tl;dr
The day of reckoning for Tether is approaching.
Market Snap
Market Wrap
XRP (Ripple) is the standout performer in the crypto space, rallying around 50% since the news that both Ripple Labs and the SEC have requested a summary judgment (see CCC 19th September 2022). The market believes the SEC is in the wrong. Let us hope the market is right.
Curious Cryptos’ Commentary — Tether (USDT)
Despite being one of the earliest, and one of the biggest, stablecoins, USDT has come in for some well-deserved criticism from the CCC in the past.
The reasons for that criticism are simple. For a long time, the organization behind USDT employed an offshore accounting firm to “audit” their assets and liabilities, and despite their constant claims for transparency, there has never been a satisfactory explanation of the assets behind USDT.
What we do know is that some of the collateral — at least in the past — comprised loans made to crypto currency entities, introducing correlation risk where it is least welcome.
Stablecoins have become an important aspect of the crypto landscape and can be a force for good or bad.
We saw with the Terra fiasco that the collapse of an algorithmic stablecoin led to several knock-on effects, disruption to markets, bankruptcies, and — eventually — jail time for the likes of Do Kwon who oversaw the destruction of $45 billion of wealth.
Given the inherent limitations of algorithmic stablecoins, it is especially important that stablecoins ostensibly backed by assets that guarantee a 1:1 peg to the US Dollar do owning those assets.
And we are about to find out.
…
US Judge Katherine Polk Failla of the Southern District of New York has ordered Tether to provide detailed information about the assets behind USDT, and documents showing transactions:
“Plaintiffs plainly explain why they need this information: to assess the backing of USDT with US
dollars, and to allow a forensic accountant to assess the USDT reserve. And although the Court understands the [Defendants’] position to be that Plaintiffs’ theory is shifting with regard to ‘other assets’ and other funds, at this stage in the litigation and without compromise by the parties, the Court takes as true Plaintiffs’ representation that this information is necessary to assess its claims regarding USDT backing.”
For a company that claims it is all about transparency, that should all have been done a long time ago.
…
The complainant not only claims that USDT is not backed by real-world assets, but that Tether also committed crimes such as money-laundering and operating an unlicensed money-transmitting business.
Damages sought are a rather aggressive and unlikely $1.4 TRILLION.
Tether is opposing the order, further cementing its reputation as a firm that does not yet wish to disclose if he has been swimming naked before the tide goes out.
This order for disclosure can only be a good thing, though it does risk significant market disruption if we find out that USDT is another stablecoin built on nothing by hubris and shouting.
Compliance Stuff
Trigger alert warning — if any reader feels that they are “literally shaking” (as claimed by a Durham student who cannot emotionally cope with a different point of view as posited by Rod Liddle) after reading my commentary, then I can only suggest you don ‘t read, or don’t shake. It is entirely up to you.
Cryptos — none of my commentary should be seen as a recommendation to get involved in cryptos. I might be talking complete nonsense without knowing it. Any crypto investments must be viewed as extremely high risk and treated as if they are worth zero until sold.
Stocks — just to make it clear this is not a stock advisory service. The CCC team does not provide financial advice in any way at all. Any reference to asset prices in this commentary are there to simply give context to the commentary and to give color to the performance of certain stocks related to cryptos.
For the avoidance of doubt, this newsletter is not an incitement to buy cryptos, buy stocks, or even to sell family members in the hope of buying cryptos or stocks.
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