
The Tether Conundrum: a look into a suspicious cryptocurrency - bascule
https://tonyarcieri.com/the-tether-conundrum
======
chollida1
4 statements of fact that are not in dispute.

1) Tether is supposed to be backed 1:1 by USD.

2) There are now $1.7 Billion in tehters outstanding

3) They were turned down by all reputable banks they approached.

4) They have printed $450 million of tethers in the past week

[https://coinmarketcap.com/currencies/tether/historical-
data/...](https://coinmarketcap.com/currencies/tether/historical-
data/?start=20170119&end=20180119)

Just ask yourself honestly..... do you really believe that there is a
reputable bank anywhere in the world that would allow them to hold $1.7
Billion in an account and additionally make a deposit of $450 million in a
single week?

Ocams razor says this can't possibly be true.

~~~
brokensegue
the most charitable explanation I've heard is that tether is backed by $2
billion in value of bitcoin.

~~~
aqme28
If that were true, they would print Tether when BTC price climbs, and perhaps
get rid of Tether when the BTC price falls.

What happened instead was that they printed more Tether (450MM) when the
bitcoin price was collapsing.

~~~
take4
They could be printing tether when BTC collapses to allow themselves to buy
more BTC to try to pump it back up. This would make it in essence backed by
BTC since it's what they are holding.

------
ve55
There's alternative explanations for a lot of the very strong accusations made
against Tether.

People always refer to Tether 'printing money out of thin air', but they never
consider the prospect that investors are wiring money to exchanges, having
Tether printed for their use, and then using that USDT to purchase
cryptocurrencies.

Bitfinex is huge. Bitfinex also has an OTC counter, which has been known to
broker trades in excess of 10-50M USD. USDT is often the medium for which
these trades are executed, so it makes sense that a lot of Tether needs to be
printed when BTC is crashing, as that's when the larger players decide to buy
in the most.

There is a lack of transparency, and I wouldn't be surprised if things don't
look perfect behind the scenes, but that doesn't mean the entire thing is a
billion dollar scam conspiracy that the largest exchanges are all in on. Not
all transparency is in the users' advantage in this area either. Do you know
why Bitfinex doesn't tell you exactly where their servers and wallets are
located? Probably because they hold over a billion USD in BTC in a single
address.

Keep in mind that the market clearly values Tether at around $1USD, almost
always. That's a good sign that the market as a whole does not think Tether is
going to suddenly collapse and take the entire ecosystem into it at any point
in time.

It's important to read criticism like this and consider it, but not believe it
blindly. There are a lot of feasible middleground scenarios between "is a
complete fraud and scam" and the exact opposite.

~~~
unknown_apostle
In all seriousness, who needs USDT when you (supposedly) got USD? Who would
wire millions of actual USD to buy USDT to buy other coins?

~~~
odorousrex
Money Laundering?

You have $1M in dirty money. Wire it to Tether for some Tethers. Go on
Bitfinex and buy lots of bitcoin. Transfer the bitcoin to a legitimate
exchange. Sell for clean USD.

This could be a very valuable (and lucrative) service in certain circles, I
have no doubt. One thing that could jeopardize the livelihood (...and lives?)
of people running a business in this space would be a steeply falling Bitcoin
price. They would probably do anything to keep the price up. Like issuing more
magic tethers and buying Bitcoin with them.

~~~
unknown_apostle
But even then...

Why USD -> USDT -> BTC -> USD?

Why not USD -> BTC -> BTC -> BTC -> USD?

What does the extra layer of USDT really add legally, except for some added
obfuscation that a few extra "intra-bitcoin" transactions would add as well?

(Genuine question, this is one of the more fascinating stories I've heard in a
while :-)

~~~
gamblor956
It's my understanding that Tether transactions aren't traceable because there
isn't a public blockchain...and possibly not even a blockchain at all. So the
obfuscating step is the USD->USDT transaction. The rest of the process is
getting clean money back.

~~~
unknown_apostle
Tether is on Omni layer. Its transactions are registered on the Bitcoin
blockchain and I think that makes it traceable.

USD -> USDT and back is traceable using standard investigations of books and
banking transcripts of entities dealing with Tether's managers.

Also, Tether is by now an internet-wide phenomenon. It's in the spotlight. And
yet it keeps growing.

------
jonknee
This is a pretty good primer of what looks to be the most obvious scam in
cryptocurrencies (of which there is plenty of competition!). It seems to be
the glue holding the market together and has rapidly gained scale. When the
scam crumbles it is going to be epic and tons of exchanges are going to go
with it.

In the meantime (if you like gambling), wait for another big down day and
watch for Tether issues. The market will start to climb shortly afterwards.
Just make sure you're playing with USD and not USDT!

------
granfalloon
Why did this get flagged as a dupe? This particular article hasn't been linked
yet, and it seems to have more substance and analysis than the other two posts
today.

~~~
wmf
It's not exactly a dupe but it sure looks like this article just reworded a
bunch of Bitfinexed posts. Why not submit the original?

~~~
aqme28
Which Bitfinexed posts?

This one added something that I hadn't seen previously, which was Tether's
behavior during the recent "crash."

~~~
wmf
All of them?

[https://twitter.com/Bitfinexed/status/953398351889944576](https://twitter.com/Bitfinexed/status/953398351889944576)

------
hedonistbot
How about this theory: I can print USDT (by fiat) and buy BTC with it. Now I
have a large amount of BTC and propped up price. Then CME starts trading BTC
futures against real USD, coincidentally the trading starts at the very top of
BTC price. Then I start selling both BTC for dollars AND BTC futures again for
dollars (cash settled on expiry). I am making real USD and only started with
USDT (supposedly backed by nothing, best case by my BTC wallet). Now that
prices are 50% lower and I have tons of USD (or just print more USDT) I can
start buying again keeping the price acceptable and ready for another pump
before I start selling the next BTC futures contract.

Is this possible. Am I missing something?

------
aqme28
I'm a believer that Tether is incredibly sketchy, but there's one thing I
don't quite understand.

Can anyone explain why Tether's price never drops significantly below a
dollar?

~~~
tonyarkles
Nominally I'd think it's because they can, theoretically, be exchanged for $1
USD. Practically that's not possible currently (by the sounds of it), but it's
the same reason people don't go around selling $1 USD bills for $0.90 USD.

~~~
aqme28
But that hasn't actually been true since April. Are investors ~100% confident
that it will be exchangeable again in the future?

~~~
jgautsch
Perhaps people aren't rational all the time.

[https://en.wikipedia.org/wiki/Confirmation_bias#Persistence_...](https://en.wikipedia.org/wiki/Confirmation_bias#Persistence_of_discredited_beliefs)

------
codespunky
Some relevant info for those of you looking into it. I heard that back in 2016
tether ran out of capital and basically the assets and IP sold to a bunch of
folks under some pretty bad circumstances, and most of the core team and early
investors got screwed. The buyers seemed pretty shifty.

~~~
codespunky
Before you ask, I learned this through one of the engineers who worked on it.
He was a good guy and pretty standup. My point was only that the people who
started it are no longer the people running it.

~~~
JumpCrisscross
> _He was a good guy and pretty standup_

Then he should file a complaint with the regulators. Knowingly participating
in and profiting from a fraud isn’t something good, or simply law-abiding,
people do. Absent such a report, you are posting unsubstantiated rumours.

~~~
codespunky
I'm not sure what there was to report? My opinion was that the people working
on it seemed legit up to that point, but it ran out of money and sold to a set
of people who didn't care about the orginal team and more or less got rid of
them. There is nothing wrong with that. But would you get rid of the people
who built the sophsticated operation you just bought? That seemed
questionable.

------
mkirklions
I've seriously considered making a cryptocurrency backed by something.

The problem is when it changes value and fees are taken. The math can get
pretty insane when taxes between the crypto organization are taken and users
realize their gains.

I did some math, looked alright. But I'm worried about the unknowns,
unexpected fees that MUST be taken by the users, and mostly taxes.

~~~
jstanley
How could a cryptocurrency be backed by something?

If I need to "trust" you that I can get <something> in exchange for my
cryptocurrency, then that's not much of a cryptocurrency is it? It may as well
be a MySQL database controlled by you, as that's what it amounts to anyway.

~~~
asgioiobuio
I've been toying with the idea of a computation-backed currency. Any computer
can obviously pay another computer in computer time. This means that any node
in the system can issue currency backed by computer time. This would require
trust, but it would be trust between neighbors rather than trust in one
central exchange.

The problem is that that's not really a currency. It's zillions of IOUs. I
don't know how to make transactions between two nodes that don't trust each
other or how to come up with one number for someone's net worth.

~~~
jgautsch
Some economists would argue that "zillions of IOUs" is basically the precursor
to currency/money. Then you just need a consistent unit, and that ability to
trade/transact (which is a solved problem).

> Graeber proposes that money as a unit of account was invented the moment
> when the unquantifiable obligation "I owe you one" transformed into the
> quantifiable notion of "I owe you one unit of something". In this view,
> money emerged first as credit and only later acquired the functions of a
> medium of exchange and a store of value. [1]

[1]
[https://en.wikipedia.org/wiki/History_of_money](https://en.wikipedia.org/wiki/History_of_money)

------
unknown_apostle
I'm very curious to understand this. Who is buying this? What is the real
purpose? Who benefits in the end? Why is the daily volume 5 times market cap?

I wonder if it would be possible just through statistical or network analysis
of all tether transactions on omni layer, without knowing the full narrative
of Tether, to get some idea of the game.

~~~
TaylorGood
Have not bought Tether, but the traders I chat with buy it before perceived
dip then buy back into their tokens at bottom.

~~~
unknown_apostle
But why don't they buy regular USD? Ask them next time :-)

------
Hates_
I'm having a really hard time trying to understand how Tether can be used to
buy Bitcoin if they are being made of thin air? Does anyone have a link to a
good explination of how this works?

~~~
rkeene2
People are willing to trade other people by giving them bitcoins in exchange
for tethers. Also, the same for US dollars and tethers.

------
blhack
This is the THIRD tether FUD article to make it to the front page today.
What's the deal?

~~~
jonknee
Billion dollar scams don't happen every day, they're usually worth talking
about.

