🐻 The Tether FUD, explained

USDT's long history of scandal

AuthorAuthor

Rahul & Oleena
March 06, 2023

Hey friends. After staying relatively stable for the past week, the market has dipped back down with Bitcoin teetering at $22,000. Most people think that it’s because of the Silvergate FUD as major crypto players cut ties with this likely bankrupt crypto bank.

But no. The real reason for the market dump is because of this video from the opening ceremony of the ETHDenver conference that has been circulating around the Twittersphere. Warning: the following may make you cringe 🤦‍♀️.

In this issue, we’re continuing to serve you a hot cup of FUD 🍵🐸. This time it’s around Tether, the issuer of USDT, the biggest stablecoin globally.

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In this issue:

📣The big story of the week. Tether, the issuer of USDT, gets hit with fresh new FUD reported by Wall Street Journal.

🚀The good. Uniswap launches a new self-custodial mobile wallet, Coinbase pushes a pro-crypto lobbying campaign and Kraken exchange could be launching their own crypto bank soon.

🐻The big, bad FUD. Yuga Lab’s Bitcoin NFT collection gets hit with criticism, Binance considers backing out of Voyager deal and FTX confirms that $8.9 billion of customer funds are missing.

📣 The big story of the week

The Tether FUD, explained

The big FUD coordination continues. This week, the focus has shifted back to Tether who is no stranger to FUD and controversy. If you thought Binance had a lot of dirt on them, well, Tether has a long-standing history of it. Yet, it continues to be the issuer of the world’s biggest stablecoin, USDT. Where do we even start with this story… 📜

Before we dig into the Tether FUD from this past week, let’s get some context first.

A brief history of Tether

Launched in 2014, Tether (then named Realcoin) was one of the first OG stablecoins in the market. Its purpose is to have a fixed 1:1 peg to the US dollar and offer safeguarding from the high volatility of crypto. For a while, their website read: “Every tether is always backed 1-to-1, by traditional currency held in our reserves.”

However, in 2019, it was changed to: “Every tether is always 100% backed by our reserves, which include 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 (collectively, ‘reserves’).”

That’s quite a change 🤔. What happened? Well, simply put, they got caught in their web of lies.

❌ Strike one: lies and misleading statements

Since 2015, Tether and Bitfinex, a Hong Kong-based crypto exchange have had a rather close relationship. In fact, they share the same leadership team. Certainly there’s no commingling going on there…🤔

Just like how SBF claimed that FTX and Alameda were two separate entities, Tether and Bitfinex also did the same. That is until 2019 when the US Commodity Futures Trading Commission (CFTC) slapped Tether and Bitfinex with a combined $18.5 million fee.

The CFTC found that Tether made false or misleading statements when they said that USDT was fully backed by USD. Instead, they found that from 2016 to 2018, Tether only had sufficient 1:1 fiat reserves roughly 27% of the time. Where did it go then?!

Well, during that time, Bitfinex was using shadow bank Crypto Capital Corp (CCC), which was also being used by several other exchanges like Binance and QuadrigaCX. Bitfinex was apparently moving funds to CCC without a signed contract and ended up having $850 million of its funds frozen and seized by CCC in a money laundering investigation 🤦‍♀️.

To help Bitfinex cover up the loss, Tether lent them at least $625 million. Once again, that sounds awfully similar to how FTX commingled funds with Alameda to cover up their losses from the 3AC and TerraLuna collapse 👀.

Though they settled and paid the $18.5 million fee to the CFTC, the lies and failure to disclose the details aren’t a good look for them.

❌ Strike two: bank fraud and money laundering

On Friday, the Wall Street Journal came out with a bombshell report that claims Tether and Bitfinex have been engaging in bank fraud. They found that the two commingling firms had been using fake documents and shell companies to ensure that they continued to have access to traditional banking systems. They were also accused of helping terrorist accounts move funds.

In response to the FUD, Tether denied the accusations made in the WSJ report. But if you’re going to deny the claims, you gotta provide the receipts 🧾, which they didn’t.

❌ Strike three: are they out?

Despite their long history of controversy and shady business, USDT still stands as the biggest stablecoin in the world. At this point, new Tether FUD is barely surprising anymore 😪. Are they too big to fail at this point? Is it all just a distraction from what’s actually going on?

Either way, the market seems largely unaffected by the Tether FUD. With USDT as the clear stablecoin winner, coordinated FUD attacks will likely ramp up. Expect some unstable waters ahead 🥴.

🚀 The good

🐻 The big, bad FUD

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