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Federal investigators probe Tether

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Re: Federal investigators probe Tether

#121

Post by tfehring »

Spivak wrote: post #116
sgammon wrote: post #115

Earlier quoted context omitted.

> Banks have like 10% or even less… That’s completely untrue, and Tether isn’t a bank.

Yeah, banks hold much less than 10%, as of 2020 the reserve requirement is 0%.

Reserve requirements are completely different from capital requirements. US banks are required to hold about $108 in assets for every $100 they hold in deposits, and their actual holdings are typically in the range of around $110 to $115 in assets per $100 of deposits. Central bank reserves are one type of asset that commercial banks can hold; a 0% reserve requirement just means that commercial banks can hold all of that ~$108 in other assets if they choose to.

In contrast, Tether has historically admitted to having as little as $100.20 in assets per $100 in liabilities [0], with a significant fraction of it in crypto and other assets that effectively wouldn't even count toward banks' capital requirements. It has probably dropped below $100 in assets per $100 in liabilities - i.e., been insolvent - at some point, and even taking its latest audit [1] at face value, it has far less capital than would be needed for a bank with the same asset profile in the US or other developed countries.

[0] https://assets.ctfassets.net/vyse88cgwfbl/1np5dpcwuHrWJ4AgUg...

[1] https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYg...

Re: Federal investigators probe Tether

#122

Post by shadowmanifold »

jujube3 wrote: post #38
alchemist1e9 wrote: post #18

Earlier quoted context omitted.

> It's well known in cryptocurrency circles that their coin is not backed 1:1 to USD, similar to FTX, only that FTX crashed and this was found out the easy way. Being speculated about is not the same as “known”. In fact every tether investigation seems to end up showing they are even over capitalize and hold more than 1:1! My understanding of the audit situation was that the big accounting firms have refused to do it…

It would be very simple for Tether to just hold $1 for each 1 Tether coin. They could invest their cash in safe assets like treasury bills that yield 4% or more. Meanwhile, they pay no interest in Tethers. So they get a 4% return for doing nothing at all. As far as I know, there is no evidence that they are doing anything else. (There is some evidence that they did something else in the past, when interest rates were…

You can't run a 120 billion dollar bond trading operation with like 4 people.

That amount of money is a huge amount of work to manage no matter what you are trading.

The simple explanation of how they do this is that they don't have anything close to 120 billion to manage.

It is really a sociological and network experiment of how long fraud can persist when the fraud is in the short term interest of all nodes of the network.

I suspect the reason Bernie Madoff was able to persist for so long is that many of the investors thought he was front running trades because of his position with Nasdaq. People tend to be fine with fraud if they are directly benefiting from the fraud and only risking their capital in the process.

Time is not a good measure of non-fraud. That is just a rationalization because any crypto investor has to basically keep the idea of a tether fraud out of their head at this point considering the risk to the ecosystem would be so catastrophic.

What does actually grow in time is the risk to the network.

Re: Federal investigators probe Tether

#123

Post by alchemist1e9 »

shadowmanifold wrote: post #122
jujube3 wrote: post #38

Earlier quoted context omitted.

It would be very simple for Tether to just hold $1 for each 1 Tether coin. They could invest their cash in safe assets like treasury bills that yield 4% or more. Meanwhile, they pay no interest in Tethers. So they get a 4% return for doing nothing at all. As far as I know, there is no evidence that they are doing anything else. (There is some evidence that they did something else in the past, when interest rates were…

You can't run a 120 billion dollar bond trading operation with like 4 people. That amount of money is a huge amount of work to manage no matter what you are trading. The simple explanation of how they do this is that they don't have anything close to 120 billion to manage. It is really a sociological and network experiment of how long fraud can persist when the fraud is in the short term interest of all nodes of the…

> You can't run a 120 billion dollar bond trading operation with like 4 people.

They delegate much of those issues to multiple regulated third parties.

The much referenced NYAG settlement in this discussion never shows they were committing massive fraud. There were periods when reserves included assets like receivables or funds temporarily seized by authorities but there was no finding that USDT wasn’t fully backed. The link to that settlement is thrown around with the implication that “see they are fraudulent” for those who don’t read the details.

I used to think exactly like all the anti-Tether people and conspiracies but the fact is that there exists no evidence for massive fraud and much evidence it isn’t.

Re: Federal investigators probe Tether

#124

Post by pfisherman »

gws wrote: post #103
pfisherman wrote: post #58

Earlier quoted context omitted.

What are the incentives at work here? What is their risk exposure to a collapse of tether? What would be the reputation al risk to their firm if tether was a scam? I personally would take this with a grain of salt as they have a direct financial interest in Tether looking solid and prestigious and continuing its present operations. I am old enough to remember when investment banks touting their mortgage backed securi…

The incentives at work here are that if a CEO of a public company makes false statements of this kind goes to jail. This is like the CEO of the bank that held Bernie Madoff's money going on record before Madoff's fall saying he holds Bernie's money and it's all there. If Tether is unbacked Howard Lutnick is going to jail, so it is irrational to believe Tether is unbacked at this point.

So what exactly did the CEO say? Did he attest to tether’s balance sheet? Did he attest to the dollar amount of tether’s assets managed his institution?

What I am getting is that he simply said that he holds some of tether’s assets. Why and how would that make him privy to the entirety of tether’s balance sheet?

Re: Federal investigators probe Tether

#126

Post by gws »

pfisherman wrote: post #124
gws wrote: post #103

Earlier quoted context omitted.

The incentives at work here are that if a CEO of a public company makes false statements of this kind goes to jail. This is like the CEO of the bank that held Bernie Madoff's money going on record before Madoff's fall saying he holds Bernie's money and it's all there. If Tether is unbacked Howard Lutnick is going to jail, so it is irrational to believe Tether is unbacked at this point.

So what exactly did the CEO say? Did he attest to tether’s balance sheet? Did he attest to the dollar amount of tether’s assets managed his institution? What I am getting is that he simply said that he holds some of tether’s assets. Why and how would that make him privy to the entirety of tether’s balance sheet?

Listen to 8:45 of this video: https://youtu.be/IjR3Hj0aRW4?si=s2D0wjQOIS5uiFKh

He says that Tether can redeem any request because his company holds their money. If Tether is unbacked this is security fraud

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