Tether BUSTED in Crypto Crackdown.

kevin paffraff

what up tether's latest black eye is a

cftc fine about lying about its reserves

oh my gosh the one thing that i've

constantly talked about with uh

cryptocurrencies that make me nervous is

the reserves that underlay stable coins

because especially if you think you're

farming a yield and and you have this

currency as a savings account

essentially and all of a sudden you're

earning a yield on things like tether

usdc or whatever gemini

and this money's actually being lent out

and you're not aware or if we're fully

aware or comprehending that it's fully

lent out when you're accepting these

yields then the underlying reserves

become even more of a concern because if

the reserves crippled then the lending

market crippled and you could see some

big ouchy wow cheese in the crypto

market which

a big algae watching in the crypto

market that's now worth uh that has

exposure to seven trillion dollars worth

of equities including square tesla and

others visa mastercard jp morgan and so

on you you could really hurt the market

and that's why regulators are paying

attention to things like tether right

now and so uh look at this the biggest

stable coin issuer has been hit with a

41 million dollar penalty and bitfinex

has been fined 1.5 million together or

sorry tether will pay 41 million to

settle allegations that it lied in

claiming its digital tokens were fully

backed by fiat currencies putting a

major compliance headache between the

world's biggest issuer of stable coins

even as regulatory scrutiny intensifies

not a surprise to see this at all the

tether fudd was all over the place and

it was not wrong remember fear is

different from fake news i say that

because sometimes we hear fud and we

just kind of write it off as fake news

but no fud stands for fear uncertainty

and doubt and it makes sense that there

is fear uncertainty and doubt because

there are red flags and what do they say

when uh

when there's smoke there's fire right

anyway for years tether told customers

in the broader crypto market that it had

one dollar in reserve for every token

however the commodity futures trading

commission said friday in a statement

well that's what they said in the

statement reiterating that however the

claim was wildly misleading according to

the agency for example from june to

september of 2017 there was never more

than 61.5 million dollars backing tether

even as roughly 442 million coins were

circulating at one point no way

oh my gosh that's 61.5

only represents

14

folks

14

backing on tether that's

horrible in 2017. that's horrible i mean

that goes way back to 17

but that's not a good reputation 14 and

you're saying it's one to one that's

that's very dishonest

this case highlights the expectation of

honesty and transparency in the rapidly

growing and developing digital assets

market i completely agree with that i

mean i personally think this is the kind

of regulation that we really do need if

companies are telling us hey don't worry

our stablecoin is backed one to

then prove it

and make it clear to people with proper

disclosure that if they're getting a

yield their money's being lent out and

that they do not have claims to the

underlying asset that's the big thing

people think even though i'm getting a

yield oh it's okay it's backed one to

one i could always exchange it for a

dollar no you can't if you're taking a

yield because then it's being lent out

tether is widely used to trade bitcoin

and other tokens making it pivotal to

the crypto market that's because the

coin allows quick transactions largely

immune to volatile price swings as a

function of its one-to-one peg but many

traders have long been skeptical that

tether genuinely had money backing the

coins that claim

more recently the treasury department

and other federal agencies have been

alarmed by the stable coins dramatic

growth there are now tethers worth about

69 billion in circulation prompting

concerns that crypto market disruptions

could trigger chaotic fire sales right

this is basically what i just described

in its enforcement action they say

tether failed to disclose what they were

holding especially yeah this is the

other thing they they have a lot of uh

here look at this unsecured receivables

which are like promises to repay cash

and non-fiat assets which could in

theory be other cryptocurrencies which

is weird because like if tether is

backing its coin with other bitcoin that

that would be odd right uh or uh or

potent or a lot of junk bonds

potentially like there was a lot of fear

when the ever grand crisis happened that

tether was investing in evergrand junk

bonds turns out they weren't or so they

say and so uh

you know some of that fear was sort of

alleviated for tether

falsely told investors it would undergo

routine professional audits to determine

that it maintained 100 reserves at all

time but in fact tether reserves weren't

audited until at least 2018 tether

manually kept tabs on its reserve levels

process that wasn't updated in real time

tether didn't admit or deny the

commodity future trading commission's

allegations and tether agreed to resolve

the matter in order to move forward and

focus on the future the company said in

a statement posted on the website

bitfinex also hit

and this follows a february settlement

with between the new york attorney

general bitfinex and several tether

affiliates

of hiding losses and lying that each

token was supported by one dollar

ah yeah

yeah then the companies uh together

agreed to pay an 18.5 million fine

without admitting or denying uh claims

okay treasury officials are preparing to

release reports on stable coins that's

going to be interesting that report i'm

excited for that and the gme report

looking for that one and officials are

also discussing whether to launch a

formal review

by the financial stability oversight

council and to whether or not the tokens

pose a systemic economic threat i think

they probably do pose some form of

systemic threat again seven trillion

dollars even though the crypto market's

like two trillion dollars because

there's so many stocks like companies

right companies that sell their shares

on the stock market uh that have

exposure to crypto whether they're

miners whether they're uh you know

uh jp morgan visa whatever trying to

affiliate

trying to

transact right like square cash app

these these are exposures even public

where you can get a free stock worth all

the way up to seventy dollars up to

seventy dollars by going to medicaid.com

public they're exposed to crypto as well

right a lot of private equity also

exposed to crypto nfts lots of this

liquidity crisis and crypto would be

pretty bad for a lot of things but

anyway tether is a key focus of

government scrutiny don't forget also

though you have things like usdc and the

gemini dollar that have a lot of

similarities maybe not as much as tether

but still the fact that it's being lent

out is still a similarity

uh but anyway that's interesting on

tether

fascinating at least now this kind of

puts this behind us though which is good

hopefully now we can go forward with a

cleaner slate but anyway in the meantime

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