
The trillion-dollar lawsuit against Tether - prostoalex
https://danco.substack.com/p/the-trillion-dollar-lawsuit-part?token=eyJ1c2VyX2lkIjo2MTQwNiwicG9zdF9pZCI6MTYwNDE1LCJfIjoiR04vbWEiLCJpYXQiOjE1NzI4Mjk2NDksImV4cCI6MTU3MjgzMzI0OSwiaXNzIjoicHViLTg2MjMiLCJzdWIiOiJwb3N0LXJlYWN0aW9uIn0.LEnAhs6P88d7mEmzqAZmdP2O767cIwRI73guebuO6L4
======
asdfasgasdgasdg
I'm all in on the concept that Tether is a fraud. However, isn't it slightly
premature to file a lawsuit over losses? The latest price charts still have
tether at $1~=1USDT. If you have Tether and are worried about its liquidity,
shouldn't you just sell Tether to someone who wants it in exchange for
something else?

Or is there some kind of problem with doing that transaction that I'm not
aware of? Maybe some limitation that's not reflected in the price charts?

Edit: I see that this is not actually about Tether's liquidity at all.
Instead, the accusation is that Tether was used to pump and dump Bitcoin, and
those who suffered damages under this theory are people who bought Bitcoin at
the top.

~~~
MuffinFlavored
Can you spell out (maybe ELI5) why the concept of Tether is a fraud? Why is it
not possible to back cryptos to a stabilized "1:1" "medium/currency" (which
itself is another crypto it seems) and finally the USD dollar ?

~~~
conception
Tether's market cap is $4,132,688,008 USD. That means that the folks running
tether need to have 4B in reserves. That is... unlikely.

~~~
papln
This amazes me. It's really hard to get $4B in revenue for an actual product.
But they have sold 4B pretend dollars that are no better than dozens of other
cryptocurrencies?

~~~
jacobush
Actually worse than other cryptocurrencies. Because Tether can collapse if
(when) they are found guilty. The "normal" cryptocurrencies can collapse only
when the market as a whole says so.

------
juped
Gemini created an audited, 100% reserve stablecoin; no one uses it. This
suggests that there is no genuine demand for stablecoins and that Tether has
been entirely scam and hype driven.

Dollar amounts in a litigation complaint and headlines about "sued for $X
million!" are not usually that meaningful; remember your Gell-Mann amnesia.

~~~
lacker
_This suggests that there is no genuine demand for stablecoins_

That just suggests that "audited" and "100% reserve" are not the most
important features to people using stablecoins. What is more important is
having a deep market on Binance, which is where most BTC <-> stablecoin
trading happens.

Despite these terrible news articles, which are indeed reporting accurately
that there are terrible flaws in Tether, you can still trade Tether for $1
right now. A hundred dollars worth of Tether is still more valuable than a
hundred dollar payment made via a credit card.

~~~
teej
> What is more important is having a deep market on Binance

It sounds like you are arguing that being popular is what matters more to
being popular

~~~
lacker
Well, yes. There are huge network effects for stablecoins.

Let's go for a more specific example. Let's say that you hold one bitcoin on
Binance, and you believe the price of bitcoin will go down today. You would
like to exchange your bitcoin for dollars, and then tomorrow, exchange your
dollars back into bitcoin.

Ideally you would just use plain old US dollars. But since it's crypto, you
can't. What you _can_ have is a stablecoin.

So which stablecoin should you use? There are two costs to using a stablecoin.

Cost #1 is that when you exchange, you won't get the perfect rate. You'll have
to pay some fee, and the precise exchange rate you get will depend on the
liquidity of the market.

Cost #2 is the chance that this stablecoin collapses in value while you're
using it.

For Tether, in my opinion cost #2 is high. All these dubious stories about the
underpinning of Tether are true. That means the risk it collapses tomorrow are
higher than the risks that other stablecoins collapse tomorrow.

However, cost #1 is probably lower for Tether than it is for any other
stablecoin. Because there are more traders operating in Tether, you get a
better exchange rate.

This is why Tether isn't just hype, it is providing real value to people
through being the most popular stablecoin.

Would we be better off in a world where the most popular stablecoin also had a
solid financial backing? Yeah, I think so. But that isn't the same as saying
that Tether has no utility today.

~~~
vkou
Why not just use a reputable exchange, which actually lets you exchange your
BTC into real dollars, as opposed to funny money dollars, like Coinbase?

I understand why a money launderer wants to trade on an exchange which does
not let them withdraw USD. But why would a normie (who, at some point, wants
USD) want to do so?

~~~
lacker
This specific example is why you wouldn't want to exchange your BTC into real
dollars. The user doesn't want to withdraw fiat dollars, they just want to
exchange Bitcoins into a dollar proxy, then exchange back. Sometimes the cost
of a less-liquid exchange is higher than the cost of using stablecoins instead
of dollars.

------
sp332
I think this is a much clearer explanation of the fraud involved in Tether's
valuation. [https://www.kalzumeus.com/2019/10/28/tether-and-
bitfinex/](https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/) Lots of
discussion
[https://news.ycombinator.com/item?id=21377892](https://news.ycombinator.com/item?id=21377892)

~~~
jiofih
The article actually links to it midway. How would you know, if you clearly
haven’t read it...

~~~
Terr_
Come now, surely there's a difference between the due-diligence of "reading
the article" versus going beyond that with "checking the identity of every
link it contains."

------
bhouston
Question: Who was the dumper in this pump-and-dump game? Tether was clearly
the pumper.

Second: The claim that the they are liable for the damages of the loss from
the peak is a bit weird. IF it was a pump and dump scheme, and I at least
agree with the pump side of things, then the values were all inflated falsely
anyhow. There should be punishment, but basing it on the losses from peak is
very strange and not realistic.

~~~
nostrademons
Largely long-time Bitcoin holders and smart ICOs. Anyone who's a real (not
paper) Bitcoin millionaire probably got that way by selling near the peak.
Ditto anyone whose salary has been paid by a crypto firm that collected
millions in an ICO. Most of the engineers working for companies like
Consensys, Brave, Filecoin/IPFS, etc. are indirect beneficiaries of the 2017
Bitcoin bubble.

The ICO boom had an interesting triple-pyramid-scheme structure that
accelerated both the rise and the fall. If you bought into Ethereum in the
early days, you probably paid with Bitcoin; it wasn't possible to buy ETH
direct until ~2017. And similarly, if you bought into ICOs in 2017, you bought
with ETH. That meant that the folks investing their money in ICOs weren't
actually putting $200M into Filecoin; they were putting ETH that they had
spent maybe $20M (in aggregate) in, which was likely purchased from someone
who had bought it with $2M in Bitcoin. The eye-popping ICO valuations
attracted more people into the market, which allowed smart ICOs to unload
their ETH immediately at inflated prices and convert it into a big corporate
war chest. Once the bubble popped, this mechanism worked in reverse (a bunch
of dumb ICOs that had held onto their ETH all try to sell to capture the tiny
pool of inflowing capital, which does nothing except force down the price of
ETH), leaving folks who bought at the top of the bubble and ICOs that forgot
to sell holding the bag.

Ironically, this mechanism holds the basics of a functioning financial system:
money was transferred from people who weren't doing anything with it to pay
salaries of people doing productive but speculative work. It was transferred
pretty clumsily, with a lot of people losing their shirt and a fair bit of
waste and scams in the receiving projects, but if any of the receiving
projects deliver, it succeeded.

~~~
scg
> it wasn't possible to buy ETH direct until ~2017

Coinbase added ETH support in 2016: [https://blog.coinbase.com/coinbase-adds-
support-for-ethereum...](https://blog.coinbase.com/coinbase-adds-support-for-
ethereum-b8046cf486d0)

~~~
nostrademons
I stand corrected.

------
brenden2
It seems extremely unlikely they will be able to prove much of anything. The
Bitcoin markets in particular are extremely complex: lots of disparate
exchanges, actors, and entities all vying for a piece of the pie and some of
them are not necessarily acting in line with regulations or norms. How can you
possibly prove that one entity is responsible for a global phenomenon that
happened over a period of several months? How do you even establish evidence
that what happened on one exchange affected another?

~~~
cortesoft
Same way you find evidence for other crimes... emails, texts, messages,
witness testimony, etc describing their plan.

------
hectorr1
Tether is the FUD that never stops giving, anyone remember Bitfinexed from
2017?

Do people try to manipulate price? Of course they do. Sometimes it works,
retail investors get excited and pile in. Sometimes it doesn't, and whales get
rekt. Markets are messy.

How do we fix this? Stop barring Bitcoin companies from working with
mainstream banks, and USDT volume will dry up.

~~~
semiotagonal
If Bitcoin companies maintained an adequate level of know-your-customer/anti-
money-laundering compliance, maybe the mainstream banks would work with them.
But as it stands, the banks have no reason to take any risks in dealing with
them. If people resort to Tether and get burned, it's not the banks' problem.

~~~
yashap
Indeed. The crypto dream often involves being able to move huge sums of money
around the world, with no ability to trace it to real people. This is the
opposite of what established financial systems want. Of course they don’t want
to legitamize crypto currencies, they’d be introducing a massive vector for
crime and tax evasion.

~~~
jacobush
Yep. The honest actors don't want anything to do with money laundering, the
shady actors want these vectors for themselves so they can take a cut.

[https://www.forbes.com/sites/heatherfarmbrough/2019/03/29/sw...](https://www.forbes.com/sites/heatherfarmbrough/2019/03/29/swedbank-
faces-escalating-money-laundering-scandal/)

------
flyGuyOnTheSly
It's frustrating to read these allegations as somebody who has spent the
better part of the past year studying various exchange trade execution data
feeds, and writing an algorithmic trading bot.

Yes, Bitfinex lead the market a lot of the time in the 2017 Bitcoin bull run.

Yes, Bitfinex "printed" hundreds of millions of dollars worth of tether, which
was initially distributed to large players on Bitfinex and Bittrex exchanges,
also poloniex I believe was in on the issuance contracts.

But that doesn't mean that Bitfinex fraudulently pumped up the price of
Bitcoin.

In fact, that would be impossible, even if they tried to fake the price
higher... as they would lose tons of real money to arbitrageurs in the
process...

The (nano)second that any one single exchange gets out of line in terms of
price, there are trading bots out there that notice that, immediately buy up
as much BTC as they can on every other exchange that is below that price, and
then immediately dump 100% of what they just bought on the exchange that is
out of whack (Bitfinex).

And if they weren't losing real money to the arbitrageurs, (presumably because
they restricted USDT withdrawals which has never happened for more than a few
days straight at most), then the arbitrageurs wouldn't be buying up Bitcoin on
every other exchange that is not Bitfinex and selling it for USDT or USD
fiat... they would simply ignore bitfinex as a fake volume exchange.. like 50%
of the exchanges listed on coinmarketcap currently are.

There is a reason that Bitfinex was leading the price pumps... they were the
main gateway to millionaires the world over buying into the crypto ecosystem.

You had to give iFinex at least $100,000 cash wire in exchange for USDT to get
into the game, and there was a waiting list for that "privilege".

Some exchanges shut down their registration page for months because the KYC
processing backup was so severe.

There was real demand for Bitcoin back in 2017.

Finance is difficult for most people to understand.

High frequecy traded crypto finance ecosystem with synthetic-USD, USDT, USD,
TUSD, USDC, etc. is especially so.

~~~
aidanlister
I'm not sure what you're understanding what the article claims - Bitfinex
wasn't just increasing the price on their exchange by showing a fake price.

They created money out of thin air and handed this out to players to buy BTC
with. Those players then bought BTC in quantities that drove the price up.
They created price-inelastic demand out of nothing (you don't care about the
price as much if you're buying them for free).

~~~
qtplatypus
I am reminded of the South Seas Traiding Company.

------
travisoneill1
How could there possibly be $1.4t in damages when the market cap of BTC maxed
out at around $400b? Also, while I don't deny that there was probably fraud
here, just because a security is lightly traded and illiquid that doesn't make
its price "fake".

~~~
thedudeabides5
Author specifically says the damages would be treble the underlying loss, as
per RICO and antitrust law.

I've no idea if this is true. But interesting nonetheless.

Hard time seeing a court awarding the loss to the entire peak to trough market
to market, especially if the fraud was part of the money that inflated the
bubble, but who knows.

------
JackFr
> This is not just “we are upset that we lost our crypto money and we’d like
> to sue someone”

Yeah...no, that's exactly what this is.

------
granaldo
The overcollaterized approach is by makerdao is surely interesting in
comparison to tether

And in spite, it is not widely accepted in most major exchanges
[https://www.coingecko.com/en/coins/dai](https://www.coingecko.com/en/coins/dai)

But tether strength sound to be due to recognition and deep order which is
what makes a currency getting value from "nothing"

------
csomar
> If anybody asks questions (“Where did all those Tethers come from? Prove to
> me they’re collateralized”), sell some of your inflated Bitcoins for real US
> Dollars at a profit, stick those dollars in your bank account, and then say
> "Look! Here they are! Just like we promised."

This makes no sense. The money has to come from somewhere. Sure it can be fake
money in Tether $$ but once you cashed out somewhere (in cash or your bank
account) then the money should be real.

Tether market cap right now is $4bn. The proclaimed value created/destroyed is
$450bn. The market cap of all crypto at the beginning of 2017 is $18.3bn and
the market cap right now is $246bn. The difference is massive (around $220bn).

Now let's look at the market depth, because this is something everyone likes
to claim: The order books are thin. This is far from being true. Looking at
Gdax, the market bids to a 10% discount is around $12m. From my experience,
trading crypto markets, it'll take around three times that much dollars to
take the price to these levels. Many things kick off: 1. Hidden buy orders and
2. Bots arbing with other exchanges and 3. Fast bid makers who use neither
visible or hidden bids.

That's around $35m that you can dump on a single exchange for a 10% discount.
That doesn't take into account: 1. You can use multiple exchanges 2. You can
use private sales or OTC and 3. If you are selling $100m of crypto (or even
stocks), you'll probably do it over the course of a few days unless you think
the instant discount is less than the stretched one.

If Tether created a $300bn market from a $4bn of cash, then that's genius, no?
But wait, that's not what the author saying. The OP is saying that these $4bn
don't even exist. Then Bitfinex/Tether created a $300bn market out of nothing.
Uhh, no. I'm having a hard time believing that.

tl;dr: Dude goes on a lengthy non-sense rant and has no real proof backing his
facts.

~~~
semiotagonal
It makes sense if Tether buys BTC with USDT that it just created out of
nothing, then sells those BTC later for real dollars. Those real dollars can
be used to collateralize the USDT "after the fact", and if the price went up
between the two transactions, Tether keeps the difference.

It's sort of like an uncovered short of USDT - they take a negative position,
buy BTC, sell BTC, then cover the negative position. (Except "cover" in this
case really means "collateralize the USDT that someone else is holding".)

EDIT: I have no idea if that's what they were actually doing, but that's my
interpretation of the author's interpretation of the lawsuit.

~~~
empath75
it works as long as the price is going up but once it goes down, it enters an
inescapable downward spiral.

~~~
semiotagonal
Yep.

------
xxpor
Civil RICO is almost always a joke.

[https://www.popehat.com/2016/06/14/lawsplainer-its-not-
rico-...](https://www.popehat.com/2016/06/14/lawsplainer-its-not-rico-dammit/)

"Dupes play along by describing RICO claims as "charges," and generally by
acting like a RICO claim suggests that there's already been a finding that
someone did something wrong."

------
glofish
These guys are geniuses.

Just like that - leveraging their platform and influence they have minted 4
billion USD worth of new kind of money. Out of thin air.

What will be the ultimate kicker if it ends up working - in the sense that
there is a need for a stable coin, and it fills that need.

------
paulpauper
this author's argument falls apart upon even slight scrutiny. If tether caused
bitcoin's huge 2017 rally, what about 2013 when bitcoin went from $100 to
$1000 in the end of the year? Or 2016 when it went from $200 to $600? maybe it
was just people buying. Coins that had nothing to do with tether, such as eth
and ripple, on other exchanges besides bitfinex, also went up huge. I think
tether's contribution to the 2017 bull market was negligible.

~~~
mumblemumble
Your unstated major premise here seems to be that every jump in BTC's price
must have the same cause.

------
neiman
From the post:

"Allegation #1: The 2017 Bitcoin Bubble was market manipulation, and Tether
was how they did it

Allegation #3: They might’ve gotten away with it, too, if they hadn’t gotten
robbed while busy scamming"

But the big Bitfinex hack was in 2016, while the bubble in 2017. What do I
miss here?

~~~
vkou
Between 2017 and 2019, they sent hundreds of millions of _dollars_ to a money
launderer (Crypto Capital), who outright stole 10% of them, and had much of
the rest frozen by the SEC.

Bitfinex currently claims that the IOUs they have from Crypto Capital are
worth the paper they are printed on. I have strong doubts about the accuracy
of this claim.

~~~
neiman
Thanks!

------
biolurker1
that's one of the most resilient conspiracy theories lasting for years. The
drama attracts all kind of Bitcoin haters although factually there is not much
to it.

------
EGreg
What about DAI?

Will SEC have a good case that it is a security, if it’s proven to be a
stablecoin? No expectation of profit.

------
atemerev
USD is printed in necessary quantities to satisfy market demands, and is used
by its issuers to buy some privately issued assets on the market, injecting
liquidity into the stagnating ecosystem. This is called “quantitative easing”.

If USD works this way, why shouldn’t USDT?

~~~
wpietri
Two main reasons.

Holding a US dollar is a bet on the US economy, the US government, and the US
banking system. Those have their flaws, but there's a lot of built-in checks
and balances that keep them reasonably accountable.

The other is that the Fed does all of its currency management very much in the
public view. Whereas the USDT management has been somewhere between needlessly
opaque and flat-out fraudulent.

~~~
atemerev
The second one is important, thanks. I don't think that government money have
any more sanctity than any other, but yes, transparency and well-defined RoE
and accountability are important.

