Intro to Stablecoin Mechanics

Let’s go through how a stablecoin works. Not the whole “what backs this thing?” question. The “boring” mechanics of operating a stablecoin. Spoiler alert: it is not boring. Here we de-anonymize a large wallet and put a person’s name, with specific dates, next to public records corresponding to large USD bank transfers. At least they are supposed to correspond to such transfers.

We are going to dig into to the TrueUSD (TUSD) because it is particularly interesting. And it shows how much information is there just waiting to be read.

You’re probably thinking TUSD is tiny. The market cap is about $380mm right now. But there’s been about $8.9B of minting and $8.5B of burning to-date. So far in October it’s done $400mm in on-chain volume across 5,355 trades. YTD is $22.7B and 111k trades. Annualized that’s about the GDP of Iceland or Cambodia so, yeah, it’s not zero.

Minting & Burning

TUSD is an ERC-20 token. If you want the technical info read that link — this is going to be a bit casual. Minting of tokens is done by transferring them, as if by magic, out of the “null address” 0x0000..0. Burning is done by transferring them back into that address. Whoever controls the keys for the TUSD contract can do this whenever they want. Let’s just assume, as we have done before, that TUSD is entirely legit and all the USD are there.

There is some kind of control process within TrueUSD that manages this. We do not know precisely what — but we can take a pretty good guess. Let’s look at the top minters lately:

Those are just normal looking addresses, nothing to see here. Let’s just guess the operations team there waits for the wire to arrive and then sends tokens to wherever you asked. But what about burning?

Yeah those are not normal addresses! Again these are ERC-20 tokens so you do not need the ETH private keys for an address to use tokens there. Read the link if you care why/how — the technical details do not matter here.

If you go look into these addresses you see they are some sort of operational holding wallets. Here is etherscan for the top entry:

The address on the other side of those burns has got to be the real owner. So what’s going on? Recall stablecoin redemption is linked to a bank transfer. Each holding wallet likely corresponds to a bank account with some control process watching the balance. Send your tokens here. Then we credit you the real USD. Then we burn your tokens. Or something like that.

A quick aside: if this is even approximately correct it means there are bank statements that correspond to these transfers somewhere. It’s not really speculating to suggest we are going to see copies of such bank statements in court filings in the not-wildly-distant future.

Who Is Who?

Issuance is straightforward to untangle. Sometimes new tokens flow to a wallet tagged “Binance” or “FTX” or “Justin Sun” or whatever on etherscan. If there’s no tag then who knows and it’s just standard on-chain investigation stuff.

Redemptions are arguably harder: those 0s addresses are never tagged. But the transfers in often are. 0x000000000000000000000000000000000000228A on etherscan shows:

So that’s an TUSD-FTX operations wallet. There are a few of these. Do they correspond to different banks, or bank accounts, or clients of FTX? No clue. But there is something common here. Sometimes addresses are shared, but not too often:

This tells us the addresses probably correspond to bank accounts and clients. It’s not breaking any news to suggest folks use more than one exchange. So sometimes this can be useful.

It’s Useful

One burning address is 0x00000000000000000000000000000000000020d8. This address intermediates between a wallet labelled “Justin Sun” on etherscan and the 0x0 address. Here is the entire history:

That is just shy of half a billion in real dollars right there. And it is a reasonable guess that 0x611 address is also H.E. Sun. Let’s google it. The 7th hit for me, and the first one that is not just a chain explorer, is:

Right, so that’s de-anonymized then at least up to the standards of the etherscan tag. We’ve got half a theory about USDD now too. And so so many more revelations to come.

How Did We Do This?

The analysis above is not how we figured this out. That analysis let’s you show anyone the answer is right without using any math. Now is not the time for math. So we will end with a graphic and a comment:

Every TUSD trade ever is contained within this graph. Standard techniques — well, standard for some — were used to lay out and color the graph. It’s so much easier when you can leverage prior work.

The “front row” in that image are the most important wallets on TUSD. See that one with all the 0s ending in 886 and those arrows going in? That’s over $4 billion real USD bank transfers right there which must involve the banks named by TrueUSD as their reserve custodians.

See, it’s quite transparent after all.