with commercial paper, which is similar to corporate debt (about 3% of Tether is backed by real cash in a bank). When queried about this by the CNBC host, they consistently denied her questions.
In fact, Hoegner stated Tether was now backed “one-to-one with its reserves,” rather than one-to-one with US dollars. At one point, he also admitted Tether’s “portfolio contains international paper” — allowing likelihood that some comes from China-based companies.
But new to the mix was his claim that the “majority” of Tether’s commercial paper (supposedly A2 and above) had been rated “across multiple [credit rating] agencies,” including S&P and Fitch.
Hoegner also claimed that New York Attorney General (NYAG) Letitia James made “no negative findings” about Tether in its settlement earlier this year. — saying that NYAG simply “found that [Tether] made mistakes in our disclosures about the one-to-one backing with dollars,” and those disclosures had been corrected within months.
As we know from the previous paragraph, this was obviously a lie.
In addition, throughout the interview, Hoegner, their lawyer, was answering nearly every single question — even the ones relating to Tether’s technology. Isn’t it weird that Ardoino, Tether’s Chief Technical Officer, has no perceived knowledge of the the tech behind Tether?
It’s likely that Tether & Bitfinex are involved in money laundering.
- First of all, Bitfinex executives have indirectly admitted to bank fraud & money laundering in an audio recording.
- Raphael Nicolle, the founder of Bitfinex, is also a known Ponzi scammer.
USDT has illegally been used to inflate Bitcoin’s price.
The details of the bank account were published, along with proof that Bitfinex actually used that account. Bitfinex denied the accusations, and publicly stated that the rumors were false.
About six months later, in October 2018, Bitfinex suddenly lost another $450 million dollars. A week later the price of Bitcoin on Bitfinex shot up nearly ~40% in fifteen minutes, with Tether falling to 85 cents or so.
Of course, this means that large amounts of minted USDT were used to buy BTC.
Meanwhile, the CFO of Bitfinex & Tether was panicking privately to one of their money laundering banking providers a few hours before BTC pumped.
In the conversation, he told the other person that ‘BTC could tank to 1K if we don’t act quickly’ and to ‘send something big pretty soon, the situation is not looking good’
Essentially, this is damning evidence that Bitfinex used illegal USDT to buy BTC.
USDT is minted at will & is not always backed by USD.
The NYAG stated that “starting no later than mid-2017, Tether had no access to banking, anywhere in the world, and so for periods of time held no reserves to back tethers in circulation at the rate of one dollar for every tether, contrary to its representations.”
If Tether had no access to banking, how did they issue USDT, and how was it redeemed?
It wasn’t. Another document revealed by the NYAG states that Bitfinex & Tether had 2 customers for that period in 2017, and none of them bought any USDT.
So if nobody bought USDT for those months, how were hundreds of millions of USDT still printed, and who owned them? Something doesn’t check out here.
Most people can’t officially obtain USDT.
Tether’s official website states that the minimum amount requires to buy or redeem USDT is $100,000.
Little is known about its source code.
- There is no Github repository on USDT’s implementation on the Omni protocol.
- The only thing known is its smart contracts on Ethereum and EOS, while the rest is kept secret.
If Tether collapses, it automatically removes the only source of liquidity for nearly every single cryptocurrency, essentially moving the market to a standstill. Remaining stablecoins will be unable to mint tokens fast enough, while institutional investors maybe scrambling to pull their funds out of crypto. This is not to mention the billions upon billions of dollars that will vanish with the dissolution of Tether, perhaps even immobilizing entire financial institutions.
So for the good of crypto as a whole, let’s hope that we can one day replace Tether.
