The latest Tether leak is an email from Tether to Deltec, dated May 3, 2020, asking for help in "presenting their reserves in the best possible light". Their reserves being stakes in other crypto companies, and things in that area. This is a crucial piece of the puzzle. 1/n
Tether started printing like crazy in March 2020, as the market was getting destroyed because of the coronavirus. At the same time, Binance decided to switch from Bitcoin to USDT as collateral for leveraged trading. I always wondered what each party got in that deal. 2/n
It looks like Tether got a stake in Binance. In exchange, Tether probably ploughed what they had in reserves at that point (they did have some cash) to save the crypto markets from certain death, as everyone was trying to sell their magic Ponzi beans at the same time. 3/n
It must have been a rushed decision, as there was just no time for negotiations or second guessing. The world was about to end!
1 month later, the world didn't end, risk assets were getting a second lease on life from the Fed, but now Tether had another problem. 4/n
1 month later, the world didn't end, risk assets were getting a second lease on life from the Fed, but now Tether had another problem. 4/n
They had no cash left, and their reserves were a mix of Bitcoin and equity stakes in exchanges. They were under investigation by the NYAG, who was asking were uncomfortable questions about their reserves, and they had no clue how to answer them. 5/n
Remember, Tether's team has no experience in finance. Their CFO has an education in medicine. They have no clue what's acceptable as reserves for USDT. They have no clue what's account segregation and why it's important (as was revealed in the NYAG settlement agreement). 6/n
So they asked for help to their banker - Deltec.
We know Tether's reserves are worthless in the traditional sense, but we now also know why the peg holds strong. Not because USDTs are backed, but because Tether has stakes in exchanges who are in charge of maintaining the peg. 7/n
We know Tether's reserves are worthless in the traditional sense, but we now also know why the peg holds strong. Not because USDTs are backed, but because Tether has stakes in exchanges who are in charge of maintaining the peg. 7/n
Tether is the foundation for the whole crypto ecosystem, and they can't be allowed to fail. They have no material backing; but they have the mafia-like connections that work better, in practice, than some boring cash reserves and audits. Tether can't be allowed to fail. 8/n
Until, of course, real money runs out and exchanges simply don't have the means, anymore, to maintain the peg. Then everything goes to zero in an instant. There's nothing behind the Potemkin façade. No reserves. No cash. Just numbers on a screen that all exchanges agree to match.
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