Tether: An accountant's view

3년 전

“Is Tether manipulating the price of Bitcoin?”

I have heard many people ask this question recently and it’s one I will try and answer in this blog post.

I am an UK based accountant and founder of @kbr, I got involved in cryptocurrency a few years ago, but only recently have I started to read about it in more detail after a number of my clients started asking me tax questions in relation to their cryptocurrency holdings.

[As always: this does not constitute financial advice and all views expressed in this post are my personal views and provided to you for discussion and information. Any actions taken on the basis of this information is done at your own risk.]

To answer the question of the day, we have to look at a number of factors

  • What is Tether?
  • Is every USDT actually backed by USD?
  • How would any FUD about Tether affect Bitcoin and the Cryptocurrency markets?

What is Tether?

According to the FAQ section of the Tether website (https://tether.to/faqs/):

“Tethers exists on blockchains through the Omni Protocol. The Omni Protocol is open source software that interfaces with blockchains to allow for the issuance and redemption of cryptocurrency tokens, in our case, “tethers”.

Tether Platform currencies are 100% backed by actual fiat currency assets in our reserve account. Tethers are redeemable and exchangeable pursuant to Tether Limited’s terms of service. The conversion rate is 1 tether USD₮ equals 1 USD.”

In summary, they are issuing cryptocurrency tokens, each one supposedly backed by one USD.

This looks and smells like a security! Why the SEC haven’t started investigating, I am not sure.

Is every USDT actually backed by USD?

USDT, allows crypto-only exchange users to hold their money in “dollars”.

For example, when you use Binance and move money from BTC to “dollars”, you’re essentially swapping Bitcoin for a token from Tether, that may or may not be backed by actual money!

tether coinmarket cap snapshop 14 june 2018.png

Currently there is more than $2.5bn worth of USDT tokens in circulation, this means that Tether should be holding $2,507,140,346 in their bank accounts. However, we have no reliable confirmation this is happening.

Tether could very easily be issuing new USDT tokens and using these to purchase Bitcoin, artificially stoking demand as suggested by this article from The Financial Times

FT article re Tether.pnghttps://ftalphaville.ft.com/2018/06/13/1528904202000/Has-bitcoin-come-to-the-end-of-its-Tether-/

Tether are aware of these fears and the most recent update that is on the Tether website shows a report produced by Friedman LLP, a US based accountancy practice that is part of the DKF network. The aim of this report is to assure investors that the one USDT is actually worth one USD by checking the USD held by Tether.

If you’re wondering who Friedman LLP or DKF are, you’re not alone. As someone who has worked in the accountancy profession since 2006, I have never heard of this firm. So I went to check the top 100 global accountancy firms (https://www.accountancyage.com/rankings/international-accountancy-firms). They are not on the list!

For any serious investor, this would raise alarm bells. If a company has over $2.5bn in assets, surely they can pay for a full audit by a reputable global firm? If they have chosen not to, we need to ask, why?

You can see the Friedman LLP report here:

https://tether.to/wp-content/uploads/2017/09/Final-Tether-Consulting-Report-9-15-17_Redacted.pdf

It’s not worth reading, I know, I have read it.

Firstly, it’s not an audit report, its a “memorandum”, this means that if the findings are not correct, Friedman LLP has no exposure.

Friedman LLP report heading.png

Secondly, the exclusions in the notes mean the report is worthless

friendman llp exclusions from report.png

In normal language, this means the money is held in trust, but if Tether collapses, there is no guarantee the money will be paid out and the second note means the money held in trust could be used for other purposes!

And finally, the most recent report on the Tether website is from September 2017 - why nothing since then?

What does this all mean?

If USDT is not actually backed by real dollars, you are essentially holding a worthless cryptocurrency.

How would any FUD about Tether affect Bitcoin and the Cryptocurrency markets

When investors are fearful and want a safe harbour, they move their funds out of cryptocurrency and into USDT or some use USDT to move funds from one exchange to another.

If investors are forced to abandon USDT due to its ambiguous backing, it could go either two ways depending on investor sentiment. They could move out of USDT and into fiat or they could move from USDT back into Bitcoin or other more liquid/stable currencies like BNB (Binance).

If investors chose the latter option, it could actually be a boon for Bitcoin as some of that $2.5bn moves back into Bitcoin.

Summary

USDT sounds good on paper, but when you look in detail, there are so many holes, the paper is not worth holding. Use USDT with extreme caution and if you need to hold in fiat, use a full exchange, such as Coinbase.

Sources:

Here is the full report that has got everyone asking questions (it has not yet been peer reviewed, so take what it says with caution)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066

An honorable mention to @beggars who’s post inspired me to look into this
https://steemit.com/cryptocurrency/@beggars/university-of-texas-at-austin-study-all-but-confirms-tether-is-manipulating-bitcoin

Thank you for taking time to read my post. If you’ve got this far, you might as well upvote and resteem the post too!

Keep HODLing or SODLing or whatever acronym is the fashion of the day.

@kabir88

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Any crypto can be said to be useless crypto.

Get rid of USDT anyways ... its time to allow us to trade our fiat directly for what ever crypto we want. Once an exchange comes out an offers that it will become the #1 exhchange over night.

The sad truth is most exchanges don't want that because they want the transfer fees we pay when trading our USD for Bitcoin to use to trade for Altcoin. Which some of us will eventually trade back to Bitcoin to trade back to Fiat after we profited.

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"Any crypto can be said to be useless crypto."

That can be said, but it wouldn't be true as many cryptocurrencies are decentralised digital tokens which cannot be destroyed or created arbitrarily which is what gives them their value as a medium of exchange.

The problem with Tether is that it has no limit on it's supply in the blockchain, we have to take Tether's word that they will only issue USDT when they have corresponding USD in their bank account.

The trouble with full-exchanges is the regulation. Anyone offering a full exchange will need to navigate the current uncertain regulatory framework. However, in the UK we have Coinbase that allows direct access from Fiat to Crypto. We may also see Binance join in as they have reportedly opened up operations in Malta (an EU country)

As for the fees, I totally agree, it's currently extortionate, but if you take John McAfee's advice, you should never be going back to fiat!

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That is a concern with USDT and anything is possible with greed and temptation.

I am aware of Malta. Many online gambling sites set up shop in such countries to skirt laws in their own.

I think crypto is the future but until its widely accepted we will need fiat to purchase things crypto can not. Many peoples goals that are into crypto isn't to have a bunch of crypto. Its to have a bunch of crypto that is worth a bunch in fiat.

Everything I heard about Tether so far left me feel uneasy about it, so I never really touched it.

The more I hear about it the happier I am.

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I have to confess to using USDT on Binance as way to hold "cash" if the market is falling or I am not ready to invest. But I generally don't let my funds sit in USDT for too long.

Hopefully Binance hurry up and launch their full exchange in the EU, so we don't need to use USDT anymore

interesting post, specially given your background. I am not sure why people use tether but could be because it may be cheaper to buy bitcoin on bitfinex, as opposed to coinbase. or its just that bitcoin can be 'cashed out' without money ever hitting the bank account, so I guess there is no question of taxes.

$2.5 bn does not sound like a lot given that this has been printed in 2015 and given crypto market cap. I have already read the post from bitfinexed at well in which he explains the whole controversy very well. it all does look dodgy and i dont know why would they not come clean with an audit. there was some controversy this year or last year, can't remember where one of the US govt agencies was investigating them and i think they came out clean. i don't think that bitfinex would be able to pull this off even till today given that the concern is already out there. and why are people still using tether? even after knowing that there could be a possibility of them losnig money.

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Market Cap and actual hard currency are two different things. EOS raised $4bn from their year long ICO, Tether managed to "raise" $2.5bn with no real product.

I think a lot of people use USDT without ever thinking. If you're on a crypto only exchange and want to have some "cash", you hold it in USDT.

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i get the difference between market cap and hard currency, but if want to cash out all 2.5 bn worth of tether to usd/gbp or any other fiat, i will still have to sell 2.5 billion worth of some crypto, lets say bitcoin, higher market cap means less coins. A higher market cap can absorb 2.5 bn worth of tether failure was my point, of which some is genuine, let's say half. Yeah, if news comes out that is tether is printing air backed tokens, then the market will sell off badly.

tether is a deposit receipt. its almost like a bank LC. "give this guy a bitcoin for tether, he has got cash, i can confirm it." I don't see any "stable" coin as a useful product.

Tether was founded by the same person who created Omni -which, by the way, is an awesome and underrated platform-.

Originally, and on their website, Tether states that they have been offering USDT -a USD pegged token- and EURt -an EUR pegged one-. USDT has been working since many time ago. EURt, although also tradeable, isn't.

The problem is the price which people must pay in OmniDEX -the decentralized exchange offered by the Omni Foundation-. In order to buy 1 EURt, people must pay 0.2 OMNI, which translates into a 3.09 EUR price for each EURt. At least, that's the market price.

In summary, they are issuing cryptocurrency tokens, each one supposedly backed by one USD.
This looks and smells like a security! Why the SEC haven’t started investigating, I am not sure.

You are for sure more aknowleadgeable than me, but if the only possible exchange for every single USDT is 1 USD, then I don't see any possibility of make any profit: the person will get 1 USD, doesn't matter when the exchange takes place.

And finally, the most recent report on the Tether website is from September 2017 - why nothing since then?

Because that was their last report as the auditing form for Tether.

You got a 8.96% upvote from @brupvoter courtesy of @soma909!

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Thanks @soma909 for the upvote, its much appreciated!