Bitcoin Forum

Elon Musk and his negativity about bitcoin’s non-eco-friendly mining process gained plenty of media coverage this week. But something else happened a few days ago that certainly affected the whole market.

The stablecoin Tether published a report that shows their entire reserves breakdown until 31 March 2021.

This is how it looks:

https://talkimg.com/images/2023/11/12/z2LnZ.jpeg

We know that Tether has claimed that all of their USDT tokens are backed by actual cash deposits. Throughout the years, they have changed this claim to say different things, though. Looking at the pie charts they made public, we can see that their whole reserves aren’t backed up by cash and cash equivalents.

“Cash & Cash Equivalents & Other Short-Term Deposits & Commercial Paper” take up 75.85% of their reserves. But how much of that is actually backed up by cash? According to the chart, only 3.87%.

The biggest reserves of over 65% are commercial papers. This category should represent some type of securities. According to the source, a similar type of commercial papers was part of the problem that led to the bankruptcy of Lehmann Brothers, which signalled the beginning of the financial crisis of 2008.

Wall Street investor Caitlin Long, who has defended Tether many times in the past, was critical of Tether’s choice of assets to keep as reserves. If Tether wanted to keep the risk for users as low as possible, she believes that government bonds would have been a much better choice. The commercial papers introduce a credit risk that could result in USDT no longer being pegged to the USD. Instead, Tether went for “commercial papers” to profit on the interest rates. According to the same source, a 1% interest would net the company a profit of $582 million annually.

If that is true, Tether makes money with the funds users invest when they buy USDT but leaves all the risks on the users by keeping inadequate reserves.


What is your opinion on this?
Is Tether cancer we have to get rid of for bitcoin and the crypto market to have a prosperous future?
How big of an impact do you think this Tether disclosure had on the recent downtrend of bitcoin and the whole market?


Source: https://bitcoinblog.de/2021/05/17/nicht-so-prickelnd-aber-auch-nicht-so-katastrophal-tether-veroffentlicht-zusammensetzung-seiner-reserven/

Manipulators try to re-cook old things, of course, with some new spices for different times. Very generally

• The market can not rise if it does not have big falls previously.
• News are used adaptively with market trends.

With the bloodbath, the market has re-cooked news

• Energy
• Cryptocurrency ban in China
• Illegal use of Bitcoin for criminal activities
• Tether

The market will march onwards with a more prosperous price for Bitcoin, not instantly, of course it takes time.

Am afraid this is obviously true of Tether as I've seen similar thread from a cropped tweet on this revelation and it's really bad of Tether. I I can't say they played much of a role in this bear market observed lately but then, its so unfortunate to to bank our hopes on claims such as this. Tether is a coin where we run to bank our coins worth in times like this and it was or is really helping and for as many as those who uses there service's, I think they would continue to act ignorant of this claim as further reaction could result in the bankruptcy of Tether and the breakdown of the system. In my opinion, we could manage them for the while though, the risk it poses is the more high now than ever before.

The news that only about 70% of what they released is really backed up with fiat is old news, this was discussed back in 2017, and then something like that was confirmed in 2019 Tether Says Its USDT Stablecoin May Not Be Backed By Fiat Alone (https://www.coindesk.com/tether-says-its-usdt-stablecoin-may-not-be-backed-by-fiat-alone). The whole thing has been very clear about this for years, but has it influenced people to stop using this stable coin? Well, of course not, because all that matters to them is that they can make fast and cheap transactions, everything else is less important. So I think this news has almost no impact on what happened yesterday.

In the long run, I think that USDT is certainly a risk, as most stablecoins are actually in the gray zone, which allows their owners to print the quantities they need at some point - of course without covering with anything. Bitcoin is based on POW (Proof of work), and stablecoins on POFP (Proof of false promises) - and that's a huge difference.

This is extremely disturbing. Cash makes up less than 4% of their reserves, at a time when the stock markets are deemed to be inflated. Apart from the 65% plus exposure to equities, there is another 24% plus exposure to fiduciary deposits. Now the term "fiduciary deposit" covers a wide range. Basically it is a deposit made on your behalf, by one financial institution on another. Now Tether hasn't given any details of the institutions involved here and therefore we can't calculate the absolute risk involved in this step.

In short, USDT reserves can't be trusted and I would advice the stablecoin users to shift to more reliable coins such as USDC.

I would not advise anyone to use something that is completely centralized to the extent that it can be frozen at any time, even if it is in a non-custodial wallet. I don't want to repeat myself, but the idea of stablecoin is based on someone's promise that something is as he says - and what kind of cryptocurrency is that, what are the mechanisms for protecting its users?

For all those who are wondering how safe their funds are when they transfer them to stablecoins, I suggest you read this thread - posted by @mk4.

PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets (https://bitcointalk.org/index.php?topic=5204055.0)

Ofc Tether is making money out of their reserves, as they are paid interest over their (or our) money.

There is nothing wrong with that... They are probably receiving much more than 1% per year, and that is good for us. The more money Tether makes, easier it will be for them to pay for their debts when needed.

I believe the problem lies with the idea that holding USDT is an investment. I see a lot of people, specially in my country, buying USDT and holding it as an investment. This is not a good idea, because you are basically lending money with 0 interest rates. There is also a risk that Tether (or circle or paxos in case of USDC and BUSD) do not pay back their loans.

As you mentioned  there is an inherent risk within commercial papers, and there are also other risks involved.

When we are deep in a bear market, exchanges may need to get more fiat currency to pay their customers. Will exhcnages such as binance send billion of USDT to tether and ask for fiat?

Stable coins have low volatility, but they are a risk investment.

Too be fair, I think this is the first time we can get some sort of insight into what their reserves look like. The article you linked also states what I mentioned in the OP: They used to claim that each USDT was backed by a real USD (traditional fiat). They changed that part in their terms to say: well ok maybe not everything is 100% backed up by traditional currencies. In reality, very little are actual cash reserves (2-3%) and the majority consists of various intangible financial instruments.   

I remember that thread by mk4. The only stablecoin that is different and can't be frozen is the decentralized DAI.   

Finally the magic money Tether showed what they are using as reserve and printing unlimited amount of Tether flooding the market whenever the market rallies and they were able to do that using Commercial Paper as majority reserve currency which means unsecured promissory note and what i would like to know is whether any of these are audited.

For everyone who are hearing about these unsecured promissory note for securing money, everyone needs to checkout Harshad Mehta scam where he was able to manipulate the stock market for billions of dollars using almost the same method using unsecured promissory note and the banks were happy to pass the credit without much thinking. I would advice everyone to stay away from it because you cannot predict when it will burst and it will wipe out billions from the market.

On the news about the ban on mining in China, this is real. There are people close to the situation in social media who say that miners are in the process of migrating to other countries for the last 48 hours and others are selling their mining hardware.

It does not bad at all. There are times FUD with crypto exchanges in China and they gradually made migration beyond China mainland.

If the geographical decentralization of Bitcoin mining is forced to happen quicker, it brings better things to us. Does the geographical decentralization is what we want to see for a long time?

The almost similar picture is with DEX, if governments put pressure on crypto exchanges and crypto enthusiasts, the developments of DEX will become more seriously.

@tranthidung. I did not say this news was bad, however, the news is not re-cooked. It is real and the Chinese miners have dumped their coins. Some dumped in panic and some dumped because they have no choice.

In any case, I speculate that those commercial papers were issued by exchanges to be granted loans in USDT to use for pumping the market to all time high.

The closest countries with cheap electricity they can migrate to are Russia and Kazakhstan. I am not sure how popular the United States is for Chinese miners, but I have read reports in the past that some of them are moving their equipment to the US. The price for industrial electricity in the States is decreasing year by year. It is good for bitcoin mining in general to lower the impact Chinese miners have on the whole network.   

First source I read related to this news put it at an even lower figure, but I actually thought that they already say they have audits (not transparent but apparently, shown to regulators) that already satisfy requirements?

Not that I care, or that regulators should. If FDIC banks in the US don't even need fractional reserve anymore (indefinitely at the moment), then why should Tether need it? They're all printing magic money now;)

I think the closest one that is by far the best rate right now could be Georgia. I am not sure how the world is there, never really studied Georgia and do not know life there, maybe it is a horrible nation to live in, or maybe it is a very nice nation to live in, there is really nothing that could be done about it, but the fact is that we are talking about cheaper than almost any other modern nation that could make a huge amount of profit there with low rates if you are a miner.

Chinese miners will probably not move neither, they will probably make a deal with the party, tell them the half of all the money made from miners will go towards the party and they can keep mining there for sure. That is what the getting out jail card there as well, just give them money and you can do anything illegal, party only cares about the money they can make and that's it.

Not really sure about the political climate but still if they are going to pay half of what they are making it will be better for them to move out of the country and they have invested millions and why would they pay half of what they make and what kind of business model that would be ::).

Magic money might vanish all of a sudden and many of us who invested in crypto might be affected as well and hence it is better to avoid them.

I might sound a bit pessimistic, but I don't think the magic money will disappear. I am not talking about Tether but fiat in general. Those in power have put to much effort into it (printing day and night ::)) to just one day have it go to waste. It might be substituted with some type of digitalized federal asset, but it will still remain in control by the associated government.   

I would like to see audits made in those commercial papers. I want to laugh together with everyone if those commercial papers were issued by Binance, Okex, Huobi and Poloniex. The Chinese hustling gang hehehe.


Also, for everyone. Read all the articles about iFinex, Bitfinex and Tether  from this website.

https://bennettftomlin.com/

It is one of the best source of information for tether skeptics.

Hot damn I always thought Okex was S.Korean, a quick look up confirms I was wrong. Not that it would have mattered, their reputation precedes them.

I come from a non-profit background and I used to think some of the audits in the field cut a lot of corners (but I accepted it as a consideration of the complexities of record keeping and security in environments with extreme instability)... and then I saw audits for small corporates in Europe later on and got a bit of a shock.

So no surprise if Chinese hustlers can get away with more ridiculous ones.

Thanks for the link! I feel like I've read some of his writing before. Used to follow Tether-drama a bit in 2016/17 (?), back when the idea of Spoofy enthralled me.

I have always said that people should not be putting this much trust into something that could go away in a single day and yet for some reason the whole world still doesn't care and just keeps using USDT.

The only way to get USDT out of the world is to get it not be used in big exchanges, even though Binance has their own stablecoin called BUSD they still use USDT as well and that is one of the biggest reasons that USDT still keeps being used. They can literally just go away in a second and nobody could do anything, sue them? Don't be crazy so many people with illegal money gets a safe harbor in some nations, they would be living like kings in some third world nation for sure.

This article is another one to read for the tether skeptic. It appears that the NYAG, the bitcoin news media and the whole community have been much preoccupied on the reserves. This article argues that capital matters more. On the next quarterly audits, the NYAG should certainly ask for more information on those commerical papers to study if the borrowers that issued them are at risk of debt default. Tether is not capitalized adequately to absorb losses.



But what does matter is capital.

For banks, funds and other financial institutions, capital is the difference between assets and liabilities. It is the cushion that can absorb losses from asset price falls, whether because of fire sales to raise cash for redemption requests or simply from adverse market movements or creditor defaults.

The accountant's attestations reveal that Tether has very little capital. The gap between assets and liabilities is paper-thin: on 31st March 2021 (pdf), for example, it was 0.36% of total consolidated assets, on a balance sheet of more than $40bn in size. Stablecoin holders are thus seriously exposed to the risk that asset values will fall sufficiently for the par peg to USD to break – what money market funds call “breaking the buck”.

Source https://www.coppolacomment.com/2021/05/tethers-smoke-and-mirrors.html

Agree the focus has been too centred on reserves, but that's really an important measure that strangely, even banking systems are keen to do away with -- it follows that Tether should not be punished if banks have foregone that requirement.

I suppose at the end of the day, they should all just be allowed to run themselves into the ground to demonstrate just how rotten the whole system really is -- going to be a lot of pain for stablecoin holders, though I can easily foresee corporate bailouts (temporarily) saving the day.

We have known for the longest time that the claims about tether were completely false however I am surprised to the extent of their lies as they have so little money compared to all the tether that is in circulation, and even then the price of tether is still the same which is the same what happens with fiat, if anything this should be a reminder of why we cannot have any kind of centralization when it comes to money as the one that has the power will always abuse it regardless of their claims.

However, we have not seen the other stablecoin issuers declare how much capital they have in their own attestations. This amusingly makes Tether the most transparent stablecoin issuer the cryptospace presently has hehehehe.

Bump

I think that this news should alarm Tether holders more than BTC holders.

BTC prices correcting from its ATH is merely a normal reaction due to the unsustainable growth that we have seen over the past few months. It is completely independent from the governance and reserve structure of USDT, no matter how much the media tries to convince you.

But this is scary for the stablecoin industry. Holders of these tokens need to understand that they are getting ripped off - being paid 0 interest and allowing Tether to nonetheless conduct fractional reserve.

bbc.reporter is right when he questioned how do the reserves of other stablecoin brands look like. Tether has been in the spotlight for years, but they are not the only ones that do business in dubious ways. I wonder what would happen if other stablecoins had to release similar reports about their financial assets, and what impact that would have on the market?

I am afraid the speculation that those commercial papers might be issued by some of the biggest exchanges in the cryptospace in exchange for a loan in Tether might be possible. Sam Bankman-Fried was asked a question if they issued commercial paper to receive Tether. His reply made it look that he was caught stealing a cookie hehehe. I like Sam, I also like FTX. However, this is discouraging.

If this is true, I only expected this on CZ and Binance or Justin Sun and Poloniex. FTX involved in this is very unexpected.

https://i.ibb.co/FYRf48M/273431-A7-7284-4373-B5-B9-EF14-E0-FC0-A7-B.jpg

Source https://m.youtube.com/watch?v=dKHqw9p4xi4
10:51 of video

Indeed. I'm definitely not just talking about USDT here.

All of the stablecoins are or will enter a mode of fractional reserve sooner or later. Don't forget that Tether started out being fully backed 100% with USD reserves and nothing else - but transitioned quickly to investing with the funds when they realised people would use their service regardless as they have established themselves in the marketplace.

The stablecoin market is doomed, imo, and the fact that so many aspects of DeFi is dependent on this does not help whatsoever.

@magneto. It is not only defi that is dependent on them. It is the whole cryptospace. It can be argued that presently much of these stablecoins’ use case is to pump the market.

Also, yes, they will fractionalize and very easily. There are no regulators overlooking them.

The markets are presently dumping because of the fear that a contagion from Evergrande’s bankruptcy might cause the next financial crisis. If anyone does not read the news, google Evergrande, China news.

In any case, this thread on Twitter has a theory that Tether is holding commercial papers issued by Chinese real estate development companies similar to Evergrande. This might not be very bullish for the cryptospace.

https://twitter.com/thelastbearsta1/status/1418302465557110785?s=21

I’ve read that tweet back in July. While it’s possible it’s all speculation and no direct proof. Now whether Evergrande goes bankrupt or gets a bail out is not similar to the Lehman brothers back in 2008. Even if Lehman brothers got a bail out there would be a recession anyways.

I think everybody is trying to time the top of this stock market cycle and they use any news possible like this to mark the start of the bear market. However look at how many times in the past there was some event and people assumed the stock indices topped and they kept going higher and higher anyways.

@adaseb. I reckon that we cannot be quite certain of anything. We cannot be certain that it will be similar to the Lehman Brothers, however, we also cannot be certain that it will not be similar to the Lehman Brothers. Many of the experts also did not expect the Lehman Brothers hehehehe.

This is another thread with much knowledge about the situation in China and Evergrande. The limit on leverage in China was not only on the cryptospace. It was on many sectors of their economy.



Evergrande: why most analysis is dead in water and how best to understand and navigate what’s happening? Both denialists and alarmists are getting it wrong. Let’s start by understanding this: what is happening is the result of a CCP-initiated policy change to curb leverage. 1/N

Source https://twitter.com/inartecarlodoss/status/1438944431734919175?s=21

I think that it is definitely something insidious like a cancer.

Fact of the matter is that this is precisely the fractional reserve that we have been warned against and were trying to get rid of with decentralized cryptos - but just reincarnated with blockchain technology.

It's a bit ridiculous given that a centralized body has this much leveraged over BTC prices over the short term just by issuing fiat tokens backed by nothing alone.

There have been hundreds of millions of USDT being sent to exchanges according to @Whalealert Twitter account, however, I speculate that it might not be to pump bitcoin. Check the peg USDT/USD. It appears that there is much selling of USDT to USD.

The breakdown of declining stablecoin reserves could represent a predictive action of accumulation that is engaging more in bitcoin and crypto.  Most stablecoins are sitting right on the slots of exchanges.  If the stablecoin indicators continue to fall, it is the reason I think the market will go up.  Of course, I would ignore the Evergrande debt pump completely in this situation.

The possibility that we will have a new ATH if this is true and emerge after FUD China - Evergrande is very large

I really do not care even if they show that they have 200% in their reserves to what they owe. At the end of the day we are giving our money to someone so they could offer us something that worths absolutely nothing. Normally people make these claims for bitcoin, it is not tangible and has no value, but bitcoin is not centralized and we decide how much it should worth.

If it is 43k today then we decided that it should be 43k, if it is 20k tomorrow it will be because we decided that, if one day it is 1 million dollars or zero then we all decided that. USDT is not like that, it is $1 sharp without any changes and Tether company decided that, which makes zero sense to me.

Evergrande and other Chinese property developers commercial papers’ speculated connection with Tether are explained in this video. This is not assumed to be true, these are only speculations. However, the coincedences are everywhere.

https://youtu.be/zvR6nuTFF8c

It is speculated that similar to how the American government has used the credit card companies to have some control over the restrictions on gambling on the internet in their country, it might also use the stablecoin issuers to have some control over the cryptospace market.



Biden Administration to Congress: Put Stablecoins Under Federal Supervision – Or We Will

A group of U.S. regulators urged lawmakers to subject stablecoin issuers to the same strict federal oversight as banks, in a highly anticipated report released Monday.

Congress should also require custodial wallet providers to be regulated by a federal agency and limit stablecoin issuers’ interactions with non-financial companies such as tech or telecom providers, the President’s Working Group for Financial Markets said.

The report is part of an escalating effort by policymakers to rein in this $138 billion segment of the broader crypto market to mitigate the risks they believe stablecoins pose to consumers, markets and the financial system. Stablecoins, or cryptocurrencies pegged to the value of another asset such as the U.S. dollar, have seen explosive growth over the last two years despite lingering questions about their backing.

Source https://www.coindesk.com/policy/2021/11/01/biden-administration-to-congress-put-stablecoins-under-federal-supervision-or-we-will/



Where are those people who supported Biden in this forum?

I think this is not the first breakdown that Tether released. I cannot remember how the first breakdown looked like but there might not be a big difference. So I don't think this is a big issue that will necessarily have an impact on Bitcoin. And also, Tether has been synonymous with controversy for several years already and yet Bitcoin remains solid and strong. In fact, even Tether still remains at the top even if it has been branded questionable by many crypto people.

Centralized stablecoins like Tether can already do whatever they want with coins on exchanges or private wallets. Your coins can get frozen no matter where they are. Giving another party (like the US government) the same possibility of making decisions about which coins should get frozen is a potential threat for the future. But we already have decentralized stablecoins like DAI, they can't control those. I hope more people will turn their backs on Tether and pick safer alternatives.

@Pmalek. Much of the people might not have comprehended what is being argued or what created arguments are being made from the Biden administration’s statements hehe. Similar to the growth of casinos and internet gambling, the American government through policy, used the credit card companies to monitor and control how much comes in and how much comes out of the internet casinos. It might do this again on the cryptospace through policy and use the stablecoin issuers to control and monitor what comes in and out.

It appears the forum cave trolls' speculation on iFinex, Bitfinex, Tether, that they are holding commercial papers of Chinese real estate developers might be true. It might not only be true, this hedge fund has ordered a financial instrument to be created to short Tether. This is very much similar to when Michael Burry had a financial instrument created to short mortgage backed securities on 2007. Everyone thought he was crazy. Watch it in the movie The Big Short.

https://i.ibb.co/CMPnfSz/1-CD72-EC4-C40-C-4-F0-B-B707-A4-AC17-A23014.jpg
Christian Bale as Michael Burry in The Big Short

Hedge Fund Fir Tree Bets Big With Short of Stablecoin Tether

Fir Tree Capital Management is making a substantial short wager on Tether, the stablecoin that’s under intense scrutiny from regulators.

The $4 billion hedge fund, founded by Jeff Tannenbaum, constructed a way to short Tether in an asymmetric trade, meaning the downside risk is small and potential to make money is great, according to clients of the firm.

Fir Tree is betting that its short wager could see a payday within 12 months and its thesis against Tether centers around the coin’s roughly $24 billion in high-yield commercial paper, much of it the firm believes is tied to Chinese real estate developers.

China’s real estate sector is in crisis, led by China Evergrande Group, the world’s most indebted property developer that is heading toward a government-driven restructuring. While Tether has said it doesn’t own Evergrande paper, Fir Tree expects that some of the paper it does own will lose value, causing a potentially large drop in the reserves it holds, the investors said.

Source https://www.bloomberg.com/news/articles/2022-03-11/hedge-fund-fir-tree-bets-big-with-short-of-stablecoin-tether

These type of deals could happen only because the logic of stablecoin is to be stable, so the risk is low because other side can't get much from you when it doesn't go down, it is expected to not go down. So, basically assume it this way, you pay 1 dollar for every month that it doesn't go down, but if one day it crashes you get paid 400 dollars instead. Why the difference?

That stability is the difference, you know that tether suppose to be stable and if you do not take that bet you accept it is not stable at all and could go down, many do accept it as stable so take that low bet. I am sure even if this fails, they won't lose too much so it is a good bet.