> But those "frequent professional audits" have been slow in coming. The accounting firm Friedman LLP had been working on an audit of Tether and Bitfinex—a cryptocurrency exchange that is closely linked to Tether—since May. But last Saturday, Tether admitted to Coindesk that its relationship with Friedman had "dissolved."
In the normal business world it's a very bad sign when your auditor fires you as a customer.
> So it's possible Tether is keeping the identity of its bank secret to avoid attracting scrutiny from local regulators. This could also explain why some of Tether's funds are being held in the personal account of a Tether associate—perhaps the bank would have refused to open the account if it had known it was really for Tether.
When this finally blows up it's going to blow up big. How pervasive is parking money in tether in the crypto world? Is it bitfinex specific? I'm curious how bad the shock waves will be across the industry.
I think you're right that this is a mess, my only uncertainty is whether it's garden variety incompetence or active bad faith. For an auditor to fire you, either you have to not be paying your bills for a long time or you have to be deeply uncooperative or insanely demanding.
That said, the consensus I've heard from my audit colleagues (I work in public accounting) is that no one has the slightest freaking clue how to audit crypto. So I could see the audit taking exceptionally long, causing friction in the relationship which eventually blew up into a full on breakdown. If that's the case, Tether's leadership probably had a poor understanding of the complexities involved. Sometimes that's the client's fault, but sometimes it's the accounting firm making too aggressive of a pitch to sell the work.
But the bank account issue makes me think bad faith. That shows a willingness to disregard rules and mislead fiduciary business partners, which is pretty much an auditor's nightmare client.
> no one has the slightest freaking clue how to audit crypto
This is a fair statement. Auditor resignations are a red flag, not a conviction. Given the background scumminess of the cryptocurrency space [1], Bitfinex/Tether's management's evasiveness and structure's murkiness [2] and the $2 billion with a "b" figure, heightened skepticism is warranted. In that light, the Tether spokesperson blaming the "excruciatingly detailed procedures Friedman was undertaking" for the auditor's resignation, with no corroborating statement from the auditor, is unsettling.
> That said, the consensus I've heard from my audit colleagues (I work in public accounting) is that no one has the slightest freaking clue how to audit crypto.
Shouldn't the crypto part be trivial for Tether? You'd just need to check how many Tethers were issued on the blockchain. The hard part ensuring that those Tethers are backed by real Dollars - and that should be a regular accounting task that doesn't have anything to do with crypto.
The whole thing should be fairly trivial if the Tether folks would let the auditors or even the public see their accounts and balances. I suspect they won't because they are not what they are supposed to be.
Though that could be for reasons other than the money being missing - maybe when Tether couldn't open an account directly they opened one through a shell company and don't want the bankers to know or something along those lines. My guess is that when they couldn't hold usd they held btc instead and then tried to prop that up.
What surprises me most is that despite all these red flags USDT still holds its peg mostly well. Right now it trades less than a cent below the dollar on kraken for instance. It seems like cryptocurrency traders are paradoxically pretty trusting.
I agree that the audit failure makes Tether look super shady.
But when traders continue to buy and sell within 1% of parity, that's a signal that maybe there's more going on here.
I don't buy the concept that Bitfinex can somehow rig the price on other exchanges. If traders are all selling Tether, while simultaneously new Tethers are getting printed, then the price should tank.
When the price doesn't tank, that should tell us there's more to the story.
Tether presumably maintain the price by buying and selling USDT within 1% of parity, probably automatically using software, and probably mostly by trading BTC/USDT rather than USD/USDT given the difficulty of moving actual USD.
It's not really rigging the price in a bad way - it's kind of how the thing is supposed to work.
My favorite theory is that they're currently solvent if you take their cryptocurrency assets at current fiat prices into account.
In this theory, the regulatory suppression of their banking relationships forced them to hold the crypto assets they were taking in return for USDT, and they have made out like bandits -- on paper, for now -- from the crazy demand for cryptocurrency over the last 6 months.
If that's the case, it might be possible to estimate how far the current crash would have to go for them to hit insolvency, from the history of USDT releases.
On the other hand, hopefully they've been diversifying the holdings they're prevented from liquidating into other price-stable commodities like gold and oil, via in- kind trades.
If any of this is true, I can see how it would make them shy about an audit. It's very precarious, even if there's no theft intended by it.
I think bitfinex is holding the peg on where you can see it (kraken). Nobody else can buy /sell tether. Even a guy saying tether probably has the money on twitter was only willing to buy at 45% premium.
Now, bitfinex looks super solvent though, so its not like the exchange can dissolve like mtgox.
I think the idea is that Bitfinex might have enough money to prop USDT up as long as the trading volume is low enough. Just buy on kraken when the peg starts to break.
Similarly they can probably afford to actually exchange the USDT for USD up to a certain limit, the question is how deep their pockets are. Do they actually have the full amount in their accounts? $1 billion? 100 millions? 10 millions?
We'll know that for sure when there's an actual audit or when there's a bank run and they collapse because they don't have the money to pay for the USDTs.
I don't think Bitfinex is directly involved with Kraken. Bitfinex is a shady offshore operation [1] and Kraken is a fully US regulated company with their main office in SF.
Kraken is however about the only place you can actually trade USDT for real USD. Or indeed short the things.
[1] >[people] have attempted to visit the company’s registered address in Hong Kong only to find an accounting company which served as a registration agent for the company
You're bizarrely reversing the burden of proof here. If they're solvent, it should be a simple matter to prove it. If "insider knowledge" has the answer, they should easily be able to assuage all doubts.
they have huge incentive not to disclose exactly where their accounts are offshore due to potential government crackdowns on crypto. that is why their previous audit was difficult, attested the amounts but ultimately was cancelled. you can see the amount of panic and fanatism by the downvotes on my previous comment. be sure to bookmark this chat for the future :)
The simpler answer is that counting on the other party to do right when you have absolute information asymmetry has always been a sucker's game.
Yes, this time it may be different. But even the classic Nigerian scam is based on the premise that you cannot verify the claims – you cannot involve the government, the police or any other third-party, you just have to trust the relative of the disgraced kleptocrat to receive your millions.
comparing the biggest crypto exchange by volume to a nigerian scam is kind of extreme imo. The tech is there and they have always delivered. Yes they don't have an audit and I hope they produce it but govs do crack down lately.
> So it's possible Tether is keeping the identity of its bank secret to avoid attracting scrutiny from local regulators
The whole purpose of Tether is to trade USD after Bitfinex lost USD banking relationships.
No naturally, if banking relationships were public, they would be at risk.
More likely, these aren't traditional bank accounts at all. These are probably dollars pledged by corporations and hedge funds but held in bank accounts of those corporations and hedge funds, not in Bitfinex's name.
> The whole purpose of Tether is to trade USD after Bitfinex lost USD banking relationships
This is willful money laundering. If true, everyone who ever beneficially owned USDT would be subject to federal money laundering charges. AML law doesn't care about intent or knowledge, just actions.
> if banking relationships were public, they would be at risk
Any bank which holds electronic U.S. dollars reports, directly or indirectly, to American regulators. Large deposits owned by foreign institutions with possible connections to Americans trigger FATCA filings. American financial regulators are somewhat forgiving when it comes to mistakes; less so when those "mistakes" are willful. If a bank is hiding its direct or indirect relationship to Bitfinex, they are betting the bank on Bitfinex. At that point, laundering drug money is probably a better reward for the risk being taken. (Disclaimer: None of this is legal advice. Do not launder money.)
> These are probably dollars pledged by corporations and hedge funds but held in bank accounts of those corporations and hedge funds, not in Bitfinex's name
This is plausible, trivial to demonstrate (repo and overnight wholesale financing aren't novel concepts), and a different risk model if true (for the lenders as well as Tether). It would also fly in the face of the Tether spokesperson's claim that Tether has a "relatively simple balance sheet."
I'm the last one to defend Tether because it looks as shady as hell, but ...
> This is willful money laundering
Money laundering is the concealment of the origins of illegally obtained money. If the money was legally obtained then it can't be money laundering.
Just creating an alternate way to move clean money isn't prima facie a crime.
> If a bank is hiding its direct or indirect relationship to Bitfinex, they are betting the bank on Bitfinex
Banks probably don't even know about Bitfinex.
If Fuckwit Capital Partners has $100m on deposit with Wells Fargo and pledges 10% of it to buy Ethereum, those dollars stay in FCP's account and the bank has no idea that the funds are pledged.
Upon receipt of the promissory note from FCP, 10m new Tethers get created with the Ethereum as collateral.
> claim that Tether has a "relatively simple balance sheet."
The balance sheet could be very simple, but devilishly difficult to audit.
ASSETS
Accounts Receivable from Investors, $2.4 billion
LIABILITIES
Tethers Payable to Traders, $2.4 billion
If Friedman LLP wanted to prove all the pledged USD to back up the receivables, that could be an expensive and invasive audit of counterparties who don't want their banks get wind of their cryptocurrency activities.
I've been thinking about this for a few months, and then even longer than that going back to Bitfinex's 2016 incident. The only definite conclusion I've come to is that something is going on that they are trying to hide. May be it is solvency based, may be it is regulatory.
At the least I can describe with certainty that Tether is the exact opposite of Bitcoin: centralized, opaque, and trust-based. Ironic.
Tether is in the top 20 in cryptocurrencies by Market cap. What generally happens when an altcoin goes bust is that people try to cash out (buy bitcoin with tether and then sell bitcoin or HOLD). Also, miners will stop mining tether and will move to other cryptocoins. I think it will have a large measurable affect but we shall see.
I mean... are people worried about Dogecoin blowing up? Or any other coin? There is basically no problem here. If you don't believe in USDT... don't buy it.
It's like saying government-issued currencies are going to "blow up" because Zimbabwe keeps printing fat stacks. Don't hold Zimbabwe dollars - problem solved!
Traders want something like USDT for the utility it provides. I don't think most traders care about the backing of USDT or it's potential redeemability for USD. I think most people enjoy the utility of a token that is always ~1USD. There are other tokens that promise to bring the same utility to crypto (DAI, etc). If USDT disappears (as NZDT just did, RIP Cryptopia's bank accounts), another stable coin will fill the void.
So even if Tether explodes, and it's actually been running with 0 financial backing this whole time - uh, well, tell me how that's different from any other cryptocurrency that has exploded and imploded in the last few years? It would seem to me that the healthiest thing for crypto right now is to figure out Tether's financial health (so people can decide if they want to safely use it) - but I don't think the marketplace will feel any "shockwaves" from a possible collapse.
The bigger conspiracy is that Tether might have been used to pump the price of bitcoin and other cryptocurrencies. The theory goes something like this:
- Bitcoin starts dipping.
- Bitfinex/Tether generates millions of USDT out of thin air.
- They use them to buy Bitcoins, sending the price back up.
- Once the price is high enough they can sell a few of these Bitcoins they effectively got "for free" and make a ton of money.
How much Tether out of thin air would it take to do that? There's only $2B tether in total, but BTC alone trades $8B every day. And that's down a lot compared to the last few months.
> I mean... are people worried about Dogecoin blowing up?
Dogecoin isn't used by exchanges as a vehicle to allow dollar-pegged ated trading without handling actual dollars, and Doge:BTC prices aren't treated by cryptocurrency price trackers as if they were, at some fixed multiple, USD:BTC prices.
USDT and Doge don't play a similar role in the ecosystem.
That's interesting, my Cryptopia DOGE trading pairs (and LTC) beg to differ. Will there be a crisis of confidence if Doge crashes to 0 on Cryptopia? Of course not.
USDT is one of many trading pairs offered by crypto exchanges. It matters no more or less than NZDT, Dogecoin, Litecoin, Bitcoin, Ethereum, or any other common trading pair in the crypto world.
There is basically no problem here?? There is an organization that claims its security is backed by an equivalent number of American dollars (thus promising relatively stable liquidity). Yet, this organization can't get through an audit and it's looking rather unlikely that that security is actually backed by anything more than website copy. And there is basically no problem here?
Tether has a special place in the cryptocurrency ecosystem that makes it completely unlike Dogecoin. This special place means that the types of sketchy things that Tether is doing could ripple through the entire ecosystem.
Clearly there may be a massive problem for Tether. Outside of Tether - I'm not seeing the ramifications, other than exchanges are going to have to use different stable coins. I remember when LTC and FTC used to be legit trading pairs on exchange websites. Whether or not Tether is legit seems pretty uninteresting to me - my trading bots regularly go through thousands of USDT, and I've never once thought to myself "Oh, I can redeem this for 1USD." It's just a utility token, and if it dies, something will fill the void after a brief panic.
>> Outside of Tether - I'm not seeing the ramifications
Total liquidity in the market is probably a very small fraction of the market cap. If Tether has been pumping in fake liquidity, in effect creating fake demand, there could be a relative demand crash as that leaves the market, and there would be a relative fall in the (apparent) availability of USD.
That would add to the effect of people desperately trying to flee tether to the comparative safety of real US dollars, which is likely to mean the tether/BTC, tether/ETH tether/whatever rates rocket as people try to get out of positions on tether exchanges. Then a fall in the coin prices as said folks transfer to other exchanges and try to cash out to dollars. And given there are now fewer dollars in circulation than was thought, it could be a bloodbath.
If other exchanges are above board in their dealings, and the coins and cash are where they should be, and withdrawals don't grind to a halt, then that could be as far as it goes. If they aren't, and if they have trouble paying out, it could take exchanges down.
'"Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame," a Tether spokesperson told Ars by email.'
In my mind, this paragraph is the article's money shot. If I was a legitimate business person issuing a security meant to fill Tether's place, I would pray that my auditor was excruciatingly detailed.
And frankly, there is no way in hell that a security like Tether could have a 'relatively simple balance sheet' in light of their problems receiving US currency combined with rapidly issuing more tokens.
This is bad...and the fact that a PR person said that means things are bad beyond belief.
If Tether's balance sheet was truly simple ("here's our escrow account with Citibank with $2 billion in it, see?") then you can be assured the auditor would have been happy to see that.
American regulators default to permissiveness, particularly in the face of new financial technologies. Their laissez faire comment-and-wait approach to Bitcoin, ICOs and related events is not particularly jarring. But India's regulators are of the shoot-first-ask-questions-later variety [1]. Cryptocurrencies are a unique global phenomenon of immense regulatory restraint, not zeal. (This is probably explained by cryptocurrency's technical complexity, growth and metastasisation as well as some regulators having been won over by the pitch.)
The stewards of Bitcoin and cryptocurrency messaging have done a fantastic job persuading the popular finance and technology influence classes that cryptocurrency is nothing less than a new internet- scale revolution. The corollary implication being of course that obstructing it would be tantamount to banning the internet in the early 90s, with correspondingly dire consequences for a country's or company's growth prospects. The hitherto extremely light touch of most regulatory bodies (bordering on enthusiastic support in many cases) reflects the general sentiment that nobody wants to be remembered the myopic Luddite Who Banned Bitcoin. This effect is amplified by the penetration of its more mundane corruptive potential, as a number of journalists and politicians themselves are materially interested in promoting state-level cryptocurrency adoption. The highly close-held supply of all cryptocurrencies has helped perpetuate the narrative of cryptocurrency's inevitable triumph through extraordinarily centralized domination of liquidity and thus price and market cap signalling. But eventually even diehard HODLbugs have to cash in...
I'm sorry, but I don't think I understand your point. If this was the type of audit that publicly traded corporations need to go through, I'd agree. But in this case, Tether advertised that its claims would be verified by an audit.
> In the normal business world it's a very bad sign when your auditor fires you as a customer.
My wife is a professional auditor and she said that this would only happen if the client was pushing for the auditor to certify something that the auditor wasn't comfortable with. Of course she has no direct knowledge of this case. She said it was a really bad sign and she almost never sees this happen.
There's a major difference between fractional reserve banking and printing money. The former is a well-understood and well-regulated practice that actually drives economic activity. The latter is likely what Bitfinex is doing with Tether, is 100% counter to their stated practices, and serves only to artificially drive up the price of other assets.
You should look up what fractional reverse banking is.
You deposit $100 and they lend it out to 10 different people (or more, depends on the legislation limits), effectively creating $900 extra dollars while those 10 loans remain open.
No. The Federal Reserve was created by Congress in 1913 [1]. Part of its complexity arises from its need to integrate public monetary policy with private capital markets.
It's quasi-governmental, in that it is chartered and overseen by the federal government, but largely executes policy without the influence of the executive or legislative branches.
There are similarities to Mt. Gox. One of the most important is the near-complete lack of user panic, despite ample warnings, right up to the collapse.
I remember vividly seeing Mt. Gox users warned to leave. They didn't. Somehow, they discounted or ignored every warning. Then they became angry when their money was stolen. Then they claimed Mt. Gox was responsible for their loss.
History seems to be repeating itself here. Tether holders somehow don't see, can't see, or refuse to see the writing on the wall.
Withdraw of bitcoin was possible for many months while withdrawal of USD was blocked.
I can't tell you how many /r/bitcoin posts I saw in the months leading up to the final closure of BTC withdrawal that went something like: "why is the BTC price so high on Mt. Gox compared to other exchanges?"
This post gives you an idea. Note the first response and how difficult it is for users to actually see the dead canary:
Mt. Gox would accept USD deposits, but not withdrawals. You could move your bitcoin out, but not your USD. There were also shenanigans with trading bots.
The post you linked to applies to USD withdrawals only. BTC withdrawals continued for some time, but many users decided to ignore to the dead canary and let the Bank of Gox hold "their" money for them. One of them was a well-known Bitcoin Core developer.
The difference between mtGox and this is that bitfinex is seemingly infinitely solvent. Some estimates are like 20-30 million revenue per day. Its the top running exchange. I doubt they would expose themselves to a bankrupcy event having such a cash cow.
I believe they did market manipulation, and that they are committing fraud with tether, but I'm not convinced tether is not solvent.
mtGOX was insolvent because they lost all their assets, thats not the case for bitfinex as far as we know. That is independent from tether itself, it can happen to all exchanges.
Yes, precisely the sort of information an audit would reveal. Curious, then, that despite their repeated pledges for robust auditing they first declared they'd engaged a firm to do those audits that didn't actually do audits, then terminated their relationship with the second, legitimate auditor.
An audit of tether would not show you if bitfinex is solvent or not. Even if tether as a project is a total failure, bitfinex could pay at length for its shortcomings.
Plus, they made most of the money on the play itself.
It's similar to Bernie Madoff as well. Harry Markopolos spent years trying to warn people that he was running a ponzi scheme, and he was ignored until the whole thing finally blew up.
And they are entirely right to claim that Mt. Gox is responsible for their loss. Writing "scam" on a giant red flag in front of your door is not a valid waiver of responsibility.
I don't think this is a strong evidence, but if Tether is issued out of thin air, it is somewhat strange to make revocation. Does someone have a good explanation?
Keeping pace with the market. Tether burning coins is an expected and healthy part of their supply management strategy. Think about how you'd keep a finite-supply coin pegged to a value - you'd print and burn tokens as needed to stabilize the value of the coin.
This is not what Tether is intended to be. Tether is not pegged to the value of 1 USD. The value of Tether does not need to be stabilized. Tether is a 1 for 1 USD backed coin, meaning it's entirely within the scope of Tether for the value of 1USDT to reach $1.10, $1.20 or even $1.50 -- if the market decides that is the value of it.
The point of Tether is that for each USDT there is a corresponding USD in an account belonging to Tether. If Tether were printing USDT to keep 1 USDT valued at 1 USD then they would be violating what Tether is publicly stated to be.
But if you can buy a new Tetherbuck straight from Tether for $1USD, issued in unlimited amounts, why and how could the value of a Tetherbuck ever exceed $1USD?
And on the flip side, if Tether redeems any Tetherbuck for $1USD, on demand and quickly and without solvency concerns, why and how could the value of a Tetherbuck ever drop below $1USD?
Any deviation from $1USD value means the market disbelieves one of the above things.
Unfortunately I don't think anyone has a good explanation for any of it yet.
It's strange to issue a revocation, but then it's also strange to get subpoena'd by CTFC, and to print 850 million tethers in the same month you fail to get an audit through...
A revocation of about 1.5% is just another confounding factor at this point.
I think this is going to continue to be interesting to watch.
It seems likely that the tether company is a fraud, given the size of their January print runs. It seems likely that not only has tether been used by its owners as a way to prop up crypto-currency prices, but to acquire bitcoin and other coins under false pretences.
There's no proof either way, but the lack of audit is very, very fishy.
Further, I watched the USDT/USD market on kraken on Friday.All morning there was downward pressure, buy-walls of millions of dollars were eaten into and destroyed over the course of a few hours, until there was no bid volume at all down to about 90 cents.
All of a sudden, in the course of about two minutes, a rapid cascade of very small trades (a few tens to a few hundreds of dollars) propelled it back to ~98.5 cents. It looked really dodgy.
>All of a sudden, in the course of about two minutes, a rapid cascade of very small trades (a few tens to a few hundreds of dollars) propelled it back to ~98.5 cents. It looked really dodgy.
What's dodgy about that? I think everyone here would love to buy a virtual dollar for 90 cents. Especially given the behavior of the market the past month.
If you're not seeing it then I'm not going to argue with you, neither of us has the data to prove any of what might be going on.
However multiple trades of very similar amounts in under a second, after a long, massive slide in much larger amounts in the morning, looks very dodgy to me. Especially when these trades appear at the last possible moment, when all market resistance to freefall has just disappeared.
It's pretty clear that tether is a scam. A more interesting question to me is whether a legitimate tether could break even. That is, is the risk-free demand deposit interest rate high enough to support the services that would be needed for a full reserve cryptocoin? Services which include creation/redemption facilities, proof of work rewards to drive a blockchain, and third party audits to ensure that the trusts aren't stealing the reserves.
For reference the current market cap of tether is (allegedly) around $2.2B, which at the overnight rate would generate around $30 million a year in interest.
Could an actual bank perhaps decide to issue cryptocurrency to its customers at a $1/coin exchange rate? Wouldn't be full reserve, given that it's a bank, but the deposits would be FDIC-insured, right?
> Could an actual bank perhaps decide to issue cryptocurrency to its customers at a $1/coin exchange rate?
Banks have to know their customers (KYC) [1]. This requirement is multifarious; banks have KYC obligations to the justice system, the U.S. Treasury, systemic financial regulators (e.g. the Fed), specific financial regulators (e.g. FINRA, the FDIC), et cetera.
In the olden days, a discerning gentleman might request an anonymous, numbered Swiss bank account [2]. Over time, it became clear these "discerning gentlemen" were politicians hiding graft money or arms and drug runners storing profits. Anonymous accounts were globally banned and KYC laws were born.
This is the fundamental flaw of all "stablecoins". They're an overly-complex instantiation of anonymous (and illegal) bank accounts. Needless to say, over-complicating something doesn't make it go away.
Bearer bonds [1] are intriguing, mechanically and historically. You will note, under the Restrictions section of your Manulife memorandum [2], that its sale outside Canada or to Americans is prohibited. This is because the issuance of such instruments was practically banned in the United States in 1982 [3].
Bearer instruments are, while prevalent, in decline [4]. It is an active area of global financial regulation [5] where even institutions like the Bank of England have to work to get their notes issued and treated properly.
TL; DR A reputable offshore bank might be able to issue a bearer token redeemable for one British pound or Canadian dollar provided they go to great extents to ensure they don't end up in the hands of Americans or anyone in the United States. It would be an uphill battle, however, which in turn necessitates a heavy issuance premium.
I looked into the law that banned bearer bonds, TEFRA, and I think maybe the relevant provisions wouldn't apply to instruments that mature immediately (which is certainly less than 183 days) and pay not interest (including in the way zero coupon bonds pay interest).
I'm not sure how that would work. It sounds like the opposite of a normal bank relationship.
In general the idea of fractional reserve is that you, the customer, deposit dollars in a bank account, the bank lends out those dollars to borrowers, but still allows you to come and get your dollars back at any time you like. This takes advantage of something like statistical multiplexing -- it is unlikely that everyone will want his dollars back at the same time. And in modern times it is backed up by various government schemes which will provide liquidity in the case of a run on the bank.
If the bank issued you a cryptocurrency at a rate of $1/coin then it would be same thing as giving you your dollars back. It would reduce the banks reserves.
I guess your scheme would make more sense on the other side of the bank. That is, the bank could lend out coins rather than dollars. But in that case there isn't a multiplier for coins, because the reserves would still be in dollars.
> If the bank issued you a cryptocurrency at a rate of $1/coin then it would be same thing as giving you your dollars back. It would reduce the banks reserves.
Why would it reduce their reserves? The bank would still be holding your USD, and they only have to give it back when you trade the coin back to them for cash.
In that model the bank is selling you a coin for USD. It takes your $100 and issues you 100 coins. That $100 is no longer yours--you have the coins instead, though the bank promises that it will buy them back at a $1 per coin.
On their books they have a liability of $100 (the repurchase obligation) and they have $100 in cash. You're right that it doesn't affect their reserves, but it also doesn't act as a multiplier. The liabilities and assets balance. In order for there to be a multiplier the bank would have to issue coins and still allow the customer to access the cash as a deposit. Thus the coins would be being lent as opposed to sold.
Right. How is that any different from when you deposit $100 in the bank and the bank promises to give you your $100 back when you ask for it? That doesn't reduce their reserves; it _increases_ them.
Only difference with using coins this way is that rather than the $100 being tied to you as an individual, it'd instead be tied to the coin itself. (So whoever possesses $100 worth of the bank's coin can get that same amount back in USD.)
Thanks for the search keyword. Seems like bearer deposit notes are indeed legal. (Though it seems like they're not insured.) So it seems like this concept could work after all?
Every currency is only worth what people believe it is, nothing else, it doesn't really matter what did it actually cost to make it. Even if that's true, trying to convince people it's not backed the way it was meant to is nearly as questionable ethically as issuing unbaked coins probably was. If people keep believing nobody will get hurt, if people stop believing the results can be catastrophic. Of course this is a slippery idea itself yet the matter is too serious to just ignore it.
I am not begging you anything but think twice. I personally am not an interested party, I have no blockchain-related assets but I think about all those people who has and I see 2 possible outcomes: if it gets publicly confirmed that the coins were not backed many innocent people will loose their legitimate investments and if it's doesn't they won't, and this doesn't depend on whether the coins actually were backed or not. I don't advocate scam but punishing them may be not really worth the global consequences for people who were not consciously involved. I am not telling what should the people investigating this should choose, I am only telling they should consciously consider all potential results of their decisions. I personally believe that it usually is more important to save what we still have than to revenge what we have lost and that we should always think about the people who happen to be in a less advantageous position than we ourselves are at the time. In fact I love to speak unpopular and "inappropriate" things aloud and question "unquestionable", somebody has to anyway.
It's not revenge, it's revealing the truth about the market, without which the market cannot function correctly. You are asking for continuation of the lie of overvaluation, which can only continue if more people continue to pump in more money under false pretences.
I'm sorry for people who were caught by this - they've been scammed. Pretending they haven't isn't going to help in the long term but make it worse and for more people.
Don't get me wrong, I am not really arguing or trying to attach a moral label to whatever the side and convince you, but I am curious, perhaps there is an idea I can't get (I am a mediocre mind and didn't sleep well, that's possible). I feel like playing hide-and-seek trying to find it :-) Would you be so kind to confirm that you understand the rational (albeit questionable, possibly wrong, sure) side of my logic and try to explain if there are rational morality-free reasons other legality/justice/order (incl. preventing further market manipulations, unjustified profits and simple lie) to blow such a bubble up? I am just trying to view the situation from somewhat like a game theory point of view.
>> explain if there are rational morality-free reasons other legality/justice/order (incl. preventing further market manipulations, unjustified profits and simple lie) to blow such a bubble up?
You probably want to start looking into market theory. My understanding of it is imperfect but...
What you're effectively asking is for a market to be protected from bad news because investors who invested in good faith stand to lose out. In this case the bad news is news about (potential) fraud and large-scale fake liquidity. The consequences, outside of the morality of the continual diversion of a large amount of honest money to bad actors, is that price discovery is destroyed and the asset is no longer really tied to any underlying value or sentiment. Such a market could collapse at any moment - if the bad actor stops funneling fake fluidity into the market, for instance, then if that's not replaced with new 'real' money the price will still collapse because the support for the price was a fiction.
In a well regulated system the restitution for the (apparent) criminal activity would be by the state - the perps would get charged with fraud, their assets confiscated, and the state and/or market authorities would endeavour to make good the innocents, either by unwinding trades or paying out from insurance or something. In the cryptocoin space... well yeah, regulation bad, insider trading good.
Markets function well when there is transparency and honesty. Without it they distort and bad actors find ways to capture the profits.
In the normal business world it's a very bad sign when your auditor fires you as a customer.
> So it's possible Tether is keeping the identity of its bank secret to avoid attracting scrutiny from local regulators. This could also explain why some of Tether's funds are being held in the personal account of a Tether associate—perhaps the bank would have refused to open the account if it had known it was really for Tether.
When this finally blows up it's going to blow up big. How pervasive is parking money in tether in the crypto world? Is it bitfinex specific? I'm curious how bad the shock waves will be across the industry.