Crypto Currency Fraud

I think he does reasonable analysis about Tether being a fraud that’s inflating the value of other crypto currencies like Bitcoin. I don’t know of a refutation of these claims. I also thought the pro-crypto quotes from prominent Silicon Valley Startups and Rationality type people were notable.

See also patio11’s article on Tether being a huge fraud:

And Matt Levine:

If someone knows a detailed article that makes a reasonable attempt at a counter-argument to these articles, I’d be interested. If that doesn’t exist, I think that says a lot (note: I haven’t really looked; crypto is not a focus for me). Or put another way, if you don’t know of such an article, you definitely shouldn’t buy/own crypto (and if you do know one, you should expose it to criticism before buying/owning crypto).

Also, the article dates (two in 2019) are notable. What, if anything, was refuted within, say, a month of publication? If most or all of this was not refuted, then what have people been doing buying so much Tether and otherwise getting involved with crypto after this information was publicly explained?

I don’t know of a counter-argument, but I have been linked many articles about Tether being fraudulent over the years.

From (have not fact checked this)

In 2019, Tether admitted in court documents that its stablecoin was only 74% backed by cash and cash equivalents.

There are articles going back years about Tether being a rort, e.g., here’s one from Oct 2017.

I think maybe you are bringing this up as something of a criticism - like, people have been saying it’s a scam for a while, and it’s still around, so maybe it’s not a scam?

I was agreeing with Elliot - I think it’s a scam (and have thought that for ~years).

Edit: I didn’t mean to imply that Elliot had made up his mind about Tether being a scam. I think I did, tho.

from Tether’s first breakdown of reserves consists of two silly pie charts

Specifically, this is a breakdown of the composition of Tether’s reserves on March 31, 2021, when Tether had roughly 41.7 billion tethers in circulation. (As of this writing, Tether now has nearly 58 billion tethers in circulation.)

Holy shit.

The main pie graph sums to 100%, so I suspect that it isn’t showing what % of tethers’ value is backed by what, it’s showing what % of the backing is where.

from Tether’s first breakdown of reserves consists of two silly pie charts

According to the first pie chart—the blue one—the majority of Tether’s assets (nearly 76%) are socked away in cash and cash equivalents.

So as a transparency measure it fails to actually show the main thing: what % of tethers’ value is backed by something. Fundamentally dishonest and confusing.

Financial Times – Tether says its reserves are backed by cash to the tune of . . . 2.9% – 14th May 2021, via

The continued growth at Tether suggests that users are unfazed. “Tethers have always been fully backed,” said Tether’s general counsel Stuart Hoegner in a statement.

via Tether claims $10bn monthly growth after New York fine - 26 Apr 2021

As of April 30th, Bitfinex’s attorney claimed that they had cash and short-term securities which would cover ~74% of outstanding tethers. Here’s what their general counsel swore to the court, shortly before April 30th, 2019.

As of the date I am signing this affidavit, Tether has cash and cash equivalents (short term securities) on hand totaling approximately $2.1 billion, representing approximately 74 percent of the current outstanding tethers.

via Tether: The Story So Far | Kalzumeus Software

same guy quoted in both.

My thoughts after reading the thread patio11 linked, starting with the tweet:

Ok here’s how the Poly Network hack actually worked. If I’m reading the contracts correctly, it’s pretty genius.

the flaw with poly’s smart contracts is not new or super creative – here is some code I wrote in 2017-18 that handles this case (smart contracts talking to other smart contracts + having limited permissions). (this sorta thing was not hard to know about; there were and are libraries providing this feature.) I guess mb poly didn’t anticipate these contracts talking to each other so didn’t do any permissioning stuff between them, but one contract had admin perms with the other.

i’d like to think poly’s code should have failed an audit (b/c the permissions weren’t granular enough for something complex like cross-chain stuff + operational policies weren’t documented – like what identities would have admin perms in the SC). but TBH IDK if most audits would catch this. there are better strategies anyway.

I disagree with the quoted tweets use of “pretty genius”. It feels like a problem you’d find in a CTF-type challenge (which exist for ethereum).

Not directly about crypto, but Karl Jobst has a new vid about fraud in the retro video game market that’s about market manipulation. Same sort of stuff goes on in crypto (I wonder how much of this has gone on specifically with NFTs).

Bitcoin is not a commodity money. Its value is meant to come from being a medium of exchange and that’s it. That’s bad. See Mises (Theory of Money and Credit) and Reisman (Capitalism) on commodity and fiat money.

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I didn’t know this, but both books are freely available online:

For Theory of Money and Credit: The Theory of Money and Credit | Mises Institute (I’m reading this atm)
For Capitalism:

Crypto currency is a bad prep.

It’s meant to be independent of e.g. USD, and that’s supposed to be a major advantage. But the main scenario where USD collapses is where the US government (USG) collapses. In a lot of scenarios where the USG collapses, crypto also collapses. Why? Because crypto relies on infrastructure like electricity, computers and internet access. Many collapse scenarios for USG also involve a lot of infrastructure collapse.

Crypto is also vulnerable to EMP scenarios (from solar flare or nuke).

Gold, in addition to being a commodity money, doesn’t rely on advanced parts of civilization like electricity, computers and the internet.

Another issue is that the USG might be able to permanently harm the value of bitcoin (this also applies to any other specific crypto currency) – so that bitcoin has lower value even after the US government is gone (even if computers, electricity and internet still work fine). But I don’t know how USG would permanently harm the value of gold. USG can make anti-gold laws to lower its value, but they will stop mattering if USG is gone.

How might USG permanently harm bitcoin? By e.g. getting control over crypto software – through political pressure, threats, assassinations, democratic voting, working with a coalition of other governments, arresting people involved who don’t cooperate, etc. – and printing a bunch of new bitcoins for themselves. They could potentially cause massive inflation in bitcoin but not in gold. They could also push other damaging changes to crypto software. They could also just make tax policies that are anti-crypto (generally or specific ones, e.g. rivals to the new crypto the USG makes) enough to drive it to zero. I think them driving people away from bitcoin so it never recovers is much more realistic than doing that with gold. It’s much newer and it’s much harder to revive if it dies (particularly if some new crypto alternatives have already replaced it).