The Unstable “Stable coin’s” Tether to Colombian drug Cartels: Due2DUMP
There is a special breed of cryptocurrency that has arisen with value propositions to solve one of the biggest critiques we hear about bitcoin and other major cryptocurrencies; The asset is too volatile to be considered a safe investment or a store of value… To learn more about how they work and what I believe to be the best example of a stable coin please refer back to my article on libra here! But a key takeaway is they help the exchanges with the convertibility from fiat to crypto as they would take on the hassle and act as a middleman.
The stable coin is supposedly pegged to the dollar, by acquiring dollars for the 1 to 1 pegging for the current circulating currency! This, however, draws a lot of issues as there is a requirement for tight regulations as this just seems to be a rehash of America overprinting their dollars until they were forced to come off the dollar standard in 71. There have already been public stories circulating in the past that tether is no longer pegging just with the dollar, but with bitcoin and other asset classes! The crypto sphere was ok with this as there wasn't any big sell-off or dump in price.
One thing we need to ask now, as there have been multiple changes in the backing of tether; How stable will this asset be if we see a flood of withdrawal requests? Are they really able to as scalable as they have been claiming to be?
This lead up can remind us back of the reserve money fund (RMF); this was a fund that was supposed to be a good as cash and its stock was set to be at $1. This was a good cash alternative and a significant amount of 401K’s were going through these funds, but in the height of the 08 crisis, the reserve money fund had been investing in these MBS (mortgage-backed securities). At this point in time the assets that they were being told were triple-A-rated were really junk and not investment grade, and for the first time, the stock of the reserve money fund dropped from $1 to $0.97. Though this is not a significant deal, this is like going to your local bank account and finding out the money you had with them had lost value by 3%! As you can see this caused a lot of shock and panic leading to government bailouts to restore faith in the system and the initial loss in faith of the RMF could play out on a bigger scale as the stable coin tether is already going down that same path that has been once trodden on.
What is the current supply of USDT and what is it currently being backed by?
The current supply of tether is actually unknown, previously USDT was operating off the bitcoins Omni blockchain layer but since they have moved off the chain this has allowed for more questionable matters to be looked at.
The chains that they are currently operating on are, ETH, BTH (a centralized cryptocurrency), algorand, a liquid by Blockstream, and two failed EPOS chains Tron and EOS. This is a very questionable move as the distribution across the chains is not confirmed. The lack of transparency really calls a lot into question.
Had Ethereum made a movie like this, it would have been seen as a minor and temporary move to maintain the integrity of the blockchain; as there has done nothing so significant in the past to make investors think otherwise besides from the date of transferring back to the main blockchain as they are known for pushing dates back!
Tether, on the other hand, has shown in recent history to lack any empathy as they lied to their investors, through the backing of the UDST to dollars ratio. Initially, they had the FSS check the bank accounts that the dollars were held, as well as transparency in the assets backing the crypto asset.
Today we are unsure exactly what is backing this crypto asset-based off the website. The 1 to 1 peg is potentially nonexistent, leading to the rise of the fractional crypto financial system. This is exactly why cryptocurrencies were initially made to avoid, so by introducing something that the big banks are currently doing puts them in direct competition with retail and central banks of the world! This has lead to the reaction of the central banks calling for bans on stable coins as they pose a threat by taking money out of on fractional financial system only to put it into another and when one begins to fail they will all fall as they are connected through it is a game of confidence!
The reputation of USDT and what potentially lies ahead:
To be able to accurately dissect the reputation of tether we must first look at the past activities of Tether and close associates such as the company behind it (Crypto capital) and the main figureheads also, such as Roger Ver.
There is a good article to look at to see the recent holes in the credibility of crypto capital, as they had lost significant amounts of money and were unable to provide cash for less than $1billion yet they have a market cap that exceeds well over $6billion. This becomes worrying when they were struggling to pay back bitfinex less than 2 years ago.
Who is on their team and what potential future outcomes:
One thing that really bothers me is that the three publically cited directors of the tether corporation are also heavily involved in Bitfiniex as acting CEO’s CFO, and again general counsel.
The first question arises is, why has the bitfinex management taken over tether? how stable is tether really? Could the move to inconspicuous supply displays be a move to buy time to an inevitable meltdown? Is this now a game of confidence? Has Bitcoin been financialised?
The questions above are some I will be looking to answer with proof but currently with the level of anonymity that is being shown by the Tether team and crypto capital can only lead for us to presume the worst!
With the last assessment from 2018, we will have to go with the amount that they have here that is still cited as their proof of ownership of the money! now there is a very good chance based on what we see that if we take the amount there is from the last auditing and divide it by rounding the total amount of Tether Supply up to the nearest whole number being 7billion. This gives us a 36.258% backing which is far from the 1 to 1 claims that are made. Note there is no guarantee mentioned anywhere in their site.
This is also the best case scenario implying that Crypto capital was able to resecure another $350Million that was owed to the Colombian drug cartels!
Looking at the evidence we currently see with the state Tether is in, we can now understand how and why the Central banks wish for Tether to be banned! This loss of confidence the alternate financial system will very likely put a strain on the traditional one; which could lead to a bank run which many of the banks today cannot be able to support!
Addressing the stability again and also why the Bitfiniex team has taken over Tether would be explained with the fact that many investors use tether as a middleman and if this were to collapse it would cause many exchanges to lose money as they have been practicing shadow banking, meaning a lot of the money that is claimed to be there is not really there. The money that was also owed by Cryptocapital to Bitfinex only makes up 35% of the total amount excluding the 350 owed to the Colombians!
Now one thing we must note is that the company that went to do this auditing even cited that this was not regulatory auditing, so it would be better to call it an assessment. This would also explain their issues of paying back bitfinex; thus supporting the theory that is on every trader's mind. Is tether practicing fractional reserve lending?
Bitcoins 2017 rally cause accusations:
In the Bull run of late 2017, many people still to date are unaware of the main causes of the bull run reaching such a high price, as it was not covered in the mainstream media. So what really happened? The tether token is supposed to be backed on a 1 to 1 to the US dollar. This was not audited to see if the company behind tether was liquid, so what ended up happening for the tether to reach storage over $2Billion; the tokens began to print, now with any other cryptocurrency this would be insignificant, but now these newly minted coins were being treated as real cash, and several things were being carried out.
- The tether would be moved onto bitfinex to position them in a place to purchase bitcoin strategically.
- When the buying pressure was beginning to fall, and selling was due to recorrect the price, the tether tokens would then be flooded into the markets, causing the price to push up through to new highs.
- The other traders seeing that their expectation of price dumping has not come but in fact, another bull rally began, triggers the FOMO. From here now we see another wave for the bull run to pick up more buying pressure organically, which has been stimulated organically.
- The bitfinex exchange will sell their bitcoin into cash when the buying pressure is strong, being careful not to overpower the buyers leading to a sharp increase in price.
- This cycle was then repeated, time and time again leading to the almost $20,000 peak. But as there were too many variables for the Bitcoin price spike.
The Court ruled that Tether was not solely to blame for market manipulation and we are yet to see as they currently print more tether tokens if they plan on stimulating another bull run, to cover it with the speculation of the BTC halving event to skyrocket price as that is the main factor which has been causing traders to be bullish for 2020/21.
This could also explain the recent move off the bitcoin omni layer, which allowed for accurate readings of the tether circulation, and supply. Current is unknown to outsiders which could be a means of hiding then next bull run which if Tether does not get banned could see new highs due to mass token production.
Actionable solutions to take for protection:
- Stop using bitfinex and Tether, find alternative brokers, preferably ones that don't use tether so much and if the broker does accept tether see how much they are invested in the tether. If they have a high % exposure do not even trade with them for they will surely become illiquid when the FBI comes banging on the door of Tether. As for USDT, make sure you use the alternatives that are more transparent when your cash is between trades, no need for taking on the risk of tether for the sheer convenience as this time it can cost you everything!
- Never keep your money on the exchanges overnight, If you are in a trade, find out how much is required to retain your position, if you are trading on leverage, and move the rest out. The worst thing you can do is watch the market crash and find just like everyone else your funds are inaccessible
As always guys, please leave a clap and any comments on improvement via constructive criticism would be greatly appreciated; Thankyou!