|The dismal science|
|The Worldly Philosophers|
“”That's as good as money, sir. Those are Tethers.
Tether is a Hong Kong-based company known for issuing, among others, USDT, a
decentralized cryptocurrency whose value is supposed to be backed by US dollars. USDT is part of a family of cryptocurrencies called stablecoins.
Run by executives who avoid making public appearances and just somewhere between 11 to 50 employees supposedly managing more than 60 billion USD, they are perhaps the most important company in the cryptocurrency space.
Tether's C-suite, excluding the CTO, is notorious for being secretive and not appearing in the media, which is strange for a company managing such a large amount of money as they say they manage.
“”I have been open about the attempts from some hedge funds that were trying to cause further panic on the market after TERRA/LUNA collapse. It really seemed from the beginning a coordinated attack, with a new wave of FUD, troll armies, clowns etc.
|—Paolo on a Twitter thread (Nitter), destroying FUD about Tether.|
The company's CTO is Paolo Ardoino (Twitter, Nitter), who is also the CTO for the cryptocurrency exchange Bitfinex. He's the public face of Tether and the one who shows up in Tether's media appearances.
In July 2021, he appeared in a interview in CNBC. He dodged every important question, such as what companies make up their commercial paper holdings, who their intermediares are and inquiries about the NYAG statement that "Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie".
Like any proper cryptocurrency user, he's a fan of El Salvador accepting Bitcoin as legal tender, having much of the same views you would come to expect, despite the fact that Bitcoin has none of the properties that would allow itself to be suitable for currency use in El Salvador, like a stable price with stable inflation over time and being actually usable in a country where Internet penetration and amount of people actually able to use Bitcoin securely[note 1] is low.
Devasini (1964–) is the company's CFO, as well as Bitfinex's CFO. Not much is known about him, and what little is out there seems unreliable.[note 2] He previously had careers as a plastic surgeon, computer hardware trader and owner of a food delivery service. Regarding his career as a surgeon he said, "All my work seemed like a scam, the exploitation of a whim." His computer hardware trading involved several instances of shady practices.
Jean-Louis Van Der Velde
He's the company's CEO as well as Bitfinex's CEO. Like the CFO, he's surrounded in mystery. He has a Bitfinex blog post about him making some vague claims, however. His puff-piece biography lists him as a "technologist and serial entrepreneur". He attended National Taiwan Normal University, but presumably did not obtain a degree.
In order for USDT's value to remain at 1 USD people need to know that (1) there's indeed 1 US dollar somewhere for every USDT issued and (2) they can cash out whenever they want. A way for people to be assured that this is indeed the case is to have Tether's reserves be audited by a trusted, independent third party, something they are not good at.
Tether's former auditor from May 2017 to January 2018, Friedman LLP, settled charges with the U.S. Securities and Exchange Commission that it had engaged in "serial violations of the federal securities laws" and numerous instances of "improper professional conduct".
In 2021, they appear not to have had a functional auditor, but they do publish attestations, in which a third party, Moore Cayman, based in the Cayman Islands (!), says they indeed have X when they did the attestation and doesn't go any further than that. To get an idea of how worthless these are there's no better way than reading one of them. If you can't stand the legalese, David Gerard has a blog post about one published in 28 February 2021, explaining why these attestations are not a substitute for a proper audit.
By 2022, Tether obtained the auditing services of a reputable accounting company, BDO Global, which did at least certify Tether's assets for a single day (30 June 2022):
Our opinion is limited solely to the CRR [Consolidated Reserves Report] and the corresponding consolidated total assets and consolidated total liabilities as of 30 June 2022. Activity prior to and after this time and date was not considered when testing the balances and information described above. In addition, we have not performed any procedures or provided any level of assurance on the financial or non-financial activity on dates or times other than that noted within this report.
But Tether's auditing problems appear to be ongoing, and more likely a feature than a bug.
Cashing out or redeeming USDT is a whole different story entirely. Theoretically, Tether themselves will allow you to redeem their stablecoins with them directly.Do You Believe That? In order to do that, you will need an account with them. However, in order for your account to be able to redeem cryptocurrencies, you will need to verify (also known as completing a KYC process) your account, which includes having to pay for this process to be completed.
Of course, in reality, redeeming Tether's cryptocurrency with Tether isn't that easy. In the "Redeem TETHER tokens to fiat currency" page, there's this:
5. Finally, you will now receive an email confirming receipt of your redemption request.
Note the use of the word request. In Tether's legal page, the following clause can be seen:
The right to have Tether Tokens redeemed or issued is a contractual right personal to you. Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.
Indeed, there are many stories about not being able to redeem USDT in Tether's official website. For most people, the way to get back fiat from USDT is finding a buyer willing to exchange real money for USDT in the ever-so-trustworthy cryptocurrency exchanges.
Unbacked USDT speculation
Because of Tether's failure to produce a credible audit, there's a fair amount of speculation that USDT may not be backed after all, and that they are lying through their teeth.[note 3][note 4] 
Most speculation centers around the fact that commercial paper from companies whose identities are not disclosed is part of Tether's reserves.
In 2019, Bitfinex was accused by the New York State Attorney General of covering up a $1 billion loss of Tether's fiat assets to a shady Panamanian company with whom no contract had been signed. In 2021, Bitfinex agreed to pay a $18.5 million penalty without admitting guilt, and Bitfinex and Tether have been barred from operating in New York.
In October 2021, Tether agreed to pay a $41 million penalty for making false statements about its financial holdings (violating the Commodity Exchange Act). The Commodity Futures Trading Commission investigation began in 2017, and as the investigation proceeded, so did Tether's statements about financial backing:
- Before February 25, 2019: Tetehr tokens are "100% Backed: Every tether [token] is always backed 1-to-1 by traditional currency held in our reserves. So 1 USDT is always equivalent to 1 USD.":4
- February 25, 2019: "Tether Tokens are 100% backed by Tether’s Reserves,” defined as “traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.:7
- After the October 2021: "All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s reserves. The value of our reserves is published daily and updated at least once per day."
Considering the ideology of a sizeable portion of
butters cryptocurrency users, the irony that coins backed by statist USD are so widely used seems to be completely lost on them. Part of the idea of cryptocurrencies was to establish a decentralized economy out of reach from governments, yet, Tether has become a vital part of the cryptocurrency economy.[citation NOT needed]
Nothing about Tether indicates they are fans of decentralization, a concept that cryptocurrency users like to pretend they care about.
- Their website is hosted by Cloudflare, which is very much not decentralized by any stretch of the word and hated by those that care about decentralization and privacy.[note 5]
- They can freeze wallets and reverse transactions. Satoshi wept, so much for censorship-resistance.
- Bitcoin, or any cryptocurrency for that matter, is not easy to use by any means, your average person that only knows how to use phones for calls, social media and reading emails stands no chance. No refunds!
- Buttcoin thread about him
33.35% of the 84.25% of "Cash Equivalents" is Treasury Bills.
That's close to 22 Billion USD in T-bills. Even at 1% yield (which isn't an impossible return, US T-bill yields are slightly under that for 52 week coupons at 0.75% while other countries such as Canada are slightly above that) they'd be earning close to 220 million USD a year on those.
Note how they don't say which countries T-bills they're holding and what the maturity is for them because if we look too hard at them they might just disappear into thin air.
Hold up, so that's saying 84% cash equivalents, of which 52% is held in commercial paper.
Tether market cap is currently around $78 billion USD. That means they're holding roughly $35 billion in commercial paper.
Let's use the 90-Day AA Financial Commercial Paper Interest Rate benchmark as a proxy for the return they could potentially be making. Which as the start of Feb is 0.29%. In reality, they could potentially be investing further out the yield curve at longer maturities, or in lower quality, higher yielding non-financial paper. But let's be conservative...
If that's the case, their commercial paper portfolio is currently yielding $100m USD a year. This is insane. That's also ignoring the returns they're making on their bond fund, T-bills and "secured loan" investments. Or the capital gains on their crypto holdings. This is absolutely insane.
It's a bank treasurer's dream come true, to take non-interest bearing deposits and invest it out the yield curve. It's actually incredible what they've done. But it's more incredible that people are willing to hand over their USD to these guys who have no regulatory oversight, and seemingly no key management personnel with experience running a bank treasury or a liquidity book. Wild West type shit really.
- In order for Cloudflare to provide the services they provide they not only act as a reverse proxy, but are also a TLS termination proxy. They can read everything just as if you were connecting to an unencrypted site.
- Tether: Fiat currencies on the Bitcoin blockchain (c. 2022)
- CNBC TechCheck with Tether's CTO and general counsel 21 Jul, 2021, CNBC (published at YouTube)
- Attorney General James Ends Virtual Currency Trading Platform Bitfinex’s Illegal Activities in New York 23 Feb, 2021, unknown author, New York State Office of the Attorney General
- El Salvador #bitcoin law 1st anniversary 🇸🇻 (Nitter) 7 September, 2022, Paolo Ardoino (published on Twitter)
- Tether: the former plastic surgeon behind the crypto reserve currency by Kadhim Shubber & Siddharth Venkataramakrishnan (Jul 14, 2021) Financial Times.
- Bitfinex Leadership – Jean-Louis van der Velde, Chief Executive Officer (12 March 2018) Bitfinex.
- J. L. van der Velde Linkedin.
- Tether's Former Auditor Fined $1M by SEC for Sloppy Accounting by Cheyenne Ligon (Sep 26, 2022) CoinDesk.
- Tether General Counsel Tells CNBC Audit Is 'Months' Away by Frances Yue (Jul 21, 2021 at 10:34 a.m. PDT; Updated Sep 14, 2021 at 6:29 a.m. PDT) CoinDesk.
- Transparency Tether
- Tether produces a new attestation — it says nothing useful 20 March 2021, David Gerard
- Tether Holdings Limited (10 August 2022) BDO.
- Tether Audit, Promised for 5 Years, Still Months Away, CTO Says (August 28, 2022) PYMNTS.
- Knowledge Base | Redeem TETHER tokens to fiat currency Tether's knowledge base
- Knowledge Base | Verify an account on Tether Tether's knowledge base
- Redeem TETHER tokens to fiat currency Tether.
- Legal Tether
- Time for bitcoinmarket's quarterly "Has anyone ever _actually_ redeemed tethers"-thread (spoiler: No) 17 Oct, 2018, u/temporarymctempton, Reddit
- Tether - New Reserves Breakdown 07 February 2022, u/2Panik, Reddit
- Tether’s Reserves Fully Backed; Tether Continues to Lead the Industry with Transparency 05 December 2021, u/Visible-Coach, Reddit
- Tether and Bitfinex agree to pay $18.5m penalty after New York probe: State’s attorney-general accused groups of covering up ‘massive’ financial losses by Adam Samson (February 23, 2021) Financial Times.
- Order instituting proceedings pursuant to section 6(c) and (d) of the commodity exchange act, making findings, and imposing remedial sanctions against Tether Holdings Limited, et al, Docket CFTC No.22-04 (October 15, 2021) Commodity Futures Trading Commission.
- Transparency Tether (archived from January 23, 2022).
- Stablecoin issuer Tether freezes three addresses holding $160 million of assets upon law enforcement request Jan 13, 2022, Frances Yue, MarketWatch