Tether: Crypto's Biggest Threat - YouTube

Tether, the largest stable coin in the world

can't seem to stay out of trouble.

Shady ties to shadow banking,

lawsuits and potential connections to

short-term Chinese corporate debt.

- Do you smell a scam in Tether?

- I've been saying that since, wow, since 2017

because there is no transparency in Tether.

That's the problem.

- Tether executives reportedly facing a criminal probe

- Tether accused of concealing from banks,

but these transactions were linked to crypto

- It's possible that Tether and by proxy the

entire crypto market has been providing backdoor finance

into the property sector in China.

- If true, this would have a cataclysmic effect on the crypto market.

So is this the end for Tether?

Should we stay away completely?

To understand the full picture, we need to know what Tether is.

Tether is a fiat-collateralized stablecoin

under the ticker symbol USDT.

And this is just a fancy way of saying

Tether is a crypto that's always worth $1,

and this just offers the ability to buy and sell blockchain based assets

without having to worry about price fluctuations.

The idea is if investors don't have to

worry about volatility, they'll just go ahead and

leave their money deposited on crypto exchanges.

Tether originally launched as RealCoin in July 2014

before rebranding later that year to Tether.

From small beginnings came massive growth.

As of December 12, 2021,

Tether had total assets amounting to $77.4 billion,

and they've only grown.

Their assets have increased 360%

since the beginning of 2021.

If Tether was a country,

it would be the 91st largest by assets, just ahead of Libya.

when the Panama Papers revealed 11 million documents

spilling the golden beans about 200,000 offshore companies.

The Panama Papers leaked that another company,

previously only speculated to be affiliated with Tether,

had actually set up Tether in the British Virgin Islands in 2014.

This company was Bitfinex,

the 37th largest crypto exchange in the world,

and behind the scenes puppet master of Tether.

And this is important because Bitfinex

outright lied about their ties to Tether

prior to the Panama Papers leak in 2016.

And the reason that this was kept secret

became clear as this was just the start of a series of

bad choices, legal battles and questionable behavior that

the companies haven't shrugged off to this day.

The first big legal scandal started back in 2017,

when Wells Fargo and other banks decided

to stop processing transactions

between the exchange of Taiwanese banks and its US customers.

This forced Bitfinex to turn to a shadow bank

for payment processing.

This company is called Crypto Capital Corp.

This banking relationship created even more trouble for Bitfinex.

And the thing is, Crypto Captial Corp has a list of its

own controversies as well from allegedly stealing from clients,

covering up losses and a criminal manhunt.

But either way, by 2017, four years after its incorporation,

Crypto Capital Corp was the go to shadow bank

for many prominent cryptocurrency exchanges.

BitMEX, Bitfinex and Kraken were all clients.

Now, as scary as the name shadow banking sounds,

it's really not that serious.

A shadow bank simply provides services similar

to commercial banks, but does so on the

outside of normal banking regulations.

Okay, that still sounds bad, but it's not, I promise.

Insurance companies and even pawn shops could be considered

part of the shadow banking industry.

In fact, the shadow banking industry

is about six times larger

than the regular banking industry. It's huge.

But hold on. What does this have to do with Tether?

Well, Tether is the sister company of Bitfinex.

In fact, both Bitfinex and Tether

have the exact same executives.

So not just sister companies, but

more like identical twin sister companies.

Either way, the connection was deeper than just people.

Tether lent Bitfinex $625 million

after BitFenix was hit with a massive loss

that it held with a certain payment processor, Crypto Captial Corp.

With so much money missing, the Bitfinex exchange

was not functioning properly,

and this caused huge delays and

transaction issues for customers.

This is when authorities caught wind.

The New York Attorney General's office contacted three companies,

Tether, Bitfinex and their parent company, iFinex.

This order requested the companies to

stop everything and report to them immediately.

What the Attorney General's office uncovered

was that the money BitFinix had lost through Crypto Capital Corp,

was actually direct from Tether's reserve.

And we haven't even talked about the messages yet.

The New York AG found messages between a

Tether-Bitfinex executive under the alias of "Merlin"

and a Crypto Capital Corp executive

who goes fittingly by the name "Oz".

The messages showed Merlin pleading and begging Oz

for the return of their missing cash,

hundreds of millions of dollars

in missing cash from Tether's reserves.

And this is important because all 70 billion USDT coins

are supposed to be backed exactly by $1,

a promise that was proudly advertised on their website,

a promise that can't be true if

Tether's missing $850 million.

Well, a few months later, Tether changed their website,

changing it to say every Tether is 100% backed

by reserves, not cash.

Reserves can include currency, investments,

or loans made by Tether to third parties.

So problem solved, right?

If you can't meet your promises, change them.

Bitfinex eventually settled with

the New York Attorney General's office in February 2021

by paying out $18.5 million in fines.

Yet it's still a mystery of what Crypto Capital Corp did

with the missing $850 million in cash,

something we may never have a clear answer to.

But the story for Tether doesn't end here.

It's really only just beginning because

suspicions continue to swirl as to whether

Tether even has a full asset backing,

much less a one-to-one dollar backing.

They do have third party audit reports done,

which appear to happen on a quarterly basis,

and the most recent report shows full asset reserves.

But there are questions as to what

they're investing this money into and a call for more transparency.

Bloomberg published an investigative article

alleging that USDT was partially backed by

short-term Chinese corporate debt, possibly Evergrande.

- Social media footage shows crowds

protesting in front of the offices of the

Chinese real estate developer, Evergrande.

- One of China's biggest property developers.

- It's one of the most indebted companies in the world.

- Evergrande borrowed a lot of money,

what we call offshore in international financial markets.

- And it might not be able to pay it.

- Government is continuing

we can see just how far this bleeds into the system.

- Evergrande and China's looming risk to Tether.

- There's rumor that Evergrande holds quite a bit of Tether.

- Tether claims this is simply a publicity stunt.

They say that Bloomberg was taking snippets

of old news from dubious sources

and trying to fit this predetermined narrative.

They say that the Bloomberg piece cites

misinformation from a disgruntled individual named John Betts,

the former head of Noble Bank, a bank that Tether fired.

Hindenburg Research has since offered a $1 million reward

to uncover Tether's true backing.

Tether also responded to this by calling it

a cynical, pathetic bid for attention.

Based on all available information, I've put together

this chart of Tether's assets.

We can see currently, only 10% of their reserves

is held in cash, 28% treasury bills,

16% in loans, bonds, funds and precious metals,

44% in commercial paper with an average rating of A-2,

around 1.6% or $500 million

of their commercial paper is rated too low

to be to be given an investment grade.

This is the debt that has eyes on it,

but their debt and asset reserves aren't the only concerns.

Tether had another massive scandal when

a group of traders alleged that Bitfinex

used USDT to manipulate the cryptocurrency market

during the 2017 and 2018 bull runs.

This appears to be unlikely, though,

as one of the largest claims was debunked.

The CEO of Circle, a Tether competitor,

stuck up for Tether here saying that

exchanges use wallets that pool all customer balances together,

and therefore an analysis that shows a single wallet

was involved in this stunt can't be accurate.

This wouldn't likely crash the markets, but

it could change the way that crypto is transacted.

The Stablecoin Act of 2020 proposed to

outlaw stablecoins in the United States.

However, this bill hasn't gained much traction.

A more likely occurrence would be a crackdown

on stablecoins in conjunction with

a government issued stablecoin referred to as a CBDC.

Now that we understand Tether's history, I want to

talk about stablecoin lending and why rates are so

high compared to interest rates found in traditional finance.

There are very few opportunities to earn

8% to 20% interest on cash like you can through stablecoin lending.

I have personally made $22,000 this year

through lending stablecoins alone.

I'll have this site linked in the description

if you're interested in trying it out for yourself.

The average interest earnings savings account in the US

is currently 0.6%, over 100 times less than what you can get

lending out Tether or other stablecoins.

How is this possible?

How is this sustainable?

There's a few factors at play here.

The first is risk.

Crypto does not have access to

traditional financing options that more established sectors have.

And on top of this, there's no

FDIC insurance on your stablecoin holding.

This means the supply and demand curve

for stablecoin lending might look a little bit different

than regular old US dollar lending.

Most people wouldn't trust putting all their

money in a stablecoin, but they do trust a bank account.

And then we have borrower credit worthiness.

Many crypto loans are taken by people

who may not be able to get loans

elsewhere due to credit risks.

This leads to higher rates.

Now exchanges do counter this risk

by implementing insurance funds,

but there is additional risk.

And finally some of the rates are fake.

Well, kind of.

Exchanges know that if they offer high yields on these "risk free"

stablecoin lending rates, users will flock to their platform.

Because of this, many exchanges will simply

lose money paying out these rates

in order to attract more customers.

So will rates remain this high forever?

Probably not.

More regulation will come, bringing more safety to the space,

and companies will eventually begin lowering their rates

as they attract more and more users.

So where does all this leave Tether?

Given the amount of publicity that this company

and its reserves have received,

it's hard to say that they will ever collapse.

Even if they did collapse, they're so large that we're

getting to the point of too big to fail territory.

A collapse of Tether would collapse crypto in general,

we don't want this to happen.

The best thing we can hope for is

more use of other stablecoins with more

trustworthy backings and frequent third party audits.

The biggest two in terms of safety and popularity

are USDC and Dai.

USDC was founded jointly by

a company called Circle and by Coinbase.

They receive monthly audits.

Dai takes a bit of a different approach in that it's

not backed by fiat but instead backed by other cryptocurrencies.

Djed is a soon to be launched algorithmic stablecoin

built on the Cardano blockchain,

Magic Internet Money is the largest stablecoin on Avalanche

and is backed by fiat dollars.

So the problem is, at this point in time,

it's hard to get away from Tether completely.

If given the choice, I prefer not to use it.

But that's not always an option.

However, the good news is that alternatives seem to be

getting more and more popular.

We seem to be slowly getting out this

abusive relationship with Tether.

So from here I would like to let you know about my Patreon.

I'm on a mission to create the best resource

for financial content on the planet.

Every month we're adding new, exciting things like

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on top of regular buy alerts, a private community and additional content.

I am really, really proud of this community.

You can check it out linked in the description of this video.

From here, I recommend checking out this video

on the best methods to store your crypto safely

and I would like to thank you so much for watching

and I hope you have a profitable day!