Thread by @dfauchier

Some thoughts on this super inaccurate piece.

tl;dr: this is not a defence of Tether/ iFinex, who I would like nothing more than to see disappear into irrelevance. However, most of the conclusions here show zero understanding of crypto market structure.

crypto-anonymous-2021.medium.com/the-bit-short-…

1. First up: it’s completely inexcusable that Tether refuse to have a 3rd party audit. I can’t find a single good faith reason for this.

Bitfinex GC recently did a superb job of sidestepping that question on WBD: whatbitcoindid.com/podcast/questi…

2. For better or worse, USDT (tether) started as a way for people to move fiat between exchanges (a major problem) in the absence of the ability to onboard banking partners, none of whom wanted to touch crypto. USDT is now the dominant stablecoin by mkt cap & liquidity.

3. As a result of the difficulty of having a fiat on/off rail, many exchanges, like Binance, chose to be ‘crypto only’, using stablecoins in lieu of fiat. This is why the majority of inflows into BTC (article says 70%) is via USDT

4. Unbanked exchanges are in aggregate larger than banked ones. This is true, but it’s not because of a giant conspiracy to steal your BTC. Being unbanked = real regulatory arbitrages (lower cost + ability to innovate fast), and lower barriers to entry means there’s more of them.

5. Article points to Coinbase not listing a tether as proof of fraud. It’s worth mentioning that the first crypto company to get a US bank license is Kraken, which is the largest on/off ramp to USDT after Bitfinex.

finextra.com/newsarticle/36…

INTERMISSION: here’s the NY AG case docket on Bitfinex. I just want to repeat that these have been bad actors and deserve to get taken down.

iapps.courts.state.ny.us/nyscef/Documen…

6. I agree that USDT have probably tried to delay the NY AG discovery, likely to buy time to try to grow their way out of this giant fuckup. FWIW I think they might unfortunately have succeeded.

7. Article points to change in issuance as evidence of fraud. USDT will mint new USDT periodically in order to maintain a float they can service creation requests from (e.g. on a weekend, when banks are closed). This is why they create round number blocks...

... the change in issuance from large infrequent blocks to near continuous minting is likely a result of the fact that Deltec, their primary bank, now also banks most of their large clients, and can make internal ledger movements (24/7) for clients to create USDT instantly.

8. The recent rapid increase in USDT issuance since March and then since Oct are entirely explained by (1) post 03/20 there was a sustained mass move away from BitMEX (which margins their deriv contracts in BTC) towards Binance (which margins mostly in USDT)...

... I spend my days talking to crypto quant managers (I.e. arbitrageurs and traders). It’s my job. Stablecoin-margined contracts have real advantages over coin-margined, and Binance likely a better counterparts than BitMEX. So v clear and organic reasons for the shift...

... these reasons are a bit complex to go into here, but entirely satisfy me that the initial acceleration in issuance has to do with market structure shifts, not Tether fuckery. As for the recent acceleration - we entered a bloody bull market, stupid.

Given above, I think this is just the completely wrong conclusion “Tether Ltd. was choosing to issue Tethers faster and faster to maximize the amount of value it could extract from the crypto ecosystem before being shut down.”

9. As for USDT issuance and BTC correlating... of course they do. Given supply is largely fixed (a ‘small float’), BTC rises and falls with demand. When people want to buy BTC using fiat, the default route is via a stablecoin. More demand → more issuance & higher BTC prices...

...FWIW this is true of all stablecoins, including DAI (which is provably not a ponzi / scam because it’s all open source and public) and USDC which is a fully reg. and audited US stablecoin.

10. Yeah, the deriv exchanges let you trade with leverage. (1) How did you not know this, (2) enabling leverage is kind of the whole point of trading derivs over spot, (3) this is basically completely irrelevant to a ‘USDT is a fraud’ argument.

11. Exchanges have promotions that reward you in USDT, so what? Those exchanges receive a majority of their revenue in USDT. Why would they then convert to another stablecoin to pay you, when you’re happy to accept USDT? Given the inflows and trading volume flowing into crypto...

... the idea that the market is being propped up by USDT being paid out to promoters is daft.

11. Looking at Bahamian FX reserves was a really nice idea, and would be very strong evidence of fuckery if it weren’t for the fact that Deltec is not Bitfinex’s sole banking partner. Deltec themselves might also (v likely) have depo accounts abroad, with a BNY Mellon or similar.

12. The grand reveal, right at the end of the article, that tether is a giant exit scam, just makes no sense in so many ways.

FWIW, my opinion:
- We know USDT is not backed 100% by USD. It’s also backed by a ~$250M loan to Bitfinex, and some BTC, and maybe other stuff. As balancesheet has grown & BTC mooned, unbacked USDT has shrunk proportionally & they have largely grown out of the problem
...

- Bitfinex is absolutely shitting cash, as are all the exchanges. It’s not a terrible credit, if you’re a related party. So that loan shouldn’t be marked at zero. Maybe 50-70% of face.
...

- USDT is critical to Bitfinex, and Bitfinex is the goose that lays golden eggs. Even if they could drain $20B out of crypto markets without ANY of the traders, OTC desks or other exchanges noticing (impossible), why would they? Bitfinex equity is worth more than that.

- Tether makes a ton on money anyway charging 20bps for every issuance or redemption, and is a giant interest rates play given the massive float.

Finally, I know traders / funds, exchanges and OTCs first hand who have never had a problem creating or redeeming USDT in size. Thats not conclusive at all, but it’s not supportive of a giant exit scam either.

FYI... not a surprise given the revenues all exchanges are making. My guess is this genuinely was paid back, but currently no proof.

theblockcrypto.com/post/93905/bit…