
Tether Is Breaking Its Peg to the Dollar - profuse99
https://mktstk.com/2018/01/28/tether-is-breaking-its-peg-to-the-dollar/
======
Asparagirl
How did this thread get to be 46 comments long without a single mention of or
link to @Bitfinexed?!

@Bitfinexed is the anonymous Twitter account that has been publicly sounding
the alarm about Tether for almost a year now. They got the receipts, they
bring the fire:

[https://twitter.com/bitfinexed](https://twitter.com/bitfinexed)

And longer articles at:

[https://medium.com/@bitfinexed/](https://medium.com/@bitfinexed/)

And as payment for his/her troubles as the Harry Markopolos of the crypto-
world, he/she has been threatened with lawsuits.

If you, like me, perversely enjoy reading about or watching true financial
crime stories ("The Smartest Guys in the Room", "When Genius Failed", Casey
Serin's various blog exploits, "The Wizard of Lies", etc.), then @Bitfinexed's
work is incredibly satisfying to read.

For example, in just the past few days, you can get the excitement of reading
his/her public Twitter conversations with some of the big primary players in
this Ponzi scheme, where those fraudsters brazenly deny any influence or
financial benefits from this scheme, even in the face of immense evidence or
screenshots.

I expect to see some of those tweets included in financial crime indictments
in the near future.

~~~
Grangar
I've been following this account closely, and while some things are a bit
ludicrous (attributing the bullrun to USDT only without mentioning the
hardfork, for one) the majority of their points are spot on. I know I have my
exit strategy in place.

------
hawktheslayer
I'm surprised they didn't go with the headline that practically wrote itself:
_Tether Becomes Untethered_

~~~
jknoepfler
Or Tether Untethers, if you dislike the passive voice.

~~~
kingofpandora
Different meanings ... "Something untethered Tether" vs "Tether untethered
something."

~~~
jdmichal
The obvious "something" in the second example being reflexive: "Tether
untethers itself". Which is perfectly fine, if indirect, usage. We often use
product names to refer to both the product and the producer. When we say
things like, "I wish Windows implemented a Unix subsystem", we actually mean,
"I wish the producers of Windows implemented a Unix subsystem."

------
bhouston
I am reminded of this:
[https://en.wikipedia.org/wiki/Black_Wednesday](https://en.wikipedia.org/wiki/Black_Wednesday)

George Soros broke the Bank of English's attempt to maintain a minimum
exchange rate for the Pound against various other European currencies.

It was this experience that taught me that you can not cost free fix the
exchange rate between currencies unless you are using "magic". And USDT has
always seemed magical to me.

BTW: [https://www.coindesk.com/tether-confirms-relationship-
audito...](https://www.coindesk.com/tether-confirms-relationship-auditor-
dissolved/)

~~~
petertodd
No, it's very easy to fix the exchange rate between currencies: make them
actually be the same currency.

Tether is _supposed_ to be be 100% backed by USD on a 1:1 basis. If that's
true, while it may temporarily go higher and lower, and should always return
to normal as actual USD moves in and out of the system.

The controversy about Tether is very simple: they haven't taken any steps to
convince people that's actually true, and the default assumption you should
make with such systems is they're scams that aren't actually backed by the
currencies they claim to be backed by.

~~~
hw
It doesn't help that Tether requested an audit but ended up severing ties with
that audit firm [0]. It's likely Tether wanted a quick audit but the audit
firm didn't want to sign their name to it so quickly without doing a deeper
dive into the accounts.

They've also just printed $600m in tether a few hours ago. Hopefully that's
backed by actual $600m in new customer deposits.

Edit: Market cap of Tether jumped $600m in the past 24h [1], but the Tether
were granted over a period of 7 days. Looks like CMC doesn't update the market
cap every day.

[0]: [https://www.coindesk.com/tether-confirms-relationship-
audito...](https://www.coindesk.com/tether-confirms-relationship-auditor-
dissolved/)

[1]:
[https://coinmarketcap.com/currencies/tether/#charts](https://coinmarketcap.com/currencies/tether/#charts)

~~~
gruez
>They've also just printed $600m in tether a few hours ago.

when?
[https://omniexplorer.info/default.aspx?filter=grant](https://omniexplorer.info/default.aspx?filter=grant)

~~~
ceejayoz
I've seen this claim floating around a lot.

Seems to be just
[https://coinmarketcap.com/currencies/tether/](https://coinmarketcap.com/currencies/tether/)
getting delayed data - it jumps from $1.6B to $2.2B at 01:14 UTC on Jan 28,
but Tether was printing $100M chunks during the period it shows as flat.

------
brokensegue
I'm a USDT skeptic but a 2 cent deviation isn't much considering it has often
deviated by more than that in the other direction. If it hits 90cents on the
dollar I think things are serious.

~~~
ahelwer
Also a skeptic: this author doesn't know what they're talking about. "Turning
on the printing presses" to defend the USDT/USD price? What? No, the opposite:
Tether would have to be buying USDT with USD then destroying it.

There remains the possibility that Tether doesn't _need_ to have the money in
reserve (or not 100%, anyway). It can just conduct open-market operations to
maintain parity: printing & selling Tether when USDT/USD is above parity, and
buying & destroying Tether when it is below. This could even make for a very
nice business model, as explained in this blog post:

[https://kevinlawler.com/tether](https://kevinlawler.com/tether)

Of course, the conclusion that Tether will stay solvent from profit motive
does not concord with history: FDIC came around for a reason, and that reason
was 30% of all banks started in the US ended in insolvency. Plus, there are
obvious parallels with Black Wednesday:

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

You can even short Tether on Kraken, although then you have to worry about
counter-party risk through exchange insolvency.

~~~
SwellJoe
I think the idea is that when Tether turns up the printing press, they are
using it to buy Bitcoin, which they can then use to buy USD, which can then be
used to buy back some of the USDT on Kraken. The assumption is that there
isn't enough USD cash in reserve to actually buy back the Tethers on Kraken
(and anywhere else it may be flagging). Since they have no banks (as far as
anyone can tell), and it's very difficult to imagine how hundreds of millions
of USD is flowing into Tether from institutional investors, I can't figure out
how they'd have $2+ billion USD just hanging around.

As with any great Ponzi scheme, you have to pay some of your early investors
to keep the thing going. But, at some point, you risk eating into your
profits, so you just stop and everything collapses while you disappear to the
island you bought with your stolen money.

If they want to keep going, they have to buy some USDT on Kraken to prop up
the price. But, if they're done with the con and want to cash out...now might
be when they do it. A few hundred million worth of various crypto assets is
not a bad take.

~~~
hedonistbot
They should already own a ton of bitcoin and someone speculated in a previous
thread that their reserves are actually in bitcoin, which would make a lot of
sense. The problem here is that every time someone redeems their tether for
real dollars, Tether (the company) have to sell part of their reserves and
this brings bitcoin price down, in effect dwindling their reserve pool. If
there are enough bitcoin buyers or there aren't many people redeeming their
tethers for dollars, they should be fine. However, if people lose faith in
tether (the coin) then mass redemption will crash bitcoin prices (judging by
the daily volumes of tether trading) and there won't be enough reserves to
cover everyone at par with the dollar. Hence the pyramid scheme allegations.
This is all assuming they don't hold $2+ bn cash in reserves.

~~~
profuse99
very plausible vector for contagion! do u remember what thread that was your
are referencing?

~~~
hedonistbot
I can't recall the hn thread (there have been tons of crypto currency threads
recently), but the comment was referencing this reddit discussion where a
bitfinex representative made the same conjecture:

[https://archive.fo/R6sku](https://archive.fo/R6sku)

> Isn't it more plausible that this is not someone writing a check for tethers
> (money coming in from outside the crypto ecosystem) but more likely it is
> coming from converting other cryptos into USDT?...

------
empath75
The usdt/usd pair on most markets it trades on is heavily manipulated with
wash trading. It doesn’t take a big buy order for bitfinex to bounce the price
back to $1.

What you really need to watch is the widening spread in price between bitfinex
and other exchanges which implies that people are buying crypto at inflated
usdt prices because they don’t trust usdt any more.

I think if either that continues or the price of tether continues trading
below 1.00, it’ll trigger a panic eventually.

~~~
ericb
It seems like there's about a $150-$200 difference between the USD/USDT
exchanges at the moment. Note that CEX.io has one of the highest, and they are
also currently unable to allow USD withdrawls "because of high demand backing
up their financial partner."

[https://www.cryptocompare.com/coins/btc/markets/USD](https://www.cryptocompare.com/coins/btc/markets/USD)

CEX.io (see middle paragraph for shady explanation)
[https://blog.cex.io/news/recent_updates-16999](https://blog.cex.io/news/recent_updates-16999)

~~~
bfuller
Reminds me so much of Mt Gox

~~~
SwellJoe
But, spread across multiple exchanges. I'm tempted to short some things
(including Tether on Kraken), but I'm also concerned any exchange that USDT
touches will be insolvent after the crash. Kraken seems to have limited
exposure, compared to some others, but when the shit really hits the fan, it's
unlikely to matter, as it'll take significant chunks of the market with it,
maybe including some exchanges that don't touch USDT but that are playing a
little loose with their reserves. I would expect a retreat to quality as it
starts to unfold, so Coinbase will maybe do OK (though some think GDAX is
involved, or at least complicit, in wash trades), but I suspect a lot of folks
will just want out of crypto completely. So, USD will increase in value
relative to all of the other trading pairs...and some will be left holding the
bag, if they're HODL-or-die.

------
cstrat
I never quite understood how tether is supposed to be pegged to the USD. If
there is no liquidity in an exchange wouldn't the price just fluctuate with
supply/demand. If people are wanting to buy them more than people trying to
sell them, wouldn't the price just appreciate?

Also - who is sitting and holding all these tethers? There are 2.2 billion of
them out there...

~~~
ceejayoz
If Tether really had $1 in the bank for every 1 USDT issued, they could set
essentially infinite purchase orders at $0.99 - they'd make a penny on each
purchase. They'd have a similar huge sell order at $1.01 for the same reason.

~~~
cstrat
But Tether is traded on other exchanges outside of their control, this
wouldn't work... plus. if they did this, then what people are suspecting is
true. They just print tethers willy nilly without proper USD backing.

~~~
ceejayoz
> if they did this, then what people are suspecting is true.

No, this is what they could do if they were legit.

Issuing and selling a new Tether when it's over $1.00 on an exchange keeps all
their promises and lets them make the difference as profit. If they sell the
Tether for $1.05, they put a dollar in reserves and the $0.05 is profit.

Same for buying a sub-$1.00 Tether from an exchange. They've taken a Tether
out of circulation, which means they can treat the backing USD as theirs
again, which means the gap between the $0.98 they paid and the $1.00 value is
profit.

All of this requires them to _actually_ have the capital to do so, though, and
I'd consider the lack of Tether-issued buy/sell orders at these values to be a
hint at the real scenario - they don't have the capital they claim.

------
0x0
Related: [http://www.tetherreport.com/](http://www.tetherreport.com/)

------
SilasX
Title is misleading; it makes it sound like Tether management is withdrawing
some promise that USDTs can be redeemed at par. That would be much bigger news
than the actual story, that they are trading for less than par.

Not that I’m recommending you touch tethers with a ten foot pole!

~~~
brokensegue
they can't withdraw any such promise because it never existed, right?

~~~
stefano
Yeah. Their TOS says that they're under no obligation of giving you dollars in
exchange for tethers. In fact, no one has ever redeemed a single tether and
there is no process in place to actually do it. Why people believe that 1 USDT
= 1 USD is beyond me.

~~~
gruez
>In fact, no one has ever redeemed a single tether and there is no process in
place to actually do it.

It's called withdrawing at any of the exchanges that support tether.

~~~
rspeer
Can you actually "withdraw" Tether as dollars at these exchanges? Or can you
just pass the buck by trading Tether for other cryptocurrencies?

~~~
orthecreedence
You cannot withdraw Tether. You can only trade it for something else on an
exchange. Tether does not actually let you convert USDT -> USD. I wonder why.

~~~
gruez
Presumably you can. I personally do not have accounts at any USDT exchanges,
so I can't personally verify that fact. Even if all of the USDT exchange don't
accept USD withdraws (which itself is unlikely because nobody would provide
sell volume to them), at the very least you can trade them for "real" USD on
kraken (at a few percent discount).

~~~
rspeer
You say "presumably you can", but according to David Gerard, there is no
evidence that anyone has redeemed Tether. Only people presuming that they
could if they wanted to, or people who heard of someone who heard of someone
who did it.

The surprising fact is that people do buy and sell on exchanges that have no
access to real money.

Trading Tether for USD on Kraken is different, and is the topic of this
thread. Given that Tether cannot be redeemed, its price is free to fall as
soon as traders on Kraken lose faith -- which, given that Tether has
essentially failed an audit, may be happening.

~~~
davidgerard
I'm not saying it's _impossible_. I'm saying I know of 0 reports of this
happening - and if it had, I'd have heard, and I mean there's not even bitcoin
advocates saying they've done it - and one well-documented one of failing to
do so: [https://davidgerard.co.uk/blockchain/2017/12/05/bitfinex-
rat...](https://davidgerard.co.uk/blockchain/2017/12/05/bitfinex-rattles-
legal-sabres-at-critics-tether-fails-to-redeem-usdt-1m-for-dollars/)

------
spraak
Well that didn't last long.

------
Scoundreller
The article says that Kraken is the only exchange offering a USD/USDT trade.

The article also shows wallets with the top USDT balances, and a Kraken wallet
is 13th on the list, with about $16m of USDT, while the top 3 wallets have
~$1.1b between them on other exchanges.

Either Kraken is a small player, or nobody on Kraken holds USDT for long
because that's where people go to immediately change it for USD.

~~~
oelmekki
Yes, this USDTUSD market on kraken is an anomaly: it has very small volume,
and nobody is really interested in trading that.

Poloniex has many USDT markets, as they use it to compensate for the fact they
do not provide markets against fiat. As such, those markets have way more
volume.

The market visualization and analysis tools website tradingview.com offers a
computed charts of USDTUSD from poloniex (symbol: POLONIEX:USDTUSD). It tells
a whole different story than kraken charts:
[https://www.tradingview.com/chart/?symbol=POLONIEX:USDTUSD](https://www.tradingview.com/chart/?symbol=POLONIEX:USDTUSD)
. Basically, usdt is stable there.

There's still a problem here: tradingview does not tell (afaik) how they are
computing this price. I would assume they do a mean or average of various
BTCUSD markets on several exchanges, then check it against BTCUSDT on
poloniex, or something like that. But I don't know any official explainer
about it.

------
aviv
It's crazy obvious that this ponzi scheme is on its way towards a massive
collapse.

~~~
Asparagirl
Yup. And the unwind is going to affect and contaminate even "innocent" crypto
markets and trading platforms.

------
dharma1
did the supply of Tether also just jump $600m?
[https://coinmarketcap.com/currencies/tether/](https://coinmarketcap.com/currencies/tether/)

~~~
gburt
I'm pretty sure CoinMarketCap just updated to include the previous minting
issues:
[http://omnichest.info/lookupadd.aspx?address=3MbYQMMmSkC3AgW...](http://omnichest.info/lookupadd.aspx?address=3MbYQMMmSkC3AgWkj9FMo5LsPTW1zBTwXL)

What is interesting, is it appears that CMC updating the total supply occurred
simultaneously with the drop in value. Is CMC data impacting the market
independent of the actual supply?

------
brndnmtthws
A good book to read for anyone interested in economics is called "The End of
Alchemy: Money, Banking, and the Future of the Global Economy", by Mervyn
King, who was head of the Bank of England for about 10 years and during the
financial crises of 2007-8. In the book, he discusses "the alchemy of money"
which he roughly defines as how money isn't necessarily backed by any tangible
assets. A lot of what happens in the banking system is pure alchemy. A
fascinating read IMO.

~~~
downrightmike
I think you'd like this overview of England's South Sea Company and how John
Blunt used all kinds of now illegal monetary fraud to become England's largest
company, worth more than their GDP:
[https://www.youtube.com/watch?v=k1kndKWJKB8](https://www.youtube.com/watch?v=k1kndKWJKB8)

~~~
beojan
> become England's largest company, worth more than their GDP:

In case people don't realize, GDP is the total amount a country produces _per
year_ , not the total value of the country. There's nothing impossible about a
country's largest company being worth more than it's GDP.

~~~
downrightmike
There's still a long way to go to do that: With that market cap, Apple is
worth nearly 1% of the world’s GDP according to the latest estimates from the
World Bank that peg the world’s output at $74.2 trillion. That also means the
company is valued at close to 4.4% of America’s $18 trillion GDP.
[https://www.investopedia.com/news/apple-now-bigger-
these-5-t...](https://www.investopedia.com/news/apple-now-bigger-
these-5-things/)

~~~
beojan
Saudi Aramco is worth 1 to 5 times Saudi Arabia's GDP.

~~~
downrightmike
What is most interesting about the South Sea Company, is that they didn't
actually produce anything. They had rights to send one ship to Spanish ports
for trade in the new world, but the ports would turn them away because the
port authorities didn't want them/didn't believe them. Vs exporting oil which
now heavily used.

