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

arstechnica.com

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

#71

Post by jellicle »

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…

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.

No audit = run away fast.

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

#72

Post by gst »

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…

> 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.

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

#73

Post by LargeWu »

jobigoud wrote: post #26
aviv wrote: post #6

Earlier quoted context omitted.

We also don't usually see a private company literally print money.

Banks are private companies and they create money all the time when they make loans.

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.

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

#74

Post by Nursie »

flipp3r wrote: post #54
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.

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.

But sure, whatever. Could be legit.

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

#75

Post by LargeWu »

Maert wrote: post #25
aviv wrote: post #6

Earlier quoted context omitted.

We also don't usually see a private company literally print money.

To be fair, isn't FED a private, non-federal company? :)

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.

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

#76

Post by Ajedi32 »

bradleyjg wrote: post #56
Ajedi32 wrote: post #49

Earlier quoted context omitted.

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 wil…

> 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.

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

#77

Post by Canada »

simias wrote: post #30
random_rr wrote: post #9

Earlier quoted context omitted.

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…

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…

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.

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

#78

Post by apo »

wgerard wrote: post #60
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_...

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:

https://www.reddit.com/r/Bitcoin/comments/1w6qxm/mt_gox_arbi...

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.

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

#79

Post by simias »

DennisP wrote: post #59
conanbatt wrote: post #28

Earlier quoted context omitted.

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?

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.

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

#80

Post by bradleyjg »

Ajedi32 wrote: post #76
bradleyjg wrote: post #56

Earlier quoted context omitted.

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 wil…

> 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.

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