Another Usecase Bites the Dust
There’s a rumor lurking in China about a man known as Zhao Dong, or as the Chinese refer to him, “Uncle Dong.” Zhao Dong is an OTC trader and cryptocurrency trader who founded Renrenbit — a China-based cryptocurrency exchange that promises “Proof of 100% Reserves.”
Zhao Dong’s been involved with Bitcoin since 2013 and is also a key investor in the UNUS SED LEO token that was ICO’ed (initial coin offered) by Bitfinex, in addition to creating Tether ¥ (Tether Yuan currently has a marketcap of roughly ¥23.5 million, or only $3.3 million). This is to say that Uncle Dong is both wealthy and an important part of the cryptocurrency community in China.
This past week Zhao Dong was, supposedly, detained by Chinese authorities when he arrived back from a trip in Japan. He hasn’t been heard from since, though the CMO of Renrenbit denies that Zhao Dong is in custody.
Nonetheless, the fact that Zhao Dong is unable to speak for himself says it all. The Renrenbit Telegrams — both English and Chinese rooms — are largely silent, besides a few individuals posting brief Chinese news articles about Zhao Dong’s detainment and employees spouting the party line. The articles proclaim that when Zhao Dong landed in China he was detained in relation to financial crimes (ie, money laundering or fraud) and is, “cooperating with authorities.”
To be clear: being detained isn’t the same as being arrested. He could be released tomorrow without more than a stern talking to. Or not.
Why does this matter?
Maybe it won’t. But if Zhao Dong has committed some sort of financial malfeasance and been caught red-handed by the CCP he’s in hot water, no doubt. And then one must wonder if a usecase, so blatantly acknowledged and touted, is really a usecase at all.
There’s little reason to doubt that OTC desks, cryptocurrency exchanges, and perhaps, even certain Russian and Chinese nationals, rely on Tether as a means of escaping capital controls and maintaining a semblance of stability despite the volatility of cryptocurrency markets. But the style of crackdown currently taking place in China — one in which they go after OGs and market makers — hasn’t been seen for a long while. There may be good reason for Chinese nationals to be concerned about holding blockchain dollar or yuan derivatives — especially if they’re moving tens of millions of dollars in Bitcoin or USDT at a time.
Zhao Dong matters, especially if Renrenbit truly holds over 100 million in Tether. A CEO doesn’t get detained or arrested without there being ramifications for the company he calls home, so if Zhao Dong indeed ends up in prison it could be very bad news for Renrenbit. But that’s not all, folks.
Zhao Dong Loves Bitfinex
Zhao Dong has long been a fan of both Bitfinex and Tether. Here’s a picture of him from long ago with the CFO of Tether, Giancarlo Devasini:
As a strong supporter of Finex, Zhao Dong has been at the forefront of two Finex-related projects.
In May of 2019, Zhao Dong was the first to “leak” official documents regarding the UNUS SED LEO token — the Bitfinex ICO designed to make up for the gaping $850 million hole left in their bank account by the gubmint. He obtained these documents by being a welcome investor.
Next up, in August of 2019, he helped establish Tether Yuan — a yuan-based cryptocurrency derivative on the Ethereum blockchain. The concept was immediately perceived as ill-advised and has garnered little traction since. Nonetheless, over $3 million in Tether Yuan has been issued and most of it is in the hands of Zhao Dong or Renrenbit.
China Doesn’t F*ck Around
There is a process in regard to “justice,” in the United States of America. Often, it isn’t fair and isn’t just, but we still have a set of procedures that allow for criminals to defend themselves. We aren’t perfect, but at least there is the illusion of the “right to innocence.”
The same cannot be said for China. If the CCP thinks you’re screwing them over on taxes, or “misreporting” your numbers, it isn’t a slap on the wrist and a fine or a multi-year trial and bail — it’s, “Tell us everything. Now, or else.”
So, it’s safe to assume that when news articles relate that Zhao Dong is “cooperating with authorities,” he’s, indeed, cooperating with authorities. If they’ve detained him with any kind of tangible evidence, expect wider ramifications, if not, we’ll find out soon enough. Either way, there’s now reason to be wary for Tether/Finex proponents.
A loud, Chinese cryptocurrency trader has, at least temporarily, been silenced. And it was easy. Zhao Dong, someone who has vouched for Bitfinex and Tether repeatedly, and helped to garner an audience for their products on the Mainland, is currently in the custody of Chinese authorities, and all he had to do was have his plane touch down on Chinese tarmac.
Of course, Finex and Tether aren’t located in China, so a freeze on all of Zhao Dong’s accounts would hardly affect their bottom line. However, this is a blow to whatever reputation Finex has left: not only were they founded as a Ponzi scheme by a French scammer, bought out by an Italian criminal who sold fake Microsoft products, and prone to handing money out to serial fraudsters without a contract (see: Crypto Capital Corp), but now the only guy vouching for them on the Mainland can’t even go outside and tweet.
Stay skeptical, friends.