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

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

#51

Post by matthewbauer »

Ajedi32 wrote: post #49
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?

I think you’d lose FDIC insurance when you let people trade it.

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

#52

Post by pmlnr »

Ajedi32 wrote: post #49
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?

One could, in theory, yes, but given the strictness on banks, I'm pretty certain they would have no problems auditing it.

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

#54

Post by flipp3r »

Nursie wrote: post #10

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…

>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.

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

#55

Post by TeMPOraL »

citricsquid wrote: post #32
random_rr wrote: post #22

Earlier quoted context omitted.

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 b…

I don't think anybody reasonable believes they're actually backed by USD at this point.

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

#56

Post by bradleyjg »

Ajedi32 wrote: post #49
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?

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.

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

#57

Post by conanbatt »

apo wrote: post #36

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…

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.

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

#58

Post by JumpCrisscross »

stult wrote: post #44
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 t…

> 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.

[1] https://www.reuters.com/article/us-ico-ernst-young/more-than...

[2] https://www.bloomberg.com/news/articles/2017-12-05/mystery-s...

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

#59

Post by DennisP »

conanbatt wrote: post #28
simias wrote: post #21

Earlier quoted context omitted.

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 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.

How is Bitfinex involved with Kraken?

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

#60

Post by wgerard »

apo wrote: post #36

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…

To be fair, plenty of people tried to withdraw from Mt. Gox and were stonewalled [1]. Which, one can imagine, exacerbated the problem.

1: https://www.reddit.com/r/Bitcoin/comments/1po4gq/mtgox_slow_...

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