The mystery of Tether’s $69 billion reserve fund

In July of this year, US Treasury Secretary Janet Yellen (Janet Yellen) convened the chairman of the Federal Reserve (Fed), the chairman of the Securities and Exchange Commission (SEC) and six other senior officials to discuss Tether . It is impossible for them not to realize this absurd situation: American inflation is increasing, the aggravation of the new crown epidemic threatens economic recovery, and Yellen wants to discuss a digital currency Tether, which was shot in the movie “The Mighty Ducks” Designed and invented by the former child star who missed the penalty. But Tether has developed enough to put the U.S. financial system at risk. It is as if a snowball fight on the playground escalated so crazy that the Joint Chiefs of Staff (Joint Chiefs of Staff) was called to avoid a nuclear war.

Tether is called a ” stable coin ” in the financial world , because every Tether (USDT) should be backed by a US dollar reserve. But it is actually more like a bank. Tether Holdings Ltd., the company that issues this currency, gets U.S. dollars from those who want to trade in cryptocurrency. In return, the company will credit an equivalent amount of Tether to their digital wallet. Once they own Tether, people can send them to cryptocurrency exchanges and use them to bet on the price of Bitcoin, ETH, or any other thousands of cryptocurrencies.

At least in theory, Tether Holdings holds USD reserves so that the company can return USD to anyone who wants to redeem their Tether into USD . This complicated mechanism is popular because real banks don’t want to do business with cryptocurrency companies, especially foreign companies.

The mystery of Tether's  billion reserve fund

Source: Bloomberg Business Weekly, October 11, 2021

How exactly the issuance of Tether was supported, or whether it was actually supported, has always been a mystery . For many years, critics have argued that despite the guarantees made by Tether Holdings, the company does not have enough assets to maintain a 1:1 exchange rate, which means that the Tether issued by it is essentially a fraud . But in the Crypto world, joke coins based on dog heads can reach billions of dollars in market value, and crooks regularly earn a lot of money through ridiculous-sounding plans, so Tether seems to be just another curious thing. .

This year, Tether Holdings began to issue a large number of such digital currencies. There are currently 69 billion  Tether (USDT) in circulation, of which 48 billion were issued this year . This means that the company should hold the corresponding US$69 billion in real money to support these digital currencies -if the company is a U.S. bank, rather than an unregulated offshore company, then this number will make the The company ranks among the 50 largest banks in the United States.

On the trading floors of Twitter, business television, hedge funds, and investment banks, everyone began to ask why Tether minted so many coins and whether the company really has the capital reserves it claims. An anonymous anti-Tether blog called “The Bit Short: Inside Crypto’s Doomsday Machine” quickly became popular. At the same time, CNBC host Jim Cramer also told viewers to sell their cryptocurrency and warned: “If Tether crashes, then it Will destroy the entire cryptocurrency ecosystem.”

As far as the regulator is concerned, the dollar reserve assets that need to be used to support Tether are too large, even if the company does have enough dollar reserve assets, it is still very dangerous. This is because if enough traders immediately demand redemption of their dollars, the company may have to realize assets at a loss , triggering a ” run ” on this non-banking institution . These losses may flood into the regulated financial system, leading to the collapse of credit markets. If these anti-Tether voices are right, and Tether is a Ponzi scheme, then its scale will exceed that of Bernie Madoff (Bernie Madoff). [Editor’s note: Madoff is the instigator behind the largest “Ponzi scheme” in the history of world finance. There are tens of thousands of victims and the amount of fraud is as high as 65 billion US dollars. ]

So earlier this year, I set out to solve this puzzle. The company’s capital footprint is distributed from Taiwan to Puerto Rico, the French Riviera, mainland China and the Bahamas . A former banker who had worked at Tether told me that the company’s executives put their reserves into risk, earning themselves potentially hundreds of millions of dollars in profits . “It’s not a stable currency, but a high-risk offshore hedge fund,” said John Betts, who opened a bank in Puerto Rico, which Tether used to use. “Even Tether’s own banking partners don’t know how big their reserves are, or whether they have reserves.”

“Crypto Bank”

On the company’s website, a green pentagon with a white T letter represents the Tether coin and claims that it is “Digital money for a digital age.” This logo doesn’t look great, but this is probably the most normal thing for Tether Holdings, which is strange in almost every imaginable place. LinkedIn shows that the company has only a dozen employees, which is insignificant for a company that manages $69 billion in assets.

Tether’s website is also touting its settlement agreement with the New York Attorney General’s Office, but the announcement of the settlement agreement makes people feel that the company is doing something terrible. US Attorney General Letitia James said in a statement that Tether Holdings has always been “operated by unlicensed and unregulated individuals and entities that trade in the darkest corners of the financial system.”

Elsewhere on the website, there is a letter from an accounting company stating that Tether has reserves to support its stablecoins, and there is also a pie chart showing that the company holds about 30 billion U.S. dollars in U.S. dollars. Invest in commercial paper -that is, short-term loans provided to companies. This will make Tether the seventh largest holder of such bonds, second only to Charles Schwab and Vanguard Group.

To verify this statement, a few colleagues and I consulted some Wall Street traders to see if anyone knew what Tether purchased (commercial paper). No one said they knew about it. “This is a small market and many people know each other,” said Deborah Cunningham, chief investment officer for global currency markets at Pittsburgh asset management company Federated Hermes. “If there are new entrants, it is usually very obvious.”

It is not clear which regulatory agency is responsible for overseeing Tether . A representative of the company once stated on a podcast that the company is registered with the British Virgin Islands Financial Investigation Agency . But Errol George, the head of the financial institution, told me in an email that the institution does not supervise Tether. “We have not, and never have (regulated Tether).”

The company’s current CEO JL Van der Velde listed on the Tether website is a Dutchman living in Hong Kong. He seems to have never given an interview or spoke at a conference. The Chief Financial Officer (CFO) is Giancarlo Devasini , a former plastic surgeon from Italy , who was described on the Tether website as the founder of a successful electronics company. When searching Italian newspapers, the only information that mentioned him showed that he had been fined for selling pirated Microsoft software. He does not respond to emails or Telegram messages, his nickname on Telegram is Merlinthewizard.

Tether’s lawyer Stuart Hoegner told me on the phone that Van der Velde and Giancarlo Devasini prefer to avoid the spotlight. He referred to Tether’s critics as “jihadists” who wanted to destroy the company. He said: “We maintain a clear, comprehensive, and mature risk management framework to protect and invest in reserves.” He added that no customer has ever asked to redeem US dollars and was rejected.

But when I asked Tether where to put the money, he refused to answer . When he told me that the company had enough cash to pay the largest amount ever in one day, I did not dispel my doubts. Bank runs can last more than 24 hours. Subsequently, Hoegner responded to follow-up questions via an email statement, stating that my report is “just a compilation of innuendo and misinformation shared by dissatisfied people who are not involved in or have no direct knowledge of the company’s operations.” He added: “(Tether’s ) Success speaks for itself.”

Incredibly, people sent 69 billion real dollars to a company that actually seemed to be full of red flags. But every day, on cryptocurrency exchanges, traders buy and sell Tether coins as if they are as good as the U.S. dollar . On some days, Tether changed hands more than 100 billion U.S. dollars. It seems that the people who hold the most assets in the cryptocurrency market trust Tether, and I want to know why. Fortunately, in June this year, 12,000 people gathered in Miami to participate in what is known as the largest cryptocurrency conference in history.

At the Mana Wynwood conference center, I found common embarrassing crypto symbols. Models walked up and down on the floor, with the Bitcoin logo painted on their bodies. A podcast host screamed: “F*** Elon.” A trash can full of Venezuelan bolivars read “Cash is rubbish.” There are people holding Tether everywhere here. Sam Bankman-Fried, a 29-year-old billionaire and founder of the cryptocurrency exchange FTX, told me that he bought billions of dollars in Tether to facilitate the trading of other cryptocurrencies. ” If you were an encryption company, the bank would be nervous about working with you ,” he said.

If you still think that Bitcoin is a peer-to-peer (P2P) currency, a clever way of realizing value transfer without an intermediary, then his explanation is meaningless. But most people don’t use cryptocurrency to buy things. They use cryptocurrency to trade on the exchange, betting on its value, hoping to choose the next Dogecoin and make a lot of money, after all, after Elon Musk ( Elon Musk ) began to publish Dogecoin on Twitter After the news, Dogecoin has soared 4191% this year, while Solana seems to have risen 9801% for no reason in 2021.

Let us imagine the crypto exchange as a huge casino. Many cryptocurrency exchanges, especially those outside the U.S., cannot handle U.S. dollars because banks are reluctant to open accounts for them to avoid inadvertently facilitating money laundering. Therefore, when users of these exchanges want to place a bet, they need to buy some Tether first. It’s like all the poker rooms in Monte Carlo and all the mahjong halls in Macau have gamblers go to a central cashier to buy chips.

Some of the biggest traders on these exchanges told me that they often buy and sell hundreds of millions of dollars in Tether and regard it as the industry standard. Even so, many people have their own conspiracy theories about Tethers, such as the government allowing it to grow in size so that criminals who use it can be tracked down. I realized that they do not trust Tether, but they need Tether to trade and use it to make money . “It may be more unstable, but I don’t care,” said Dan Matuszewski, co-founder of cryptocurrency investment company CMS Holdings LLC.

The beginning of stablecoins

In the 19th century, hunters, hunters, and cowboys on the American border faced currency shortages. At that time, the U.S. government did not issue paper money, only gold and silver coins, because the early leaders were afraid of inflation-in the words of John Adams (John Adams, the second president of the United States), inflation was “a series of major thefts.” “. Therefore, some states allow banks to print their own banknotes , which can be exchanged for U.S. dollar coins when needed. However, some banks do not hold corresponding reserves . These institutions were later called “wildcats” (wildcats), allegedly because they set up branches in remote areas where wild animals are infested, thereby preventing borrowers from bringing paper money to exchange.

Eventually many of these banks went bankrupt. At that time, a Michigan bank filled the box with nails and glass, and then covered the box with a thin layer of silver coins to deceive the inspector, but the inspector was not deceived. “For those unscrupulous speculators and adventurers, what a temptation it is. They only dream of wealth and are ready to take all risks to pursue wealth,” then National Bank Commissioner Alpheus Felch later wrote .

The mystery of Tether's  billion reserve fund

Above: Tether co-founder Brock Pierce . Credit: Erick Marciscano/Getty Images

Nearly two centuries later, the same temptation appeared in front of Tether co-founder Brock Pierce , the former child star who played the young role of Emilio Estevez in the “Mighty Ducks” (Mighty Ducks) film series. Now, Pierce wears an exaggerated hat, vest and bracelet, just like Johnny Depp in “Pirates of the Caribbean”, and he likes to play puzzles, just like Johnny Depp in “Charlie and the Chocolate Factory”.

Pierce once founded a successful brokerage company that buys and sells video game products. At that time, he hired Steve Bannon-Pierce, who would later become a Trump strategist. Pierce was one of the few early bitcoiners with real money investment. “I am not an amateur entrepreneur who throws darts blindfolded,” he told me on the phone as he was preparing to go to El Salvador to promote Bitcoin. “I am the midwife of creation. I only do impossible tasks.”

Pierce said that in 2013, he and programmer Craig Sellars proposed the idea of ​​a stable currency. To run the company, Pierce hired Reeve Collins as the first CEO of Tether. Collins is famous for inventing pop-up web browser ads. They also collaborated with Phil Potter , who was an executive of the offshore Bitcoin exchange Bitfinex, who was also working on a similar project at the time. They gave this project his name: Tether . They work in a bungalow in Santa Monica, California, and promote to Sequoia Capital, Goldman Sachs, and others. But no venture capital firm was interested at the time .

The mystery of Tether's  billion reserve fund

Above: Reeve Collins , the first CEO of Tether , source: Tether

The problem is that, like other cryptocurrencies, Tether breaks almost all the rules of the banking industry . Banks track everyone who has an account and where they send money, enabling law enforcement agencies to track criminal transactions. Tether Holdings will check the identity of the person who bought bitcoin directly from the company, but once Tether is circulated around the world, this stablecoin can be transferred anonymously , just by sending a code. For example, a drug lord can hold millions of Tether in a digital wallet, and then send it to terrorists without anyone knowing it.

This concern is not theoretical . Zhao Dong is a well-known Tether trader in China. He was sentenced to three years in prison for using Tether to launder US$480 million in illegal casinos. In May 2013, Arthur Budovsky, the inventor of the stablecoin Liberty Reserve, was arrested in Spain and eventually pleaded guilty to conspiracy to launder money. Prosecutors said that this anonymous online currency attracts crooks, credit card thieves, hackers and other criminals. Arthur Budovsky wrote in an email sent to me from a federal prison in Florida: “The United States will track Tether in due course.” Currently, Budovsky is serving 20 years in a federal prison in Florida. “(I) almost feel sorry for them (the Tether company),” he wrote.

This prospect led Pierce and Collins to abandon Tether in 2015, about a year later . But Phil Potter, an executive of the Bitfinex exchange, is not too worried about the legality of Tether because, as he said in a podcast in 2019, his exchange is already operating in a gray area. Potter’s boss is Giancarlo Devasini , a former plastic surgeon (in name, Devasini is the chief financial officer of Tether, but people who have dealt with the company say that Devasini is actually the head of Tether ). Potter and Devasini agreed to buy their partner’s shares with the funds they invested for less than $1 million. And  Pierce indicate he was free to hand over his shares .

The mystery of Tether's  billion reserve fund

Above : Giancarlo Devasini, Tether ‘s chief financial officer . Photograph: Alberto Giuliani

At that time, Devasini was already 50 years old, and he was already very old by the standards of the encryption field. Real estate records show that he often travels between Milan and Monaco, and his home overlooks the Mediterranean Sea. The Devasini in the photo is a tall and handsome man with long curly hair and a scarf around his neck. In 2014, he was a model at a photography exhibition in a Milan art gallery. He was standing in front of a mirror with half a piece of shaving cream on his face (see picture above), looking at his eyes, the expression on his face showed that he was no longer Know yourself. In a subsequent interview, he said that his turning point came in 1992, when he stepped out of his career as a plastic surgeon. He said: ” All my work is like a scam, it’s a whim .”

He had previously entered the low-end electronics industry and founded a series of technology companies that imported memory chips and set-top boxes. He also opened an online shopping website in Italy. In 2012, Devasini invested in the cryptocurrency exchange Bitfinex , a new exchange created by a young Frenchman who copied the source code from a closed exchange. Devasini soon became the de facto head of the exchange company. Compared with other exchanges, Bitfinex is more reliable because other exchanges tend to collapse after stealing or losing user funds. In 2016, about one-third of the exchange’s funds were stolen in a hacking attack, after which the exchange compensated users.

Bitfinex and Tether had difficulty entering the regulated financial system from the beginning . They adopted a series of unreliable workarounds to keep the company’s bank accounts accessible- “a lot of cat and mouse tricks,” Potter said in an online chat with traders. But as more and more people trade on Bitfinex, and other exchanges begin to accept Tether, it becomes more and more difficult to act low-key. As of March 2017, Tether’s circulating funds exceeded US$50 million. In the following month, several Taiwanese banks that Tether and Bitfinex had been using closed their accounts . This made Devasini’s executives very desperate. According to people familiar with the matter, they even considered renting a plane and putting a stack of them. A pile of cash was shipped out by air.

In the end, they found a financial institution in Puerto Rico called Noble Bank International LLC , which was willing to work with them. I met John Betts, the company’s founder, in Manhattan. He explained that Tether is a legitimate business, or at least when he was the company’s banker: “During the period when Tether had a banking relationship with Noble Over time, our bank holds more than 98% of their cash reserves and receives and verifies monthly bills from their other accounts.”

Tether’s connection with Bitfinex

From the beginning, cryptocurrency has attracted skeptics who are as enthusiastic as the cryptocurrency supporters I met in Miami. In April 2017, these skeptics began to target Tether . That month, an anonymous commentator (alias Bitfinex’ed) on Twitter claimed that Tether had no support at all. He asked Tether where the money was placed on Twitter and why it did not issue audited financial statements. Bitfinex’ed wrote on Twitter: “They are actually Dave & Busters/Chuck-e-Cheese tokens.” These views and other similar claims circulated in the cryptocurrency field and eventually circulated in Washington , leading to U.S. commodity futures. The Trade Commission (CFTC) and the Federal Bureau of Investigation (FBI) launched an investigation into Tether .

At the same time, cryptocurrency trading is booming, and the Tether stablecoin is becoming more and more popular. By the end of 2017, its market value exceeded 1 billion U.S. dollars. According to investors, Bitfinex made a profit of US$326 million that year. Devasini’s shares were valued at more than US$100 million at the time. This makes Tether and Bitfinex the largest customers of Noble Bank, but John Betts, the founder of Noble Bank, believes that Devasini allowed the spread of rumors about Tether reserves, putting the bank at risk. Betts told me that he had urged Devasini to hire an accounting firm to produce a comprehensive audit report to appease the public, but Devasini said that Tether does not have to respond to criticism in this way .

There may be a reason for Devasini to be so obscure. Tether’s website has long promised: “Every Tether is backed by the traditional currency held in our reserves at a ratio of 1:1.” But Betts said that Devasini wants to use these reserves to invest. . If Tether really had $1 billion in reserves at the time, as it said, assuming a return on investment of 1%, then the annual profit would reach $10 million.

Betts believes that this is a conflict of interest for Devasini, because any investment income will be owned by Devasini and his partners, but if the investment fails, the holders of Tether may lose everything . When Betts objected to this, Devasini blamed him. “Devasini wants a higher rate of return,” Betts said. “I have repeatedly begged him to be patient and do this work with the auditor.”

The leaders of Tether want to divest from Noble Bank. But Phil Potter disagreed, so Devasini and other partners bought Potter’s shares in Tether for $300 million in June 2018 . In the same month, Betts resigned from Noble Bank due to health and family reasons. His partner later accused him in court of using company funds for high-end hotels and private jet travel; he said the travel was for work. In any case, Devasini got his wish and withdrew his deposit from Noble Bank , and the bank soon went bankrupt .

In the summer of 2018, Devasini faced another crisis. Documents disclosed after the New York Attorney General’s office filed a lawsuit showed that his Bitfinex exchange had entrusted US$850 million to Crypto Capital Corp. , a money transfer service company in Panama, as a workaround to solve its banking problems. However, the documents show that Crypto Capital suddenly refused to remit the money back to Bitfinex , which prevented the company from making payments to customers who wanted to withdraw cash. This is a dangerous situation-if the public is aware of this situation, it may trigger a bank run.

So Devasini gave customers various excuses, and at the same time asked Crypto Capital to provide some cash. As part of the lawsuit, his conversation was made public. In 2018, Devasini wrote in a letter to the founder of Crypto Capital: “We are facing a large number of (user) withdrawals. Unless we can transfer some funds, we can’t face this situation again.” Another time, Devasini said: “Please understand that all this can be extremely dangerous for everyone and the entire crypto community.”

Facts have proved that the Polish prosecutor seized the account of Crypto Capital. They later claimed that Crypto Capital was laundering money for customers including Colombian drug cartels . U.S. prosecutors will prosecute Oz Yosef, one of its principals, for bank fraud. He has not yet responded to the charges in court. (Hoegner, attorney for Tether and Bitfinex, stated that both companies were deceived by Crypto Capital, thinking that the company complied with regulatory requirements.)

Devasini did not disclose the news of Bitfinex’s bankruptcy, but misappropriated Tether’s reserves to fill the gap, which made Tether only supported by partial reserves .

In February 2019, Tether revised its 1:1 reserve commitment, changed its website and wrote: “Each Tether is 100% backed by our reserves. These reserves include traditional currencies and cash equivalents. , And may occasionally include other assets and receivables that Tether provides loans to third parties, including Tether’s affiliated entities.” This change indicated that Tether was using its reserves for lending , but few people noticed it at the time. at this point. It wasn’t until April 2019 that the New York Attorney General’s Office sued Tether in an attempt to force it to surrender documents, and these loans were not known to the public.

Surprisingly, although Devasini has lost a lot of users’ money, the cryptocurrency world has not lost confidence in him. In May 2019, an alliance of major dealers rescued Bitfinex and invested an additional $1 billion in the company. The exchange used the money to repay the loan provided by Tether Holdings . In 2020, when crypto trading began to take off during the epidemic, Tether achieved exponential growth, with 17 billion new Tether issued. So far in 2021, Tether’s new issuance has reached 48 billion.

In February of this year, Tether agreed to pay $18.5 million to settle the lawsuit brought by the New York Attorney General’s Office , but did not admit that it had committed wrongdoing . Supporters believe that the settlement is support for Tether-if Tether is a huge scam, will the New York State Attorney General settle with it? But in Washington, the investigation continues . Earlier this year, the U.S. Department of Justice prosecutors sent Devasini and other Tether executives to inform them that they were the target of a criminal investigation of bank fraud . The government is investigating whether they defrauded the bank to open an account a few years ago . “Tether often has open dialogues with law enforcement agencies, including the Ministry of Justice, as part of our commitment to cooperation and transparency,” the company said in a statement.

Written document

Tether has yet to disclose where its funds are stored. The only financial institution I can find willing to express cooperation with the company is Deltec Bank & Trust in the Bahamas . I met Jean Chalopin, the chairman of this bank, in Deltec’s office. Deltec’s office is located on the top floor of a six-story building in Nassau (the capital of Panama), surrounded by palm trees. In the past, Jean Chalopin collaborated with others to create the cartoon “Inspector Gadget”. There is also a painting hanging on the door of his office, depicting a robot policeman wearing a trench coat in the 1980s. The cover of the magazine is displayed on the shelf. The cover character is Chalopin’s wife. She has been a model and her daughter is a singer. Chalopin, 71, has shaggy red hair and wears a pair of rimless round glasses. When we sat down, he took out a book on financial fraud, “Misplaced Trus” (Misplaced Trus) from the shelf. “People do interesting things for money,” he said mysteriously.

He made himself a cup of tea and told me that he sold his first animation studio, DIC Entertainment, in 1987 and then came to the Bahamas. This deal made him rich-he bought a castle outside of Paris and a pink colony in the Bahamas, which was later used as a movie in the 2006 James Bond movie “Casino Royale” The home of the villain. He worked at Deltec Bank and later became friends with the company’s elderly founder.

This bank, which once operated investment banking business throughout Latin America, has reduced its assets to only billions of dollars. Chalopin invested in it and eventually became the bank’s largest shareholder. Banks in the Bahamas are often portrayed as a money launderer’s paradise in movies, but Chalopin stated that Deltec’s advantage lies in customer service, not confidentiality. He decided to find customers in new business areas such as biotechnology, gene editing, and artificial intelligence. These customers are too small to get the personal attention of big banks. Another area is cryptocurrency . “Cryptocurrency is like,’Don’t touch it, it’s dangerous,'” he said. “If you go a little deeper, you will find that this is not the case.”

The mystery of Tether's  billion reserve fund

Above: Jean Chalopin, Chairman of Deltec Bank & Trust. Photograph: Rebecca Sapp/Getty Images

He said that in 2017, a customer who got rich through Bitcoin introduced him to Tether’s Devasini. Devasini made a risotto for Chalopin, and he was impressed by his straightforwardness. When they discovered that Devasini and Chalopin’s mother grew up in the same Italian village, they began to call each other cugino (cousin). Devasini bought a house near Chalopin’s home in the Bahamas. Together, they bought the waterfront plot and divided it between the two properties. Chalopin told me that Tether was unfairly slandered . “There is no agenda or conspiracy,” he said. “They are not Enron or Madoff. When a problem arises, they resolve it with dignity.”

Chalopin stated that he investigated Tether for months before accepting Tether as a customer of Deltec Bank in November 2018. He signed a letter guaranteeing his assets. To his surprise, critics still insist that Tether is not backed by cash. “Frankly, the most important thing at the time was that people thought that’their capital reserves simply did not exist,'” he said. “We know the existence of this money! It’s here (Deltec Bank).”

But when I asked Chalopin if he was sure that Tether’s assets are now completely safe, he laughed . He said that this is a difficult question to answer. He only holds Tether’s cash and extremely low-risk bonds. But recently Tether has started to use other banks to process its funds. Only a quarter of them (approximately US$15 billion) are still in Deltec Bank . “I can’t say things I don’t know,” he said. “I can only control what we can control.”

After returning to the United States, I got a document showing the detailed reserve accounts of Tether Holdings. The documents show that these include billions of dollars in short-term loans to large Chinese companies , which money market funds avoid. And that was before China Evergrande Group, one of China’s largest real estate developers, began to collapse. I also learned that Tether has also provided billions of dollars worth of loans to other crypto companies, which are secured by Bitcoin .

One of them is the company Celsius Network Ltd. The founder of the company, Alex masinsky, told me that this is a large quasi-bank for cryptocurrency investors. He said that the company pays 5% to 6% interest rates for the approximately 1 billion Tether loans it borrowed .

Tether denies holding any Evergrande bonds, but its lawyer Hoegner declined to disclose whether Tether owns other Chinese commercial paper. Hoegner said that the vast majority of Tether’s commercial papers have received high ratings from credit rating companies, and the risk of secured loans is also very low, because borrowers must provide bitcoins with a higher value than the borrowed money . “As we have consistently proven, all Tether is fully supported,” the company said in a statement posted on its website after this article was published.

The scale of Tether’s investments in China and loans secured by cryptocurrencies may be quite large. If Devasini takes enough risk to get even 1% return on Tether’s entire reserves, then he and his partners will earn US$690 million in profits each year . But if these loans fail, even a small part of them, the value of a Tether will be less than $1 . In this case, any investor holding Tether will have an incentive to redeem Tether; if others redeem first, then Tether’s reserves may be exhausted. A bank run will be staged.

In July of this year, officials meeting in the U.S. Treasury Department are discussing regulating Tether like a bank, which will force Devasini to finally announce the whereabouts of its reserves, and even weaken Tether by issuing an official U.S. stablecoin . The strange thing is that, at least so far, most participants in the cryptocurrency market, including some very large and complex operators, don’t seem to care about any risks . Just last month, traders bought 3 billion U.S. dollars of newly minted Tether, presumably injecting billions of dollars into Jean Chalopin’s Bahamian bank Deltec in exchange for Giancarlo Devasini created by Giancarlo Devasini that has become the target of US criminal investigations. Tether coin managed by Tether executives.

This situation is similar to the “wild cat” era of American banking. At the beginning of the American Civil War, President Abraham Lincoln began printing federal banknotes and imposing prohibitive taxes on other currencies, and the “Wildcat” banknotes situation was over. These “Wildcat” banknotes that once powered the frontier urban economy have now been abandoned. Some people give them to children. In the countryside, they are used as wallpaper.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/the-mystery-of-tethers-69-billion-reserve-fund/
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