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$1M bounty for details on Tether’s backing

hindenburgresearch.com

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Re: $1M bounty for details on Tether’s backing

#41

Post by JumpCrisscross »

_ah wrote: post #20

As always, Matt Levine is shockingly informative: https://www.bloomberg.com/opinion/articles/2021-10-07/matt-l... Key quote: 1. You get a bunch of Bitcoins. 2. You slice them into junior and senior claims. 3. You sell the junior claims to people who want levered Bitcoin: people who want margin loans against their Bitcoins, etc., who want to gamble on Bitcoin without putting up too much cash. 4. You sell the senior cl…

Tranching is a thing. It's fine. It works, if you don't pretend AAA-rated securities, which have--and historically had--a very low risk of losses, are both safe and liquid.

If tranching were all Tether were doing, it would just be fraud. You can't sell a senior tranche on a pool of assets as a fully-backed security and call it a day. But whatever, Tether did that and more, nobody cared, we're on the next tier of the Narcissist's Prayer [1].

The new problem is we have circumstantial evidence that at least some of Tether's assets are Chinese developers' commercial paper. That's a risky asset. Even before Evergrande and Sinic defaulted, it was a speculative asset. (Now it's a distressed one.) If that's what we know they're in, how bad is the rest of their balance sheet? Tether claims to be over-collateralising their crypto-backed loans by 30%. An LTV of 77% will start losing money in a 25% crash. Bitcoin...does that a lot? For an asset they understand, they've set their risk limits woefully low. If that's what we know they're doing, how thin is the rest of their capital?

We're going to see a run on Tether. Not might. Statistically, the assets Tether holds will sometimes go down. Sometimes a lot. Most of the time, that will be fine. Some times, however, Tether will get a redemption at the same time. (Assets going down and investors redeeming things are correlated.) Most of the time, that will work out. Some times, however, Tether will need time to avoid their own selling driving down the asset's price. Most of the time, that will be fine. Some of the time, however, the person making the redemption request won't have that time. They'll blow up, and they'll blame Tether. This will prompt additional redemptions, which will force the aforementioned fire sale until, in all likelihood, Tether kills its domain and steals the money. (The last part is a novelty really only afforded by their setup.)

[1] https://news.ycombinator.com/item?id=28880280

[2] https://www.bloomberg.com/news/articles/2021-10-07/can-you-t...

Re: $1M bounty for details on Tether’s backing

#42

Post by mikeyouse »

Taikonerd wrote: post #9
graeme wrote: post #2

This is very interesting. Hindenburg is the real deal. One challenge may be that, like the Mafia, Tether keeps its inner circle and employs family members. They have ~15 employees for a 70 billion dollar operation. The CTO’s wife is a manager, and the CEO’s daughter works for an unnamed crypto family office, which may be related. Their counterparties in Chinese commercial paper may not know they are counterparties du…

I just realized that the Bloomberg reporter who wrote the recent story is named "Zeke Faux." ( Faux meaning "fake" in French, in a story about fraud.) Is his name a pseudonym? If not, it's another surreal point in a surreal story.

Nope - that's his real last name. We have some mutual friends and via FB I can see at least a dozen family members with the same surname.

Re: $1M bounty for details on Tether’s backing

#43

Post by perl4ever »

xur17 wrote: post #16
rexstjohn wrote: post #12

Federal Reserve was crafted in a secret meeting on Jekyll Island ( https://en.m.wikipedia.org/wiki/Federal_Reserve ) between industry and government. Still exists and functions today. Lot of people don’t like it, but it’s there regardless. Even if the origin, operation of Tether is highly suspicious: if it functions, is widely adopted and does what is expected … may last longer than people think. Best response is mor…

> Even if the origin, operation of Tether is highly suspicious: if it functions, is widely adopted and does what is expected … may last longer than people think. I think you're right about this point, and I've been trying to imagine what might cause Tether to collapse - you really need a run on the bank situation triggered by something causing them to become insolvent.

A run on a bank can make it insolvent?

I thought that insolvency was when they don't have the assets to cover their liabilities.

My understanding of a bank run is it happens when a bank is solvent, but doesn't have enough in reserves - liquid, short term assets.

But if they simply don't have at least 100% of their liabilities in assets, then they are bust because they can never pay people back barring a miracle.

Re: $1M bounty for details on Tether’s backing

#45

Post by speedybird »

lgierth wrote: post #37
Taikonerd wrote: post #9

Earlier quoted context omitted.

I just realized that the Bloomberg reporter who wrote the recent story is named "Zeke Faux." ( Faux meaning "fake" in French, in a story about fraud.) Is his name a pseudonym? If not, it's another surreal point in a surreal story.

Zeke = ZK = zero-knowledge?

I guess it's actually his real name, and Zeke short for Ezekiel isn't uncommon. But Zeke can also mean 'cloak'.

Re: $1M bounty for details on Tether’s backing

#46

Post by hansjorg »

tcgv wrote: post #19
filvdg wrote: post #4

Disclosure: Hindenburg Research does not hold positions, either long or short, in Tether, bitcoin or any cryptocurrency at the time of this press release.

I wonder why this Reaserch firm is offering such a substantial bounty for information on Tether. What's in it for them? Where will this money come from? From their site they provide an answer (and even a "track record") [1]: > We look for (...) man-made disasters floating around in the market and aim to shed light on them before they lure in more unsuspecting victims. Hence it seems they're doing it for the bennefit…

They usually disclose that they hold short positions at the same time as publishing their reports.

If Tether unravels and brings down the whole cryptocurrency bubble, there are probably more indirect positions that are safer bets?

Re: $1M bounty for details on Tether’s backing

#47

Post by RC_ITR »

paulpauper wrote: post #30

There has been nothing but Tether doom and gloom since 2017 and yet here it is still at 1.0000 If anyone thinks this will drop, now is the opportunity to short, I suppose.

Circa 2020: There has been nothing but Wirecard doom and gloom since 2019 and yet here it is still at 115. If anyone thinks this will drop, now is the opportunity to short, I suppose.

Re: $1M bounty for details on Tether’s backing

#48

Post by hmate9 »

paulpauper wrote: post #30

There has been nothing but Tether doom and gloom since 2017 and yet here it is still at 1.0000 If anyone thinks this will drop, now is the opportunity to short, I suppose.

Shorting Tether is a great play. Either everyone loses faith and nobody trusts them anymore or.... it stays at $1. You are not going to lose. You just have to pay funding fees for your short which on FTX is around 4% a year.

Do you think there is a great chance that Tether is a massive scam and will find its doom within the next 25 years?

My answer to that is yes.

Re: $1M bounty for details on Tether’s backing

#49

Post by the_optimist »

xur17 wrote: post #16
rexstjohn wrote: post #12

Federal Reserve was crafted in a secret meeting on Jekyll Island ( https://en.m.wikipedia.org/wiki/Federal_Reserve ) between industry and government. Still exists and functions today. Lot of people don’t like it, but it’s there regardless. Even if the origin, operation of Tether is highly suspicious: if it functions, is widely adopted and does what is expected … may last longer than people think. Best response is mor…

> Even if the origin, operation of Tether is highly suspicious: if it functions, is widely adopted and does what is expected … may last longer than people think. I think you're right about this point, and I've been trying to imagine what might cause Tether to collapse - you really need a run on the bank situation triggered by something causing them to become insolvent.

Liquidity squeezes and credit crises are correlated: inability to repay happens at the same time as unwillingness to lend. In practice, you get a commercial paper default at the same time you get increased liquidity demands. All you need is one event; one fraud, one excess-risk taking that doesn't pay off. If Tether is investing reserves, it is only timing until they default. There is no exception, and everyone sophisticated in finance knows this. Banks play the same games with probability distributions on risk assets; this 'social science' still reliably fails and banks are accordingly bailed out. Tether has no such recourse.

Re: $1M bounty for details on Tether’s backing

#50

Post by hmate9 »

RC_ITR wrote: post #47
paulpauper wrote: post #30

There has been nothing but Tether doom and gloom since 2017 and yet here it is still at 1.0000 If anyone thinks this will drop, now is the opportunity to short, I suppose.

Circa 2020: There has been nothing but Wirecard doom and gloom since 2019 and yet here it is still at 115. If anyone thinks this will drop, now is the opportunity to short, I suppose.

Exactly. These things dont go down in value slowly as they start rotting. They suddenly collapse in a matter of hours.
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