USDT analysis

[JohnnyDoe]

By Matteo Bottacini

Tether: is it 1:1?

Tether has always been one major point of discussion in crypto on account of its non-transparent history. And there are still today ongoing discussions regarding the quality of its reserves.

Have a look at the Tether Assurance Consolidated Reserves Report from September 30, 2022 https://assets.ctfassets.net/vyse88cgwfbl/1Xfu4398CIoMiuKjPhvnHM/6d1608c90bb775d2d432b7b24264da28/ESO.02_Std_ISAE_3000R_Opinion_30-9-2022_RC134792022BD0548.pdf

We appreciate the following:
- 82.45%: cash & cash equivalents & Other short-term Deposits & Commercial Paper (maturity <90 days)
- 4.69% Corporate bonds, Funds & Precious Metals
- 9.02% Secured Loans
- 3.85% Other investments

We can assume that cash equivalents and Corporate bonds overall generated a net positive (representing 87.19% of the reserves +/- 2%).

Then again, for secured loans we can assume that these were made to crypto companies or similar, thus a 40% probability of default might be reasonable.
For “other investments” it is likely that these are an investment in BTC/ETH/AVAX, etc., which are down 60% YTD.

We can then assume that these two are likely now worth 6.95% instead of 12.87%.
Therefore, USDT might have a current status of 0.96:1.

USDT market cap is currently $65B, and it is by far the most popular stablecoin used for trading spot and crypto derivatives (especially Delta One products).

On Coinbase, USDT is trading against USD at 0.9986 and similarly on Binance against BUSD.

What are the consequences if a new scandal hits Tether?

Due to the Tether process of minting/redemption, and the fact that not 100% of the reserves are held in bank deposits as cash equivalents, Tether will be unable to process an excessive redemption demand. If there is a hole in the balance sheet again, it is very likely that Tether will simply say that they are able to process $N billion per week, and that everything is fine.

In terms of price: we will see not only USDT/USD start de-pegging, but it will create a great deal of turmoil in both the DeFi pools and in the derivatives space as many Perpetuals and Term-Futures are margined in USDT (i.e. USDT down, Futures up).

It is very likely that Binance - the big brother - will impede some buy/sell orders to avoid the de-pegging (the same way it did with Terra/Luna).

Also, now that FTX is no longer active, it is going to be harder for derivatives/margin traders to hedge the USDT exposure, which means that we might see an increase in volatility as a result of liquidations /an unwinding.

 

[Faruk]

More than half of tether volume was produced by Alameda (FTX) and Cumberland alone in 2021. Most of the USDT minted and handled by Alameda had no USD backing. Tether might be in a deep trouble in my opinion and its better to not store most crypto in it. The reserves are not audited and can't be proven at all. Its just numbers. There is a very big risk holding tether right now I would personally wait until dust settles if its again another fud or real substance. There is plenty of evidence that Alameda borrowed fukton of USDT out of thin air and didn't pay back as it collapsed.

 

[diatessaron]

More than half of tether volume was produced by Alameda (FTX) and Cumberland alone in 2021. Most of the USDT minted and handled by Alameda had no USD backing. Tether might be in a deep trouble in my opinion and its better to not store most crypto in it. The reserves are not audited and can't be proven at all. Its just numbers. There is a very big risk holding tether right now I would personally wait until dust settles if its again another fud or real substance. There is plenty of evidence that Alameda borrowed fukton of USDT out of thin air and didn't pay back as it collapsed.

Why do you post disinformation dear Faruk?

Alameda cannot mint USDT, Tether does that and they only do that when you fill their bank account.

And what do you mean by "Most of the USDT minted and handled by Alameda had no USD backing. "? Who told you that?

Where did Alameda borrow from?

 

[denniz07]

On Coinbase, USDT is trading against USD at 0.9986 and similarly on Binance against BUSD.

I think this is not a real issue. Somewhere else the price might be better.
If the ration is 0.96:1 it would be pretty good to be honest. No way more than 96% of the holders are able to cash out. I mean a lot of wallets are blocked. A lot of liquidity is in DEX. A lot of liquidity sit's on exchanges and so on. A lot of people (like me) would not be able to cash out fast. Also there are fees and so on.

Arguments I heard so far:
USDC: Best because everything is in US Treasures and "regulated". BUT the company is regulated, not the Stablecoin. So it not clear how the regulation is in reality. Worst case, could be kind of like FTX which was regulated in US as well.
BUSD: Maybe really regulated. But you have here strong links to Binance. Not sure what happens if Binance come in trouble
USDT: Balances are not clear. Every few months you hear that they are a fraud. BUT they could deliver so far. They could hold the peg the longsest time. Maybe they would even can a loan if something like 5% are missing.

To be honest I have no idea - which Stablecoin is best. Holding the most in USDC but have some positions in BUSD, USDT and also DAI.

 

[Martin Everson]

Have a look at the Tether Assurance Consolidated Reserves Report from September 30, 2022 https://assets.ctfassets.net/vyse88cgwfbl/1Xfu4398CIoMiuKjPhvnHM/6d1608c90bb775d2d432b7b24264da28/ESO.02_Std_ISAE_3000R_Opinion_30-9-2022_RC134792022BD0548.pdf

Ok this is is an attestation and not an audit. It's a bit like taking a copy of your passport and bank statement to a notary and asking them to make a notarized copy and stamp it "true and valid copy". Unfortunately no check is made to see if passport is still valid or bank listed on statement contains that money. That is the purpose of an audit which Tether has not done. But lets assume attestation will match a full audit.

We can assume that cash equivalents and Corporate bonds overall generated a net positive (representing 87.19% of the reserves +/- 2%).

We need to know what bonds they invested in. Why? Because dollar interest rates have risen drastically this year pushing the yield on bonds up and adversely their values substantially down.

For example if Tether bought $100m in "US Treasury 15 Feb 2031" bonds back in November 2021 it was worth 101.09% i.e a premium and they would have paid $101m for them. The same bond today Nov 2022 is worth 81.8%. That's a loss of 20% of capital in 1 year due to rate hikes by Fed. So if the bond was to be sold or liquidated today having invested $101m in it back in Nov 2021 it would be worth today roughly $81m. So Tether would be sitting on a loss of $20m.

Sorry but we need an audit to see everything they hold down to instrument level and not an attestation. A run on Tether would expose this basic flaw.

P.S There is a real chance the market value of the assets on their balance sheet is well below what they claim and they are buying for time to unwind these investments .

 

[JohnnyDoe]

There is always a chance that everything is fake for every company or government or commodity.
This analysis is a prudent one and quite reassuring. While I don’t support stablecoins they might remain a useful tool for some time.
Meantime I keep buying btc on a weekly basis, and El Salvador does the same on a daily basis

 

[void]

speaking of stable coins I can only imagine a company/institution/foundation/... issuing a stable coin and having transparent bank accounts where anybody can check online current balance and verify it's the same as the amount of coins
no questions about potential run, clear purpose

anything less transparent is not any different from all the government run scams around and no good for anyone else than Africans and other poor people without property rights, access to banking and another options - in that case Tether is great and for some a life saver and they don't care about what we discuss here

for the rest there is BTC (maybe, BIG, BIIIG maybe Monero in some cases) and Lightning Network - nothing to discuss, howgh

 

[khinkali]

1. How much of Tether's commercial paper is Bitfinex?

2. How much of Tether's bonds are from Bitfinex?

If the answer to either is substantial, then that matters for obvious reasons. A lot.

BUSD: Maybe really regulated. But you have here strong links to Binance. Not sure what happens if Binance come in trouble

BUSD on Ethereum looks pretty solid. But I guess a lot of folk don't know which kind of BUSD they have.

https://paxos.com/busd/

BUSD is issued by Paxos on the Ethereum blockchain and regulated by the New York Department of Financial Services. Separately, Binance wraps BUSD and issues separate tokens (known as Binance-Peg BUSD) on several blockchains, including BNB Smart Chain, Polygon, and Avalanche. These tokens are unaffiliated with Paxos and not regulated by the NYDFS.

 

[wellington]

With the FTX bankruptcy, i think you will see a lot of information (internal records) come to light which will enable the DOJ to finally get their claws into them (tether - their largest client was FTX).

I.e wires used, US banks / corresponding, clients, etc.

Now is not the time to be touching USDT IMO.

US doesn't like fair competition, and USDT is a competitor to USDC... USDC has its own skeletons in the closet, and use intent by the US.

Another thing to consider is the US approach to 'a US Wire, Bank, Service Provider etc" giving them jurisdiction extraterritorially.

EU recently OK'd the EURD (from circle) which basically means all EURO transactions via Circle stable coin are under US Jurisdiction.

Likewise Amazon being selected for the CBDC -> gives the US another jurisdiction avenue for EURO CBDC and a real intricate access point to the financials of Europeans going forward.

Last point, i'm not a conspiracies, but the EU just sold out all major industries in Europe over the fuel/gas crisis, etc which is pushing these firms to move to the states going forward (texas).

It's akin (IMO) to EU + UK being rolled up under 'the US' without any discussions or debates etc

 

[Martin Everson]

There is always a chance that everything is fake for every company or government or commodity.

Very true. But people are ignoring the glaring fact here. They are investing in a black box with USDT. You cannot create a USD stablecoin on a 1:1 basis without using pure cash and at worst ultra short duration (30 day max) paper of no less than AAA quality. Bonds/bills, precious metals etc carries interest rate and devaluation risk. This means Tether may not get back what they paid for the instruments backing USDT if they needed to liquidate them in a hurry. Hence a peg cannot be maintained unless there is a significant buffer in holding assets valued way more than the peg. Its basic finance here....lol.

 

[Faruk]

Why do you post disinformation dear Faruk?

Alameda cannot mint USDT, Tether does that and they only do that when you fill their bank account.

And what do you mean by "Most of the USDT minted and handled by Alameda had no USD backing. "? Who told you that?

Where did Alameda borrow from?

And they only do that when you fill their bank account? - And how do you know that? You believe some hired company attestation? It is not even audit just FYI.

Before you accuse someone individually for disinformation makes sure you have your data in hands and ready, otherwie you just shake the air with empty words.

Here is the research for you where 2 of the mentioned by me firms was responsible for $49.2 billion (71%)USDT was acquired in the past year alone, equal to about 60% of all Tether issued in that time.

Tether Papers: This is exactly who acquired 70% of all USDT ever issued

Now think about it twice if Alameda never paid back their loans and they had no cash to back such massive amount of tether. May be it was supposedly given for their vaporware shitcoins that gone down -90%? So where the money would come from? Are you betting that Tether is not lying? Attestation was done much before the overall contagion if you know this word? xD Also why they are afraid of top firms full audit?

 

[denniz07]

Now think about it twice if Alameda never paid back their loans and they had no cash to back such massive amount of tether

I mean this one would be pretty obvious. Alameda and FTX are now on the watch. Guess this would come out. But didn't heared anything so far. A high USDT volume on an exchange doesn't mean much. The question is only, does have USDT the reserves and how much money did they loan to FTX / Alameda or some related player.

 

[troubled soul]

irony of the illusionary economy

I remember the Money heist , When Processor swap the Real gold with brass bricks........

 

[OffshoreMonero]

Tether has always been surrounded by controversy. It reminds me of Liberty Reserve in a way.

They ran fractional-reserve since its inception. lol

for the rest there is BTC (maybe, BIG, BIIIG maybe Monero in some cases) and Lightning Network - nothing to discuss, howgh

At least Monero is backstopped by its utility. There is real organic demand for it.

I remember the Money heist , When Processor swap the Real gold with brass bricks........

Haha!

Tungsten works better.

This means Tether may not get back what they paid for the instruments backing USDT if they needed to liquidate them in a hurry. Hence a peg cannot be maintained unless there is a significant buffer in holding assets valued way more than the peg.

You and I think alike. I've never touched Tether for this precise reason.

Not to mention that entire CRYPTO CAPITAL CORP fiasco that really shed some light into how they (at least used to) operate - by the seat of their pants.

Cheers.

 

[Faruk]

Tether has always been surrounded by controversy. It reminds me of Liberty Reserve in a way.

They ran fractional-reserve since its inception. lol

Every financial institution running fractional reserves based system. BUT the difference is that Tether as a company has never approached any full audit and just post some shitty attestations or excuses. This is the #1 concern in my opinion. If you run a legit bussiness that is literally cash cow why would you avoid audits?

 

[OffshoreMonero]

Every financial institution running fractional reserves based system. BUT the difference is that Tether as a company has never approached any full audit and just post some shitty attestations or excuses. This is the #1 concern in my opinion. If you run a legit bussiness that is literally cash cow why would you avoid audits?

Yes, but Tether advertises itself as 1:1 backed by US Dollar deposits in a bank account. If they wanted to operate fractionally or invest other peoples money they should have said so up front. Anything else is fraud.

They kept dodging that audit that the state of NY kept trying to rope them into, and ended up even paying a fine. They were obviously stalling for time.

I suspect they had some partnered companies wire in some money to make them appear somewhat whole.

The entire thing stinks to me.

 

[Martin Everson]

They kept dodging that audit that the state of NY kept trying to rope them into, and ended up even paying a fine. They were obviously stalling for time.

I suspect they had some partnered companies wire in some money to make them appear somewhat whole.

Exactly.

How many people would buy an ETF that is not transparent and refuses to publish what underlying instruments it holds? Yet people buy Tether and choose to fly blind. Its the epitome of insanity. Tether at the very least should publish what the exact underlying instruments it has invested in are. The instruments should not be a secret unless they are up to no good.

Anyway there is clear cognitive dissonance amongst USDT holders that wont be resolved by talking logic or common sense to them. Lets hope Tether can buy enough time to fix whatever they are hiding. But remember a lot of these crypto companies are run by delusional individuals like former FTX CEO.

 

[diatessaron]

And they only do that when you fill their bank account? - And how do you know that? You believe some hired company attestation? It is not even audit just FYI.

Before you accuse someone individually for disinformation makes sure you have your data in hands and ready, otherwie you just shake the air with empty words.

Here is the research for you where 2 of the mentioned by me firms was responsible for $49.2 billion (71%)USDT was acquired in the past year alone, equal to about 60% of all Tether issued in that time.

Tether Papers: This is exactly who acquired 70% of all USDT ever issued

Now think about it twice if Alameda never paid back their loans and they had no cash to back such massive amount of tether. May be it was supposedly given for their vaporware shitcoins that gone down -90%? So where the money would come from? Are you betting that Tether is not lying? Attestation was done much before the overall contagion if you know this word? xD Also why they are afraid of top firms full audit?

I know that because when you spend time on leaderboards you get to know some very cool people.

The irony, where is your data Dear Faruk? And don't send me news articles funded by Circle.

The fact that you have no idea why those 2 firms got that much USDT tells me enough but I'm still going to waste my time writing this.

------------

I don't need to analyze assumptions, too many if's but no real questions. Alameda doesn't need to back anything, that's Tethers job and Tether won't give you anything unless you pay them. Tether also does not need Alameda and FTX to prop up the market as they have Bitfinex and Binance on their side, so quit that conspiracy theory.

Shitcoins going down 90% in a bear market is nothing new, unless you just joined crypto.

Yes, I am betting that Tether is not lying as they make billions a year on US treasuries.

Top firms do not touch crypto projects.

Now come at me with some facts, real stuff. Not a poorly written article that explains how FTX grew up to be one of the biggest exchanges that was being used as a fiat ramp.

 

[denniz07]

Yes, I am betting that Tether is not lying as they make billions a year on US treasuries.

Guess this is the point for all stable coins. I mean if you can make 4% risk free in one year. That also means that you could make something like nearly 10 % just in two years.
So it is a gold mine, if you have at least let's say 90% of the capital you could survive. Maybe get a loan. I mean at 4% interest rate you are getting 20% of the 65 billions just in 5 years. That is a solid cashflow - if you can execute. The interesting part would be how much reserve they will have next year. So it should be much more than the token dollar value.

 

[diatessaron]

Guess this is the point for all stable coins. I mean if you can make 4% risk free in one year. That also means that you could make something like nearly 10 % just in two years.
So it is a gold mine, if you have at least let's say 90% of the capital you could survive. Maybe get a loan. I mean at 4% interest rate you are getting 20% of the 65 billions just in 5 years. That is a solid cashflow - if you can execute. The interesting part would be how much reserve they will have next year. So it should be much more than the token dollar value.

Someone understands. People think that at this point Tether needs to be involved in shady business to stay afloat when in fact they are more profitable that many of the exchanges in the top 10.