The trillion-dollar lawsuit against Tether


349 points | by prostoalex 208 days ago


  • asdfasgasdgasdg 207 days ago

    I'm all in on the concept that Tether is a fraud. However, isn't it slightly premature to file a lawsuit over losses? The latest price charts still have tether at $1~=1USDT. If you have Tether and are worried about its liquidity, shouldn't you just sell Tether to someone who wants it in exchange for something else?

    Or is there some kind of problem with doing that transaction that I'm not aware of? Maybe some limitation that's not reflected in the price charts?

    Edit: I see that this is not actually about Tether's liquidity at all. Instead, the accusation is that Tether was used to pump and dump Bitcoin, and those who suffered damages under this theory are people who bought Bitcoin at the top.

    • JumpCrisscross 207 days ago

      > isn't it slightly premature to file a lawsuit over losses

      People bought, and Tether sold, USDT on assurances of being 100% backed by U.S. dollars. Tether is now admitting that not only is it not 100% backed, it isn't even entirely backed by U.S. dollars [1]. That's enough to allege fraud.

      > The latest price charts still have tether at $1~=1USDT

      Tether is under criminal investigation by the United States and New York State for, among other things, market manipulation. Taking Bitfinex's word that one's USDT has suffered no losses, all while they delay and unreasonably condition withdrawals [2], is like trusting Adam Neumann's on WeWork being worth $47bn.



      • ineedasername 207 days ago

        Sure, it might be criminal fraud, but a lawsuit like this is civil. And in a civil lawsuit, you generally have to show actual damages. People that lost on the Bitcoin bubble burst caused in part by tether may have a stronger case though.

        • JumpCrisscross 207 days ago

          > People that lost on the Bitcoin bubble burst caused in part by tether may have a stronger case though

          The complaint [1] seeks to certify precisely this class.

          "Plaintiffs and members of the Class have suffered actual damages and injury in fact due to artificial prices to which they would not have been subject but for the unlawful conduct of the Defendants as alleged herein" (¶ 260). This is par for the course when it comes to "part-fraud, part-pump-and-dump, and part-money laundering" (¶ 2) schemes.

          Note that the defendants are various, from Tether to its affiliates, including Bitfinex.


        • asdfasgasdgasdg 207 days ago

          OK, so, I don't have a strong position on this -- I'm purely asking a question. No need to go all ham with hyperbolic similes.

          Also, am I taking Bitfinex's word when I look at the exchange-derived price of Tether? I'm not sure. I would have thought that I was trusting the price discovery mechanism in general. If I'm trusting Bitfinex on this at all, it's only to the extent that Bitfinex would be backstopping the price of Tether on all other exchanges. Right? I mean, they can lie about how much a Tether is worth, but they can't lie about how much it's trading for on exchanges they don't own.

          • Slartie 207 days ago

            The problem is: the Tether-USD pairing, which is the one that is supposed to always be at 1:1, is really exotic on exchanges. The only major one coming to my mind is Kraken, and even there the volume on the pair is anemic compared to the Tether market cap.

            Or at least it was this way last time I was really active in cryptos, which I‘m not really at the moment. But a quick scan of Coinmarketcap didn’t really indicate that this has changed.

            • zaroth 207 days ago

              The Tether:USD rate is not the only factor you must consider, particularly because of how thinly traded it is.

              The more important metric is comparing what it costs to buy BTC on Coinbase with cold hard USD, and what it costs to buy and then transfer out BTC with Tether anywhere else.

              If you can buy large quantities of BTC with your Tether at close to the USD:BTC rate, then you can exit your Tether holdings at or close to the effective peg.

              • notyourday 206 days ago

                That's sea shells being traded against rocks. For Tether not to be sea sells ( or rocks ) this trade needs to have a very low difference between X and Y:

                Start send X from a bank account USD to trading spot. Do USD->Tether->BTC

                Immediately follow up with:

                Take BTC received and do BTC->Tether->USD (Y) => fire to the bank account

              • asdfasgasdgasdg 207 days ago

                Thank you for providing this additional context. If the pairing is exotic and doesn't have much liquidity, can you still compute the expected value of tether by doing Tether->BTC->USD? Maybe not, because maybe BTC->USD is inefficient or illiquid itself?

                • nostrademons 207 days ago

                  You can compute the market price, either by taking the USD/USDT pairing on Kraken directly or by taking the ratio of BTC/USDT on Bitfinex against BTC/USD on Coinbase. They usually give the same answer modulo exchange fees (i.e. within about half a percent or so). When there was a run on Tether in May and it dropped to about $0.93, there was roughly a 7% price premium (several hundred dollars) on Tether-based exchanges like Binance and Bitfinex.

                  The confusion is because in theory, the market price should be tracking Tether reserves. Bitfinex admitted in a court filing that only 73% of outstanding Tether was backed by dollars. In an efficient market, that should imply that the price of Tether would fall to $0.73. Instead, it went back up to about $1. The implication is that traders either figured Tether would somehow be able to make up the shortfall, or that it just didn't matter.

                  Interestingly, people who shorted Tether expecting the market to be efficient got rekt, and the people who were actually correct (so far, at least) were the ones who were irrational. I wonder what this says about rationality and efficient markets today.

                  • JumpCrisscross 207 days ago

                    > I wonder what this says about rationality and efficient markets today

                    There isn't an efficient market around Tether.

                    The exchanges that trade it are predominantly controlled by its backer. Fraud investigations in play make a short's gains at risk for clawback. (Or at the very least, creating a legal headache for their owner.)

                    There is no assurance that the end game isn't a crash in value, but no value, which makes closing out a short position difficult or even impossible.

                    I have traded securities my entire career. It's been pretty obvious, from the start, that Tether is a scam. I wouldn't short it.

                    Disclaimer: This is not securities advice. Don't buy or sell securities or currencies based on Internet comments.

                    • vinceguidry 207 days ago

                      > I wonder what this says about rationality and efficient markets today.

                      Nothing new. Markets are more heavily dominated by those with more resources. If these players decide to act irrationally, then you'll go bankrupt faster than they will.

                      This is why you don't short industries, you only short companies. Industry will eat you alive. There are also strategy and tactics. Musk can fend off the short siege even though they might collectively have more resources than he does. If you want to beat someone in the market, your better bet is to enter it yourself than to try to bet they're going to fail.

                      Trying to use a short maneuver to expose market irrationality is not for the faint of heart. It never was. Shorts were only ever really useful to try to profit off of stupidity, not irrationality.

                • biggestdecision 207 days ago

                  Tether promised a guaranteed 1:1 exchange rate with USD. That guarantee no longer exists, even though the rate is still ~1:1 Tether has no way to enforce that. If it's value tanks there is nothing they can do.

              • MuffinFlavored 207 days ago

                Can you spell out (maybe ELI5) why the concept of Tether is a fraud? Why is it not possible to back cryptos to a stabilized "1:1" "medium/currency" (which itself is another crypto it seems) and finally the USD dollar ?

                • JumpCrisscross 207 days ago

                  > Can you spell out (maybe ELI5) why the concept of Tether is a fraud?

                  Tether sold tokens on the promise that 1 USDT would be backed by U.S. dollars. They didn't keep one U.S. dollar for each USDT sold. If they did (or concealed) that willfully, it's fraud.

                  > Why is it not possible to back cryptos to a stabilized "1:1" "medium/currency" (which itself is another crypto it seems) and finally the USD dollar ?

                  U.S. dollars can be held as hard cash or in bank accounts. Holding $4 billion physically is bonkers. Banks holding U.S. dollars, meanwhile, have to follow U.S. anti-money laundering law. That requires, among other things, knowing who beneficially owns their deposits.

                  If an LLC opens a bank account, the bank will ask about its owners. With Tether, the beneficial owners are USDT holders. Since Tether can't identify them, they can't satisfy any bank's compliance questions.

                  So either (a) Tether's banks are violating U.S. AML law, (b) Tether is lying or (c) Tether is silently restricting and keeping records on who owns every USDT. Given we have contrevidence for (c), one can conclude–based solely on Tether's claims–that there's fraud afoot.

                  Disclaimer: I am not a lawyer. This is neither legal nor trading advice.

                  • londons_explore 207 days ago

                    > With Tether, the beneficial owners are USDT holders.

                    As far as the bank is concerned, USDT is a valueless token and potentially empty promise by Tether Inc.

                    The beneficial owner of the money is Tether Inc, not the USDT holders.

                    • paulie_a 207 days ago

                      You never need to add that disclaimer.

                    • biggestdecision 207 days ago

                      Tether promised that 1 USDT would be backed by 1 USD, and they would always honor a 1:1 exchange rate. Now it turns out that USDT are not backed by USD, and Tether will not exchange between the two. You are reliant on third party exchange services, that don't guarantee the exchange rate.

                      Traditional banking services are hostile to crypto, so they cut off Tether's ability to trade in USD. And Tethers own interest (widespread use of USDT) is at odds with their inability to provide adequate backing USD. Exchanges all wanted more USDT to provide more liquidity, and so Tether just printed USDT without backing.

                      A crypto backed 1:1 by USD is a great idea, the trick is finding a way to actually guarantee the backing currency & exchange rate.

                      • xyzzyz 207 days ago

                        A crypto backed 1:1 by USD is a great idea, the trick is finding a way to actually guarantee the backing currency & exchange rate.

                        It's actually pretty lousy idea, because in practice it's exactly what we already have in normal banking system, where the "bank-USD crypto", that is, the numbers in your bank accounts, are already backed 1:1 by actual government USD, with government regulations backing the companies and the exchange rate.

                        If you can freely exchange cryptocoins to USD, there's absolutely no reason to ever consider a stablecoin, unless your goal is to evade money laundering, KYC, etc regulations, hence Tether.

                        • wpietri 207 days ago

                          > "bank-USD crypto", that is, the numbers in your bank accounts

                          Thanks for saying so. I see so much hype about digital money from people that apparently have never used direct deposit and a debit card, which is exactly digital money.

                          • austhrow743 207 days ago

                            Yes, significant hype around digital money is about providing services to the underbanked/unbanked that people with the privilege of a bank account and debit card take for granted.

                            That's an important and needed service.

                            • wpietri 206 days ago

                              It is! And things like M-Pesa show it it can be done effectively and in short order when designed right. Which is part of why I find Bitcoin hype frustrating; it has clearly been way less effective.

                              • TheColorYellow 200 days ago

                                Bitcoin maximalism is a distracting and inept attempt at making something, that is no more than a conspiracy theory, the fundamental basis of a "next-gen" financial system.

                          • hydandata 207 days ago

                            If you think the banks keep 1:1 reserves, you are in for a big surprise. Ever heard of Fractional Reserve Banking?

                            • jcranmer 207 days ago

                              Under FDIC, any account less than $100K or so will be redeemed at par, even if the bank is completely and totally insolvent. Your checking account is actually probably backed 1:1 in reserves because your bank needs the cash on hand to match withdrawals at any time; it's your savings account that is less likely to be so reserved.

                              Furthermore, even in a fractional reserve banking scenario, your bank will have 1:1 assets backing it up, since the money it loans out is counted as an asset, although it needs to be recognized that the loan is valued at less than par because of the risk of default. There is quite a lot of legal regulations on what capital can back up accounts, and the minimum ratios of various kinds of quality of capital.

                            • vkou 207 days ago

                              Bank reserves are 1:1. If a bank's reserves ever dip below that ratio, the bank is insolvent, and is in deep shit.

                              Only a fraction of those reserves are cash. Hence fractional reserve. The remainder aren't liquid, but they are worth enough to cover the reserves, under best accepted accounting practices.

                              Tether's non-cash reserves largely consist of "A money launderer stole our money, but pinky swears that they'll give it back." It's not like a fractional reserve bank, it's just a straight up fraud. It's why despite many assurances from Tether, it has still not been independently audited.

                            • gnode 207 days ago

                              > there's absolutely no reason to ever consider a stablecoin

                              Although Tether's purpose has largely been to avoid regulation, and participate in cryptocurrency speculation, a stablecoin would be superior for actual commerce. Bitcoin has failed for commerce, to some extent because of instability and speculation.

                              Being able to use something equivalent to cash to transact digitally, with client-side security seems like a desirable technology to me.

                              • xyzzyz 207 days ago

                                stablecoin would be superior for actual commerce

                                Superior to bitcoin, surely, but no superior to dollars. I have absolutely no difficulty with using my dollars to pay for anything I want.

                                The biggest reason one might not want to use dollars is to conceal one's identity, and while I admit that there exist valid uses for that, most of the market for anonymous commerce is illegal activity.

                                • edmundsauto 207 days ago

                                  A lot of people don't use dollars, and/or find the USD/$local_currency exchange process cumbersome and expensive.

                                  • throwaway2048 207 days ago

                                    the exchange process for cryptocoins is far worse in approximately every locale.

                                    • xyzzyz 207 days ago

                                      Online shopping exists in other countries too, and you don't need dollars to buy things online there.

                                      • edmundsauto 207 days ago

                                        Very true, but AFAICT it's not as easy in many countries. Shopping across borders is pretty expensive; currency conversions take a chunk.

                                        • dmitriid 207 days ago

                                          Online shopping is instant, and I will have my physical goods within a week or two in most countries around the world, and my digital goods instantly. And there are several layers of fraud protection on top of that.

                                          The currency exchange rate is a minor price to pay for such a convenience.

                                          Meanwhile with <insert literally any cryptocurrency here> it’s just a simple <convoluted 20-step process not even guaranteed to work and with no consumer protection>.

                              • tptacek 207 days ago

                                Is it a great idea? Or does it not reliably exist for a reason: because it's in tension with banking regulations, and anyone who tries to do it without applying all the same KYC and AML regs that motivate stablecoins in the first place are going to be frozen out the same way Bitfinex was, to the point where they too will end up pitifully reliant on money laundering firms opening fleets of fraudulent accounts at tiny banks?

                                • seibelj 207 days ago

                                  USDC from ycombinator-funded Coinbase is doing fine

                                  But the same old tropes about crypto always get the upvotes.

                                  • papln 207 days ago

                                    How is USDC operation financed? Is it a marketing expense of Coinbase? Is "Convert USDC at a ratio of US$1.00 for 1 USDC with no fees" expected to change to a fee in the future?

                                    • nostrademons 207 days ago

                                      Loss leader to get you to trade more. The existence of USDC makes it easier to move in and out of crypto positions, and to send crypto to other exchanges without taking on exchange-rate risks. Coinbase's business model is to take a fee whenever you transact. The more transactions you make, the more money they make.

                                      It's similar to Google's "make the web faster" efforts (Chrome, V8, AMP, mod_pagespeed, hosting JQuery & other AJAX libs, developer education). If the web is faster, you visit more pages. If you visit more pages, you search more. If you search more, you click on more ads, which makes Google more money.

                              • Animats 207 days ago

                                Because there really aren't substantial hard assets behind Tether. Even Tether now admits this. What keeps this going is a net inflow of cash into Tether. If that ever switches to a net outflow, the Ponzi scheme collapses.

                                • eternalny1 207 days ago

                                  Since Tether can't back the 1/1 USD in an actual bank (due to banking regulations), they have to park that money somewhere.

                                  If they are parking it in other cryptocurrencies, then they have to ensure that the value of that particular cryptocurrency does not fall below the average price they had to buy it at (to ensure they can redeem).

                                  So if, for example, Tether has had to buy Bitcoin and the average of all those purchases came out to $7,500/BTC, they have to ensure that BTC doesn't fall below $7,500 now because otherwise they end up net-negative.

                                  At least from what I can gather.

                                  • teknopurge 207 days ago

                                    Where does Tether admit this?

                                • rtempaccount1 207 days ago

                                  It's entirely possible to have a stablecoin and indeed others exist.

                                  The key to a stablecoin however, is trust. Users have to trust that their holdings are actually backed by real fiat currency as that's the promise of the stablecoin.

                                  That trust can typically be bolstered by things like 3rd party audits, which is something Tether promised for many years and did not deliver.

                                  With Tether the problems are that they have avoided scrutiny and audit, made statements on their website that subsequently turned out to be false and have a somewhat murky corporate structure. None of these, should , engender trust.

                                  • noxer 207 days ago

                                    Stablecoin do not need to be backed by fiat. They can be backed by crypto as well an be stable against fiat or anything of value. This way trust can mostly be removed. No 3rd party audit needed because you can lock up crypto in a way it's public verifiable for everyone.

                                    There are some trust issues that are still problematic like for example someone needs to provide a price feed against which the value will be stabilized. Whoever is in control of that price feed could of course damage the system to the point where people loose all their money.

                                    But in the real world such a price feed could come from a DEX so its not controlled by someone but instead by what people buy and sell. In a closed system this could however cause a "runaway" of the price due to price feedback loops.

                                    Here is an interesting talk about a crypt collateralized stablecoin proposal again this does NOT yet exist!

                                    • ht85 207 days ago

                                      I have a hard time understanding how a stablecoin could be backed by crypto.

                                      Traditional currencies are mostly backed by things that are very unlikely to crash like real estate, profit share in companies and other ressources with value besides speculation.

                                      What would happen if BTC crashed to 1/10 of its price, and all other coins followed?

                                      • jki275 207 days ago

                                        You've hit upon the problem. All the stable coins, unless they're actually based on and backed by something other than other cryptocurrencies, are essentially fraudulent.

                                        • dragonwriter 207 days ago

                                          > I have a hard time understanding how a stablecoin could be backed by crypto.

                                          If you had a coin backed by a basket of other cryptocurrencies, it would likely be relatively stable in that the distinct individual volatility of each of the backing coins would be mitigated. OTOH, the overall volatility of the cryptocurrency market (which often moves rapidly and in the same direction) would not, so it wouldn't be very stable.

                                          • seibelj 207 days ago

                                            MakerDAO has overcollaterized deposits of Ethereum backing their stablecoin Dai

                                            • noxer 207 days ago

                                              You should totally watch the video above ;) In short you can earn money if you re-collateralize with crypto so if the price goes down it produces demand for that crypto to re-collateralize. Some people get liquidated of course because they are unable to throw more money in. This is the risk you take if you participate. It only makes sense to participate if you are long or if you just buy up the ones who get liquidated. For the users of the stablecoin however this is totally irrelevant they want to avoid the volatility by using stablecoins. Therefore they wont profit on price gains but also wont lose on price drops. They kinda gave away that risk/opportunity. "Gave away" as in someone else has it now. And that's why it works. Someone actually will lose if the price drops. Someone has to. Unless everyone would hold enough reserves to actually cover the drop. But people are greedy and will risk more than they can cover. To good part is that they should lose before they can harm the system. Its basically like with trading where the exchange will liquidate your position before you actually go below zero.

                                            • rtempaccount1 207 days ago

                                              In the current centralized markets, stablecoins are used as fiat on-ramps, there's no real need there for a crypto backed stablecoin for that kind of role. I'm sure you could have one, but in the case of Tether, that's not what the product is or claimed to be.

                                              • xibalba 207 days ago

                                                Tether claimed to be backed by fiat at 1:1 USD.

                                            • jcranmer 207 days ago

                                              Tether claimed to be backed 100% by USD (this claim was walked back in successive stages, but at the time of the 2017 bubble, it was still the claim). To have that, you need $100M - $1B of USD currency sitting in a bank. At that scale, any bank needs to be asking where that money came from to comply with regulations. The goal of Tether, quite literally, is to park money without having to answer those pesky questions, which means no reputable bank is going to take them as a client. Evidently, the "banks" Tether found who could work with them ended up being money launderers who were busy skimming off actual assets Tether was accumulating.

                                              More generally, cryptocurrency carries with it a whiff of KYC/AML regulatory evasion. With the purpose of stablecoins is generally stated as pretending you're trading in USD without actually doing so (and the financial regulations implied by actually doing so kicking in), it is not hard to infer that many, if not most, users are interested solely in evading this rules, which is going to cause banks' compliance officers to look at it very skeptically.

                                              • hluska 207 days ago

                                                I’m not OP and I’m sure that far more intelligent people than me will take a stab at this.

                                                As I understand it, the issue isn’t with a stablecoin. There would be nothing wrong with backing a token to a currency.

                                                Unfortunately, it looks like Tether didn’t tell the truth. They claimed that they would have one US dollar in their bank account per token in circulation. This was a lie and they release an enormous number of unbanked tokens into the market. The class action claims they created 2.8 billion USDT between 2017 and 2018. At the time, the market believed the tokens had implicit value (as one was backed by a dollar) so the theory is that this made buying crypto a more compelling investment.

                                                • macspoofing 207 days ago

                                                  >There would be nothing wrong with backing a token to a currency.

                                                  I don't know about that. Isn't the entire point of stablecoin to skirt existing regulations? Moving fiat currency isn't hard in and of itself. There is no technical challenge in Paypal sending $100,000 to my friend in Iran.

                                                  What makes it hard are the regulations combating money laundering, criminal and terrorism funding and enforcement of sanctions.

                                                  • papln 207 days ago

                                                    Paypal could void the transaction and freeze your account or your friend's account.

                                                    • fwip 207 days ago

                                                      Exactly, because PayPal has to comply with regulations.

                                                  • jki275 207 days ago

                                                    This is an accurate explanation of the issue.

                                                  • conception 207 days ago

                                                    Tether's market cap is $4,132,688,008 USD. That means that the folks running tether need to have 4B in reserves. That is... unlikely.

                                                    • papln 207 days ago

                                                      This amazes me. It's really hard to get $4B in revenue for an actual product. But they have sold 4B pretend dollars that are no better than dozens of other cryptocurrencies?

                                                      • jacobush 207 days ago

                                                        Actually worse than other cryptocurrencies. Because Tether can collapse if (when) they are found guilty. The "normal" cryptocurrencies can collapse only when the market as a whole says so.

                                                      • edmundsauto 207 days ago

                                                        According to Matt Levine, some of their reserves are literally accounts receivable from other shell companies they have started.

                                                      • lubesGordi 207 days ago

                                                        The CONCEPT of stablecoin is fraudulent/fantasy because you can't take a stablecoin and look at it and see exactly where the fiat that is backing it is. You can't prove that it's fiat backing exists in any way. The only reason it exists is because there are a ton of fanboys for anything crypto and they don't have a clue how it works. TONS of people were freaking out about tether very shortly after it became well known.

                                                        • seibelj 207 days ago

                                                          YC-funded Coinbase has monthly attestation reports for its USDC stablecoin, which is the second most popular

                                                          • lubesGordi 207 days ago

                                                            The only reason something like this can work is because of trust in the institution that provides it. That whole premise is counter to the crypto currency model.

                                                        • lawn 207 days ago

                                                          They've already admitted it's not backed 1:1, although they claimed it was always backed before. Others have linked an article with a source.

                                                          • Legogris 207 days ago

                                                            The commenter you're replying to is "all in on the concept that Tether is a fraud", not "all in on that the concept of Tether is a fraud". Ie they're talking about Tether specifically, not the concept of fiat-backed digital assets.

                                                            • DylanBohlender 207 days ago

                                                              It all boils down to fractional reserves in an illiquid market. If you're keeping the USD in a bank and issuing a coin representing it, no problems arise, because you'd effectively be acting like a bank.

                                                              In Tether/iFinex's case, you have a situation where there was a "pseudo-bank" (Tether) and a crypto exchange (iFinex) that were highly intertwined. Because Tether was more or less controlled by iFinex, which also controlled one of the largest cryptocurrency exchanges by volume, this provided a unique cover for fraud, and different profit motives than a traditional bank would have. Tether did its business by exchanging USD for Tethers. iFinex did its business by pocketing spreads and fees from crypto to crypto trades. Meaning, Tether had a bunch of USD on hand, and iFinex had a bunch of crypto (primarily Bitcoin) on hand. What likely happened in Tether's case was that iFinex instructed Tether to create unbacked Tethers out of thin air, and used these Tethers to pump up the value of iFinex's own Bitcoin holdings. For example, suppose issuing $1M of Tether and spending it on Bitcoin moved the spot price up enough to increase the value of iFinex's Bitcoin holdings by more than $1M. Isn't that basically free money? You've spent $1M and created more than $1M in paper value. All you have to do is sell those Bitcoins at the new, higher price for real USD, and you've made relatively risk-free profit.

                                                              Why the hell did this work for so long? First, the market believed Tethers were backed 1:1 with USD and treated the two as functionally equivalent. Some traders would see the Bitcoin price increase on a Tether exchange like Bitfinex, and then buy Bitcoin at nominally "cheaper" prices on non-Tether exchanges like Coinbase, so that they could transfer the coins over to Bitfinex and sell them for a tidy profit. In this way, the Tether exchanges could impact Bitcoin's price even on exchanges that didn't use Tether due to the natural incentive for arbitrage. Second, the crypto markets are quite illiquid, and because orderbooks are thin it only takes a small amount of buying or selling firepower to push prices pretty drastically. The alleged fraud is that iFinex did exactly that, and progressively pushed prices up. Third, as prices swelled, Bitcoin attracted more _real_ investors, and many such investors then spent actual USD on Bitcoin, creating a self-fulfilling prophecy that in theory would have enabled iFinex to totally get away with it - all they had to do was sell off enough Bitcoin to cover for all of those unbacked Tethers they'd issued, and they would essentially become whole.

                                                              Now, things get interesting when it comes to how iFinex ran its business. iFinex refused to implement KYC/AML checks on their exchange, because nominally they were "crypto-to-crypto" and thus considered themselves to be outside of the US financial system's jurisdiction. In practice they used an indirect relationship via one of Wells Fargo's affiliates for a long period of time until they were found out, and then the US financial system more or less put a moratorium on doing business with them. It turns out that being locked out of the US financial system is extremely damaging when your customers want to withdraw US dollars, so for a period of time, iFinex tried jumping around from bank to bank, trying to stay ahead of regulators who had effectively blacklisted them by having customers making deposits wire their money to pay off other customers looking to withdraw money, and all kinds of other shady practices. Eventually they ran out of options and started doing business with what looks to have been a money laundering shadow bank, Crypto Capital Corp, who then promptly stole a bunch of their money, which then led to the current debacle.

                                                              All told, it's one of the most interesting stories in the financial markets by a long shot. It will be fascinating to watch it continue to play out.

                                                            • zelly 206 days ago

                                                              Most people who talk about Tether agree it's a scam, yet a lot of people hold money in it. It's an interesting case of mass psychology. How long can you kick the can down the road? Nobody can say they weren't warned.

                                                              • bduerst 206 days ago

                                                                One of the things I learned in my behavioral finance class during grad school was that there are people who would invest into ponzi schemes knowing it was a scam. They are betting the returns on getting out before the scam collapses and they lose everything.

                                                            • juped 207 days ago

                                                              Gemini created an audited, 100% reserve stablecoin; no one uses it. This suggests that there is no genuine demand for stablecoins and that Tether has been entirely scam and hype driven.

                                                              Dollar amounts in a litigation complaint and headlines about "sued for $X million!" are not usually that meaningful; remember your Gell-Mann amnesia.

                                                              • lacker 207 days ago

                                                                This suggests that there is no genuine demand for stablecoins

                                                                That just suggests that "audited" and "100% reserve" are not the most important features to people using stablecoins. What is more important is having a deep market on Binance, which is where most BTC <-> stablecoin trading happens.

                                                                Despite these terrible news articles, which are indeed reporting accurately that there are terrible flaws in Tether, you can still trade Tether for $1 right now. A hundred dollars worth of Tether is still more valuable than a hundred dollar payment made via a credit card.

                                                                • JumpCrisscross 207 days ago

                                                                  > you can still trade Tether for $1 right now

                                                                  Aren't stories [1] about withdrawals being delayed or unreasonably conditioned abundant?


                                                                  • lacker 207 days ago

                                                                    That's just for interactions with the company behind Tether itself. That isn't how most people exchange their USDT. The most common way to get rid of USDT is to exchange it on Binance, where the market for Tether is very liquid, and the going rate as I write this is right around one dollar. Plenty of other exchanges besides Binance too. See:


                                                                    • JumpCrisscross 207 days ago

                                                                      > The most common way to get rid of USDT is to exchange it on Binance

                                                                      Exchange it for what?

                                                                      If you exchange it for a record entry for anything (whether dollars or Bitcoin) in a Binance (or affiliate's) account, you're exchanging one IOU for another. Given most USDT trades on Binance and its affiliated entities, this loops right back to the withdrawal problem.

                                                                      A "stable" coin that cannot be readily redeemed and is not fully reserved is a Ponzi scheme with extra steps.

                                                                      • lacker 207 days ago

                                                                        USDT is most commonly exchanged for Bitcoin. You can withdraw the Bitcoin from Binance to your own wallet, so you aren't really "exchanging one IOU for another".

                                                                        There are plenty of valid criticisms of USDT. Saying that it is hard to exchange 1 USDT for a dollar's worth of Bitcoin that you control is not one of them.

                                                                        • JumpCrisscross 207 days ago

                                                                          > You can withdraw the Bitcoin from Binance to your own wallet, so you aren't really "exchanging one IOU for another"

                                                                          Until it's in your wallet, it's an IOU. And Binance has had issues with Bitcoin withdrawals, too. (Not to mention, they seem to lose their cash and coins to hackers [1] and fraudsters once a quarter.)

                                                                          There is no independent, trusted marketplace where USDT trades in material volumes. And we now know that Tether previously lied about its dollar reserves. Continuing to trust them is delusional at best.


                                                                          • TylerE 207 days ago

                                                                            That's not what anyone says.

                                                                            The hard part is exchanging USDT (or bitcoin) for actual money since banks don't want to touch crypto with a 10-mile pole.

                                                                            • 2arrs2ells 207 days ago

                                                                              Exchanging bitcoin for actual money isn't hard if you're willing to clear KYC/AML (ex at Coinbase).

                                                                          • ChainOfFools 207 days ago

                                                                            > A "stable" coin that cannot be readily redeemed and is not fully reserved is a Ponzi scheme with extra steps.

                                                                            Extra steps, and the delay they introduce, may be all a ponzi needs to sustain itself sufficiently to permit quiet exits. That the market will eventually be consistent is, alas, not the current manipulators' problem.

                                                                            • xorcist 207 days ago

                                                                              Exchange it for Bitcoin. What else would you do with it?

                                                                              People here seem to misunderstand what USDT is used for. It's not to invest in.

                                                                              It's used to trade against BTC at exchanges which do not have access to USD markets. The gambl^Wtraders there probably couldn't care less about how collaterized it is. The threat model is and has always been that Binance or Poloniex or whatever they're called disappears with your money, tethered or otherwise.

                                                                              • flyGuyOnTheSly 207 days ago

                                                                                You can exchange USDT for USD fiat on and send those USD fiat to your real life bank account.

                                                                                • NovemberWhiskey 207 days ago

                                                                                  Not very much USDT, you can't.

                                                                                  If you had 5M USDT, how much USD do you think you'd get if you tried to liquidate that position on that exchange right now?

                                                                                  • flyGuyOnTheSly 207 days ago

                                                                                    It's not the most liquid market, but don't be fooled by thin books.

                                                                                    If you push the price down with $5M, it will jump right back up.

                                                                          • teej 207 days ago

                                                                            > What is more important is having a deep market on Binance

                                                                            It sounds like you are arguing that being popular is what matters more to being popular

                                                                            • lacker 207 days ago

                                                                              Well, yes. There are huge network effects for stablecoins.

                                                                              Let's go for a more specific example. Let's say that you hold one bitcoin on Binance, and you believe the price of bitcoin will go down today. You would like to exchange your bitcoin for dollars, and then tomorrow, exchange your dollars back into bitcoin.

                                                                              Ideally you would just use plain old US dollars. But since it's crypto, you can't. What you can have is a stablecoin.

                                                                              So which stablecoin should you use? There are two costs to using a stablecoin.

                                                                              Cost #1 is that when you exchange, you won't get the perfect rate. You'll have to pay some fee, and the precise exchange rate you get will depend on the liquidity of the market.

                                                                              Cost #2 is the chance that this stablecoin collapses in value while you're using it.

                                                                              For Tether, in my opinion cost #2 is high. All these dubious stories about the underpinning of Tether are true. That means the risk it collapses tomorrow are higher than the risks that other stablecoins collapse tomorrow.

                                                                              However, cost #1 is probably lower for Tether than it is for any other stablecoin. Because there are more traders operating in Tether, you get a better exchange rate.

                                                                              This is why Tether isn't just hype, it is providing real value to people through being the most popular stablecoin.

                                                                              Would we be better off in a world where the most popular stablecoin also had a solid financial backing? Yeah, I think so. But that isn't the same as saying that Tether has no utility today.

                                                                              • vkou 207 days ago

                                                                                Why not just use a reputable exchange, which actually lets you exchange your BTC into real dollars, as opposed to funny money dollars, like Coinbase?

                                                                                I understand why a money launderer wants to trade on an exchange which does not let them withdraw USD. But why would a normie (who, at some point, wants USD) want to do so?

                                                                                • lacker 207 days ago

                                                                                  This specific example is why you wouldn't want to exchange your BTC into real dollars. The user doesn't want to withdraw fiat dollars, they just want to exchange Bitcoins into a dollar proxy, then exchange back. Sometimes the cost of a less-liquid exchange is higher than the cost of using stablecoins instead of dollars.

                                                                                • sjy 207 days ago

                                                                                  > Ideally you would just use plain old US dollars. But since it's crypto, you can't.

                                                                                  Because unbanked cryptocurrency exchanges are essentially in the business of money laundering. A service that facilitates illegal transactions has obvious value to any libertarian or criminal, but I’m not sure that counts as “providing real value to people.”

                                                                                • hanniabu 207 days ago

                                                                                  Yes, and being where the users are being available for users to use it without performing KYC.

                                                                                • api 207 days ago

                                                                                  Maybe the most important feature is related to Tether's uses as a criminal money laundering vehicle? Maybe Tether's sketchiness is a feature, not a bug, at least to its users.

                                                                                  • jki275 207 days ago

                                                                                    Well, clearly Tether will take your $1 and issue you USDT. The problem is that for the most part, you cannot get that dollar back for it.

                                                                                    100 units of USDT is worth $100 only if you can get someone to trade it to for that. For the moment, you actually cannot -- you have to trade it through BTC or one of the other crypto coins that are actually paired with USD first.

                                                                                    • lacker 207 days ago

                                                                                      You do have to trade it on an exchange to get the value, I just mean that right now one USDT is trading for right around $1.


                                                                                      • jki275 207 days ago

                                                                                        You can't though. That's the problem. Nobody will actually exchange USDT for USD 1-1 unless something has changed very recently.

                                                                                        • jwinterm 207 days ago

                                                                                          This market has been operational for a couple years now I think:

                                                                                          That is a San Francisco based exchange with USD deposits and withdrawals. There's been a couple times where tether has been under a dollar during times of high uncertainty (and I think relatively low liquidity of this trading pair), but generally you can trade tether for USD and withdraw here.

                                                                                          • jki275 207 days ago

                                                                                            Interesting to see that it exists -- I know there was a great deal of controversy over the fact that Tether would not redeem them ever. The order book there is awfully thin for an asset worth the billions USDT is supposed to be though.

                                                                                          • lacker 207 days ago

                                                                                            If can exchange USDT for BTC at the same rate that you can exchange USD for BTC, that's good enough to make 1-1 the going rate for USDT <-> USD. Yeah, it's inconvenient to exchange USDT into dollars, but the ability to easily exchange into dollars isn't the primary utility of stablecoins.

                                                                                            • jki275 207 days ago

                                                                                              Right -- it's the ability to avoid changing to USD, while pretending that you can if you want to.

                                                                                    • eindiran 207 days ago

                                                                                      Admittedly, I believe Gemini released their stablecoin well after the end of the 2017 bull cryptocurrency market. It was much easier to get people to try your shitty new coin in 2017 than it is now, so demand for any new coin will be lower. I agree that Tether was a hype-driven scam, but I don't think the relative unpopularity of the Gemini stablecoin reveals that.

                                                                                      • BitwiseFool 207 days ago

                                                                                        This is purely anecdotal but as a Gemini user I'd use their stable coin if it was accepted on any of the other exchanges I use. I'd actually prefer to use it to buy altcoins than to use a BTC/ALT pair.

                                                                                        • companyhen 207 days ago

                                                                                          Same here. If Gemini offered DAI I'd be more likely to purchase it but GUSD only has a small amount of 3rd party services using it. The only one I can think of is BlockFi right now.

                                                                                          • juped 207 days ago

                                                                                            Likewise. But the demand side isn't us, it's exchanges.

                                                                                          • lmpostor 207 days ago

                                                                                            Isn't there 400m+ of audited USDC in circulation?

                                                                                            • TylerE 207 days ago

                                                                                              USDC: $447M market cap, $277M volume USDT: $4.1B market cap, $28.1B volume

                                                                                              • lmpostor 207 days ago

                                                                                                Since November 18, just saying that is a far cry from "no demand" as stated by the top comment.

                                                                                                • TylerE 207 days ago

                                                                                                  No, those are daily volumes. Tether out-transacts it 100:1

                                                                                                  • lmpostor 196 days ago

                                                                                                    It doesn't, exchange data is heavily manipulated in order to game certain resources like coinmarketcap, coingecko etc. I would agree tether is more but nowhere close to as described. Dividing by a factor of 10 wouldn't even be enough imo.

                                                                                            • shiado 207 days ago

                                                                                              Most cryptocurrency activity occurs outside of the USA, is it any surprise that an American created stablecoin with severe risks due to its American ties is frowned upon by those trading cryptocurrencies? Avoiding the regulatory hell of Americans who think they control the entire planet is one of the primary purposes of stablecoins.

                                                                                              • jMyles 207 days ago

                                                                                                > Gemini created an audited, 100% reserve stablecoin; no one uses it. This suggests that there is no genuine demand for stablecoins

                                                                                                How then do you explain DAI?

                                                                                                It seems to me that people don't want an "audited, 100% reserve stablecoin", they want an algorithmic, decentralized stablecoin that can't be screwed up because somebody seized the "100% reserve."

                                                                                              • sp332 207 days ago

                                                                                                I think this is a much clearer explanation of the fraud involved in Tether's valuation. Lots of discussion

                                                                                                • naringas 207 days ago

                                                                                                  that explanation is linked from this article.

                                                                                                  • jiofih 207 days ago

                                                                                                    The article actually links to it midway. How would you know, if you clearly haven’t read it...

                                                                                                    • Terr_ 207 days ago

                                                                                                      Come now, surely there's a difference between the due-diligence of "reading the article" versus going beyond that with "checking the identity of every link it contains."

                                                                                                  • bhouston 207 days ago

                                                                                                    Question: Who was the dumper in this pump-and-dump game? Tether was clearly the pumper.

                                                                                                    Second: The claim that the they are liable for the damages of the loss from the peak is a bit weird. IF it was a pump and dump scheme, and I at least agree with the pump side of things, then the values were all inflated falsely anyhow. There should be punishment, but basing it on the losses from peak is very strange and not realistic.

                                                                                                    • nostrademons 207 days ago

                                                                                                      Largely long-time Bitcoin holders and smart ICOs. Anyone who's a real (not paper) Bitcoin millionaire probably got that way by selling near the peak. Ditto anyone whose salary has been paid by a crypto firm that collected millions in an ICO. Most of the engineers working for companies like Consensys, Brave, Filecoin/IPFS, etc. are indirect beneficiaries of the 2017 Bitcoin bubble.

                                                                                                      The ICO boom had an interesting triple-pyramid-scheme structure that accelerated both the rise and the fall. If you bought into Ethereum in the early days, you probably paid with Bitcoin; it wasn't possible to buy ETH direct until ~2017. And similarly, if you bought into ICOs in 2017, you bought with ETH. That meant that the folks investing their money in ICOs weren't actually putting $200M into Filecoin; they were putting ETH that they had spent maybe $20M (in aggregate) in, which was likely purchased from someone who had bought it with $2M in Bitcoin. The eye-popping ICO valuations attracted more people into the market, which allowed smart ICOs to unload their ETH immediately at inflated prices and convert it into a big corporate war chest. Once the bubble popped, this mechanism worked in reverse (a bunch of dumb ICOs that had held onto their ETH all try to sell to capture the tiny pool of inflowing capital, which does nothing except force down the price of ETH), leaving folks who bought at the top of the bubble and ICOs that forgot to sell holding the bag.

                                                                                                      Ironically, this mechanism holds the basics of a functioning financial system: money was transferred from people who weren't doing anything with it to pay salaries of people doing productive but speculative work. It was transferred pretty clumsily, with a lot of people losing their shirt and a fair bit of waste and scams in the receiving projects, but if any of the receiving projects deliver, it succeeded.

                                                                                                      • scg 207 days ago

                                                                                                        > it wasn't possible to buy ETH direct until ~2017

                                                                                                        Coinbase added ETH support in 2016:

                                                                                                      • SI_Rob 207 days ago

                                                                                                        > it wasn't possible to buy ETH direct until ~2017

                                                                                                        not even with paper wallets? I realize this would be uncommon given the late start of, ahem, intheoreum, but this should have still been common at meetups and such. Also, mining is essentially paying for ETH with only one layer of indirection, but without passing through Bitcoin.

                                                                                                        • nostrademons 207 days ago

                                                                                                          If you're doing a localbitcoins-style swap, sure. Nothing stops you from finding someone you want to trade with, sending crypto to their wallet address, and receiving cash in hand. Well, other than finding a counterparty to make the transaction.

                                                                                                          ETH didn't really get listed on exchanges that also handled fiat currency until around 2016, though.

                                                                                                      • ceejayoz 207 days ago

                                                                                                        Tether can be both pumper and dumper.

                                                                                                        Pump up BTC price with Tether. Use Tether to buy BTC. Sell BTC for USD (or hold onto it - it's free!). Doesn't matter that the Tether either never actually existed or were seized by governments.

                                                                                                        • semiotagonal 207 days ago

                                                                                                          The pumper and the dumper are generally the same entity in any pump and dump. Which mode that entity is in is a matter of timing.

                                                                                                        • SI_Rob 207 days ago

                                                                                                          > There should be punishment, but basing it on the losses from peak is very strange and not realistic.

                                                                                                          Isn't this the usual protocol for damage suits in general?

                                                                                                          As I understand it, plaintiffs should plan for a 10x or even 100x reduction in damages awarded even under ideal suit outcomes, so you put as big a number on the table as possible (as big as can plausibly be derived from discovered metrics), as it is likely to be decimated anyway.

                                                                                                          • philipov 207 days ago

                                                                                                            Basing it on the peak means they get punished in proportion to how much they pumped it, which makes sense to me. The drawdown/damage they caused includes both the dump and the pump.

                                                                                                            • saalweachter 207 days ago

                                                                                                              I think where it loses me is that they are basing it on the nominal "market capitalization" of cryptocurrencies, which as is usually brought up on HN, are sketchy as hell.

                                                                                                              I'm not sure what a better way to compute the "volume" of the manipulation would be, however.

                                                                                                            • lightedman 207 days ago

                                                                                                              "Question: Who was the dumper in this pump-and-dump game? Tether was clearly the pumper."

                                                                                                              Look at who holds the most crypto holdings AND has the ability to manipulate the market due to sheer size of operations. China. This isn't really a big secret, either. Anyone that can read/write/speak Mandarin knows about this. Just watch their crypto boards and you'll find the manipulation very, VERY easily.

                                                                                                              Answer solved.

                                                                                                              • bhouston 207 days ago

                                                                                                                Seriously? Is there any accessible write ups on this with proof?

                                                                                                                I think all internet-based stock boards contain scams and minor pump and dumps. I am sort of doubtful that any large scale pump and dumb would be coordinated out in the open, even if it was in Mandarin.

                                                                                                            • brenden2 207 days ago

                                                                                                              It seems extremely unlikely they will be able to prove much of anything. The Bitcoin markets in particular are extremely complex: lots of disparate exchanges, actors, and entities all vying for a piece of the pie and some of them are not necessarily acting in line with regulations or norms. How can you possibly prove that one entity is responsible for a global phenomenon that happened over a period of several months? How do you even establish evidence that what happened on one exchange affected another?

                                                                                                              • cortesoft 207 days ago

                                                                                                                Same way you find evidence for other crimes... emails, texts, messages, witness testimony, etc describing their plan.

                                                                                                                • qtplatypus 206 days ago

                                                                                                                  That is what Forensic economics is all about.

                                                                                                                  • lightedman 207 days ago

                                                                                                                    "It seems extremely unlikely they will be able to prove much of anything"

                                                                                                                    Proof isn't exactly a requirement in a civil lawsuit as this is demonstrated to be, given the lawsuit title and the demand for a jury trial. In this case, more of a preponderance of the evidence, circumstantial or not, oddball or not, is what is weighed instead of factual elements of any crime (although those are also considered.)

                                                                                                                    It is up purely to the jury to decide unless they asked for Bench Trial. Proving anything in this case is moot, it depends upon the jury and their thoughts, not what they interpret as law by required element-based prosecution.

                                                                                                                  • hectorr1 207 days ago

                                                                                                                    Tether is the FUD that never stops giving, anyone remember Bitfinexed from 2017?

                                                                                                                    Do people try to manipulate price? Of course they do. Sometimes it works, retail investors get excited and pile in. Sometimes it doesn't, and whales get rekt. Markets are messy.

                                                                                                                    How do we fix this? Stop barring Bitcoin companies from working with mainstream banks, and USDT volume will dry up.

                                                                                                                    • semiotagonal 207 days ago

                                                                                                                      If Bitcoin companies maintained an adequate level of know-your-customer/anti-money-laundering compliance, maybe the mainstream banks would work with them. But as it stands, the banks have no reason to take any risks in dealing with them. If people resort to Tether and get burned, it's not the banks' problem.

                                                                                                                      • yashap 207 days ago

                                                                                                                        Indeed. The crypto dream often involves being able to move huge sums of money around the world, with no ability to trace it to real people. This is the opposite of what established financial systems want. Of course they don’t want to legitamize crypto currencies, they’d be introducing a massive vector for crime and tax evasion.

                                                                                                                    • biggestdecision 207 days ago

                                                                                                                      Bitfinexed is looking a lot more legitimate since US regulators have started investigating Tether over the same accusations that Bitfinexed levelled against them.

                                                                                                                    • flyGuyOnTheSly 207 days ago

                                                                                                                      It's frustrating to read these allegations as somebody who has spent the better part of the past year studying various exchange trade execution data feeds, and writing an algorithmic trading bot.

                                                                                                                      Yes, Bitfinex lead the market a lot of the time in the 2017 Bitcoin bull run.

                                                                                                                      Yes, Bitfinex "printed" hundreds of millions of dollars worth of tether, which was initially distributed to large players on Bitfinex and Bittrex exchanges, also poloniex I believe was in on the issuance contracts.

                                                                                                                      But that doesn't mean that Bitfinex fraudulently pumped up the price of Bitcoin.

                                                                                                                      In fact, that would be impossible, even if they tried to fake the price higher... as they would lose tons of real money to arbitrageurs in the process...

                                                                                                                      The (nano)second that any one single exchange gets out of line in terms of price, there are trading bots out there that notice that, immediately buy up as much BTC as they can on every other exchange that is below that price, and then immediately dump 100% of what they just bought on the exchange that is out of whack (Bitfinex).

                                                                                                                      And if they weren't losing real money to the arbitrageurs, (presumably because they restricted USDT withdrawals which has never happened for more than a few days straight at most), then the arbitrageurs wouldn't be buying up Bitcoin on every other exchange that is not Bitfinex and selling it for USDT or USD fiat... they would simply ignore bitfinex as a fake volume exchange.. like 50% of the exchanges listed on coinmarketcap currently are.

                                                                                                                      There is a reason that Bitfinex was leading the price pumps... they were the main gateway to millionaires the world over buying into the crypto ecosystem.

                                                                                                                      You had to give iFinex at least $100,000 cash wire in exchange for USDT to get into the game, and there was a waiting list for that "privilege".

                                                                                                                      Some exchanges shut down their registration page for months because the KYC processing backup was so severe.

                                                                                                                      There was real demand for Bitcoin back in 2017.

                                                                                                                      Finance is difficult for most people to understand.

                                                                                                                      High frequecy traded crypto finance ecosystem with synthetic-USD, USDT, USD, TUSD, USDC, etc. is especially so.

                                                                                                                      • aidanlister 207 days ago

                                                                                                                        I'm not sure what you're understanding what the article claims - Bitfinex wasn't just increasing the price on their exchange by showing a fake price.

                                                                                                                        They created money out of thin air and handed this out to players to buy BTC with. Those players then bought BTC in quantities that drove the price up. They created price-inelastic demand out of nothing (you don't care about the price as much if you're buying them for free).

                                                                                                                        • qtplatypus 206 days ago

                                                                                                                          I am reminded of the South Seas Traiding Company.

                                                                                                                        • xibalba 207 days ago

                                                                                                                          As I read the article, the claim is not that the alleged fraud occurred exclusively through the Bitfinex exchange.

                                                                                                                          Rather, as is stated fairly early on:

                                                                                                                          > Working with partners, flood those Tethers onto crypto exchanges all around the world

                                                                                                                          • flyGuyOnTheSly 207 days ago

                                                                                                                            Yes, that's exactly what happened, but there was a massive lineup and waiting list for a lot of rich people to buy tether in late 2017.

                                                                                                                            I spoke with the exchanges personally, and the delays in being able to register to the exchanges and purchase massive amounts of tether were indeed real.

                                                                                                                          • bitfinexthrow 207 days ago

                                                                                                                            Thanks for sharing your thoughts!

                                                                                                                            I don't know much about finance but isn't the argument that "USDT isn't really backed by 1usd = 1usdt" therefore whenever you are using USDT is like buying bitcoin with nothing (or close to it)? That seems a pretty straightforward way to prop up the price if there are not enough checks in place to make sure that every order has a balance to back it up and every balance has whatever asset deposited somewhere to back it up.

                                                                                                                            Bitfinex would be losing relative to other exchanges but would make a killing anyways.

                                                                                                                            I'd like to believe they are regulated somehow so that they couldn't get away with something like this. Is there any info available regarding this?

                                                                                                                          • travisoneill1 207 days ago

                                                                                                                            How could there possibly be $1.4t in damages when the market cap of BTC maxed out at around $400b? Also, while I don't deny that there was probably fraud here, just because a security is lightly traded and illiquid that doesn't make its price "fake".

                                                                                                                            • thedudeabides5 207 days ago

                                                                                                                              Author specifically says the damages would be treble the underlying loss, as per RICO and antitrust law.

                                                                                                                              I've no idea if this is true. But interesting nonetheless.

                                                                                                                              Hard time seeing a court awarding the loss to the entire peak to trough market to market, especially if the fraud was part of the money that inflated the bubble, but who knows.

                                                                                                                            • JackFr 207 days ago

                                                                                                                              > This is not just “we are upset that we lost our crypto money and we’d like to sue someone”

                                                                                                                    , that's exactly what this is.

                                                                                                                              • granaldo 207 days ago

                                                                                                                                The overcollaterized approach is by makerdao is surely interesting in comparison to tether

                                                                                                                                And in spite, it is not widely accepted in most major exchanges

                                                                                                                                But tether strength sound to be due to recognition and deep order which is what makes a currency getting value from "nothing"

                                                                                                                                • csomar 207 days ago

                                                                                                                                  > If anybody asks questions (“Where did all those Tethers come from? Prove to me they’re collateralized”), sell some of your inflated Bitcoins for real US Dollars at a profit, stick those dollars in your bank account, and then say "Look! Here they are! Just like we promised."

                                                                                                                                  This makes no sense. The money has to come from somewhere. Sure it can be fake money in Tether $$ but once you cashed out somewhere (in cash or your bank account) then the money should be real.

                                                                                                                                  Tether market cap right now is $4bn. The proclaimed value created/destroyed is $450bn. The market cap of all crypto at the beginning of 2017 is $18.3bn and the market cap right now is $246bn. The difference is massive (around $220bn).

                                                                                                                                  Now let's look at the market depth, because this is something everyone likes to claim: The order books are thin. This is far from being true. Looking at Gdax, the market bids to a 10% discount is around $12m. From my experience, trading crypto markets, it'll take around three times that much dollars to take the price to these levels. Many things kick off: 1. Hidden buy orders and 2. Bots arbing with other exchanges and 3. Fast bid makers who use neither visible or hidden bids.

                                                                                                                                  That's around $35m that you can dump on a single exchange for a 10% discount. That doesn't take into account: 1. You can use multiple exchanges 2. You can use private sales or OTC and 3. If you are selling $100m of crypto (or even stocks), you'll probably do it over the course of a few days unless you think the instant discount is less than the stretched one.

                                                                                                                                  If Tether created a $300bn market from a $4bn of cash, then that's genius, no? But wait, that's not what the author saying. The OP is saying that these $4bn don't even exist. Then Bitfinex/Tether created a $300bn market out of nothing. Uhh, no. I'm having a hard time believing that.

                                                                                                                                  tl;dr: Dude goes on a lengthy non-sense rant and has no real proof backing his facts.

                                                                                                                                  • semiotagonal 207 days ago

                                                                                                                                    It makes sense if Tether buys BTC with USDT that it just created out of nothing, then sells those BTC later for real dollars. Those real dollars can be used to collateralize the USDT "after the fact", and if the price went up between the two transactions, Tether keeps the difference.

                                                                                                                                    It's sort of like an uncovered short of USDT - they take a negative position, buy BTC, sell BTC, then cover the negative position. (Except "cover" in this case really means "collateralize the USDT that someone else is holding".)

                                                                                                                                    EDIT: I have no idea if that's what they were actually doing, but that's my interpretation of the author's interpretation of the lawsuit.

                                                                                                                                    • empath75 207 days ago

                                                                                                                                      it works as long as the price is going up but once it goes down, it enters an inescapable downward spiral.

                                                                                                                                • xxpor 207 days ago

                                                                                                                                  Civil RICO is almost always a joke.


                                                                                                                                  "Dupes play along by describing RICO claims as "charges," and generally by acting like a RICO claim suggests that there's already been a finding that someone did something wrong."

                                                                                                                                  • glofish 207 days ago

                                                                                                                                    These guys are geniuses.

                                                                                                                                    Just like that - leveraging their platform and influence they have minted 4 billion USD worth of new kind of money. Out of thin air.

                                                                                                                                    What will be the ultimate kicker if it ends up working - in the sense that there is a need for a stable coin, and it fills that need.

                                                                                                                                    • paulpauper 207 days ago

                                                                                                                                      this author's argument falls apart upon even slight scrutiny. If tether caused bitcoin's huge 2017 rally, what about 2013 when bitcoin went from $100 to $1000 in the end of the year? Or 2016 when it went from $200 to $600? maybe it was just people buying. Coins that had nothing to do with tether, such as eth and ripple, on other exchanges besides bitfinex, also went up huge. I think tether's contribution to the 2017 bull market was negligible.

                                                                                                                                      • mumblemumble 207 days ago

                                                                                                                                        Your unstated major premise here seems to be that every jump in BTC's price must have the same cause.

                                                                                                                                        • catalogia 207 days ago

                                                                                                                                          > " what about 2013 when bitcoin went from $100 to $1000 in the end of the year? Or 2016 when it went from $200 to $600?"

                                                                                                                                          Are we obliged to believe that each of these independent events must have had an identical trigger?

                                                                                                                                          • wmf 207 days ago

                                                                                                                                            what about 2013 when bitcoin went from $100 to $1000 in the end of the year?

                                                                                                                                            That was caused by very similar scamming by different people at MtGox.

                                                                                                                                          • neiman 207 days ago

                                                                                                                                            From the post:

                                                                                                                                            "Allegation #1: The 2017 Bitcoin Bubble was market manipulation, and Tether was how they did it

                                                                                                                                            Allegation #3: They might’ve gotten away with it, too, if they hadn’t gotten robbed while busy scamming"

                                                                                                                                            But the big Bitfinex hack was in 2016, while the bubble in 2017. What do I miss here?

                                                                                                                                            • vkou 207 days ago

                                                                                                                                              Between 2017 and 2019, they sent hundreds of millions of dollars to a money launderer (Crypto Capital), who outright stole 10% of them, and had much of the rest frozen by the SEC.

                                                                                                                                              Bitfinex currently claims that the IOUs they have from Crypto Capital are worth the paper they are printed on. I have strong doubts about the accuracy of this claim.

                                                                                                                                            • wmf 207 days ago

                                                                                                                                              Crypto Capital Corp stole/lost $850M from Tether/Bitfinex in 2018.

                                                                                                                                            • biolurker1 206 days ago

                                                                                                                                              that's one of the most resilient conspiracy theories lasting for years. The drama attracts all kind of Bitcoin haters although factually there is not much to it.

                                                                                                                                              • EGreg 207 days ago

                                                                                                                                                What about DAI?

                                                                                                                                                Will SEC have a good case that it is a security, if it’s proven to be a stablecoin? No expectation of profit.

                                                                                                                                                • osiaq 207 days ago

                                                                                                                                                  Why not 3 or 5? Or, dunno, 20?

                                                                                                                                                  • atemerev 207 days ago

                                                                                                                                                    USD is printed in necessary quantities to satisfy market demands, and is used by its issuers to buy some privately issued assets on the market, injecting liquidity into the stagnating ecosystem. This is called “quantitative easing”.

                                                                                                                                                    If USD works this way, why shouldn’t USDT?

                                                                                                                                                    • wpietri 207 days ago

                                                                                                                                                      Two main reasons.

                                                                                                                                                      Holding a US dollar is a bet on the US economy, the US government, and the US banking system. Those have their flaws, but there's a lot of built-in checks and balances that keep them reasonably accountable.

                                                                                                                                                      The other is that the Fed does all of its currency management very much in the public view. Whereas the USDT management has been somewhere between needlessly opaque and flat-out fraudulent.

                                                                                                                                                      • atemerev 207 days ago

                                                                                                                                                        The second one is important, thanks. I don't think that government money have any more sanctity than any other, but yes, transparency and well-defined RoE and accountability are important.

                                                                                                                                                      • briatx 207 days ago

                                                                                                                                                        1) Tether is not the Fed.

                                                                                                                                                        2) Tether claimed in the beginning that they had $1 USD in the bank for every 1 Tether issued.

                                                                                                                                                        3) Given (2), printing Tether out of thin air that isn't backed by USD deposits is fraud.

                                                                                                                                                        • qtplatypus 206 days ago

                                                                                                                                                          Because Tether said that it wasn’t doing that.