Tether USDT: Big game of bitcoin down

A story about what’s really going on in crypto – and what to do about it. This article is specifically for those of you who have a lot of cryptocurrency or plan to invest in it. I encourage you to read to the end for more information.

Tether USDT

Before starting this story, you need to find out several key points. There are tokens on the market called tether . To simplify a little, they are issued by a crypto company called Tether Ltd. In other words, if Tether Ltd. He says that you have Tether token, then you have it.

Tether Ltd. also says that one Tether is worth exactly one U.S. dollar. How can they provide that? Well, they say they can because they hold assets worth $1 for each Tether. But are those assets real dollars? No, they are not. What if the assets fall in value? Don’t worry, they won’t. Okay, but can we at least see these assets? No, you can’t.

Who in their right mind would use something like Tether? Well, the short answer is that many people use them to buy bitcoins and other cryptocurrencies. The long answer, however, is startling – but more on that later.

Since Tether sounds like currency fraud, you would hardly be surprised that Tether Ltd. is currently under investigation by the Attorney General’s Office for the Southern District of New York. The investigation was announced on April 25, 2019.


Now let’s move forward a year. In March 2020, I bought a large number of bitcoins. At that time, I saw the market moving and saw the possibility of significant dollar inflation because of the possible reaction of the U.S. government to the unfolding pandemic.

I suspected that bitcoin would be resistant to inflation due to forced deficits. Knowing about the investigation of Tether, I assumed that everything is clear with Tether and now tokens will probably be removed from the markets, so I did not consider this factor when buying.

It was a huge mistake.


Until the end of 2020, my inflation thesis looked correct. U.S. turmoil, combined with predictably high levels of credit and consumer spending after the pandemic, would likely contribute to substantial dollar inflation in real terms through the end of 2021. In the same period, bitcoin shortages are building up in the market due to demand in the broad masses.

The market seemed to agree with this thesis as well. My bitcoin position doubled in value, then doubled again. By the end of the year, I was sitting on 600% profit and getting decently rich in nominal dollars.

I intended to keep bitcoins for a very long time – it never even occurred to me to sell them, despite the daily rate fluctuations. And then at the beginning of January I came across a forum post.


On January 8, I saw a post on Hacker News about how Tether manipulates the cost of bitcoin. It shocked me: I assumed that Tether was removed from cryptotics, but it turned out not so. But how many of these tokens can really be in the market? Of course, not much. And yet I looked. The answer was amazing: there are a lot of them really .

The left side of the graph shows which currencies are used to buy bitcoin on all cryptocurrencies. The right side shows which currencies are derived from bitcoin (that is, what bitcoin is used to buy). The chart shows typical numbers as of early January 2021.

Bottom line: more than two-thirds of all bitcoins worth $10 billion in the previous 24 hours were bought with Tether. Moreover, this pattern is not unique to bitcoin. The same for all other popular cryptocurrencies:

Looks like I was wrong. Tether tokens didn’t just stay on the market – they were the market.


This disturbed me. Most of my fortune was bitcoins, and bitcoins seemed to be representable as Tether. And the issuing company of Tether was under investigation. I urgently needed to find out how real the risk was.

I got rid of my current business and started digging. It was immediately obvious that if Tether flows were partially or fully fraudulent, it would have a significant impact on the market price of bitcoin (although $10 billion from Tether is only 1.4% of bitcoin’s nominal market capitalization of $700 billion, what really matters is the share of daily BTC turnover, and here Tether accounts for about 70%).

How to find out the truth about Tether, is there an element of fraud? One indirect indication could be what exchanges it is traded on. I knew that some exchanges like Coinbase use strict anti-money laundering rules, while many other exchanges have less strict rules. Is there some pattern that some exchanges support Tether and others don’t?

It is. Here is the volume of transactions on Coinbase Pro in a typical 24-hour period

Note that crypto goes mainly in dollars, euros and British pounds – currencies under strict control of the authorities of their countries.

But infusion in a crypt through binance :



The pattern is obvious. Almost the whole cryptocurrency on these three exchanges is bought for Tether. Dollars are not used at all.

And the volumes are enormous. Coinbase Pro is responsible for about $4 billion in daily turnover, but Binance alone accounts for more than $50 billion in turnover, and each of the other two exchanges is larger than Coinbase. On these three exchanges, most of the crypto is traded for Tether.

Binance, Bit-Z, and HitBTC are “unbanked” exchanges. This means that they have no direct access to the US financial system, most likely because no US institution wants to serve as their domestic correspondent bank (Binance US, Binance’s partner, does allow purchases in dollars. But its daily volume is only 10% of that of Coinbase – and less than 1% of its offshore counterpart – so the impact on the crypto markets is small).

Crypto exchanges find it difficult to establish contact with banks, but Coinbase, Bitstamp and several other high-quality exchanges have succeeded thanks to strict know-your-customer (KYC) and anti-money laundering (AML) policies.

But most of all I was alert that not one of the two most reputable exchanges with dollar banks – Coinbase and Bitstamp – generally support Tether trade. If Tether was in order, they would have no reason to abandon the commission for this trading pair. If only their security departments did not consider this token too risky to work with it.

Deep immersion

By this time I was worried that my position in bitcoin might be too risky. But I needed more proof before deciding to make such a big sale.

I had to get more information about Tether – information as free as possible from marketing distortions. I found what I was looking for in documents related to the ongoing investigation by the New York prosecutor’s office into Tether Ltd.

I’ll skip most of the content and just list the three main conclusions I drew:

  1. On February 26, 2019 – two months before the official investigation began – prosecutors requested a large number of documents from Tether Ltd. The purpose of the request is to understand how Tether tokens are issued, maintained and accounted for, as well as how they participate in the cryptoecosystem.
  2. From the start of the formal investigation on April 25, 2019 to July 9, 2020 – nearly 15 (!) months – Tether Ltd. has been making a series of legal objections to the investigation, apparently aimed at delaying the transfer of documents to prosecutors.
  3. On July 9, 2020, the New York Supreme Court dismissed Tether Ltd.’s latest appeal, effectively forcing Tether Ltd. to comply with prosecutors’ requests for documents. Moreover, Judge J. Gesmer’s opinion breaks down every aspect of Tether Ltd.’s argument (here’s a good commentary on it), suggesting that Tether Ltd.’s appeal was not originally intended to be realistic at all. Rather, it was part of a strategy to delay disclosure by any means possible.

That’s not a good thing. Then I thought: did any other significant event happen with Tether on or about July 9, 2020?

I looked and found something.

The chart shows the market capitalization of all Tether tokens between January 13, 2019 and January 13, 2021 (blue curve). Since Tether is nominally equal to a dollar, the total market capitalization of Tether in dollars is always equal to the total amount of Tether (the numbers on the vertical axis do not correspond to market capitalization, but for scale, the highest point of the blue curve corresponds to approximately $25 billion).

The first red arrow on the graph indicates April 25, 2019 : an announcement of the prosecutor’s office about the beginning of the investigation. Pay attention to how Tether emissions grow in the course of the investigation: large single blocks of $ 1 billion every few months.

The second arrow is July 9, 2020 : the date of the decision of the New York Court forcing Tether Ltd. Start the process of transferring documents to the prosecutor’s office. Two weeks after that Tether Ltd. It produces another large block of tokens with a face value of about $ 800 million. And shortly after that – September 1 – the Tether emission scheme is completely changing.

Starting in September, Tether Ltd. began issuing several large blocks a day. The pace is accelerating, with $2.3 billion worth of tokens issued in the first week of 2021 alone.

This is consistent with the assumption that as various appeals were rejected, Tether Ltd. tried to issue tokens faster and faster to maximize the amount of value it could extract from the crypto ecosystem before it was shut down. The pace is accelerating closer to Tether Ltd.’s final disclosure deadline. – Jan. 15, 2021.

There was still one last question. Does the issue of Tether really correlate with the bitcoin price? The charts give a clear affirmative answer:

This chart highlights three main periods of high relative Tether issuance: 1) April 2019-July 2019; 2) April 2020-July 2020; and 3) September 2020-present. Throughout all three periods, bitcoin’s price growth is noticeable (here, the red arrows point to the same two dates as in the Tether chart above).

This pattern has not yet proved that Tether release is increasing price for bitcoin. Perhaps the market demand for bitcoin pushed real dollars in Tether Ltd. Through some unknown mechanism, then Tether Ltd. I produced tokens in exchange for these dollars and these released tokens were then used to buy bitcoin. With this scenario, the growth of Tether itself is caused by the demand for bitcoin, and in the end, tokens can be fully provided with dollars.

Nevertheless, I thought the risks were too high. I was sitting in a long position on BTC, bitcoin was clearly correlated with Tether, and Tether was being issued at a breakneck speed and this issue was very likely not backed by anything at all. I realized: it’s time to get out.


On January 9, 2021, I liquidated my bitcoin position. In the process, I recorded a profit in dollars, which – in the interest of full disclosure – I can only describe as follows: this money will change my life.

At the time, I had not yet seen the whole picture. For example, I still assumed that Tether could be backed by real assets. I thought roughly like this: “Of the 70% of Tether’s flows into bitcoin, some part is real; some part is illegal (like buying drugs); and some part is pure fiction. I have no idea what the relevant portions are, but I personally can’t take that risk.”

I was a little worried that I might have miscalculated. Perhaps Tether is a largely secured token and if so, I got out wrong. And then by pure coincidence I had a conversation that blew my mind.


I was video chatting with a friend, let’s call him Bob. I had just gotten out of bitcoin and was nervously waiting for confirmation from the bank that the transfer from the exchange had been verified and validated. I was still pondering crypto, so I asked Bob.

The conversation went something like this:

I : do you have no crypt? I’m thinking that some ecosystem transactions can be fraudulent.
Bob : In fact, I have a whole bunch of crypts on Bybit. Is this a risky option?
I : I’m not sure. It allows you to trade in dollars?
Bob : No, but many other exchanges too. In fact, you can’t even throw dollars right on Bybit.
I : right? But then how do you make money at all if they do not accept dollars?
Bob : send dollars to Coinbase and buy bitcoins. Then you send bitcoins to Bybit and trading there.
I : Wait. If so, then why use the Nakop -Bank Offshore Exchange at all, which trades exclusively with crypto? What is there on Bybit, what is not on Coinbase?
bob : shoulder. Personally, I use only a two or three-fold shoulder, but they allow you to multiply a position to 100x, if you want. There is no such thing on Coinbase.
I : *I am loudly suffocating *
bob : they still have a lot of advertising actions and missions for the time where you can earn tokens For completing all tasks, such as joining the Telegram group or invit friends to the exchange or exceed a certain amount of trading.
I : Your mother!@
Bob : But thanks for the warning! I will take the crypt as quickly as possible. Although this can take a few minutes, first you need to start the VPN.
I : VPN? But Lord, why?
Bob : you have to go to the exchange through the Bolivian provider. She is also illegal for US residents.
I : *The head explodes *

There is a scene in the movie “The Down Game” where Mike Baum meets a stripper who has taken out a mortgage on five properties. The stripper sees nothing wrong with it because the mortgage broker tells her that she can always refinance her loans when prices go up. And real estate will always get more expensive.

Up to this point in the film, Mike’s investigation has revolved around bonds, mortgage rates and CDOs. But an encounter with a stripper shows him the state of the market: For the first time, Mike sees someone who is on the other side of a mortgage deal. And it is this that ultimately convinces him to short real estate securities.

For me, that’s what the conversation with Bobby was like: the first time I saw what it was like to be a victim of financial disaster.

Smoking pistol

The conversation with Bob changed my view of Tether. I now saw them not as a source of excessive risk, but as a very likely fraud. Part of the reason was this massive bonus giveaway. The amounts in Tether tokens that Bybit, Binance, and other similar exchanges were giving away to people like Bob seemed incompatible with the income these exchanges could expect from the average user.

To get an idea of the bonuses, I ran an anonymized Google search for [Binance bonuses]. One of the first results in the output was a page on binance.com: “At the end of the year there is a special promotion where the user gets a 500 USDT [Tether] savings voucher!”

On the other hand, a similar search [Coinbase bonuses] yielded nothing. This suggests that offshore exchanges may be more willing to give away Tether than Coinbase is to give away dollars. This implies that offshore exchanges value tokens cheaper than face value.

Once I knew what to look for, everything fell into place. First, I found this thread on Twitter with information that Tether is released in blocks in exact, perfectly round numbers (USDT is the ticker for Tether in the screenshot below).

This is unusual: if the demand for tokens is real, then Tether Ltd. could combine several dollar deposits into one issuance block. Such combinations do not have to add up to perfectly round numbers every time. Moreover, the supposed USD investments (e.g., 401,431,056 USD at top left) yield perfectly round numbers (400,000,000 USDT in the same transaction) in each block – regardless of the exchange rate or anything else.

That in itself is strange. But if you compare it to the issuance patterns of USD Coin – Coinbase’s own steblecoin, which is backed by real reserves – the difference is enormous (in the screenshot below USDC is the USD Coin ticker).

USD Coin’s issuance process is quite different from Tether’s. USD Coin’s issuance blocks are smaller and their size varies more: while Tether blocks range from 150 million to 400 million, USD Coin blocks range from about 7 million to about 60 million.

In addition, USD Coin issue blocks are randomly sized (e.g., 9,374,133 USDC in the top transaction). This corresponds to the actual demand for tokens and dollars received from a group of heterogeneous investors who are bundled into each issuance block.

The final nail in the coffin is the lack of visible reserves at Tether Ltd. If it really took a dollar for each token issued, then it should have as many dollars in its bank account as the tokens were issued. And it turns out that can be checked! Their bank is Deltec in the Bahamas, and the Bahamas publishes every month how much foreign currency is in their accounts.

The numbers show that, at least as of the end of September 2020, this money is not enough:

From January 2020 to September 2020, the amount of funds in all foreign currencies in all banks of the Bahamas increased by only $ 600 million – from $ 4.7 billion to $ 5.3 billion (table in Bahami dollars, but it is tied to the US dollar, so 1 BSD = 1 USD).

But over the same period, the total volume of the released Tether increased by almost $ 5.4 billion – from $ 4.6 billion to $ 10 billion! This follows a shocking conclusion: in all banks on Bagams there will not be enough dollars to support Tether in the crypto. So this is a big game for lowering crypts: Tether Ltd. There are simply not enough dollars – for about $ 25 billion.

General picture

After finishing my investigation, I waited anxiously for events to continue. I got out of bitcoin, but the bank transfer had not yet arrived – the risk of an unreliable counterparty was still hanging over me. So I couldn’t feel at ease until I was completely out of the market, which was built on fraud, as it turned out.

In my mind, I combined Bob’s experience with other evidence and drew a mental picture of the basic mechanism of fraud. Here’s how it might work:

  1. Crypto investor Bob transfers real $100 to Coinbase.
  2. Then buys bitcoins for that amount on Coinbase.
  3. Bob transfers his bitcoins to an off-bank exchange like Bybit.
  4. Bob starts trading crypto on Bybit, using leverage and receiving promotional gifts – all denominated in Tether.
  5. Tether Ltd. buys Bob’s bitcoins from him on the exchange, almost certainly through a proxy trading account from another person. Bob is paid in Tether tokens
  6. Tether Ltd. takes Bob’s bitcoins and moves them to a banking exchange like Coinbase.
  7. Finally, Tether Ltd. sells Bob’s bitcoins on Coinbase for dollars and exits the market.

I assume that Tether Ltd. (via proxy accounts) is responsible for only a small part of the demand on these exchanges. But with a daily turnover of $50 billion on Binance, even a small portion of that turnover represents huge amounts. And if your business involves exchanging fake dollars for real ones, the profits can be quite high.

In the example above, Tether Ltd. bought bitcoins from Bob at face value in Tether tokens – but that bitcoin was payment for access to awesome leverage and promotional bonuses from the exchange. And this very leverage, and these very shares, are all denominated in Tether tokens, which I suspect Tether Ltd. hands over to the exchange in huge quantities to subsidize user purchases through additional shares.

This explains how Tether was able to maintain its stable rate of $1 on off-bank offshore exchanges. For a certain amount of bitcoins, a cryptotrader gets effective access to far more tokens than the exchange rate would allow. But exchanges use these extra tokens as “leverage” and “equity. This is how they maintain the illusion that these “free” tokens are not traded for bitcoins at all – even if they give them out to Bob as part of the package for his BTC.

From this point of view, the absence of a dollar on offshore exchanges is not a bug, but a chip: in a transparent market, it is critical to prevent the dollar and Tether tokens from meeting, so that the true price of the token remains opaque and no one can challenge its fixed $1 rate.

Forget about offshore exchange activity for a moment and imagine a simple picture. Imagine that you are standing at a kiosk of sorts, where Coinbase connects to the U.S. financial system. There are two lines of people in front of you. One queue consists of crypto investors investing dollars, and the other consists of crooks withdrawing dollars.

An hour after I finally figured out all this colossal mess, a notification came from the bank. My transfer from the exchange was confirmed. I was out of the market.

epilogue. In the country of the blind

In my normal life I am the founder of a fairly successful startup. In my job, I have to constantly follow the posts of other startups and venture capitalists. By and large, these people are friendly, highly intelligent, and deeply competent in understanding markets.

What is going on here? How can a community overlook a fraud of this magnitude? I suppose part of the answer lies in illiquidity.

illiquid market – this is the one from which you cannot get out quickly. The ecosystem of startups is very illiquid: the founders need years, or even decades, in order to withdraw money from the business they are building. The founders of startups – and venture capitalists who support them – mainly have experience in illiquid markets.

Scammers don’t like illiquid markets. Scammers like to cash out quickly: the longer they stay in one place, the more likely they are to get caught because they are scammers.

Since illiquid markets are no match for cheaters, the illiquid startup ecosystem turns out to be largely (though not completely!) free of them. This is one of the reasons why it is so nice to work here, but it also means that the community has never developed a large collective radar for fraud: it simply isn’t needed.

But the startup community has a fantastic collective radar for things that:

1) start small;

2) are growing fast;

3) challenge the current state of affairs;

4) are misunderstood by the masses at large.

These are the signs of a promising startup! And the community knows how important it is to recognize and appreciate these things.

Unfortunately, these are also signs of fraud. But there are very few scammers in the community of startups, so we tend to ignore such an opportunity – and in the crypt a completely different situation. Unlike startups, this is a highly liquid market – exactly one that attracts scammers, and scammers like to deceive. This means that if in the world of crypts something looks like a promising startup, it is most likely fraud.

But it is more than that: among other things, crypto is indeed a promising technology. Its value lies in decentralization and resistance to censorship, in the reliable execution of contracts. The value is at Schelling’s point for a scarce asset. The startup community sees this potential value correctly. But without a good fraud radar at this point, it’s impossible to assess how real this value is.

I think the startup community is about to recalibrate its fraud radar. This recalibration – and the exorbitant fee the market will charge for it – will become mandatory for any owner of significant amounts of crypto.

So what’s the bottom line? There are still a few more questions.

Can we end this fraud right now?

Is it possible to put a quick end to this fraud so that as few people as possible suffer from it? I think you can.

Legal crypto exchanges such as Coinbase and Bitstamp clearly stay away from Tether: none of them support these tokens. And it’s mutual! Because if Tether Ltd. let its tokens into the big liquid dollar market, the fraud would become instantly obvious to everyone when the market price of Tether drops well below $1.

Kraken is the largest cryptocurrency exchange where Tether tokens are freely traded for dollars.

The market there is quite modest – about $16 million a day for this pair – and Tether Ltd. certainly has to keep a very close eye on it. In fact, Tether Ltd. has no choice but to buy all the tokens being sold here, otherwise this whole charade will be exposed.

My guess is that maintaining the Kraken rate represents a major expense for the scammers. If they don’t scrape together enough dollars to keep the Kraken rate up, it’s game over, it’s all ruined. That’s their weak spot.

Once again for clarity: with each Tether sale on Kraken, you force Tether Ltd. Pay you in US dollars. If you sell enough tokens, then Tether Ltd. dollars will end, and this whole machine, which currently supports 70% of all crypto -trade flows, will simply fall apart.

Perhaps hedge fund managers should reread the paragraph above and consider the implications.

How to prevent this in the future?

I have a few suggestions.

The New York Prosecutor’s Office must receive a lawsuit that blocks any further issue of Tether . This should be done as soon as possible, as much as possible in the procedural and legal sense. At stake, not only blood money of countless people. The emission of pseudo -drifts in dollar terms without support and restrictions jeopardizes the country’s ability to regulate its own financial system.

To be clear, this situation should be of extreme concern to the authorities. In essence, there is now an unregulated foreign entity printing dollars with impunity. There is reason to believe that this represents a direct attack on the U.S. dollar – and the longer it continues, the more it risks calling into question the integrity of the entire U.S. financial system.

The US Treasury should require 100% of the reserve coating for all stablecoins tied to the US dollar with the obligatory audit . Crypts have great potential-the startup community correctly understood this part! – But this potential is not realized if the industry is teeming with scammers. And although excessive regulation is a real problem, but such a long and large -scale fraud is a clear sign that we need a mechanism for checking reserves of emitters of stablecoins.

Healthy regulation increases, not decreases, the value of the ecosystem. Bitcoin may be unstable on its own, but if it is bought with fake dollars, its rate in dollars will also be fake. To trust bitcoin’s valuation, we must verify the reality of the dollars it is being pumped with.

Why did I write this?

Before that conversation with Bob, I had been thinking about the problem in the abstract: there is a riddle to be solved; there is money to be made. But after the conversation, I looked at the situation through the eyes of a real person-the one who had taken the wrong side in this scheme.

There are millions of Beans living in the world. Many are up to their ears in Tether on off-bank exchanges. Thousands more buy these tokens every day. And almost all of them will lose money when the pyramid collapses.

This is an unpleasant situation even for normal times. But during a pandemic, it is a disaster. Huge sums of money for millions of people will be destroyed. Individuals, families, and the most vulnerable among us will be devastated at the worst possible time. This is not a game: human pain will be real and unbearable. And the longer the deception continues, the greater the pain will be. I wrote this to stop the lawlessness.

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