What’s Behind Tether?
A Tether Promise is a Broken Promise
When Tether (RealCoin) was founded in 2014 it had a clear goal that was easily digestible: for every Tether in circulation, there would be a dollar, in a full-reserve bank account, to back it up — and that account would be frequently audited. Ignore the fact that there’s no such thing as a full-reserve bank account. Ignore the fact that, to this day, there hasn’t been a GAAP audit performed on a single stablecoin. Ignore everything and focus on the promise.
It doesn’t take long for Tether to renege on its promise. Initially founded by Brock Pierce, Reeve Collins, and Craig Sellars, with “headquarters” in Santa Monica and receiving less than ideal “audits” from a Taiwanese firm (these so-called audits, by the way, resemble something far closer to an attestation than an audit), the concept and infrastructure for Tether are sold off in a little over three months, quietly, and through shell companies, to the owners and operators of Bitfinex. No one confirms this sale publicly until two years later, and even then the statement is wishy-washy.
At the time of sale, Tether is hardly operational and doesn’t show up on CoinMarketCap until March of 2015. In fact, Tether’s marketcap won’t crack a million until 2016, when gamblers begin to seek an easy, on-chain, and gray market solution to losing money. After this, the marketcap of Tether will exponentially balloon for almost two years straight, plateauing at $2.2 billion in February of 2018.
So what happens over those two years of growth in relation to Tether’s promises? The promises are broken, the trust model failed.
The last “audit” that Tether discusses publicly is via the small Taiwanese firm they’d used in the past and occurs on March 23rd, 2017. It, again, is more of an attestation, and says nothing of where the money has come from or how it was acquired:
After six months of no attestations or real clarity, Tether issues a statement on their banking issues and their new engagement with Friedman, LLP. They also make it dramatically clear that they’re, like, totally solvent, dude — full stop:
Though there may have been previous announcements stating as much, it’s important to note that Tether no longer states that liabilities will be matched with “traditional currency,” but explicitly switch to the term “assets.” What has the 1-to-1 backing become?
Shortly after, Tether states they’ll be working with Friedman LLP, though they later clarify that Friedman will not be conducting an audit, nor even an attestation. “These consulting services do not constitute [sic] anaudit or attestation engagement, which would include a significantly expanded scope of procedures and take substantially more time to complete.”
In late September/early October, Tether releases a memo from Friedman LLP and states that the memo proves both solvency and lack of nefarious action on the part of Tether/Finex. Unfortunately for Tether, the memo also specifically states that it isn’t to be relied on:
Two months later, Tether is hacked. ~31 million Tethers just up and leave the Treasury and the fear amongst traders and Finex is palpable. What the hell is going on? No audit, hacks on Finex and Tether within a year of each other, lots of uncertainty.
And as the adage goes, “When it rains, it pours.”
In January of 2018 a member of r/Buttcoin posts about how Friedman LLP has removed Tether from its website. Tether is forced to confirm that the relationship between Tether and the firm have dissolved — though no one can tell if this means they were fired for doing too much due diligence or if they quit because Tether wasn’t providing enough comprehensible data.
Since 2017, Tether hasn’t even attempted to engage an auditing firm to scan the books, instead providing three incredibly half-assed attempts to assuage the fears of traders and coiners:
- They hired a law firm (FSS — Freeh, Sporkin, & Sullivan) to vouch for their books. Lawyers will be the first ones to admit they aren’t auditors or accountants. Fail.
- They hired new, well-known compliance officers, who haven’t spoken with or engaged the community. Though they may be making internal changes, no one can confirm that and the public has no reason to believe it. Fail.
- A slew of new offerings (from Tether Gold to Tether Yuan to Tether on TRON) and “charitable efforts” — implying they’re so flushed with cash that they can spend it on tons of R&D, supporting charities, pushing for blockchain adoption with foundational support, etc. No reason to trust these assurances that these assets are secure. Fail.
The only point I’m here to make is that if one tries to take Tether at their word — if one treats Tether as though they’re a human being making promises to gain your trust — one quickly recognizes that they’re liars who shouldn’t be considered reasonable or safe. It isn’t only a lie they are telling their customers anymore, but rather a lie that Tether is telling itself: if we change the verbage and insert endless law-speak until it doesn’t mean anything, perhaps we can get off the hook.
They have yet to meet a single goal they set forth for themselves and instead of admitting as much or fixing the situation, they’ve obfuscated their way to this monstrosity…
Stay skeptical, friends.