Federal investigators probe Tether
126 comments
·October 25, 2024satvikpendem
Ah, finally, will Tether get its day in the litigious sun? It's well known in cryptocurrency circles that their coin is not backed 1:1 to USD, similar to FTX, only that FTX crashed and this was found out the easy way. Cracking Tether will be much harder as they resist audits.
fallinditch
Here's a fascinating piece of history that sheds light on the Bitfinex/FTX/Tether shenanigans. Originally a Medium post that was removed at some point, here's an archived copy. It details how Bitfinex/Tether manipulated BTC to make serious $$.
I think the article also points to the origins of the FTX fraud: was Sam Bankman Fried involved in these BTC manipulations? Or inspired by it to create his own exchange?
https://web.archive.org/web/20180620111632/https://medium.co...
fallinditch
TL:DR "USDT was used to pump other traded pairs in order to avoid raising the price of BTC directly.
Once BTC was obtained from the pumps of these currencies, it was then sold immediately for USD, which ‘flooded’ the market and depressed the price of BTC."
earnesti
As the article states, nothing has been proven. Didn't read further than that.
Tether is an operation that is a money printing machine on its own. They absolutely don't need to play pump'n'dump tricks to make money. It doesn't make any sense. Pump'n'dump schemes are risky. Tether has many options to make money with way less risk.
yieldcrv
> It's well known in cryptocurrency circles that their coin is not backed 1:1 to USD
Its well known in the legal space and has already been addressed by multiple US courts. They're not looking for that and this isn't controversial.
Those court cases already happened in 2018-2020. Tether just needed to update its language. A financial institution not backed 1:1 to USD isn't a problem in any part of the banking sector, they just need a disclaimer that says that, and Tether updated their's and moved on. Those court cases were also about specific periods of time and were very intelligent and more nuanced than the Tether discourse in crypto spaces. Tether has periodically had more assets available, and its only controversy was about whether those were USD and US Treasuries amongst other things.
This is a probe about violating AML laws and sanctions. Which would likely only involve specific addresses in crypto and some onramps. But otherwise crypto-crypto trading won't be a part of this.
JumpCrisscross
> a probe about violating AML laws and sanctions. Which would likely only involve specific addresses in crypto and some onramps. But otherwise crypto-crypto trading won't be a part of this.
You think a dollar stablecoin won't be affected by being prohibited from touching dollars or the dollar financial system?
yieldcrv
I didn't say that, that statement doesn't imply that or suggest that.
The result of this probe likely won't be that as the DOJ is just emboldened by their Binance and CZ conviction, where the founder spent a couple months at a Southern California Federalbsummer camp and the DOJ got a few billion dollars, and Binance continues to operate as before and no further regulatory overhang is above them and all the money coming in and out is magically seen as clean.
null
JumpCrisscross
> Cracking Tether will be much harder as they resist audits
If Tether is sanctioned, they can't hold most dollar-denominated assets. Certainly none of the safe or liquid ones. Figuring out why it failed may take some digging. But causing it to fail is trivial.
moat
It was formerly understood that Tether was not backed 1:1.
My people in the space now believe that they have made up the hole thanks to juicy interest rates (where Tether keeps all the yield).
jiggawatts
How is that possible? They were thought to have less than half of the dollars they’re supposed to be holding!
earnesti
Banks have like 10% or even less the dollars that they are supposed to be holding, but still are doing all fine.
Personally I don't think these tether conspiracy theories were ever true. Maybe they aren't 1:1 backed, but they have always been financially well off enough to keep the company running. And after the interest rates went up, they are probably making a killing. Typical bank has minimal reserves compared to them, and everyone is fine with that.
alchemist1e9
> It's well known in cryptocurrency circles that their coin is not backed 1:1 to USD, similar to FTX, only that FTX crashed and this was found out the easy way.
Being speculated about is not the same as “known”. In fact every tether investigation seems to end up showing they are even over capitalize and hold more than 1:1!
My understanding of the audit situation was that the big accounting firms have refused to do it, presumably due to pressure from someone to not get involved.
JumpCrisscross
> every tether investigation seems to end up showing they are even over capitalize and hold more than 1:1
The one adversarial investigation I know of found the opposite [1].
> presumably due to pressure from someone to not get involved
Not how audit works.
[1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
alchemist1e9
The NYAG settlement you keep posting didn’t find that Tether was unbacked or below 1:1. It focused on transparency issues and the fact that funds were not always properly segregated. There were periods when reserves included assets like receivables or funds temporarily seized by authorities (e.g., Crypto Capital), but there was NO finding that USDT wasn’t fully backed. In fact, Tether has often shown it holds more than the necessary reserves, as evidenced in various attestations and reports post-settlement, and even in the report you keep posting NEVER they claim USDT isn’t fully solevent!
It’s funny how the no-coiner crowd keeps pushing the idea that Tether is some crypto scam destined to collapse, yet every single investigation, including the NYAG’s, has failed to back up that narrative. The reality is Tether has proven time and again that their USDT is fully backed and their business is profitable. The desperation to prove otherwise is just not supported by the facts.
jujube3
It would be very simple for Tether to just hold $1 for each 1 Tether coin. They could invest their cash in safe assets like treasury bills that yield 4% or more. Meanwhile, they pay no interest in Tethers. So they get a 4% return for doing nothing at all.
As far as I know, there is no evidence that they are doing anything else. (There is some evidence that they did something else in the past, when interest rates were way lower.) But this hasn't stopped tons of people from speculating that they are.
JumpCrisscross
> there is no evidence that they are doing anything else
There is a lot of evidence they aren't just buying Treasuries. The only times people looked, the money was being held in weird stuff, including frozen deposits at non-FDIC insured banks and private loans [1].
[1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
treyd
> It would be very simple for Tether to just hold $1 for each 1 Tether coin.
It would not be "very simple" for them to do this. No commercial bank lets you walk up to the teller with $1B and ask to deposit it, much less $93B. The financial system doesn't work that way. They have to cycle it through bonds on the repo market, which is what most huge firms do.
shadowmanifold
You can't run a 120 billion dollar bond trading operation with like 4 people.
That amount of money is a huge amount of work to manage no matter what you are trading.
The simple explanation of how they do this is that they don't have anything close to 120 billion to manage.
It is really a sociological and network experiment of how long fraud can persist when the fraud is in the short term interest of all nodes of the network.
I suspect the reason Bernie Madoff was able to persist for so long is that many of the investors thought he was front running trades because of his position with Nasdaq. People tend to be fine with fraud if they are directly benefiting from the fraud and only risking their capital in the process.
Time is not a good measure of non-fraud. That is just a rationalization because any crypto investor has to basically keep the idea of a tether fraud out of their head at this point considering the risk to the ecosystem would be so catastrophic.
What does actually grow in time is the risk to the network.
from-nibly
If it was that easy then we'd probably see more banks that do just that.
delabay
What you describe is their actual business model.
Tether makes the most profit per employee of any company in the world. Their transparency, speed, and market success is renown.
This thread is full of tether truthers living in 2017.
cool_dude85
Can you link one of these investigations that show that tether is backed more than 1:1 with the USD?
alchemist1e9
I will try to find it. I would also point out they hold excess reserves in Bitcoin.
My guess is nobody can get them on not being 1:1 but this idea of AML violations as the attack vector makes a lot of sense.
jdenning
This is the most recent one linked on their site[1]:
https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYg...
Edit: to save people a click, the report shows 125 Billion in assets vs 113 Billion in liabilities. Approx 81 Bil in T-bills
100k
Zeke Faux's Number Go Up (https://www.amazon.com/Number-Go-Up-Cryptos-Staggering/dp/05...) started as an investigation into Tether. He found some extremely suspect clues, but he wasn't able to crack it. Hopefully the feds are able to shed some light on it.
JumpCrisscross
Tether was launched in 2014 [1]. It has over $120bn in outstanding liabilities against unknown assets [2]. When it fails, it will rival the fourth-largest 'bank' failure in U.S. history [3].
This has been a complete failure of U.S. regulatory bodies.
[1] https://www.investopedia.com/terms/t/tether-usdt.asp
[2] https://coinmarketcap.com/currencies/tether/
[3] https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...
TheAlchemist
Exactly - a massive failure of regulatory bodies. I wonder why. It was similar with Madoff - there were people literally sending documents showing it's a fraud, and they did nothing for years.
I don't follow crypto lately, but it seems that Tether is printing money in high interest rate period.
But back before that, it was a complete joke - it was so apparent that they published only made up numbers that didn't really add up, pretended to get legitimate transfers of billions of $ on Sundays etc.
They were investigated once by a US A.G. and found out to have lied on the reserves in the past, but nothing really serious happened. They got a fine and were forced to published a pseudo balance sheet, which was a joke (still a bit better than FTX's Excel spreadsheet).
fellowniusmonk
Free money and failure to regulate means scammers have never been more flush and able to talk with money. It's not a great space to be in, glad this administration placed Lina Kahn and others, without competition free markets can't operate efficiently. Both regulatory capture and natural monopolies all jam up the works. People don't remember it but one of the best things that ever happened to tech was the anti-trust suit brought against M$, anti-competitive behavior is such a drag on tech innovation, that combined with the incremental win for right to repair is all great progress.
llamaimperative
> Exactly - a massive failure of regulatory bodies. I wonder why. It was similar with Madoff - there were people literally sending documents showing it's a fraud, and they did nothing for years.
For this to mean much (unfortunately), we have to know how many legitimate companies are being constantly reported as fraudulent. Similar to the FBI's flawless "they were on our radar" after every mass shooting event... if everyone is on the radar then it's not that informative that this person was too.
Madoff's returns were so egregious that they definitely should've been looked into despite any of this^ though. Arguably Tether should be looked into if only because of the systemic risk it (allegedly?) produces for the crypto universe more broadly. But then again... no one seems to eager to spend a bunch of investigative resources to bail out an economy of anti-government gamblers/degenerates.
HWR_14
Aren't you comparing the wrong values. Those banks that failed had more assets than tether has liabilities.
However, the actual difference between assets and liabilities was significantly less than 120bn for those banks. With Tether, I imagine the collapse will go from 1:1 redemptions day 1 to "oops all gone" day 2.
So I expect Tether to be the largest "bank" failure in US history by terms of loss of value.
SheinhardtWigCo
It really is just a bank without any of the regulatory safeguards. A disastrous outcome is inevitable.
JumpCrisscross
> really is just a bank without any of the regulatory safeguards
A "bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans" [1]. Tether doesn't offer demand deposits--withdrawals are subject to a minimum and fee [2]. It's thus not a bank, but a bank-like shadow bank [3].
[1] https://en.wikipedia.org/wiki/Bank
paulpauper
Just another reason why crypto is inferior. So much risk , no upside. like investing in mortgage/ bank stocks in 2007.
BLKNSLVR
No upside?
Historically, or purely in the context of this article, assuming it's true?
paulpauper
what has the price done over the past 8 months, past 3 years?
earnesti
Tell that to all the Bitcoin billionaires and millionaires, lol.
paulpauper
some people win the lottery too
m101
"backed" is a somewhat unclear term. Given tether don't only hold cash their securities will have mark-to-market valuations. At purchase prices, in a legitimate operation, they should be "backed", but if they were forced to finance redemptions at losses from purchase price then I suppose might not be "backed".
However, they must have been sitting on so much interest up to now given where rates went recently that, provided they ran a fairly conservative operation, they should have plenty of reserves.
ldjkfkdsjnv
How bitcoin got huge was basically tether money printing. since it wasnt backed by anything, they just printed tether and bought bitcoin. a group did it behind the scenes, got massively wealthy.
FireBeyond
And at stupid numbers that cryptofans just ate up like it was perfectly logical.
"Oh, you're banking $700M PER DAY in deposits for Tether? Sounds legit to me!"
seper8
delete
jerry1979
I'm very curious to see how this investigation plays out, especially considering the debt situation here in the US. It appears (according to tether's audit reports) that tether went from about 64 billion in treasuries mid-2023 to about 92 billion mid-2024. That's 27 billion in demand for treasuries over that one year period which (if my math and research is correct) is about 3% of all treasury demand for roughly that time period.
It does appear that tether holds short-term maturity treasuries, and I don't know how that fits into the larger demand picture.
https://assets.ctfassets.net/vyse88cgwfbl/63oJePOHqIvrcnXWMP...
https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYg...
https://ticdata.treasury.gov/resource-center/data-chart-cent...
stogot
From what I’ve seen, they waited a couple years longer than they should have. I expect tether deleted evidence by now
ironyman
Tether's press release: https://tether.io/news/tether-slams-wsjs-irresponsible-repor...
lolinder
Is it actually just those two paragraphs, or is something not rendering correctly?
If that's all there is, it's not a great defense. Maybe they felt like the WSJ article was just so unfair it didn't deserve a response, but then... just don't respond. This kind of righteous indignation with no actual rebuttal isn't persuasive.
heroprotagonist
Federal investigators should probably also probe who controls that sizeable chunk of dormant bitcoin that's projected to be valued higher than a significant chunk of the US economy in a few years.
This used to be a non-serious question. But now we've got presidential candidates calling for national debt ceilings that will result in a default on US debt, and therefore crash the US dollar. Bitcoin's getting integrated into every payment app as if these companies are readying for an eventual modern equivalent of a run on the banks. Except with everyone moving their money to crypto instead of getting 'real dollars' to stuff into their mattresses.
There's a 99.99%+ likelihood that Satoshi just.. lost his wallet one day, or died, or whatever.
BUT -- assume a 0.01% possibility that there is something else at play with that early-mined bitcoin. Assume the _impact_ of a negative outcome with it will eventually be on the order of entire economies.
If you use common practice to calculate security risk by multiplying the likelihood of risk by it's potential impact, there is certainly enough at play here to justify the US government putting a couple agents on a search for a week to figure out who this guy is/was, and who now controls all of those apparently-lost coins.
wmf
I don't know why, but the one thing cryptobros fear is OFAC. They shrug off fraud, securities violations, and money laundering but when sanctions are mentioned people start running away. We saw this with Tornado Cash and hopefully Tether will get OFACed next.
BTW, Tether probably is backed 1:1 or better because they bought $XXB of US treasury bonds at >4% which return billions in profit per year. BTC is also (currently) near all time highs. Whatever hole they had was probably filled in.
seper8
[flagged]
https://www.msn.com/en-us/money/markets/federal-investigator... has the article