Ari Paul on Twitter
>1/ The big tether tweetstorm: I get asked about tether constantly by reporters, investors, fellow fund managers, etc. I've avoided saying anything direct in public because I have no clear information.
>2/ First the caveats. I have no clear information. I bring nothing new to the table in the discussion, all I can provide is how I've tried to make sense of the info I have. I also have a conflict of interest in that BlockTower is investor/adviser to Trust Token, a competitor.
>3/ What questions are we trying to answer: Is tether collateralized, and if so, is it fully backed by USD or by other assets? Is the printing of tether always in direct response to new USD inflows or is it a 'slush fund' of some sort?
>4/ Has tether printing pushed up the price of Bitcoin or other assets? What are any risks of tether not covered by the above? And lastly, is tether a systemic risk to cryptocurrency markets or prices more broadly?
>5/ What do we know? Very little for sure. We have very good reason to believe that Bitfinex (and the other exchanges that make use of USDT) have been insanely profitable over the past year. Ponzis don't usually occur in those scenarios.
>6/ There is no available audit, and no way to confirm that assets backing it exist, and if they exist, that they are in a bank account that backs tether (as opposed to a more general purpose slush fund.)
>7/ Mitigating this slightly is that some individuals report having seen tether representatives log in to bank web portals and show billions in USD in bank accounts.
>8/ Detailed statistical analysis has been published showing that shortly after tether is printed, BTC tends to rise. This is used by some as evidence that tether is pushing up crypto prices. The simpler explanation is this:
>9/ When people wire USD to various exchanges, they are credited with USDT, and they then purchase BTC and other cryptocurrencies. Thus the relationship of USDT printing followed by BTC rallies is not inherently suspicious in my eyes.
>10/ The CFTC has subpoenaed Bitfinex and tether. This isn't evidence of anything in my eyes, since many large financial institutions are routinely subpoenaed. Simply having rumors published in the NYT about the situation could be enough to trigger an inquiry.
>11/ I have heard from a half dozen individuals that have redeemed meaningful amounts of tether in the past couple months. Ponzis often allow some redemptions, so this is weak evidence in and of itself.
>12/ The tiny number of market participants who have created or redeemed tether (or who have reported being unable to do so) seems strange at face value. I think it is because the redemption process is very unwieldy and involves creating managed accounts.
>13/ We're half way through. To summarize the analysis so far: we don't know if tether is collateralized, but have little reason to suspect it's not: it's probably fully collateralized. The printing of tether is probably not artificially pushing up crypto prices.
>14/ One source of concern is that the printing of tether seems unnatural - it occurs in very large discreet blocks. The simple explanation is that tether management (or bitfinex) is batching incoming USD to simplify things. We lack clarity on this process.
>15/ What other concerns are there? Criminals use USD, EUR, prepaid debit cards, USDT, Bitcoin, and just about everything else to launder money. Most big banks have settled money laundering charges with the government.
>16/ So it's likely that, like anything that can be used as money, USDT has been used for money laundering by someone at some point. When processing huge numbers of large monetary transfers, it's almost impossible to follow every regulation perfectly (as banks routinely learn).
>17/ So one risk is that tether could be targeted by law enforcement or regulatory authorities for something related to fraud or money laundering, despite the best intentions of tether management.
>18/ If only tether was targeted, the outcome might be confiscation of funds, legal or civil penalties. Fall-out may be very limited if, say, the penalty was a small fine, or larger if tether itself was shut down and assets seized or frozen.
>19/ How might this become a systemic risk? The enforcement action could spread beyond tether to bitfinex, or possibly to other exchanges that list USDT on their platforms. I view the latter as very unlikely given the current regulatory climate.
>20/ In conclusion, based on the limited information that I have, I think that: tether is probably fully collateralized by USD. Tether has probably not been artificially pushing up crypto prices. Tether probably does face a meaningful risk of adverse regulatory action. And -
>21/ that regulatory action could be very minor (small fine), or more serious (shutting down of tether), with smaller risks of contagion to bitfinex broadly and other exchanges. I think the odds of tether meaningfully hurting the ecosystem is low.
