Is Hasu Really Un-Tethered?
There are several seriously flawed assumptions in this article that are leading to a mistaken understanding of the risk profile that Tether has.
First, let’s discuss the “convertibility” of Tether. It is understandable that there is confusion about this issue since Tether itself makes claims in their whitepaper that are not true.



All of these directly from the Tether Whitepaper would seem to suggest that it is possible to redeem and convert Tether’s back into fiat, but the truth is a little bit more complex. It would seem from analyzing Tether flows which instead of going directly from the Tether wallets to the various “users” instead are filtered through Bitfinex first, which would seem to suggest that Bitfinex is the only customer in the manner described in the whitepaper. I also want to draw attention to the step 5 here where they claim to destroy Tethers. This is not a common occurrence. As far as I can determine this has only happened a single time and only for the paltry amount of $30m. (Here’s the transaction on the Omni blockchain where it happened.) Furthermore comparing the changes in marketcap between Tether and True, you can see how people redeemed True as expected and the marketcap decreased whereas Tether has continually increased. This would all seem to suggest that Tethers are not being redeemed, and thus we do need to question whether or not it is actually possible to redeem them, so far there are exactly zero people who have publicly admitted to redeeming a Tether. Since there are these serious questions surrounding the convertibility of Tether we are now left to wonder what is meant when Hasu says “the market trust in its convertibility has remained quasi absolute throughout its history”. No one believes it is convertible because as far as we can tell it does not get converted.
Next, we must look at their proprietary liquidity analysis, in which they accurately determine there is illegal wash trading happening on almost every single Tether exchange, however, this is ignored and the result they come to is that Tether is a comparatively small 29%. However, they decide that Bitfinex should be counted separately because they (sometimes) allow USD withdrawals. However, Bitfinex needs to be counted with Tether, even if they are using USD, because an event that takes out Tether will likely in the same stroke take out Bitfinex, and so those liquidities evaporate together. This takes us even using their adjusted liquidity numbers to a much larger 55%. Compounding the risk of this is declining fiat volume on legitimate exchanges such as Coinbase and Gemini. Diar reported an 83% drop in Coinbase volume since January. Removing any liquidity and especially over half in the space of a few minutes will represent a huge liquidity crunch in a thin market.
The way they structure the crises is misleading because people do not redeem. The real potential crisis is a loss of faith. This would be because regulators have seized the accounts, indicted the principals, or some other major event. The authors are aware of this risk even saying, “A Tether solvency crisis would have dire consequences for the crypto-ecosystem. Up to 2.8 billion dollars worth of Tether would be rendered worthless, not only representing a very significant capital outflow, but also triggering an extremely strong confidence crisis and a rush to the doors, as most would expect Bitfinex to go down with the Tether ship.” However, they claim that because the money exists, this kind of crisis is unlikely. However, the biggest risk with Tether is not insolvency due to lack of funds, but due to regulator intervention. The authors seem to consider this risk, however, they conclude, “Assuming secured full reserves, Tether could be still be shut down by authorities in the future, or lose their reported banking license with Noble, which could lead to a liquidity crisis. In the most likely and sensible scenario Tether holders would be given a 3–6 month time period to redeem their USDT for Tether Limited’s fiat reserves. As a result, trust in the ecosystem as a whole could temporarily be impaired and many holders of cryptoassets could look to exit their positions, all crowding into the same narrow fiat gates.” To me, it seems very unlikely that Tether holders would gain access to the fiat until after a lengthy and protracted legal and bureaucratic battle, and even then many will likely not be able to claim. It seems to me that it would be preposterously unlikely they would allow for any holder to make claims immediately. Furthermore, it is important to remember that the Tether ToS has certain restrictions on who is supposed to be using Tether including this tidbit:

This suggests to me that if you are US person trying to stake a claim to the fiat you are going to find it quite difficult.
Furthermore, the authors for some reason seem to believe that Bitfinex would have no problem surviving the collapse of Tether going so far as to say, “It is hard to predict what impact Tether being shut down would have on Bitfinex, but it is difficult to believe it would be critical. They are, to begin with, two legally separate companies.” They are right that they are technically two separate companies, with the same principals (thanks Paradise Papers). The finances of Tether and Bitfinex are likely linked to the degree that a Tether collapse causes a Bitfinex collapse.
Finally, we need to deal with the most egregiously misunderstood part by the authors. Namely, “Tether makes it much easier for cryptocurrency exchanges such as Binance or Bitfinex to exist outside of KYC/AML regulations by allowing them to support fiat-like currency pairs.” This is true, and it is the reason that it will likely fail. Without complying with those regulations they open themselves up to regulatory action, and despite both Tether and Bitfinex and iFinex being foreign companies (Hong Kong and BVI), they bank using Noble Bank, which is a US bank making seizure comparatively easy. They are flaunting US Regulations while banking on US soil. That is a disastrous idea, and it will end predictably.
Tether is doomed. If you are not continually cognizant of the risk while participating in the cryptocurrency space you are doomed. Trade smart.
*cough* Liberty Reserve *cough*
