The Blockchain Brief: I'm Calling Bullshit on Tether

in cryptocurrency •  9 months ago

tether.jpg

Steemit! I've mentioned before that I'm part of a crypto enthusiast group called Game Theory Group, created to bring together blockchain evangelists and enthusiasts from across the globe. We are based in Boston, New York City and Hong Kong. One of the top offerings of Game Theory Group is the Blockchain Brief newsletter, where I'm an editor. Here's the latest post about the Tether fiasco.

Are you an investor in cryptocurrency?

If you are, and you haven't heard of Tether ($USDT) then I highly urge you to sit up and take notice. Things are about to get a little crazy in crypto-land, to the tune of up to $2 billion dollars of assets turning into vapor. This would dwarf last weeks $500M+ hack of Japanese cryptocurrency exchange Coincheck.

Tether is a cryptographic token owned by the Tether Corporation

They haven't fully disclosed this, but it seems likely that the corporation is actually operated by the same folks behind the popular exchange Bitfinex. Tether was deployed as a "StableCoin" so that traders wanting to hold their money in a stable asset (but not USD) could easily do so within exchanges. $1 Tether ($USDT) is supposed to always be equal to $1 USD. In order to achieve this valuation, every amount Tether releases in digital currency should be backed by exactly equivalent real USD in their accounts. Reportedly, most exchanges literally hard-code the $1 USDT to $1 USD exchange rate on their order books, instead of letting the value float based on supply and demand.

By trading into an asset with low volatility like Tether, one could ride out a bear market, hold dry powder for an ICO, take a vacation from crypto-investing or any number of reasons one would want to be temporarily "out" of a market position.

Seems pretty stable, right? (green line is dollar price)

Screen+Shot+2018-01-28+at+2.47.07+PM.png

And, sure, it is. Remember, every $USDT is mimicking a USD held in reserve, as investors who want to withdraw a "StableCoin" into USD should be able to do so, right? The money has to be there.

Logic follows that if the market cap of Tether is $2.2 billion, as seen above, then somewhere the Tether Corporation is holding that much money in USD.

LOL, yeah right.

To create new $USDT at the rate we're seeing, Tether would need to be receiving tens of millions of dollars of institutional funding every single week, sometimes every day. Wallets with an enormous amount of Tether are being discovered on a near-weekly basis -- literally created out of thin air.

Why would that many sophisticated investors invest so much into an off-shore, previously hacked, dubiously operated company? No major institutional investors I could find have announced any partnership with Tether. In addition to that major question mark, Tether has currently turned off most forms of redeeming USDT into USD directly into a bank account. You can, of course, easily sell your Tether to someone else on a exchange -- swapping Tether between traders but never redeeming it directly from the Tether bank account.

Over $2B of Tether capital, printed at opportune times, can do quite a bit to prop up the price of Bitcoin. And Bitcoin price correlates with AltCoin price. To some degree, Tether is propping up a small but significant piece of the entire cryptocurrency market.

If Tether were any other currency, like Monero ($XMR) for example, then this wouldn't be such an issue.

People believe in the value of $XMR because they believe in the teams, the product, the developer community, and the network effect. Tether has a completely different psychology; Tether is "stable" and a safe haven on an exchange. If it continues to print Tethers at will and if the general public believes there are assets to the tune of $1 for $1, it could potentially never collapse even if the assets in the Tether vault don't exist.

But the crypto market is moving beyond the general public, and crypto investors are becoming more sophisticated. These investors want to ensure that if they store their assets in Tether, there's something to back it up. As the market cap of Tether skyrocketed in the final months of 2017 calls for an audit into their balance sheet began to mount.

Demands for Tether to hire a third party auditor heated up in November of 2017

After enormous pressure, they caved and hired Friedman LLP to conduct a full audit and prove they had the assets they said they had. After months of promising to release an audit and silence, CoinDesk reports on January 27th that Friedman and Tether have "dissolved" their relationship. Here, I believe, is where the market psychology begins to unravel.

If (when) Tether fails to provide a concrete and believable reason for this relationship with an auditor to unravel so spectacularly and unexpectedly, consumers could lose confidence in the entire thing. A quick look at the Tether subreddit does little to inspire confidence. If exchanges were to stop the BTC/USDT trading pair... over two billions dollars worth of assets might become illiquid, with regular traders holding much of that amount.

I don't know when this will happen, and I can't say with absolute certainty that Tether doesn't have the billions in assets they claim they do. All I can do is raise a yellow flag for those reading this newsletter.

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What do you think of the possibility that Bitfinex CEO who is also the CEO of Tether (at least according to Cointelegraph) is using funds from Bitfinex to back Tether?

Or at the very least Bitfinex could send funds to Tether bank accounts to fill them with USD equivalent of the Tether market. Bitfinex likely has billions in funds if e.g. Coincheck can somehow pay out 400M USD to their users after the hack.

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I hope we can have a discussion here @davidpakman , let me know your thoughts

"Tether has currently turned off most forms of redeeming USDT into USD directly into a bank account."
When exactly did they do this, do you have any source for this?

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Good friend

Got my full upvote and resteemed, great content.

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This is fucking huge, by the way, this basically connects the dots because that's right before they went on their mega pumping spree. Exit scamming at its finest. Get ready people, shit got real.

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The subpoena date was 2 months ago. Interesting how the story broke one day before futures settle 🙄

So it would be pretty safe to say i should withdraw all my funds out of bitfinex? Which exchange do you recommend?

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This is not advice, but I am told that Bittrex and Binance are more reliable than bitfinex, although MORE safe doesn't necessarily mean totally safe

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I'd recommend the BitShares DEX. It has a bit of a learning curve as it's a decentralized exchange, but it's worth it! With Bitshares you own the keys to your crypto assets, on a centralized exchange like BitFinex you own nothing but an IOU from the exchange.

@tonypeacock made an excellent how-to tutorial the other day for beginners:
https://steemit.com/bitshares/@tonypeacock/bitshares-how-to-tutorial-video-1-setting-up-a-wallet-on-the-bitshares-dex

Davidpakman: Good content, I think Tether is a pump and dump. They are not concrete or transparent. Not a good project in my opinion. Thanks for posting this. Im going to follow you, feel free to return the favor. I post very similar content. Lets grow this steemit community!

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This sounds like a disaster. The government is going to have to step in and regulate before people start getting killed. I'm going to resteem this and follow both of you guys. Thanks.

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I think it might be kind of obvious by this point that they let them operate for a while knowing it would break down confidence in crypto.

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Yeh I agree with that too.

wow...that's really nice jobe@davidpoakman
.. i really like your post... thanks for sharing post

Don't trust Tether at all.
More news: "Tether Severs Ties With Its Auditor, Leaving Its Accounts Shrouded in Mystery" - https://cryptocoingrowth.com/2018/01/30/tether-severs-ties-with-its-auditor-leaving-its-accounts-shrouded-in-mystery/

davidpackman: resteemited, this is a dangerous thing a people have yo know that is not safe to have holdings in usdt, if you want to sell high and buy low you should get out to fiat, period.

thanks for sharing this cryptographic news...

Wooooh! Tether could end up being another scam like bitconnect.

No matter how high the market cap is, Tether has proven time and time again that it will always maintain its one dollar price point. If it goes down, maybe it goes to 0.99 but if it goes up, maybe 1.01 or 1.03, but thats as far as it goes. A flat line in the marketcap indeed. Its good to have money on it if you are some one that wants to ensure you get little to no losses but nor will you have gains so I prefer just hodling my coins. Nice post! Upvoted!

Here's theory that seems likely to me. What if this company is holding crypto that's worth what they claim to have in usd and they're doing a lot of mining. Mining other crypto is how they print tether woth the same amount in usd.

Thank you! I've been calling BS on tether for a couple months now, and found articles going back to early last year breaking down the lack of financials, secrecy of the company, and showing how the # in circulation was so closely correlated to the growth in price of BTC.

I feel 100% confident that it's a scam. When it pops, the market is going to take quite a beating.

With fees, Tether are actually making a ton of money every day, right? This is the part that I'm most interested in reading about, but can't find much info on it anywhere.

Thanks for sharing your thoughts from the newsletter over here on Steemit for us all to read.

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Exchanges profit on the trading fees as well as the transfer fees if I'm not mistaken. Don't see how Tether benefit from this.

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According to the fees section on the Tether website, Tether charges a 0.1% fee any time USD is converted into Tether, or converted from Tether to USD.

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Ah right thanks for the info. However, USD to USDT trading accounts for less than 2.7% of all Tether trading currently according to CMC so the fees they garner from that are negligible I reckon.

Ugh tether was a joke from the start the amount of crap people fall for astounds me. Use some basic skills and knowledge and do some research first! I'm glad I never got involved with this nor bitconnect.

👍 DP for timely Tether ♨ All OK w proper credit line to cover mass liq, but that conflicts with Decentral ideals. Counterpoint just create Tether out of thin air and then use this counterfeit to Pump Crypto? Some work to do before Lambo owners team with Bentley owners but masses pray for relief from Evil Banker Yellon who owns their Chevys 🤕

Thanks for this cryptocurrency news update providing..... i appreciate this blog. i wait your next post, best of luck my dear friend.....

The way I see it right now, with what everyone is saying about it, it literally looks like how Bitconnect was before it crashed. People were having the same of conversation towards Bitconnect as they now have towards Tether. It's like a thicking bomb at this point. I would urge anyone who has some money in tether to not have it in tether... It is too risky at the moment.

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Tether technically doesn’t matter since their own documents show they can at any time refuse payout in usd. As far as I know they’ve refused all request for payout in usd. Like op said, it’s nust a convenient place to park your “cash” without going to cash so you don’t have to pay cap gains in some countries.

Really a very volatile currency will go up or down
Investing in it has become difficult

Well interesting post friend, I learned to learn things I did not know thanks

I first saw Tether when I signed up for Binance. It looks good, to be honest. The ability to quickly go to a stable token on an exchange without having to sell to USD makes sense. But all of the news trouble behind Tether also makes sense to me. I don't really know what opinion to have. For right now, I'll continue using it on Binance. But if it disappears one day, then I'll know why.

My thought is that it is good that a regulator intervene as they have not been transparent enough with the concept of tether. Tether is not a bad concept if done responsibly and transparently; it is very similar to money market funds which serve as short term investments for investors "parking" cash in the short term. If something is not being done right with investor money, then it should come to light so that investors can make informed decisions with their money. I personally avoid USDT and rather have the money in fiat or one of the bigger cryptos like BTC, BCH, LTC or ETH. I also have these positions in hardware wallets to protect me from the exchanges.

There's been some speculation about Tether for a while now. Hopefully this doesn't turn out like this Bitconnect fiasco. The old adage of not investing more than you can afford to lose definitely applies. Maybe that's not the case, but it does make you wonder how sound this is.

Tether's market cap isn't that much in the big scheme of things. Why do people say that its downfall will be the start of the downfall of all cryptos?

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The difference between inflow and market cap and how it relates to Tethers.

One thing I often see on the crypto forums and sub reddits among newer investors is the confusing of market cap with the amount of money invested in crypto. It seems most people think that if the crypto market cap is $700 billion, that means that $700 billion has been invested in crypto, but this is incorrect, and in fact the real numbers are very far apart. So confusing these two figures really distorts your perception of the market and the impact of certain factors around the marketplace.

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Good explanation. Thanks. I'm not sure how accurate the actual inflows are though? Ratio seems pretty high, almost like derivatives.

The one way I could see Tether as being legit is if every time someone traded for a newly printed tether the traded coin was converted to USD. That would make sense. However, the transaction fees would lead to a slightly lesser value of USD being held.

How anyone is willing to take the chance with placing their money in tether, instead of for example bitUSD, is beyond me.

Allow me to recommend this excellent write-up about bitUSD by @cob:

BitUSD is both pegged to the USD and decentralized in nature.
No counterparty risk.
Audited by default by a non-corruptible blockchain.
Finally has volume - which was the old issue with it.
Anyone can issue if they wish

https://steemit.com/bitshares/@cob/the-iron-is-hot-for-bitshares-a-look-into-bitusd

It's impossible for tether to mimic USD because the value of the coin is based off the sells and for the to have that kind of money would mean that they would have to sell if not all of there shares if not more so you know tether is bullshit

I have been suspecting that bitfinex..I don't trust It..just like the the tbc..thanks for the news

this is very useful news for us steemit users, thank you very much @davidpakman

I have really mixed feeling about Cyptocurrency. Back in 2010 I found out about bitcoin and was really excited. Not Necessarily that it would replace transactions but because it was a great way to pay people under the radar for black market goods. Unfortunately that is all it was for back then and by the time and wasn't interested. Eventually more things became available on deepweb markets that I may have wanted. By then BTC was to expensive and I was paying off student loans and couldn't afford it.

Next thing you know, investors started acting like 18th century dutch tulip investors. and it is going to burst so hard. My buddy @duerstthewuerst posted a video of him when he went to a mining farm in Milwaukee (https://steemit.com/bitcoin/@duerstthewuerst/72xguv65) Just ONE of the servers cost 150 bucks in power a month. I have a rather large refrigerator that costs 75USD per year. I did the math (don't remember too lazy for the farm and it was absurd.

Even with BTC ups and downs if it continued this way it will be consuming somewhere around half the worlds energy in a couple of years. It is too a head of it's time.

i'm new to beginner, i want to ask about SBD is it down and up so fast like bitcoin ??

Everytime market goes down, scarying news are reveal about tether, just like if there was no safe heaven in the crypto land... long live eth for now ;-)

This was very interesting, thanks for the post David.