Bitfinex and Tether, Cryptocurrency, Podcast Episodes

Episode 121 – Prime Trust, TrueUSD, and Offshore Finance (feat. Jonathan Reiter and Patrick Tan)

Cas Piancey and Bennett Tomlin are joined by Jonathan Reiter and Patrick Tan of ChainArgos to discuss Prime Trust, TrueUSD, stablecoins, and offshore finance.

This episode was recorded on June 27th, 2023.

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English Transcript:

00:00:04:29 - 00:00:11:24
Cas Piancey
Welcome back, everyone. I am Cas Piancey. I'm joined, as usual, by my partner in crime, Mr. Bennett Tomlin. How are you?

00:00:16:10 - 00:00:28:20
Cas Piancey
everything is good. We're joined by two very special guests. Today. We are joined by Jonathan Reiter and Patrick Tan. They are the CEO and the general counsel, respectively, of ChainArgos. How are you two gentlemen?

00:00:20:15 - 00:00:28:20
Cas Piancey
You guys have been covering this and their involvement with TrueUSD and a bunch of other clientele. I don't know where

00:00:28:20 - 00:00:30:15
Patrick Tan
We’re good. Thanks for having us on the show.

00:00:30:17 - 00:00:33:06
Jonathan Reiter
It's an exciting morning in the news, as always. So

00:00:33:06 - 00:00:38:11
Cas Piancey
The news today.

00:00:38:11 - 00:00:42:12
Cas Piancey
Let's just dive right into that. I think that that is your specialty a bit.

00:00:42:12 - 00:00:50:01
Cas Piancey
if anyone is unfamiliar, the prime trust is a a trust, a custodian, a I don't know what you want to call them.

00:00:50:01 - 00:01:01:17
Cas Piancey
They they perform a lot of tasks in the cryptocurrency industry and as of today, they perform no tasks in the cryptocurrency industry.

00:01:20:05 - 00:01:22:01
Cas Piancey
I would love to hear your thoughts

00:01:22:01 - 00:01:22:16
Patrick Tan
John to talk.

00:01:22:16 - 00:01:41:19
Patrick Tan
About the TrueUSD stuff, but I want to jump straight in and talk about what a custodian is supposed to be and what Prime Truss purports to be. Now, if you've never, like, set up a hedge fund, never run a fund or anything along those lines, one of the requirements in most jurisdictions jurisdictions

00:01:41:19 - 00:01:49:00
Patrick Tan
that seem reasonable is that the investment manager cannot be the one who's holding on to the assets, which make sense.

00:01:49:02 - 00:01:56:04
Patrick Tan
So you're supposed to have an independent custody. It doesn't matter what kind of fund you're kind of running, but, you know, let's take it like a but generally like a

00:01:56:04 - 00:02:07:21
Patrick Tan
securities, a long, short equity, whatever. The shares should not be in the possession of the investment manager because there's you know, there's an opportunity for conflicts of interest. You could steal stuff, you know, any number of things could go wrong.

00:02:07:21 - 00:02:19:18
Patrick Tan
So that's why you have an independent custodian. Now, most in most jurisdictions, they don't actually specify what that has to be because custody is a tricky question. You know, I mean I mean,

00:02:19:18 - 00:02:34:02
Patrick Tan
the rules are meant to be general enough that they cover things like, for instance, if you had a fund that was just investing in collectibles, for instance, it's hard for the regulator to specify, okay, the collectibles must be held, you know, in a hermetically sealed garages

00:02:34:02 - 00:02:36:13
Patrick Tan
with certain climate controls and stuff like that.

00:02:36:15 - 00:02:58:02
Patrick Tan
So because the rules are general enough, this is where we started to engage in this industry in essentially what is custodial theater. That's all it is. It's is just saying that, yeah, okay, the we as the investment manager don't hold the assets. The assets are over there, but they don't really holding the assets either because we've as we've seen, what they've done is

00:02:58:02 - 00:03:05:26
Patrick Tan
that they've hypothecated those assets to somewhere else because custody is one of those, it's meant to be a boring business, it's meant to be a stupid business.

00:03:05:26 - 00:03:12:16
Patrick Tan
You just all the stuff you don't like that episode, Seinfeld, where you know, when we trying to rent a car. Car. Well, the rental car, right? Like, yeah, you

00:03:20:01 - 00:03:21:29
Patrick Tan
the thing about custody, it's simple.

00:03:22:05 - 00:03:29:01
Patrick Tan
You know, anybody can take the custody, anybody can take the car. So you got a hold. Go holding is the bit that people care about.

00:03:29:01 - 00:03:45:15
Cas Piancey
Sorry. Sorry. So I actually want to. So what you're talking about right now, though, What what exactly are you referring to when it comes to Prime trusts? Because I know what you're talking about, but like, when you say that there's this custody theater going on, like, what do you mean there's a custody theater going on?

00:03:45:15 - 00:03:48:00
Cas Piancey
What do you mean? They're re hypothecated in this

00:03:48:00 - 00:03:49:15
Cas Piancey
these assets that they're

00:03:49:15 - 00:03:52:00
Cas Piancey
supposed to be custodian. Can you can you dive into that a little

00:03:52:13 - 00:04:09:28
Jonathan Reiter
Okay. So in sort of normal in normal finance, just think about, you know, money, million euros, whatever. So a fund, any sort of money manager doesn't want to have direct access to the bank accounts themselves so that they can't make a mistake, they can't steal the money, they can't be seen to have stolen the money, whatever. So you pay somebody else to do that.

00:04:09:28 - 00:04:18:29
Jonathan Reiter
You send them instructions. So Prime Trust is one of a number of institutions in the in the crypto space in general that are supposed to do that sort of safeguarding and take instructions.

00:04:18:29 - 00:04:23:03
Jonathan Reiter
has a custodian and your fund has a bank account, HSBC, and you send them instructions.

00:04:23:10 - 00:04:26:03
Jonathan Reiter
And if one of those instructions is to send money to, you know, your wife's personal bank account, they will ask you why. You know, there's procedures there. In fact, some of these people, these guys raised a tremendous amount of money for Prime Trust to build a software platform to make this all super efficient.

00:04:37:14 - 00:04:56:10
Jonathan Reiter
personal bank account, they will ask you why. You know, there's procedures there. In fact, some of these people, these guys raised a tremendous amount of money for Prime Trust to build a software platform to make this all super efficient. We don't yet know if the super efficiency prevented any of those controls from working, but it seems pretty likely in previous incidents we've seen that they, of course,

00:04:56:17 - 00:05:07:13
Cas Piancey
Hmm? Mm hmm.

00:05:07:13 - 00:05:16:25
Jonathan Reiter
ignored instructions, followed the wrong instructions. They lost keys. You know, this is the thing you all have been talking about for a long time. And David Gerald been all over this for years.

00:05:16:27 - 00:05:25:12
Jonathan Reiter
You know, if it's not possible to recover from mistakes, you're going to have trouble like this. So they lost a private key. And their solution, of course, instead of admitting it because it's a crypto business,

00:05:25:12 - 00:05:32:14
Jonathan Reiter
they didn't admit they lost the private key. They just raided a bunch of client funds and, you know, bought back other stuff and sent them out to people.

00:05:32:17 - 00:05:55:26
Jonathan Reiter
You know, in a bank, if you make a bad external transfer, you reverse the transfer and you fix it. That has issues. They are different issues than what we're talking about here. These guys, Prime Trust, seem to have been involved in the state of Nevada. Has any evidence for any of this, which of course is something in all manner of ridiculous behaviors, of transferring stuff, buying stuff, losing stuff, hiding stuff, hiding stuff,

00:05:55:26 - 00:05:58:00
Jonathan Reiter
lying about stuff, and again.

00:05:58:04 - 00:06:01:17
Patrick Tan
Using customer stuff. Yeah, trying to get the other stuff in customer back.

00:06:01:21 - 00:06:13:26
Jonathan Reiter
Because it's supposed to be a super boring business. You know, every large bank has a custody business or almost all of them do. It's not an exciting place to work. It's not very profitable. It's not a not extremely highly paying, you

00:06:13:26 - 00:06:18:18
Jonathan Reiter
know, you charge basis points or fractions of a basis point on the amount of assets you're storing.

00:06:18:24 - 00:06:33:15
Jonathan Reiter
It's supposed to work, be reliable and you want a huge bank because if this ridiculous happen, this happens. You want to be able to sue them and get your money back. And that's the entire point here. These guys had not a tremendous amount of money, lost all the assets and the customers are probably just screwed.

00:06:33:15 - 00:06:50:07
Cas Piancey
I'm going to let Bennett take over here for the for the next question, but I just want to state that according to the petition that Nevada filed to to put Prime Trust into receivership, they have a total client liability of $82,766,000

00:06:50:07 - 00:06:59:21
Cas Piancey
of fiat currency and nearly $1,000,000 of cryptocurrency assets that essentially they're missing that are just

00:06:59:21 - 00:07:01:06
Cas Piancey
that are gone.

00:07:01:08 - 00:07:17:02
Cas Piancey
And as you said, there's like I'm not exactly sure what it means, but yes, they lost access to a, quote, legacy wallet. We were not exactly sure what that means or anything. But I again, I'm sorry, I just wanted to include those numbers. So So go ahead.

00:07:17:18 - 00:07:33:05
Bennett Tomlin
Well, no, and what you just mentioned there at the legacy wallet was fascinating to me because it seemed as though they were the original owners of Prime Trusts, set up this wallet and had this wallet. And then

00:07:39:22 - 00:07:43:20
Bennett Tomlin
And then they sold Prime Trust to the new owners for Prime

00:07:54:10 - 00:08:10:18
Bennett Tomlin
it was surprising to me that the they were acting as though these funds in this legacy wallet were unrecoverable, whereas I assumed that someone must have had the keys among the previous owners. And so I've been perplexed as to why they didn't

00:08:10:18 - 00:08:16:15
Bennett Tomlin
reach out to those owners, sue those owners, something before they ended up in receivership.

00:08:16:17 - 00:08:22:11
Bennett Tomlin
And I'm just curious if either of you have any thoughts on what might have led to that series of decisions.

00:08:22:11 - 00:08:30:28
Jonathan Reiter
Oh, okay. I guess at a higher level, if you look at the litigation in the bankruptcy stuff around their software provider, Banq. bank,

00:08:30:28 - 00:08:32:12
Bennett Tomlin
Mm hmm.

00:08:32:12 - 00:08:34:10
Jonathan Reiter
in insolvency proceedings in Nevada.

00:08:34:12 - 00:08:48:12
Jonathan Reiter
Now, there's lawsuits alleging that somebody's wife swingers club business was, you know, so these guys are involved in all manner of things. And I can believe almost any mistake or misplacement occurred. I mean, that thumb drive may have been lost due to water damage. I

00:08:48:12 - 00:08:49:27
Bennett Tomlin
That's it.

00:08:51:12 - 00:08:52:27
Bennett Tomlin
Well,

00:08:53:02 - 00:08:59:12
Jonathan Reiter
We're normally pretty good at guessing what's going to happen, whether we really know or don't really know. This one is so wild because Las Vegas, you know,

00:08:59:12 - 00:09:15:26
Bennett Tomlin
well, and for me, the like one of the most interesting wrinkles I haven't fully been able to wrap my head around with it is that this problem, this purported insolvency, predates their most recent series. B Fundrise round, where they raised 107.

00:09:16:11 - 00:09:20:16
Patrick Tan
when they raised which is I mean that it's.

00:09:20:19 - 00:09:22:12
Jonathan Reiter
Just insolvent but they were I guess in breach

00:09:22:26 - 00:09:27:26
Bennett Tomlin
Yeah, yeah, yeah. And, and so, yeah. So

00:09:27:26 - 00:09:36:11
Bennett Tomlin
somehow, besides that existing problem in their books, they've in addition burned through $107 million that they fundraised a year ago.

00:09:36:11 - 00:09:38:11
Bennett Tomlin
No,

00:09:38:11 - 00:09:40:25
Bennett Tomlin
that's in total 107 in their series. B Yeah

00:09:41:07 - 00:09:43:26
Jonathan Reiter
I mean, custody is supposed to be inexpensive and boring,

00:09:47:24 - 00:09:54:23
Patrick Tan
strip, you know, those the limos, the cigars, the champagne rooms, those things aren't cheap. You know, I.

00:09:54:26 - 00:09:59:13
Jonathan Reiter
It is it is going to be a fascinating story. It's probably not going to be a very good movie, but it could be like.

00:09:59:15 - 00:09:59:25
Patrick Tan
Netflix.

00:09:59:25 - 00:10:00:17
Jonathan Reiter
20 minutes.

00:10:00:17 - 00:10:02:23
Patrick Tan
Or even three, maybe a shorter Netflix

00:10:04:22 - 00:10:14:06
Bennett Tomlin
yeah that, that feels a couple episodes too long for just prime trust with how many other things keep blowing up and prime trust

00:10:14:06 - 00:10:19:04
Bennett Tomlin
served a few different clients. But one of the most interesting ones for me has always been some of the,

00:10:19:04 - 00:10:32:01
Bennett Tomlin
minor stablecoins that relied on it, especially like the true for Emily.

00:10:32:01 - 00:10:42:24
Bennett Tomlin
as an onramp or a backing for other, larger, more important Stablecoins. I would love if you could kind of walk through that theory and what led you to that point

00:10:43:02 - 00:11:06:07
Jonathan Reiter
Sure, sure. So I guess the first observation that really slapped me in the face in that department for we had a stablecoin the Forbes dollar and on their web page, this has got to be going on. Two years ago now, it said in big letters that they had minted ten and a half billion Huobi dollars and they burned ten and a quarter billion $40 and they had a balance of 250 million, $40.

00:11:06:09 - 00:11:22:01
Jonathan Reiter
And, you know, that just looks odd. Okay. You know, so I contacted them, I telegram, chat, email, whatever. I remember. And I asked, do you just have any minting and burning statistics for this thing? Where does money come from? A gold. That's a lot of money. You could probably correlated

00:11:22:01 - 00:11:24:06
Jonathan Reiter
with something else. And this is going back years.

00:11:24:06 - 00:11:40:21
Jonathan Reiter
So $10 Billion in 2022 may sound like I've been a not you know, in the amount of money you might not be able to locate in 2019 2020. These are amounts of money you should be able to spot. Yeah. So they told me they don't track any of that kind of stuff, have any of that kind of information.

00:11:40:28 - 00:11:48:15
Jonathan Reiter
I spoke to a couple of other stablecoin providers who similarly nothing so we began looking at the histories of those kinds of things

00:11:48:15 - 00:12:01:12
Jonathan Reiter
and you see fascinating patterns where money comes in, money goes out, and some other line seems to be accumulating the money that came out or prints of money, you know, so money is transferred into the dollar.

00:12:01:12 - 00:12:25:11
Jonathan Reiter
They issue a bunch of tokens. They sit in some wallet for a while, then they get redeemed. What was the purpose of that? All right. So that sets off some suspicions. And then once you notice that the amount of money coming out of this seems to correlate with bank balances, amount of tether, stuff like that, it feels like, okay, this is a way to get money in, I guess this connects back to the Prime Trust.

00:12:25:14 - 00:12:32:29
Jonathan Reiter
If you look at the way a lot of these on ramps mechanically functioned, they make use of trusts and other similar types of

00:12:32:29 - 00:12:47:04
Jonathan Reiter
custody as providers in jurisdictions that are not absolutely top tier. Right. So the trust laws in New York are pretty solid. There's a lot of enforcement, there's a lot of finance and stuff in the UK and, you know, Singapore custody finance.

00:12:47:04 - 00:12:59:28
Jonathan Reiter
Yeah. Nevada, Idaho, Wyoming, Montana, Colorado. These are not places that are famous for this kind of work. I'm not saying there's anything wrong with the people who implement the rules, but, you know, if you set up a trust and start pumping

00:12:59:28 - 00:13:04:08
Jonathan Reiter
billions and billions of dollars through it, I don't know that they're really equipped to look at it.

00:13:04:12 - 00:13:24:20
Jonathan Reiter
And it feels like that might have been Of course, it now clearly was a bit of a weakness in the system to get money in the way and this is sort of U.S. legal stuff, the way states have to recognize each other's rules and certifications and licensors. You're licensed trust company in Nevada and you follow Nevada's rules. Once the dollars are there, you can send it to New York.

00:13:24:20 - 00:13:43:27
Jonathan Reiter
And now they're in a large bank that connects to everybody. And it's starting to feel like that route was probably pretty big. And then you pick up the rock, you know, cause you did some wonderful reporting about the true dollar sort of ownership situation. What a year, year and a half ago. You start to pick up the rock of who's owning and operating these businesses and realize

00:13:43:27 - 00:13:51:18
Jonathan Reiter
that they have direct connections to people who have a, you know, pretty solid suspicion are involved in some weird cross-border transfers.

00:13:51:21 - 00:14:10:26
Jonathan Reiter
It kind of starts to fall into place then, because no one wants you accept that the dollars sitting inside some of these stablecoins and Signature Bank, Silvergate bank, whatever are real dollars, the question is where did that come from? And it does not feel like American retail investors wired all that money in that quickly.

00:14:10:26 - 00:14:17:27
Jonathan Reiter
said that. That was an interesting observation that led us to start to sort of view the ecosystem in a completely different way.

00:14:32:16 - 00:14:34:24
Cas Piancey
think Protos obviously, and some of

00:14:41:25 - 00:14:43:10
Bennett Tomlin
Yeah,

00:14:43:10 - 00:14:48:25
Jonathan Reiter
of a the the anti tether truther for a while in the sense that I keep telling people the money

00:14:48:25 - 00:15:00:16
Cas Piancey
did have TrueUSD specifically putting out the statement that, like everything was fine, that they have all these other rails and they indeed very

00:14:49:11 - 00:15:00:16
Cas Piancey
Yeah, yeah, yeah, I, I, This is something I actually want to add. Yeah. Because I find that that we might not always see eye to eye on some of this stuff, but I actually, I really appreciate

00:15:00:16 - 00:15:03:24
Cas Piancey
the stuff you guys are pointing out, because it's stuff that I haven't necessarily

00:15:03:24 - 00:15:16:24
Cas Piancey
And I do think, like, this is a very good example of, of you guys being privy to this in the sense that you were paying a lot

00:15:16:24 - 00:15:38:08
Cas Piancey
of attention to this before a lot of other people. I think protests, obviously, and some of our colleagues have done some really good work on uncovering this. I am curious, though, since we're talking about since we're talking about some of these redemptions and these, uh, these these amounts of money sitting, sitting in accounts for

00:15:38:08 - 00:15:51:08
Cas Piancey
extended periods of time and then being redeemed.

00:15:51:08 - 00:16:04:20
Cas Piancey
uh, as far as I know. But what we have seen and you guys have pointed out is that there have been really no redemptions since all of this has happened. And then they also sent an email apparently to a bunch of their users that said,

00:16:04:20 - 00:16:08:25
Cas Piancey
unfortunately, um, you will be unable to mint and

00:16:08:25 - 00:16:21:25
Cas Piancey
redeem t USD as well as any of our true coins, including t iud, tc and tg BP.

00:16:36:24 - 00:16:50:02
Jonathan Reiter
Okay. Yeah. So I guess for one second we're talking about what their other rails are and then maybe candidate explanations for what's going on. So they, they had and we can come back to this in more detail a bit later, but they had an attestation procedure that listed where their money

00:16:50:02 - 00:16:54:10
Jonathan Reiter
was held. So we know the names of the sorts of banks and trust companies that held their money.

00:16:54:10 - 00:16:58:02
Jonathan Reiter
At least we did. We did for a while. Yeah. And that included,

00:16:58:02 - 00:17:12:01
Jonathan Reiter
mean, the most reputable, I guess, manual. Well, we'll come back to that. You know, Bitgo was on there for a token amount of money from trust was on there, and then a number of offshore organizations, Capital Union banks in the Caribbean, a Trust Company in Hong Kong. in Hong Kong.

00:17:12:01 - 00:17:12:22
Bennett Tomlin
first of.

00:17:12:01 - 00:17:13:16
Bennett Tomlin
like USD and true USD. Relying

00:17:12:22 - 00:17:13:16
Bennett Tomlin
All.

00:17:13:16 - 00:17:31:01
Jonathan Reiter
banks in the Caribbean and trust companies in Hong Kong. But even if those are still functioning rails and their first statement was accurate, you're not going to tell your U.S. domestic Western Europe retail customers is why are their money to some trust in Hong Kong and go on board with that or go get an account of this private bank in the Caribbean

00:17:31:01 - 00:17:42:11
Jonathan Reiter
So it can simultaneously be true that they have multiple rails, but 99% of their customers by number, not by, you know, dollars, don't have access to those facilities and can't use them anyway.

00:17:42:16 - 00:18:00:11
Jonathan Reiter
So they use First Digital in Hong Kong has had a lot of their money for a long time. I've never tried to own board with First Digital, but I know that their sister parent company is like a Hong Kong trust company that does wealthy people offshore fund management. I don't think you can use your Visa debit card to put five grand into the true dollar through them.

00:18:00:13 - 00:18:01:15
Jonathan Reiter
That's not their

00:18:01:15 - 00:18:05:28
Jonathan Reiter
business per their website. So I criticizing them. Fine.

00:18:06:01 - 00:18:12:16
Patrick Tan
So that statement right in the sense can only be understood from the perspective of quantum physics. It is both true and not true. Yes.

00:18:12:18 - 00:18:13:00
Jonathan Reiter
It

00:18:21:16 - 00:18:28:15
Jonathan Reiter
not actually lying. So what you've got there is we've multiple rails, but they're only available to a handful of our customers

00:18:28:15 - 00:18:40:18
Jonathan Reiter
And as we know from historical usage patterns, the vast majority of volume was only a handful of customers. Yeah, right. So we can be true that 99% of their clients cannot use the service. 99% of their

00:18:40:18 - 00:18:47:16
Jonathan Reiter
clients by volume are perfectly happy with the existing rails. Yeah, that's not even a bad business. Forgetting the money being stolen.

00:18:47:16 - 00:18:50:24
Bennett Tomlin
Once you get past the money disappearing suddenly without warning,

00:18:51:21 - 00:18:53:24
Jonathan Reiter
that they lost those people's money

00:18:58:28 - 00:19:13:24
Patrick Tan
why we never really bothered too much about asking whether or not to have those bags and stuff like that. Because if your business is the carriage of funds for, you know, between borders, which otherwise would be challenging under normal circumstances, you need to know

00:19:13:24 - 00:19:16:21
Patrick Tan
where every single last dollar is, because these are people whom you don't want to upset.

00:19:16:23 - 00:19:22:17
Jonathan Reiter
A reasonable number of the customers are. Yeah, they probably have a priority list and, you know, fine, we don't want to know who that is, whatever.

00:19:22:19 - 00:19:26:08
Patrick Tan
And then if if things go bad, you know,

00:19:26:08 - 00:19:47:07
Patrick Tan
it's, it's more of a case that like, okay, the simple analogy I think that most most of the viewers would understand is like, let's say you borrow my car to run drugs from Tijuana up to San Diego, and then it gets it gets impounded. The car doesn't stop existing, but we probably can't drive it around anymore because it's been impounded by you know, the DEA.

00:19:47:16 - 00:19:57:22
Patrick Tan
So that's more than likely what's going to happen in some of these cases where the dollars are there. But, you know, policia, what was the last scene from that movie that.

00:19:57:26 - 00:19:59:22
Jonathan Reiter
Oh, in layer cake where

00:19:59:22 - 00:20:04:13
Jonathan Reiter
the drug dealers, the pills were lost to the police whatever will go make.

00:20:04:13 - 00:20:11:23
Patrick Tan
More welcoming more. Yes. Policia. Police. Policia. Yeah, that's how it is. So yeah, there you go.

00:20:11:26 - 00:20:16:28
Jonathan Reiter
I mean, I think one of the key sort of trading investment observations, because we originally came at this from a trading point of view, but.

00:20:16:28 - 00:20:17:08
Patrick Tan
We saw that.

00:20:17:14 - 00:20:22:06
Jonathan Reiter
Once, you know, that the money's probably there, it means that the catalyst for things falling apart

00:20:22:06 - 00:20:34:08
Jonathan Reiter
is law enforcement actions like security. Yeah, right. And that's the way you need to play as opposed to, you know, run on the bank causing stuff to collapse that feels less likely, whereas, you know, headlines are likely to have much longer lasting impact.

00:20:34:08 - 00:20:40:18
Cas Piancey
well, as someone who's been watching Tether for a very long way too long now,

00:20:40:18 - 00:20:43:03
Bennett Tomlin
it's half a decade. It's half a decade at this point.

00:20:43:03 - 00:20:46:03
Bennett Tomlin
Guess

00:20:47:18 - 00:21:02:05
Cas Piancey
for someone who's been watching it for that long and knowing that they a lot of what they've done in plain sight and been fined for and had regulators come, come, come at them for and they're still not shut down.

00:21:02:06 - 00:21:04:17
Cas Piancey
And even when when

00:21:04:17 - 00:21:16:02
Cas Piancey
$850 million out of you know $3 billion was was seized from them, it didn't matter. It didn't stop them. And I'm just I I've seen a lot of the work you guys have done on the

00:21:16:02 - 00:21:22:27
Cas Piancey
commercial paper, which I thought was fascinating, actually. And I wanted to bring that up. I don't know, maybe we can we should bring it up later.

00:21:22:27 - 00:21:36:16
Cas Piancey
I'm not sure. But like you guys were pointing out that there were, um, repetition of, of percentages of interest rates and, um, at different times and just, just things that accountants

00:21:36:16 - 00:21:48:01
Cas Piancey
take note of and go, Wow, this is like consistent with what frauds do. But it doesn't, it doesn't mean that's what's happening, but it is certainly

00:21:48:01 - 00:21:49:16
Cas Piancey
like suspicious.

00:21:50:20 - 00:22:02:15
Cas Piancey
And I just wonder, like you're talking about wanting to trade based on knowing that you need regulatory enforcement action to trade on that, on like,

00:22:02:15 - 00:22:05:15
Cas Piancey
on, on.

00:22:05:15 - 00:22:07:00
Cas Piancey
Sorry, go ahead.

00:22:07:00 - 00:22:22:00
Jonathan Reiter
I guess prior to Luna, we're trying to look at, you know, identifying stuff or doing whatever, doing business. I was a derivative trader for a long time. Whatever you designed trading protocols, you did business. Beyond that, it became clear that solvency was important to analyze and

00:22:22:00 - 00:22:26:01
Jonathan Reiter
understanding the circumstances under which the insolvency is realized.

00:22:26:06 - 00:22:29:03
Jonathan Reiter
So I'm not trying to trade the headlines,

00:22:29:03 - 00:22:30:00
Cas Piancey
Okay.

00:22:30:00 - 00:22:44:29
Jonathan Reiter
action. I'm saying, look, as long as these people aren't getting arrested, their money is not getting seized, whatever. And this the signs you want to look for in public statements are statements consistent with the money being seized, statements like you people can't access our system anymore, but you people

00:22:46:14 - 00:22:48:14
Jonathan Reiter
with these people's money having been seized.

00:22:48:22 - 00:22:49:29
Cas Piancey
Yeah, yeah.

00:22:49:29 - 00:22:54:00
Jonathan Reiter
just more general. We're not the most honest or high quality exchange operators in the world. Those different things you

00:22:57:14 - 00:22:58:14
Bennett Tomlin
now.

00:22:58:14 - 00:22:59:29
Bennett Tomlin
Yeah, but

00:22:59:29 - 00:23:13:25
Bennett Tomlin
kind of on that note of who has access and when, one thing that was interesting to me as I was reviewing some of the stuff you guys have written on medium and stuff in preparation for this episode is

00:23:13:25 - 00:23:21:12
Bennett Tomlin
Alameda Research was the largest issuer of tethers, nearly edging out Cumberland Global as of November

00:23:21:12 - 00:23:36:12
Bennett Tomlin
2021, and it seemed like Alameda was also the largest issuer and redeemer of true USD, I believe, and h USD for its brief in largely uneventful existence.

00:23:37:02 - 00:23:37:27
Bennett Tomlin
Well,

00:23:37:27 - 00:23:57:11
Bennett Tomlin
uneventful in terms of being used as a primary trader pair for trading, being used for what its stated purpose was. Do you have any thoughts on the fact that for those three very seemingly different stablecoins Alameda research was the most important for each of them?

00:23:57:11 - 00:24:04:10
Jonathan Reiter
Well yeah, okay. So the the product there was the ability to get dollars into the system and move dollars across borders without restrictions.

00:24:04:12 - 00:24:11:17
Jonathan Reiter
That's been the product basically forever. Sam's early interviews were about how that was their product in what,

00:24:11:17 - 00:24:22:02
Jonathan Reiter
2018? They were funded by that pot business exit. You know, it's that's always been a large part of what this ecosystem's about. I think a lot

00:24:22:02 - 00:24:31:06
Jonathan Reiter
of people are going to have to accept that they're actively those for the last few years were providing background noise to allow people to transfer money from place to place.

00:24:31:06 - 00:24:41:02
Jonathan Reiter
That would have otherwise been very difficult. And if you look at the early Bitcoin major thefts and hacks and whatever transfers, essentially all of that has been tracked and frozen and not okay.

00:24:41:02 - 00:24:51:16
Jonathan Reiter
And what happened this time is there was a ridiculous amount of noise and so reasonable amounts of money got from place to place without trouble. The Genesis block guy who was all I mean, a researcher we

00:24:51:16 - 00:24:53:01
Bennett Tomlin
Yes,

00:24:53:01 - 00:24:59:16
Jonathan Reiter
YouTube explaining they were onboarding bags of cash in countries where there are not a lot of people with bags of U.S.

00:24:59:16 - 00:25:01:01
Bennett Tomlin
well, and

00:25:01:01 - 00:25:05:16
Jonathan Reiter
we're feeding into. The statistics you just mentioned, it can only have been from there because, you know.

00:25:05:16 - 00:25:23:00
Bennett Tomlin
and one of their other partners also at one point talked about their network of dozens of bank accounts they maintained and during the course of the interview is like this is a very gray area which is so yeah that I think that

00:25:23:00 - 00:25:35:00
Bennett Tomlin
it, as you mentioned, in Genesis BLOCK, who again was a tether client who did tens

00:25:35:00 - 00:25:54:14
Bennett Tomlin
of millions of dollars of tether transactions, which at the time we didn't know to categorize, understand, bankman-fried. And then besides that, you also see Hive X, a over-the-counter trading desk. They make been freed bought in Australia using Alameda Research. They had someone on their staff who was in charge of bank account brokering.

00:25:54:14 - 00:26:05:29
Bennett Tomlin
in Genesis BIRCOTES in Hong Kong. You've got them talking about their network of dozens of bank accounts and you have then these minor stablecoins, including both like USD and true USD. Relying on

00:26:05:29 - 00:26:16:03
Bennett Tomlin
various trusts will be for a while relied on their own. Trust will be trust which they set up in Nevada. I think you had true USD using like Alliance trust before and prime trust in then.

00:26:16:06 - 00:26:16:25
Bennett Tomlin
Yeah. And so

00:26:16:25 - 00:26:20:28
Bennett Tomlin
There are legitimate dollars moving through this and we saw that it's.

00:26:21:14 - 00:26:22:07
Bennett Tomlin
Mm hmm.

00:26:22:07 - 00:26:25:10
Jonathan Reiter
director officer or whatever for lobbies trust in Nevada.

00:26:25:10 - 00:26:26:13
Patrick Tan
For Phil Simmons is an.

00:26:26:13 - 00:26:39:22
Jonathan Reiter
Ex professional poker player where they're Chinese name and some of the early addresses associated with that are actually in China. Some of those addresses at locations that really make you question who owns this thing. Google Maps is your friend on that one.

00:26:39:25 - 00:26:59:27
Bennett Tomlin
That's a very curious little nugget to draw, but yeah, no, I think that just the more we've seen developing, like especially, I think the now that we've seen some indictments against key figures in the conspiracy, I think that we're kind of going to see, as you've suggested in a lot of your tweets and posts recently, prosecutors have this

00:26:59:27 - 00:27:10:17
Bennett Tomlin
They have signature bank, they have silvergate. They have those exchange networks which were Silvergate and Signet sent in Signal, which were both important for a lot of this.

00:27:10:17 - 00:27:29:28
Bennett Tomlin
And I think one of the examples you guys previously discussed with this was in the like moments immediately surrounding when Signature got seized, there was a very large issuance of true USD and we saw a lot of money briefly stored in the manual bank, which is a new one.

00:27:29:29 - 00:27:33:00
Jonathan Reiter
I've been able to find them with Google. Yes. Yes. Yes. Yeah.

00:27:33:07 - 00:27:41:03
Bennett Tomlin
Do you have any like thoughts on the role of those two specific banks? There was specific exchange networks and how that connected in.

00:27:42:00 - 00:28:01:04
Patrick Tan
I mean, that actually happened on the weekend. We were actually we were in the office and we were watching it live. So we, we had the attestations, you know, crudely used to put out the attestations and stuff like that where everything was manual. Obviously now as we know, means limbo means like it's a quantum state and so it may or may not exist.

00:28:01:07 - 00:28:23:22
Patrick Tan
And then what? Now what we can't know is whether or not the people initiated those transfers the last time was because Signet continued to work on the weekend that signature bank was seized, which is that's fascinating. And I, I would assume that it's either because, I mean, signal is not meant to it's supposed to be a 24 seven constantly working kind of thing.

00:28:23:22 - 00:28:24:02
Patrick Tan
So

00:28:24:02 - 00:28:39:07
Patrick Tan
presumably when the feds came in seize the bank, they either didn't they chose not to shut down Signet or didn't know how to shut down Signet or, you know, hadn't really had, you know, because you just come in, you got to try and figure everything out. And so we can, you know, only the key.

00:28:39:11 - 00:28:45:25
Jonathan Reiter
What will keep the money ended up at this bank. So we don't know if that was an internal transfer to their bank in New York or what and who.

00:28:45:27 - 00:28:52:16
Patrick Tan
But we know that the money moved through Signet and about almost $1,000,000,000 landed in

00:28:52:16 - 00:29:08:21
Patrick Tan
somebody already knew and was doing that in a timely manner to get the money out of the U.S. banking system, where if they had not gotten out of the banking system, it would have gotten seized possibly, or they were just lucky and they happened to do it at the same time that the bank was getting paid.

00:29:08:21 - 00:29:09:13
Patrick Tan
I mean.

00:29:09:16 - 00:29:13:14
Jonathan Reiter
There was about a week there where it was expected a couple of these banks were about to get whacked.

00:29:13:15 - 00:29:14:00
Patrick Tan
Exactly.

00:29:14:00 - 00:29:34:09
Jonathan Reiter
At which point you'd have expected their bank account brokering. You know, SWAT team was in there trying to open accounts wherever they could and trying to get wire transfers. And that circle had that large deposit at a bank that was in peril, was hardly really secret information among, you know, reasonable number of people. So, yeah, they were trying to open accounts and get wires through it looks like their wires eventually settled.

00:29:40:14 - 00:29:41:24
Jonathan Reiter
eventually settled.

00:29:41:27 - 00:30:00:23
Jonathan Reiter
We're assuming that they reported incorrectly the money got out and the manual kind of man their an account will be set up soon. I'm going to send you this money. Please, just do something, fix it, hold it when it arrives. And then they just sort of turn it off. The transparency part. I mean, I would go back for a second to connect your acumen research question to why everything we're talking about are U.S. banks.

00:30:00:26 - 00:30:09:13
Jonathan Reiter
I think people don't realize, though, Tether had a lot of banking trouble and people in the space had a lot of banking trouble for a long time. And then somehow this group of

00:30:09:13 - 00:30:21:17
Jonathan Reiter
young, relatively naive people with American passports who were willing to fill out a bank account floor was a ridiculous company. Names and incorrect descriptions. Businesses were willing to start to intermediate this stuff.

00:30:21:19 - 00:30:39:00
Jonathan Reiter
It's then no surprise that those people became the main intermediaries because Sam could open bank accounts in North America with no real trouble, right? He had some kind of a CV and he said, Oh, I'm going to run a trading firm. And a bank would open him an account. Maybe they'd have trouble later, but until he was all over television, that worked.

00:30:39:06 - 00:30:57:12
Jonathan Reiter
Whereas a bunch of these are historically either people from nationalities, countries, regions, business areas that might have struggled a bunch of former financial professional, early twenties people with American passports are going to have that difficulty. And so they were able to start to build conduits to get the money into the system. No tether wasn't

00:30:57:12 - 00:31:01:10
Jonathan Reiter
running accounts. I mean, forget the part where they had their lawyers name on some of the stuff.

00:31:01:13 - 00:31:16:12
Jonathan Reiter
You know, they weren't doing that in New York quite so much. These people were able to do that. And so you ended up in a situation where absurd transfers within the U.S. banking system were happening. When it finally got figured out, everybody panicked and tried to pull. That's that's what you're seeing. That's what you've seen.

00:31:16:12 - 00:31:20:20
Patrick Tan
And that having been said, there's still quite a substantial amount of money that has been left unclaimed.

00:31:20:25 - 00:31:21:28
Jonathan Reiter
There's some money we don't Yeah.

00:31:21:28 - 00:31:26:11
Patrick Tan
In still remaining of these banks, which I suspect it's not I mean, it's not a bit

00:31:26:11 - 00:31:36:18
Patrick Tan
like Ocean's 11 with a whole bunch of them walking through the lobby of the bank and going, hey, I'm, you know, you kind of want my money back. I think it's it's going to be like more like the last scene of Layer Cake where, you know, and you accept that.

00:31:36:18 - 00:31:37:05
Jonathan Reiter
Money has gone.

00:31:37:05 - 00:31:41:24
Patrick Tan
And the money just gone. That's the cost of doing business. When you want to engage in these sort of activities.

00:31:41:29 - 00:31:59:25
Jonathan Reiter
It seems like Silvergate and Signature in particular decides that they were okay with facilitating this stuff. And then a whole facade was built to allow the onboarding of questionable entities pump the money through. And then a couple of little central places to feed from place to place. There weren't really that many players involved in service out.

00:32:00:02 - 00:32:10:25
Cas Piancey
Can I maybe you guys know better than I do, but one of my questions throughout all of this continually is about correspondent banks and the role that they

00:32:10:25 - 00:32:12:10
Cas Piancey
play in all of this

00:32:12:10 - 00:32:28:10
Cas Piancey
and how like, like you just mentioned, right, we saw all this money move through Signet right as signature is getting shut down and go to Capital Union Bank, which is an offshore bank and which has also been playing a major role with Tether.

00:32:28:10 - 00:32:29:18
Cas Piancey
It turns out as well.

00:32:29:18 - 00:32:41:18
Cas Piancey
why wouldn't the correspondent banks for say you know hypothetically capital union or deltec do something about this if if it's posing such an issue.

00:32:41:18 - 00:33:03:02
Jonathan Reiter
Okay, so I guess I'll spend a few moments here explaining how offshore banking works kind of mechanically so we can this is not a legal description of how you do this as a stylistic description, but we can set up a company here that we called whatever John and Patrick Offshore Bank, and then we would go use that registration, set up accounts at banks in the rest of the world.

00:33:03:02 - 00:33:27:03
Jonathan Reiter
So Citibank, U.S., UK, Japan, whatever. And we can now take deposits from customers through those bank accounts. The entire offshore financial system is based on companies incorporated offshore that have bank accounts offshore and transact through accounts in their own name. They're listed as clearing account, custody account, corporate account, whatever. And then your deposits at our bank are basically a spreadsheet that we

00:33:27:03 - 00:33:28:14
Jonathan Reiter
have there system on that computer.

00:33:28:18 - 00:33:58:02
Jonathan Reiter
That's how we keep track of who has what claims are, what things in what bank accounts. The segregation is a legal concept. If you have a banking license, a trust license, a custody license, whatever it is that works like that. So all of the money center, banks, correspondent banks, the large banks in the world that are intimidating this stuff, they have a huge line of business that is processing payments for people that have some kind of money, transmitter license things, banking license, money transmitter, license payment transmitter, license, whatever.

00:33:58:20 - 00:34:16:04
Jonathan Reiter
And they run payments back and forth through them among their clients from bank to bank among different parts of the bank. So if my Japanese clients are withdrawing more than my British clients, I'll move money from my correspondent account in the UK to my correspondent account in Japan. Those types of flows are just part and parcel of offshore finance.

00:34:16:06 - 00:34:40:00
Jonathan Reiter
Now you can argue the surveillance is good enough, not good enough, whatever. But if a bank in the Caribbean opens a bunch of clearing accounts at money center businesses, Western Europe, North America kind of considered, okay, the bank doesn't have any liability for malfeasance through that account. Very, very limited because they're banking a licensed bank, an offshore bank, insurance company, a financial services business that is not their top priority.

00:34:40:05 - 00:34:50:01
Jonathan Reiter
Their top priority is, you know, does this person with an address in Moscow who gave me what looks like a fake passport, are they on a sanctions list that the bank cares about? Did this bank in Antigua

00:34:50:01 - 00:35:03:18
Jonathan Reiter
happen to move some money from some people that I don't even know about? It's a lower priority for that Now, in cases where it turns out that person was a sufficiently bad status for know, oh, factor the North Koreans or whatever, it can be a serious problem.

00:35:03:20 - 00:35:07:16
Jonathan Reiter
But if it's a bunch of people in Vietnam or Cambodia trying to move money across borders.

00:35:07:22 - 00:35:08:05
Patrick Tan
Yeah, nobody.

00:35:08:05 - 00:35:19:28
Jonathan Reiter
But historically the US government can care less, right? They're certainly not going to come after Citibank in the U.S., in the UK for facilitating that stuff. There was a situation where BNP was involved in some Sudan related stuff

00:35:20:04 - 00:35:21:00
Bennett Tomlin
A.

00:35:21:00 - 00:35:21:16
Patrick Tan
kind.

00:35:21:16 - 00:35:45:05
Jonathan Reiter
Of is because once you understand how this stuff works and what people get caught for, you realize how the system naturally migrated to find a crack and it just exploited that crack. The trust system in general. Coming back to the beginning of discussion in the United States appears to be a pretty big crack here, and I expect there are going to be some discussions about federal housing trust regulations in larger sort of legal overhaul here.

00:35:45:08 - 00:35:46:09
Patrick Tan
That could take a while.

00:35:46:11 - 00:35:48:27
Jonathan Reiter
Oh, that's saying they're going to say too soon. But this that people were able to use correspondent banks like this. Yeah, well, look, the way that you transferred money into offshore for years was to transfer money into a Deltec corporate account in Citibank London and put it in the comment field where it was really gone.

00:36:12:13 - 00:36:26:19
Jonathan Reiter
this that people were able to use correspondent banks like this. Yeah, well, look, the way that you transferred money into offshore for years was to transfer money into a Deltec corporate account in Citibank London and put it in the comment field where it was really gone.

00:36:26:22 - 00:36:27:19
Patrick Tan
That's why there's.

00:36:27:22 - 00:36:41:14
Jonathan Reiter
You now, Citibank, London does surveillance. I don't think that really it was a top priority of theirs to do surveillance on Caribbean clearing account. Whatever. Okay. I wouldn't fault them for that.

00:36:41:17 - 00:36:43:28
Patrick Tan
It's just the system. And I mean, I think I want

00:36:43:28 - 00:36:56:28
Jonathan Reiter
of some of the people involved. That was a separate document from a day or two ago. So I no longer I believed pretty strongly that a lot of this stuff was probably done legally for while having read that attorney one document, I'm no longer so convinced that's the case.

00:36:56:28 - 00:36:59:04
Jonathan Reiter
But you know, there are plausible ways in which this could have been.

00:37:20:03 - 00:37:21:26
Cas Piancey
Sorry sorry. I want to

00:37:23:11 - 00:37:34:26
Cas Piancey
to point out that that what Jonathan is referencing here is a, um, a document that was released about all of these. I don't even know what to call it, but just basically,

00:37:34:26 - 00:37:37:26
Cas Piancey
I won't name who the attorney is. He's referenced

00:37:37:26 - 00:37:39:11
Bennett Tomlin
to turning one.

00:37:43:11 - 00:37:46:26
Bennett Tomlin
I wouldn't want to play poker with them. I'd worried they were looking at my cards

00:37:51:17 - 00:37:58:25
Cas Piancey
But yeah, they basically were doing everything they could to help SBF navigate

00:37:58:25 - 00:38:05:25
Cas Piancey
black market territory. I mean, not even gray market like pretty much definitely illegal shit that was going on. So

00:38:08:25 - 00:38:22:24
Bennett Tomlin
and for now these are just allegations from the debtors in possession. Of course, though admittedly debtors in possession do now have the entire books and all the correspondence. But we should.

00:38:23:14 - 00:38:42:28
Jonathan Reiter
operating thesis most of the time has been the statements are probably true if you squint correctly, and the activities were probably legal if you squint correctly. And I'm pulling back a little bit from that now that was, that was what that was intended to, you know, we have a situation there where a major player and an experienced advisor appear to have done stuff that's nowhere near the line.

00:38:42:28 - 00:38:43:24
Patrick Tan
Correct. So

00:38:43:24 - 00:38:49:24
Cas Piancey
for sure. But I do think that this, this goes back to like your commercial paper observations

00:38:49:24 - 00:38:51:09
Cas Piancey
with, with, with like

00:38:51:09 - 00:38:54:18
Cas Piancey
tether where I think it's fair to say that a lot of it

00:38:54:18 - 00:39:01:12
Cas Piancey
when you're thinking about American companies and what you would want them invested in like perhaps not what you would hope an American company would

00:38:58:28 - 00:39:02:21
Cas Piancey
where it's like, Oh, there's these weird, repetitive interest rates, There's these weird, like just a normal is that you don't expect to see.

00:39:01:12 - 00:39:02:21
Cas Piancey
be invested in. Right?

00:39:13:06 - 00:39:25:13
Cas Piancey
And then the little weird stuff that you guys were noticing where it's like, Oh, there's these weird, repetitive interest rates, There's these weird, like just a normal is that you don't expect to see.

00:39:25:20 - 00:39:30:15
Cas Piancey
And I and I wonder if if things like that are starting to shift your own perspective on this as well.

00:39:30:15 - 00:39:32:23
Patrick Tan
we have a theory about this actually. So

00:39:32:23 - 00:39:43:11
Patrick Tan
we don't know because okay, like when you have a portfolio snapshot, you have the timestamp. Typically this thing defines timestamps because some of it happens

00:39:44:26 - 00:39:49:27
Patrick Tan
past, some of overlaps, the period of time when you're sort of taking a snapshot. So I don't know what this is.

00:39:49:29 - 00:39:58:25
Patrick Tan
So one possibility and we've discussed this is that that's the intention. The intention is like, okay, you know, this is

00:39:58:25 - 00:40:05:10
Patrick Tan
what Mag write for the Southern District. So I know you guys are not equipped to handle this crap. I'm just going to throw up a

00:40:06:10 - 00:40:20:10
Cas Piancey
Interesting. Wow Wow.

00:40:20:10 - 00:40:22:25
Cas Piancey
Drown them in in information basically.

00:40:22:25 - 00:40:23:18
Patrick Tan
correct?

00:40:23:18 - 00:40:25:14
Patrick Tan
So it's the same situation like in a liquidation.

00:40:25:14 - 00:40:26:28
Jonathan Reiter
So some wise it's just papers.

00:40:26:28 - 00:40:39:24
Patrick Tan
Not good luck. So like, it's like, okay, say for instance, this happens all the time, often with opposing counsel, right? So like when you ask for request documents, I'm giving you the documents. That doesn't mean I have to, you know,

00:40:39:24 - 00:40:44:21
Patrick Tan
chronicle the stuff. I'll put it in alphabetical order or any kind of order. I could just dump everything in a box.

00:40:44:25 - 00:40:49:24
Patrick Tan
Some stuff is going to go for 90, 80 some, and I'm going to mix in some of the stuff from from the late 2000

00:40:51:09 - 00:40:59:07
Patrick Tan
you see what you see. Now. The other problem, of course, is that and applied benefits law to this, which is a basically you know how numbers don't don't tell you more about.

00:40:55:15 - 00:41:04:25
Cas Piancey
interesting. Tim

00:41:12:23 - 00:41:13:00
Patrick Tan
more about.

00:41:13:00 - 00:41:13:23
Jonathan Reiter
This fraud detection.

00:41:13:23 - 00:41:25:14
Patrick Tan
Statistics. It's a fraud detection statistical system. So anyway, we applied benefits law to this in some of the numbers. And yeah, so that it didn't it didn't comply. So

00:41:25:14 - 00:41:26:23
Cas Piancey
Interesting.

00:41:26:23 - 00:41:38:29
Patrick Tan
And then when you see that there are typographical errors which looks like sloppy cut and paste type jobs and stuff like that. And I don't tag on to the fact that the dates don't don't match up and stuff like that.

00:41:39:02 - 00:41:43:04
Patrick Tan
It's impossible to really draw any kind of.

00:41:43:07 - 00:41:50:22
Jonathan Reiter
I mean, so we'll say again. So having done training for a long time, you know, large bank, whatever, you deal with businesses that are blown up and mistakes,

00:41:50:22 - 00:42:02:02
Jonathan Reiter
people that didn't run stuff properly. This also has a lot of the hallmarks of when you're flown over to deal with an exploded trading desk right. These mistakes are familiar to me and it isn't necessarily that they were making it all up.

00:42:02:04 - 00:42:04:21
Jonathan Reiter
A lot of the players in this space have not demonstrated

00:42:04:21 - 00:42:21:18
Jonathan Reiter
the highest level of competence. And so I can also believe that the money kept getting wired at the same place and somebody just copy paste it all the bond details and they were actually issuing something and something was really happening. And the reason it doesn't look like organic market activity is it was more

00:42:22:27 - 00:42:23:07
Cas Piancey
Hmm.

00:42:26:15 - 00:42:27:21
Bennett Tomlin
Well,

00:42:27:21 - 00:42:30:17
Jonathan Reiter
You know, we can't assume these people really know what they're doing finance wise because they've shown themselves not to write. Right.

00:42:36:18 - 00:42:40:24
Cas Piancey
Mm hmm.

00:42:43:20 - 00:42:51:07
Jonathan Reiter
doing finance wise because they've shown themselves not to write. Right.

00:42:51:10 - 00:42:54:20
Patrick Tan
And things like that. Missing Eyes Concepts license.

00:42:54:20 - 00:43:00:29
Patrick Tan
That's not necessary. That doesn't mean anything either ways because that tons of commercial people, which is all you see that doesn't have a Yeah.

00:43:00:29 - 00:43:14:04
Jonathan Reiter
I mean I'm a little bit disappointed in the New York attorney general for not requiring them when they were providing information about securities to provide identifiers for those securities. One of the bank statements that they produced look like a totally standard statement, and those may well have

00:43:14:04 - 00:43:20:29
Jonathan Reiter
been under the black cover ups, the spreadsheet with the dates that make no sense how this was considered acceptable without license.

00:43:20:29 - 00:43:25:04
Jonathan Reiter
Cuz if something I am disappointed, I am disappointed. I hope that

00:43:25:04 - 00:43:26:19
Bennett Tomlin
well.

00:43:27:14 - 00:43:29:08
Cas Piancey
I.

00:43:29:11 - 00:43:29:19
Cas Piancey
I

00:43:29:19 - 00:43:38:04
Cas Piancey
do. Why do you think you're right? I think. I think they don't. The New York attorney general does not have the staff to

00:43:38:04 - 00:43:39:19
Cas Piancey
be able to

00:43:39:19 - 00:43:55:19
Cas Piancey
competently and consistently go through all of the data that they were being given by tether. I think that's totally a fair statement on your part, and that's why you end up seeing kind of these weird numbers and these weird issuances.

00:43:55:19 - 00:43:56:18
Cas Piancey
But sorry, Ben,

00:43:56:23 - 00:44:03:20
Bennett Tomlin
Well, yeah. So that's one explanation I also so one of you tweeting about a

00:44:03:20 - 00:44:10:04
Bennett Tomlin
hypothetical mechanisms by which this commercial paper could be a

00:44:10:04 - 00:44:19:18
Bennett Tomlin
useful instrument to manage alternative offshore dollar flows and things like that. Could you walk through what that hypothetically would look like? Of course,

00:44:19:18 - 00:44:39:29
Jonathan Reiter
sure. Well, so I think a commercial paper, as with a lot of things in crypto, is a very specific term in finance that most people here don't understand and it's being misused. So what these people mean by commercial paper is short term debt issued by some kind of company. That is not the definition, but let's just go with that in a vague sense.

00:44:40:01 - 00:45:07:17
Jonathan Reiter
So when I saw that list of bonds, many of the companies on that list of bonds have nothing to do with crypto. They have nothing to do with banking. There's parts of Reno and Glencore and General Motors auto financing, whatever. So those to me are completely standard borrowers in the offshore dollar market. So Glencore funding just runs a program where they borrow money from people at low prices continuously whenever somebody wants to buy some kind of bond, Glencore will take the bond

00:45:07:17 - 00:45:11:25
Jonathan Reiter
and working with the bank, produce whatever payoff the customer wants.

00:45:12:00 - 00:45:36:22
Jonathan Reiter
That's a completely standard product. The bank issuers on there, the industrial issuers mean Arcelor Mittal is on there. Any capital intensive business, any large finance business. Does this 100% standard offer finance? Now once you realize these are not U.S. domestic companies issuing 180 day commercial paper, actual commercial paper, they're just some kind of business issue in some kind of short term debt.

00:45:36:24 - 00:45:40:01
Jonathan Reiter
Okay. Now things open up a little bit. So we know

00:45:40:01 - 00:45:58:07
Jonathan Reiter
that there's a lot of demand to get money from China and from other restricted currency jurisdictions in general. And we know a lot of the banks on that list have Chinese names on them. So if I wanted to get money out of China into a stablecoin, this is just an imagined sequence of steps, right?

00:45:58:07 - 00:46:15:04
Jonathan Reiter
So I go meet at a maybe it's a luckin coffee at a coffee shop in China. My Stablecoin dealer and I give them a bunch of local currency wire to their bank account, give them a bag, whatever, and they give me a, you know, thumb drive with my stablecoins on somehow these things have to get turned into dollars somewhere.

00:46:15:04 - 00:46:33:14
Jonathan Reiter
And in China and in other countries with restricted currencies, Argentina, Brazil. Now this could also be in a coffee shop in Brazil, right? It's the same thing as Argentina. So they need to to arrange that somehow. Now, one of the simplest stylistic ways of doing this is to get a bank that has a presence in that country and outside of that

00:46:33:14 - 00:46:36:17
Jonathan Reiter
country to take a deposit for the local currency.

00:46:36:20 - 00:47:05:13
Jonathan Reiter
And then we'll come back to how they're able to convert it to foreign currency later, but execute some kind of maybe, maybe not. Okay. Foreign currency transaction and then use that to purchase a bond. They just had one of these offshore funding vehicles issue and hand it to the issuer. So what's happened now is effectively I've given a bag of money to a guy in a coffee shop and Tether International Ltd in the Cayman Islands, whatever has just been handed a bond issued by some generic offshore

00:47:05:13 - 00:47:07:05
Jonathan Reiter
international finance issuer.

00:47:07:07 - 00:47:24:20
Jonathan Reiter
These banks and this is again true in every country with a restricted currency, banks have some amount of leeway and quota for converting local currency to foreign currency, and they can bend the rules, not bend the rules, whatever. If people get arrested for this kind of stuff all the time, right. Malfeasance in this space is part and parcel again of of this type of finance.

00:47:24:23 - 00:47:44:11
Jonathan Reiter
Whether you give a bag to this guy, a different bag to that guy or whatever. So it is conceivable that issuers take the money and then it disappears onshore to some process and then hand a bond. Somebody over there and no intermediary in the step really knew every part of what was going on. So it it you know, again, it's gray area, right?

00:47:44:14 - 00:47:58:27
Jonathan Reiter
The Chinese bank, whatever bank with a presence in China takes a deposit. They eventually write off your deposit. They convert your money in dollars, they send it offshore, they get a bond created. That's the end of it. Something like that appears to have happened and at least some scale. And it would answer

00:47:58:27 - 00:48:00:26
Jonathan Reiter
what's always been a question for me.

00:48:00:29 - 00:48:19:05
Jonathan Reiter
You know, whatever you think of the people running Tether and other products in the space, they're not just accumulating an infinite pile of one currency and promising people one unit of another. That doesn't make any sense, right? They're not just backing their tether with R&B and hoping for the best. That's not a realistic strategy. I don't think anybody's doing that in $50 billion.

00:48:19:05 - 00:48:30:26
Jonathan Reiter
But so this looks like a vehicle for that. If somebody could find some of those bonds and find who the arranger was, then you might be able to start to narrow down into who's doing the dodgy transactions. The

00:48:30:26 - 00:48:37:00
Jonathan Reiter
mechanics for that get to be a bit more complicated, but people can understand how, you know, sometimes you can't convert currency and sometimes you can.

00:48:37:00 - 00:48:39:00
Jonathan Reiter
Sometimes if you pay somebody to let you write.

00:48:39:00 - 00:48:54:15
Jonathan Reiter
That's that's a rough description of what happened there. Once the money is available to purchase the offshore bond, they can call up any bank and say, we have money and it can be ICBC offshore, it could be any banks, whatever standard account. Okay, I need a Glencore funding Fremont zero coupon.

00:48:54:15 - 00:49:06:24
Jonathan Reiter
Okay, fine. Next time. Right. That's a totally standard transaction and that would introduce a lot of intermediaries, maybe a little bit a crack again. Right. And that should work. That should give or take work.

00:49:06:24 - 00:49:21:12
Bennett Tomlin
It is. This entire conversation has felt like a a discussion of capital controls and how they're commonly evaded. Um, and like at a certain level that makes sense. Like

00:49:21:12 - 00:49:30:12
Bennett Tomlin
very explicitly that's what some of these stablecoins are for. Tether on their own website says USD provides an alternative that allows entities

00:49:30:12 - 00:49:37:20
Bennett Tomlin
and individual pools to circumvent capital controls by utilizing an entirely different financial infrastructure.

00:49:37:22 - 00:49:45:12
Bennett Tomlin
This has been the marketing for a lot of these types of products. Also, that's a wild thing to write on your website.

00:49:49:11 - 00:49:56:26
Jonathan Reiter
of novel product that you can build in the space that I had stumbled across was this idea of giving dollar accounts to people who live in places where

00:49:57:02 - 00:49:58:11
Bennett Tomlin
Mm hmm.

00:49:58:11 - 00:50:03:25
Jonathan Reiter
Setting aside the moral, political, whatever questions, that's just a weird business to be advertising.

00:50:03:27 - 00:50:17:11
Jonathan Reiter
You can imagine where certain governments would look kindly on helping dissidents in a place they don't like. Whatever. But you know, they're not going to look kindly on some of the other users. And I think it's fair to say that dissidents probably will have as much money as criminals. But, you know, whatever.

00:50:19:17 - 00:50:24:21
Jonathan Reiter
Yeah, Yeah. It's fascinating that advertising is It's odd, right? It's odd

00:50:24:21 - 00:50:30:26
Jonathan Reiter
that this is a big use case. Does not surprise anyone who's dealt in an emerging market foreign exchange for a long time.

00:50:30:26 - 00:50:47:04
Bennett Tomlin
and like there's been reporting for years that's kind of supported that as one of the largest use cases for these stablecoins in some of these entities. Right from Zedong's arrest in his connections to a Tian Tian and of the other gambling app that he was laundering money for.

00:50:47:04 - 00:50:55:03
Bennett Tomlin
Yeah, that was give me my next one.

00:50:55:03 - 00:50:57:11
Cas Piancey
pipeline for us.

00:50:57:11 - 00:51:00:11
Cas Piancey
actually just

00:51:00:11 - 00:51:01:26
Bennett Tomlin
Mm

00:51:01:26 - 00:51:06:10
Cas Piancey
sure sure

00:51:06:10 - 00:51:07:08
Cas Piancey
I

00:51:07:08 - 00:51:11:23
Patrick Tan
plenty of offshore online casinos choose tether as

00:51:12:02 - 00:51:13:08
Bennett Tomlin
Mm hmm.

00:51:13:08 - 00:51:14:22
Cas Piancey
of course

00:51:14:22 - 00:51:16:23
Patrick Tan
and this has been going on forever.

00:51:16:23 - 00:51:18:08
Bennett Tomlin
Oh, yeah.

00:51:18:08 - 00:51:25:27
Patrick Tan
from what I've been told, they like it because it's you know, it circumvents capital controls. They don't have to pay tax on it.

00:51:25:27 - 00:51:40:20
Cas Piancey
I'm pretty curious right now and I know this is, this is a very basic question, so I know no long answer necessary but I we're going through this we're almost an hour into our conversation now, and I feel like we're toeing this

00:51:40:20 - 00:51:49:04
Cas Piancey
weird line between like, Oh, this is a huge, huge problem that law enforcement

00:51:49:04 - 00:51:51:28
Cas Piancey
is cognizant of and concerned about.

00:51:52:01 - 00:52:04:19
Cas Piancey
And then also walking this line of like, yeah, but it's just going to keep happening and go on forever. And there's no way that law enforcement is going to stop it. And I'm curious like, Which part of this your most

00:52:06:04 - 00:52:10:19
Cas Piancey
sidelined with, I guess is like, Which side are you on here? Is, is,

00:52:10:19 - 00:52:12:04
Cas Piancey
is do you are you confident

00:52:12:04 - 00:52:16:04
Cas Piancey
that Lee is going to move in or are you more like, I don't know.

00:52:16:04 - 00:52:17:19
Cas Piancey
I have no idea what's going to happen next.

00:52:17:19 - 00:52:17:28
Patrick Tan
it?

00:52:18:03 - 00:52:34:17
Jonathan Reiter
I mean, offshore finance has always included a fair amount of gray area stuff like gray, whatever. And in principle, no one has a problem with that. Right? So you have a factory in some emerging market and you want to get some of your money out of whatever, whether it's nominally illegal in that country, nobody has a real strong opinion on.

00:52:34:17 - 00:52:46:09
Jonathan Reiter
And you can find a way to do export invoicing. Fine. Nobody wants to shut that down. But at the same time, the businesses that have historically done that don't advertise to retail in sports

00:52:46:09 - 00:52:55:19
Jonathan Reiter
stadium billboards, What you've seen here is a business that everyone accepts has to exist and is fine and in most cases really isn't doing anything wrong.

00:52:55:25 - 00:53:05:23
Jonathan Reiter
Tax free structuring in the British Virgin Islands for funds and reallocation stuff. Even ignoring tax is totally fine. It makes a lot of legitimate reasons to do those things.

00:53:05:23 - 00:53:21:03
Jonathan Reiter
But then you don't just advertise the ability to do this to everybody in the world. Take retail money that that that's the conflict, that's what has to be resolved. So it's not going to be totally shut down, but you're not going to get to have a the background noise of all these retail money.

00:53:21:07 - 00:53:30:01
Jonathan Reiter
Right. Or be people claiming that it scales to all the money in the world because it doesn't offer finance is big, but it's not that big. And it's not that.

00:53:30:03 - 00:53:33:17
Patrick Tan
I think I think the bit that and it's not as if

00:53:33:17 - 00:53:35:06
Patrick Tan
it's this is like you know

00:53:35:06 - 00:53:46:14
Patrick Tan
there's a whole bunch of I mean, yes, some laws have been broken, but the general business of offshore finance is this is it I mean, and I wrote about this mostly legal.

00:53:46:16 - 00:53:47:18
Jonathan Reiter
This is doing stuff correctly.

00:53:47:18 - 00:53:55:06
Patrick Tan
And yeah, almost all of it, but most of it is legal. So and I wrote about this, which is that there are legitimate reasons why you need offshore finance and and

00:53:55:06 - 00:54:09:01
Patrick Tan
know, I mean, like if I am a digital company, I can and I need to book my revenues through Ireland with there's no tax and my my CFO would be fired if he didn't do that. Yeah, Yeah. I mean, it's just it's just not the right.

00:54:09:04 - 00:54:09:07
Patrick Tan
Well, it's the same thing to do.

00:54:27:20 - 00:54:29:08
Patrick Tan
Well, it's the same thing to do.

00:54:29:08 - 00:54:37:23
Jonathan Reiter
You know, the famous Irish, the structure Apple use in Ireland isn't advertised by H&R BLOCK to retail. That was never going to fly. That that's the conflict That's the sort of thing.

00:54:37:23 - 00:54:47:04
Patrick Tan
So yeah, this is yeah, you know, this is a set of rules. What do you like to know? And I think one of the things I read the Panama Papers and,

00:54:47:04 - 00:54:58:11
Patrick Tan
and one of the things I and I feel for them, there's a certain sense of idealism at the end of the book which says that, oh, you know, we should all have a kumbaya moment, which is stop all of this injustice.

00:54:58:14 - 00:55:09:20
Patrick Tan
It's been almost a decade since the Panama Papers were published. None of this stuff has changed. Nothing has changed. And I mean, at the risk of sounding overly cynical, nothing is likely to change. All right. There's going to be

00:55:09:20 - 00:55:10:03
Cas Piancey
I

00:55:10:03 - 00:55:27:18
Cas Piancey
generally agree, actually, like, as much as much as I want to be educating and helping kind of expose some of this stuff, I generally agree with Patrick here that, uh, yeah, I mean, we've seen like Mossack Fonseca played their role when they needed to. They got exposed,

00:55:27:18 - 00:55:29:03
Cas Piancey
now they're gone

00:55:29:03 - 00:55:32:18
Cas Piancey
or whatever. They're not gone. They still exist, I think, or

00:55:32:18 - 00:55:34:03
Cas Piancey
in some form, some

00:55:34:03 - 00:55:44:09
Cas Piancey
way or another, but like ten other offshore and, um, you know, like incorporation entities or whatever firms took their place, it doesn't matter.

00:55:44:09 - 00:55:47:02
Cas Piancey
Like you're not going to stamp this out it completely right.

00:55:48:02 - 00:56:04:23
Patrick Tan
irony was that the Panama Papers, things like Billion Dollar Wheel, all of these things have actually acted as more like manuals as to do people like how to manuals as to how to get this thing done so that there were people I know who didn't know how to do these things and they read these books.

00:56:04:28 - 00:56:07:17
Patrick Tan
Oh, so that's how you do it. And then they they

00:56:07:17 - 00:56:10:20
Jonathan Reiter
sanctions is a recent thing. And they they really care very, very strongly about that. Right. If you're laundering that money or whatever, you're you're done. But if you're not, they really don't bother most of the time.

00:56:17:11 - 00:56:18:13
Bennett Tomlin
Mm hmm.

00:56:21:16 - 00:56:27:19
Jonathan Reiter
about that. Right. If you're laundering that money or whatever, you're you're done. But if you're not, they really don't bother most of the time.

00:56:27:20 - 00:56:42:26
Jonathan Reiter
I mean, there's the drug smuggling criminal people smuggling type, whatever stuff. But the the enforcement is really, really, really harsh at this end and then really, really soft down here. And they've not really cared to some extent. That's a policy choice. Then I guess the voters, politicians, whatever, maybe.

00:56:42:27 - 00:56:44:00
Patrick Tan
Well, I mean, and this is something

00:56:44:00 - 00:56:58:00
Patrick Tan
we talk about all the time. Look, you have a finite number of resources at the DOJ. So if if the Senate or the Congress tells you, hey, look, this month, our our you know, our

00:56:58:00 - 00:57:10:04
Patrick Tan
the bank banks were going to be the most is the one drug. So just crying all the drug laundering so that then there'll be a whole bunch of enforcement issues next month maybe you'll be crypto guys the next month, maybe it'll be human trafficking, smuggling.

00:57:10:07 - 00:57:18:14
Patrick Tan
But you have to pick. You can't, you can't have like, yeah, we're going to go after everywhere, you know, everybody everywhere all at once. And it's just not,

00:57:18:14 - 00:57:19:14
Bennett Tomlin
Yeah.

00:57:19:14 - 00:57:20:29
Bennett Tomlin
Well,

00:57:20:29 - 00:57:28:25
Bennett Tomlin
yeah, Well, and on the note of the Panama Papers, in the Paradise Papers, you mentioned the Pandora papers. In their effect, when I was

00:57:28:25 - 00:57:36:22
Bennett Tomlin
rereading one of Jonathan's articles was talking about one of the trust that true USD started using. And in the advertising for that

00:57:36:22 - 00:57:46:22
Bennett Tomlin
trust, it said, due to new international disclosure requirements, Switzerland, the Bahamas, in the British Virgin Islands, no longer offered the privacies that historically attracted

00:57:46:22 - 00:57:47:07
Bennett Tomlin
international.

00:57:47:07 - 00:58:02:10
Bennett Tomlin
Well, however, Nevada is exempt from these new international disclosure agreements, providing a level of privacy that's increasingly rare. So we we answered some of the tax evasion. Is that something.

00:58:02:10 - 00:58:03:21
Bennett Tomlin
Maybe.

00:58:03:21 - 00:58:04:09
Patrick Tan
that.

00:58:04:09 - 00:58:09:21
Jonathan Reiter
Passage really tells you a lot because so they're talking about how it's those countries participate in crass

00:58:09:21 - 00:58:11:06
Bennett Tomlin
Yeah.

00:58:11:06 - 00:58:16:21
Jonathan Reiter
whatever that tells you that the people they're appealing to are afraid of governments other than the United States

00:58:16:21 - 00:58:18:06
Bennett Tomlin
hmm.

00:58:18:06 - 00:58:25:13
Jonathan Reiter
tells you who they are because there aren't that many countries that have capital controls that aren't somewhat U.S. affiliate.

00:58:25:15 - 00:58:32:20
Jonathan Reiter
Come on. The list is now narrowed down to, what, three or four places? It must be those people they're looking for. And of course, the irony is

00:58:32:20 - 00:58:41:05
Jonathan Reiter
that if it turns out the US government cares no matter what the law is, trust providers in Nevada will comply with the FBI. It's just

00:58:41:05 - 00:58:45:28
Jonathan Reiter
laughable that you oh, it's kept secret from everyone, including the local police.

00:58:45:28 - 00:58:52:11
Jonathan Reiter
Like, come on, that that's insane. So yeah, that screwed them in the end, clearly. Which I guess they deserve because you read that

00:58:52:11 - 00:58:55:10
Bennett Tomlin
But

00:58:55:10 - 00:59:05:00
Bennett Tomlin
that'd be like advertising your primary financial product is meant to be used to evade capital controls. Yeah No, it does have a bit of that same brazenness

00:59:05:00 - 00:59:09:18
Patrick Tan
for the low, low price, you get capital capitalization,

00:59:15:06 - 00:59:16:21
Bennett Tomlin
to tether themselves

00:59:16:21 - 00:59:18:06
Bennett Tomlin
back. Yeah,

00:59:18:06 - 00:59:28:25
Bennett Tomlin
like tether themselves back in 2015. Used to advertise that if you didn't want to go through KYC, but you still wanted to get tether, if you sent them bitcoin, they would send you tether and they would have to KYC.

00:59:28:25 - 00:59:33:20
Bennett Tomlin
Then that's been part of the industry since the very beginning.

00:59:33:20 - 00:59:39:20
Jonathan Reiter
yes, I think I think that process and then the experience with the BFS token that became the

00:59:39:20 - 00:59:41:05
Bennett Tomlin
Mm hmm.

00:59:41:05 - 00:59:51:03
Jonathan Reiter
people a dollar that they didn't have and then being able to pay it back out of earnings. Right. Those two things taught a lot of people a lot of lessons that led to this.

00:59:51:06 - 00:59:59:05
Jonathan Reiter
I see you if you're confident you're going to earn enough money to make it up quickly and you have a little bit of inability to close the shutters running slightly on back, stuff

00:59:59:05 - 01:00:07:03
Jonathan Reiter
is fine and you're going to keep going. Now, if it grows exponentially when you get up to having $100 million balance sheet, you're screwed because the gaps are now too big.

01:00:07:06 - 01:00:11:04
Jonathan Reiter
That in retrospect, of course, the story is quite simple. It makes a lot of sense.

01:00:11:04 - 01:00:21:12
Patrick Tan
offshore banking system, you know, evasion, capital controls and stuff like that, it's always been happening in the shadows. But when you start taking on like buying stadiums and crap, I it's too much in your face and it embarrasses politicians and it looks it's just a bad look.

01:00:19:28 - 01:00:20:26
Cas Piancey
Hm.

01:00:31:04 - 01:00:34:15
Patrick Tan
embarrasses politicians and it looks it's just a bad look.

01:00:34:17 - 01:00:42:21
Patrick Tan
If your politicians go like, yeah, yeah, we know all this stuff has been going on for the longest time behind the scenes. Oh, they've got a stadium there. Okay.

01:00:42:24 - 01:00:43:03
Jonathan Reiter
Know, and

01:00:43:03 - 01:00:57:25
Jonathan Reiter
some of this future finance stuff I can confirm had pissed off a lot of senior finance people whose attitude was we spent a tremendous amount of money on compliance dealing with stuff. So the one MDB thing had implications all over the world and lots of people had to spend a lot of money fixing stuff like that.

01:00:57:27 - 01:01:05:03
Jonathan Reiter
And then these people are doing what and they don't have to pay for, Huh? And whatever you think of how lobbying works in a lot of the world, taking on

01:01:05:03 - 01:01:08:12
Jonathan Reiter
the financial services lobby so brazenly was

01:01:08:12 - 01:01:16:21
Cas Piancey
I, I keep,

01:01:16:21 - 01:01:21:06
Cas Piancey
I keep thinking about our episode with our friend Rob Green, um,

01:01:21:06 - 01:01:22:21
Cas Piancey
who specifically

01:01:22:21 - 01:01:29:06
Cas Piancey
pointed out that, like, yeah, it's fine if you want to take on the entire financial system and change it,

01:01:29:06 - 01:01:30:21
Cas Piancey
but like, then

01:01:30:21 - 01:01:32:06
Cas Piancey
be prepared to have the entire

01:01:32:06 - 01:01:36:06
Bennett Tomlin
They're going to resist

01:01:36:06 - 01:01:39:14
Cas Piancey
what is going to happen.

01:01:39:17 - 01:01:42:20
Cas Piancey
You're bringing up clearly I don't, I,

01:01:42:20 - 01:01:44:05
Cas Piancey
I Yeah. Who cares if we

01:01:44:05 - 01:01:49:05
Cas Piancey
mention them by name? You're talking about stadiums. You're clearly talking about like let's say

01:01:49:05 - 01:02:10:20
Bennett Tomlin
well. Or the other fun example is terror is a Ponzi scheme sponsoring. The club for the baseball team in DC, which is a remarkably brazen move to get like your name in front of people because a terror, because they paid upfront, front

01:02:10:20 - 01:02:12:05
Bennett Tomlin
paid in cash up

01:02:12:05 - 01:02:15:19
Bennett Tomlin
front for like a five or ten year contract.

01:02:15:19 - 01:02:19:04
Jonathan Reiter
What? I mean, outside even of American sports. So this stuff is all over

01:02:19:04 - 01:02:20:19
Bennett Tomlin
Mm hmm.

01:02:20:19 - 01:02:22:05
Jonathan Reiter
football. Now, this is this is.

01:02:22:06 - 01:02:24:19
Patrick Tan
Well, I wouldn't hold Formula One to super high, but

01:02:26:04 - 01:02:31:19
Cas Piancey
Well so but,

01:02:31:19 - 01:02:34:04
Cas Piancey
but, but we're talking about, we're talking about these

01:02:34:04 - 01:02:36:04
Cas Piancey
stadium like sponsorships or whatever,

01:02:36:04 - 01:02:49:18
Cas Piancey
but, but I think you're, you're actually bring up a point that I'm like what about finance. What about these other massive like even okay I recently I was on Twitter and okay X promotion like AD came up and it

01:02:49:18 - 01:02:51:03
Cas Piancey
was just this this woman

01:02:51:03 - 01:02:57:02
Cas Piancey
on TikTok saying like I bought $10 worth of cryptocurrency and just put it in this.

01:02:57:05 - 01:03:09:03
Cas Piancey
I like, I don't know what they're pretending they're doing there, but like I put $10 in I thing and it went from $10 to $15 in a week. And I'm like, Well, this is like insanely

01:03:09:03 - 01:03:09:20
Bennett Tomlin
Wait.

01:03:09:23 - 01:03:16:03
Bennett Tomlin
And this was the case. This was from the Okex account where this was just a thing

01:03:16:03 - 01:03:20:05
Cas Piancey
promoted. It was promoted from the Okex account anyway. But my point

01:03:22:17 - 01:03:23:18
Cas Piancey
brazen, right?

01:03:23:19 - 01:03:24:02
Cas Piancey
We're talking

01:03:24:02 - 01:03:25:17
Cas Piancey
about we're talking about

01:03:25:17 - 01:03:32:17
Cas Piancey
whatever. But like Binance and Okex and these other exchanges that continue to exist right now,

01:03:32:17 - 01:03:34:02
Cas Piancey
they

01:03:34:02 - 01:03:38:02
Cas Piancey
also rely heavily on this retail, um,

01:03:38:02 - 01:03:39:17
Cas Piancey
trading and just

01:03:39:17 - 01:03:57:21
Cas Piancey
like constantly bringing these people in, what happens to these guys, right? Like we're we're talking about SBF like doing brazen illegal stuff. Maybe, maybe Binance is giving them the benefit of the doubt, not doing the exact same stuff as Sam Bankman-fried but like what happens then, right?

01:03:57:21 - 01:04:00:01
Cas Piancey
Like what? What is next for these guys? What

01:04:00:01 - 01:04:01:14
Cas Piancey
are you guys expecting?

01:04:01:14 - 01:04:21:16
Jonathan Reiter
We've seen a lot of the on ramp off ramp stuff get cut, right? I mean, the Prime Trust thing is kind of a last other than the Coinbase Circle Usdc complex, that's the last kind of retail accessible, vaguely retail accessible. All right. Except for whatever Binance U.S., which clearly is experiencing difficulties on ramping and off ramping. You know, the way you get way you get get way you get you get get way you get you get get way you get you get get way you get

01:04:21:16 - 01:04:28:27
Jonathan Reiter
rid of the infection is you push the thing back off shore and then if it gets hard enough for people to get their money in and out, it'll just sort of naturally die of it.

01:04:28:29 - 01:04:36:00
Jonathan Reiter
There are probably criminal charges against some of these folks pending for various bad activities. I mean, the amount of money laundering

01:04:36:00 - 01:04:49:08
Jonathan Reiter
indictments that have already been handed down make it clear that that's going to continue and that will shut down some of these businesses. You lose your money in a couple of money laundering seizures and you have to go back to using a ridiculous VPN and wire money to some crazy place.

01:04:49:10 - 01:04:59:29
Jonathan Reiter
The number of people who are interested in participating in that is pretty low, no matter how many TV commercials you run, and that'll just recede, this is probably going to be well, there have

01:04:59:29 - 01:05:07:28
Jonathan Reiter
been offshore illegal casinos as long as the Internet's been around. This is not new. That's not going away. I don't think that should go away.

01:05:08:01 - 01:05:14:14
Jonathan Reiter
Whatever. Like people want to gamble on sports in countries where it's illegal or whatever it is that's going to continue, you know.

01:05:14:21 - 01:05:15:19
Patrick Tan
But, I mean.

01:05:15:22 - 01:05:33:21
Jonathan Reiter
You know, they'll push it back. You sure, stuff will get smaller, things will vanish. And that's kind of going to be the end of that. It's going to be difficult to get licenses on shore to do anything and touch retail where there's meaningful leverage. And that's that. Like the stock market's pretty dangerous place. It should be no more or less dangerous than that.

01:05:33:23 - 01:05:38:13
Patrick Tan
I mean, to that point, like, we look at things often from an

01:05:38:13 - 01:05:52:13
Patrick Tan
American perspective, so we look at everything as onshore being the U.S. and stuff like that. But I can tell you for a fact that out in this neck of the woods where we have it to be right now is that, you know, a lot of the countries, you know, neighboring this

01:05:52:13 - 01:05:54:13
Patrick Tan
place do not have access.

01:05:54:13 - 01:06:09:12
Patrick Tan
Most people don't have access to dollars. In Singapore, it's no big deal. You can have a dollar bank account, not a big deal. So a lot of these guys, they are low level programmers, developers and stuff like that. They get paid tons of them use the USD until our

01:06:10:27 - 01:06:13:24
Patrick Tan
recently, again, all we did was tell the truth.

01:06:13:27 - 01:06:14:07
Patrick Tan
So,

01:06:21:05 - 01:06:30:22
Patrick Tan
as like a bank account because the Binance's economy acted as a bank account which should be used to pay other people. And you also get to gamble, you know, which is great. I mean, it's like, it's like a twofer.

01:06:30:24 - 01:06:31:18
Patrick Tan
So

01:06:32:27 - 01:06:39:16
Patrick Tan
dollars, some of them use whatever it is that they're using, and I think in a lot of these emerging markets. So to your question, cause like in

01:06:41:26 - 01:06:52:22
Patrick Tan
cause like in Africa, in Southeast Asian, Latin America, where where there are still people doing this information doesn't necessarily flow as quickly.

01:06:52:22 - 01:06:57:11
Patrick Tan
They're not definitely not watching C-SPAN, the deaf. Well, not that anybody should,

01:07:04:02 - 01:07:07:02
Patrick Tan
I'm pretty sure somebody would still take it off my hands.

01:07:07:05 - 01:07:08:04
Patrick Tan
So they don't really care so much about the offer because they never had an offer anyway. You know, they would take the equivalent in in dong or in, you

01:07:11:15 - 01:07:14:23
Cas Piancey
Interesting.

01:07:18:25 - 01:07:25:23
Patrick Tan
equivalent in in dong or in, you know, pesos or whatever, whatever that that happened to be available at the time.

01:07:24:11 - 01:07:25:12
Cas Piancey
Hmm,

01:07:32:10 - 01:07:36:00
Cas Piancey
interesting.

01:07:36:00 - 01:07:53:27
Jonathan Reiter
argument to be made that a lot of this infrastructure does provide a cheaper or at least competitive price way of running of this offshore financing stuff. That's kind of okay, right? So you have to spend money on mining whatever. You have to spend money on offshore bank account branches and lawyers and accountants and, you know, fancy looking, waiting rooms and whatnot.

01:07:54:04 - 01:07:54:24
Jonathan Reiter
I can believe

01:07:54:24 - 01:08:08:09
Jonathan Reiter
that this thing can be run at a at a price level that's competitive and provides an alternative version of that forever. It would just be less in your face and you're not going to have people raising money claiming a town of $100 trillion because you can buy a banana like that. That

01:08:08:09 - 01:08:19:11
Jonathan Reiter
stuff's done and it should never have been there in the first place and represented I think a misunderstanding of a lot of tech people who are trying to project tech concepts into finance that just scale differently.

01:08:19:15 - 01:08:32:23
Jonathan Reiter
If you look at the amount of payments that go through a bank in a given day, the number is mind boggling. But of course the feed it's charged is, you know, 0.000 because it doesn't work that way because the marginal cost is this tiny.

01:08:32:23 - 01:08:41:29
Jonathan Reiter
Yeah. So that's I think that's the vision for where this is going. I mean, saying this would get offshored for a long time and you're now watching a pretty blunt offshoring where.

01:08:41:29 - 01:08:44:17
Jonathan Reiter
The policeman just beats them back over the border.

01:08:44:17 - 01:08:45:19
Bennett Tomlin
Yeah.

01:08:45:22 - 01:08:48:02
Bennett Tomlin
Yeah. Cas, do you have any more questions?

01:08:48:02 - 01:09:01:10
Cas Piancey
No, I mean, I think that, I think that rounds it out. Jonathan Patrick, if you have anything else you'd like to add or that you think is pertinent, please feel free to throw it in right now. Otherwise, you know.

01:09:01:10 - 01:09:02:10
Cas Piancey
Um, yeah,

01:09:01:27 - 01:09:02:10
Cas Piancey
obviously,

01:09:02:10 - 01:09:03:25
Cas Piancey
we'll call it.

01:09:03:25 - 01:09:20:10
Jonathan Reiter
I mean, I guess I'd just say quickly, I think one of the most amusing things to watch here is intelligent people who are just not able to recognize what their eyes are showing them directly in front of them. And I found it to be a fascinating psychology exercise where you can see this, where people who really don't know what

01:09:20:10 - 01:09:28:29
Jonathan Reiter
to finance very specific words and lots of people have no clue what the words mean, glommed onto some random meaning from Twitter and then just its defective thought process forever.

01:09:28:29 - 01:09:29:09
Jonathan Reiter
And

01:09:29:09 - 01:09:33:25
Jonathan Reiter
I've learned a lot about human psychology because in real markets you deal with adults and it's been

01:09:42:21 - 01:09:48:01
Cas Piancey
No, I mean, I think. I think it's fair. Yeah. These are. I mean, these are immature markets and immature people.

01:09:48:01 - 01:09:49:01
Cas Piancey
Um, so.

01:09:49:01 - 01:09:50:16
Cas Piancey
So, yeah. Um,

01:09:50:16 - 01:09:53:01
Cas Piancey
keep in mind that

01:09:53:01 - 01:09:56:15
Cas Piancey
obviously, obviously, Cass coin is unaffected by the prime trust

01:09:56:15 - 01:09:59:03
Cas Piancey
issues. Um,

01:10:01:17 - 01:10:08:23
Cas Piancey
Obviously. We have many, many, many other on and off ramps for fiat currency, so don't be concerned.

01:10:08:23 - 01:10:09:15
Cas Piancey
Cass Coin

01:10:14:15 - 01:10:16:00
Bennett Tomlin
Perfect.

4 responses to “Episode 121 – Prime Trust, TrueUSD, and Offshore Finance (feat. Jonathan Reiter and Patrick Tan)”

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Episode 147 – MONEY TIME: Deltec Bank moved customer funds from FTX to Alameda Research – Crypto Critics' Corner says:

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Crypto Critics' Corner

Episode 121 – Prime Trust, TrueUSD, and Offshore Finance (feat. Jonathan Reiter and Patrick Tan)

Prime Trust, TrueUSD, and Offshore Finance (Feat. Jonathan Reiter and Patrick Tan) – Crypto Critics' Corner

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4 responses to “Episode 121 – Prime Trust, TrueUSD, and Offshore Finance (feat. Jonathan Reiter and Patrick Tan)”

Leave a reply to Episode 147 – MONEY TIME: Deltec Bank moved customer funds from FTX to Alameda Research – Crypto Critics' Corner Cancel reply

Episode 121 – Prime Trust, TrueUSD, and Offshore Finance (feat. Jonathan Reiter and Patrick Tan)

Prime Trust, TrueUSD, and Offshore Finance (Feat. Jonathan Reiter and Patrick Tan) – Crypto Critics' Corner

Where to find the podcast:

Other episodes mentioned in this episode:

Other resources mentioned in this episode:

Where to find Crypto Critics’ Corner:

English Transcript:

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4 responses to “Episode 121 – Prime Trust, TrueUSD, and Offshore Finance (feat. Jonathan Reiter and Patrick Tan)”

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