Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Tether says its cryptocurrency is worth $2B–but its audit failed

arstechnica.com

Post reply on HN
Print view View original

41–50 of 120 posts

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#41

Post by arisAlexis »

simias wrote: post #21
koolba wrote: post #2

> 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. > S…

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.

it's actually because they are probably solvent. be critical when everyone is sure about something without insider knowledge

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#42

Post by bradleyjg »

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.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#43

Post by panarky »

simias wrote: post #21
koolba wrote: post #2

> 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. > S…

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.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#44

Post by stult »

koolba wrote: post #2

> 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. > S…

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.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#45

Post by panarky »

koolba wrote: post #2

> 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. > S…

> 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.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#46

Post by hluska »

arisAlexis wrote: post #39
hluska wrote: post #19

'"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 wa…

not really. In cryptospace governments want to ban things. Measures need.to be taken as this is just a centralized tool for the decentralised economy

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.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#47

Post by dragonwriter »

random_rr wrote: post #23
dragonwriter wrote: post #12

Earlier quoted context omitted.

> 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.

> That's interesting, my Cryptopia DOGE trading pairs (and LTC) beg to differ.

How?

> USDT is one of many trading pairs offered by crypto exchanges.

USDT is not a trading pair, it's a single cryptocurrency. The issues that give it a special role, both tied to it's USD peg, is that:

(1) It is sometimes treated as equivalent to, and commingled with, USD by exchanges (notably, Bitfinex), and

(2) USDT: trading pairs, on exchanges that don't handle USD lat all, are often treated by the community as if they were USD: trading pairs.

(3) The special role USD has in world markets.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#48

Post by JumpCrisscross »

arisAlexis wrote: post #39
hluska wrote: post #19

'"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 wa…

not really. In cryptospace governments want to ban things. Measures need.to be taken as this is just a centralized tool for the decentralised economy

> In cryptospace governments want to ban things

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.)

[1] https://en.wikipedia.org/wiki/Licence_Raj

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#49

Post by Ajedi32 »

bradleyjg wrote: post #42

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…

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?

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#50

Post by JumpCrisscross »

panarky wrote: post #45
koolba wrote: post #2

> 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. > S…

> 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 hel…

> 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."

Post reply on HN