USDT black history is a basket, how far can the stable currency go away from supervision?

USDT black history is a basket, how far can the stable currency go away from supervision?

In the past year, USDT has been in constant accidents. Yesterday, Tether was exposed to the suspected joint operation with Bitfinex to “manipulate the market”? Affected by it, the newly recovered currency market suffered heavy losses, and mainstream currencies plummeted across the board.

The incident was caused by the statement of the Office of the Attorney General of New York (NYSAG) that the Office of Audit (OAG) is investigating "fraudulent conduct by Bitfinex and Tether." The document mentions that Bitfinex, a well-known exchange, lost $850 million and tried to cover up the facts with Tether – using Tether funds to fill the loophole.

According to the Wall Street Journal, the Office of the Attorney General said that it has now obtained a court order requiring iFinex to stop transferring funds from Tether's reserves to Bitfinex's bank account, stop distributing any dividends or other dividends to executives, and hand over documents and information. According to the Office of the Attorney General, Bitfinex “borrowed” from Tether's reserves by at least $700 million.

Twelve hours before this, Tether issued 420 million USDTs, including an additional 300 million USDT, Ethereum and Wavefield platforms to generate 70 million ERC20 USDT and 49.9 million TRC20 USDT on the Bitcoin-based Omni protocol. According to statistics, a total of 640 million USDTs have been issued on the three major platforms since April. Up to now, USDT has issued more than 500 million copies. “Additional issuance” is also a “stubborn disease” that has been questioned by USDT for many years.

Two things happened one after another, which inevitably caused the imagination in the circle. Critics say Tether (USDT) has a market capitalization of more than $2 billion and does not actually receive sufficient funding to support it as its operators claim. These suspicions are further exacerbated by the failure to obtain proper audits as promised previously.

The incident also reflected on one side, how far can the stable currency's supervision and supervision be separated from the stable currency of supervision?

BBitfinex and Tether

The USDT is the most widely used and circulated stable currency in cryptocurrency, and its every move involves the nerves of the market. The USDT is a stable dollar based on a stable value currency launched by Tether. So, what does Tether have to do with Bitfinex?

In fact, the relationship between Bitfinex and Tether has been criticized. There are inextricable relationships between the two.

Bitfinex was registered in Hong Kong in March 2013 and is headquartered in Central, Hong Kong.

In late November 2014, Bitfinex's Chief Strategy Officer, Philip Potter, and Chief Financial Officer Giancarlo Devasini founded Tether in the British Virgin Islands and issued a stable digital currency USDT with a 1:1 anchor. 1USDT=1 USD, Tether promises to have one USD of bank guarantee for each USDT issued. Users can check the funds on the Tether platform to ensure transparency.

After the release of the USDT in February 2015, Bitfinex announced a USDT transaction. Subsequently, the trading platform Poloniex also announced support for USDT. Poloniex has risen strongly with the Ethereum and has also brought in the volume of USDT transactions.

In April 2017, after Wells Fargo cut off Bitfinex's banking business, Noble Bank in Puerto Rico took over the banking business of Bitfinex, while the bank account that provided USDT with USD equal guarantees was set up at Noble Bank.

In December 2017, Bitfinex and Tether were summoned by the US Commodity Futures Trading Commission for lack of transparency. Subsequently, the USDT issue of opaque, Bitfinex and Tether joined forces to “manipulate the market”.

In 2017, documents leaked by the offshore law firm Yibo Law Firm showed that Bitfinex CEO Philip Potter and CFO Giancarlo Devasini founded Tether Holdings Limited in the British Virgin Islands. On the other hand, Tether's official website and its Hong Kong company are wholly-owned by Tether Holdings Limited.

Previously, both Bitfinex and Tether issued announcements stating that they had no interest in each other.

In fact, Bitfinex is a digital currency exchange, and its CEO, CFO, and general counsel are all in the same position at Tether. In addition to the Tether and Bitfinex community of interests, their relationship with FSS and Noble Bank is also unusual. According to the information, the lawyer of Eugene R. Sullivan of FSS has also served as legal counsel for Noble Bank and Tether and Bitfinex.

Exchanges, issuers, audit firms, and custodian banks have a high degree of personnel connections. Some even suspect that these institutions are actually family members. Gossip, it is hard to say that it is purely coincidental.

The black history of the USDT is constantly

After several years of development, USDT has become the stable currency with the highest market share. However, at the time of the USDT fire, it was also unregulated; it was arbitrarily issued; the amount of funds in the Tether account was insufficient, the Tether bank account information was not disclosed, and a credible audit report was never published to prove that it had a corresponding dollar reserve, some core The information is unwilling to be disclosed to the outside world… and is questioned.

In June 2018, John M. Griffin, a professor of finance at the University of Texas, published a paper entitled Is Bitcoin Really Un-Tethered?, accusing the Tether of 50% of the rise in Tether last year.

In an interview with the media, John M. Griffin also mentioned that Tether is usually issued in large quantities for $200 million at a time, and then transferred to Bitfinex. When Bitcoin prices fall after Tether's release, Bitfinex and other exchanges Tether bought Bitcoin "in a way that synergistically pushes up prices."

On February 8, 2017, an author nicknamed "Bitfinex'ed" published an article on Medium called "Bitfinex Don't Want to Hear". The multiple recordings included in this article show that the Tether team and the Bitfinex team are discussing bank fraud, money laundering, and even acknowledging financial fraud.

An executive at Tether, Phil Potter, even admitted in the leaked recording that the company had set up a company account in Taiwan to transfer money and did something that needed to be "obscured." At the time, Phil Potter was not only the head of Tether, but the chief strategist of Bitfinex.

A few months later, Phil Potter officially resigned as Chief Strategy Officer and said that "With the expansion of Bitfinex worldwide, I as an American need to re-examine their position in the team."

In April 2017, three bank accounts established by Tether in Taiwan were banned due to financial fraud. Coincidentally, in January 2018, Friedman LLP, which had previously served as Tether auditing business, announced that it had sever contact with Tether.

On January 24, 2018, an anonymous report stated that as of January 4, 2018, Tether had issued a total of 91 additional USDTs. The report also raised the question: Does Tether transfer USDT to Bitfinex's wallet without receiving the US dollar, and use USDT to buy low-priced bitcoin for profit or trade.

In the face of market rumors, on June 20, 2018, Tether issued a "Transparent Report" issued by a law firm. This transparent report not only did not reassure investors, but also caused more doubts. Tether explained that because the four major accounting firms are not willing to endorse them, they can only ask for help from law firms.

On October 1, 2018, Bloomberg reported that the Nob Bank, the major reserve bank of USDT, was affected by the digital currency bear market and was on the verge of bankruptcy. For a time, the USDT can't be exchanged for the USD's upcoming thunderous remarks.

On October 15, Bloomberg again wrote that if the government authorities were looking for any evidence of Tether’s wrongdoing, or if users lost confidence in Tether’s ability to redeem its cryptocurrency for $1, the USDT would soon lose. value. The USDT suffered a large panic selling, which fell to 13%. Although Tether also stated that there is no problem with its cash withdrawal, the event of asset flight of USDT further shows investors' concern about the lack of credibility of USDT. Many people in the currency circle also expressed their transfer to a stable and stable currency. View.

On October 17, informed sources revealed that Tether's partnership with Noble Bank has ended and is discussing cooperation with Deltec Bank of the Bahamas.

On November 1, 2018, Tether announced that it had established a partnership with the Deltec Bank in the Bahamas and announced the bank's approximately $1.83 billion in assets. According to CoinMarketCap, the total USDT circulation was approximately 17.76. Billion. Tether's report gave the investors at that time a "reassuring", and the panic that lasted for more than half a month eased. However, many people still expressed concern, saying: "The non-transparent stable currency has a big problem of trust. It is a time bomb that will bring a credit impact to the market at any time."

In March 2019, Tether revised the terms of service on the website and revealed that the reserves used to support USDT may not be entirely constituted by fiat currencies. Announced in addition to cash, it is also supported by “reserve assets”, including traditional currency and cash equivalents, as well as some ambiguous terms in terms of terms, such as “Tether provides to third parties (or subordinate entities) Loans, assets and receivables."

After the revision, the endorsement of the stable currency USDT became a 75% dollar anchor (currency and cash equivalent) and 25% iFinex stock secured loan (for other assets and accounts receivable in the terms), which is quite large. Credit risk.

Unregulated, over-issued, misappropriated funds, audit opaque… a little bit of user trust in USDT.

Stabilizing the future of the currency

In essence, a stable currency like the USDT is endorsed by real-world assets and issued by private companies based on full dollar collateral, and its monetary policy is not independent. Opaque agreements, over-risk risks, fuzzy information, and inaccurate code updates are all killers of "stabilized coins." Therefore, under normal circumstances, everyone is facing the potential risk of “unstable”.

The USDT event is not accidental, and the USDT risk also reflects the systemic risk of the stable currency supported by the French currency. Not just the Tether family. The reason is that these stable coins use the same model as the USDT, and in the reality of the assets, they also cooperate with Tether and the high-risk small banks. Therefore, although the stable currency has asset collateral, the risk is still very large.

Although recent projects have made significant progress in regulation, such as obtaining government approval. But everyone needs to distinguish the difference in government attitudes. For example, in a press release announced by the New York Financial Services Department, it is clear that the purpose of regulation is not to solve the risks inherent in the project.

The incident also revealed the intention of supervision. The Office of the Attorney General of New York may have conveyed two intentions. One is to use the way of releasing the facts to send a signal to the market; the other intention may be that the regulator does not recognize such an operation, the Office of the Attorney General of New York It is preparing to be punished with the illegal participation of Bitfinex and Tether in the name of the cryptocurrency industry.

Tether trusted the crisis and turned investors to other stable currencies with better qualifications. At the same time, the emergence of regulated stable currencies has also begun to attract investment attention.

On September 10, 2018, the New York Financial Services Authority (NYDFS) also approved two stable coins based on Ethereum, namely GUSD and PAX.

The two approved cryptocurrencies were approved by the Gemini dollar issued by the twin twins Winklevoss and the Paxos Standard by Paxos, a blockchain company focused on serving financial institutions. Both companies are trust companies incorporated in the United States.

The exchange Gemini announced that the world's first regulated stable currency, Gemini Dollar (GUSD), was officially released. The regulator mentioned in the Gemini announcement is the New York Financial Services Authority (NYDFS). The New York Financial Services Authority is the financial regulator of New York State. It is not a US federal agency and cannot be equated with the US government's endorsement.

In contrast, the fact that TrueUSD's main company is licensed by FinCEN is more convincing. FinCEN is the Financial Crimes Inspection Bureau under the US Treasury. According to the US Bank Secrecy Act BSA, all money service business MSBs must be registered at FinCEN.

However, whether it is regulated by FinCEN or NYDFS, it is closer to a business registration license, and it has not penetrated into the level of financial security protection. The difference is that PrimeTrust, as the custodian of the US regulatory approval for the bank, has compliance guarantees for the entire process of asset custody, fund clearing and transaction processing.

Not only that, but many investment exchanges have also launched their own stable coins. In October last year, Firecoin announced the launch of the stable currency comprehensive solution HUSD; on March 27 this year, OK Group strategically invested in Prime Trust, and said in the announcement that the stable currency OKUSD will be issued soon. Earlier this month, the exchange Coinsquare also announced that it will issue stable coins anchored to the Canadian dollar. The same problem of how to solve the supervision of exchange funds in the future is also a big problem in front of these stable coins.

Most importantly, we have seen many traditional financial technology companies also begin to focus on the stable currency market. On March 16, JP Morgan Chase plans to launch JPM Coin, based on the Stronghold USD released by World Wire. After that, IBM also announced the latest progress of its stable currency. And Japan's Mizuho Bank launched a class of stable currency J Coin, and even some time ago, the secret currency plan of FaceBook, perhaps with the resources of the giant, the business model of cryptocurrency, stable currency blessing, can really create an era.

Stabilizing coins are regarded as the holy grail of the blockchain world. They are an indispensable currency in the world of cryptocurrency. It can be said that its development and blockchain are bound together. I believe that after the incident, the USDT foundation has moved, and the stable currency market will surely rise.

It is hoped that national regulators will launch a smart contract “stable currency” system based on a broader consensus, safe, reliable and open. Providing a corresponding sustainable incentive mechanism for the “stabilized currency” through the system's laws (code) is the right way to maintain “relative stability”. (内参君)