Crypto Critics' Corner

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Episode 144 – Tether: The $100,000,000,000 problem in crypto

Tether: The $100,000,000,000 Problem in Crypto – Crypto Critics' Corner

Bennett Tomlin and Cas Piancey discuss the history and present of Tether, the most important firm in all of cryptocurrency. This video was recorded on February 4th, 2024.

Cas Piancey and Bennett Tomlin discuss the history and present of Tether, the most important firm in cryptocurrency.

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00:00:05:01 - 00:00:15:16
Cas Piancey
Welcome back, everyone. I am Cas Piancey, I'm joined, as usual, after a long time by my partner in crime, Mr. Bennett Tomlin. How are you today?

00:00:15:17 - 00:00:17:18
Bennett Tomlin
I'm glad to be here. How are you, Cas?

00:00:17:19 - 00:00:24:11
Cas Piancey
Hanging in there. It's. We picked a hell of a day to record. It's possibly the worst storm of the of the year.

00:00:24:13 - 00:00:31:23
Cas Piancey
So that's had power outages and all that. But for now, we're good. And we're just going to try to get through this.

00:00:31:22 - 00:01:05:23
Cas Piancey
Today, we're talking about what is known as essentially our favorite topic or our least favorite topic, depending on how you view it. We are talking about tether and we're talking about tether. I think more just to review how far we've come or how little we've actually gone since the very beginning, because tether is nearing or it has surpassed roughly 100 billion market cap.

00:01:05:23 - 00:01:18:06
Cas Piancey
I guess we'll say that there are 100 billion tethers which are, you know, equivalent to $100 billion. So yeah, we're talking about that and we're talking about how we got here. So so

00:01:18:07 - 00:01:26:04
Cas Piancey
think it's important the Q4 attestations just came out. Can we kind of talk about that before we even delve into the 100 billion number?

00:01:26:05 - 00:01:53:19
Bennett Tomlin
The quarter for attestation shows that tether is one of the most systemically important financial firms in the entire globe, making billions of profit every single quarter going directly into their control. They are making massive investments across a wide variety of industries. Energy, mining, payment, Tron staking through Luganodes. Tons of these different ventures, all of which they expect to pretty immediately drive financial results for this firm in the overall ecosystem as a whole.

00:01:54:01 - 00:02:16:22
Bennett Tomlin
Besides that, they've been able to direct hundreds of millions of dollars directly into Bitcoin. It's it's it's the perfect storm. Crypto grows, tether grows, tether buys, Bitcoin, Bitcoin grows, crypto grows, tether grows, tether buys, Bitcoin. It's a virtuous cycle. It is the supercycle. Maybe

00:02:16:21 - 00:02:37:18
Cas Piancey
Well, they just lost their shirts again, so. So I don't know. I don't know. I guess not. They didn't really lose their shirts, but they're. They are shutting down the. You're talking about Su Zhu and Kyle Davies, obviously, 3AC who got caught up in the supercycle, which is pretty much what Bennett was just describing.

00:02:37:23 - 00:02:38:18
Cas Piancey
However,

00:02:38:18 - 00:02:42:03
Bennett Tomlin
Su Zhu wasn't wrong. He was just early.

00:02:42:03 - 00:02:49:07
Cas Piancey
early. Yeah, okay. Well, what is it isn't isn't the others to the second part of that phrase that if you're early, you might as well be wrong.

00:02:49:08 - 00:02:50:01
Cas Piancey
Anyway,

00:02:50:00 - 00:03:04:00
Cas Piancey
there was a tweet that I saw that had stated that Tether had earned more in quarter for than Goldman Sachs.

00:03:04:02 - 00:03:06:03
Cas Piancey
which is just such an interesting

00:03:06:03 - 00:03:09:23
Bennett Tomlin
categorical here. It's such an interesting categorical error.

00:03:10:01 - 00:03:17:08
Bennett Tomlin
Is that what you were about to say? Such an interesting example of fallacious reasoning. Is that where you were doing?

00:03:17:08 - 00:03:20:22
Cas Piancey
can you get let's get into that can you talk about why and why you're saying that.

00:03:20:21 - 00:03:36:14
Bennett Tomlin
these types of firms, like Goldman Sachs Generally, when they're discussing their profits, they're discussing the corporate profits accrued to Goldman sacks itself, not the appreciation of whatever funds your activities. Goldman Sachs has their hands in.

00:03:36:15 - 00:03:56:16
Bennett Tomlin
When Tether says profits, they mean our money market fund. That's not a money market fund went up by this many dollars. Their assets under management effectively kind of increased that much. Goldman Sachs. When they say profits, they mean the Goldman Sachs shareholder entity earned this much money.

00:03:56:16 - 00:04:04:22
Cas Piancey
so the right metric really wouldn't be to look at Goldman or something. The real metric would be to look at like a money market fund.

00:04:04:22 - 00:04:09:07
Bennett Tomlin
And to be clear, tether by that categorization is still fucking massive.

00:04:09:09 - 00:04:34:21
Bennett Tomlin
A $100 billion money market fund is a fucking massive money market fund. And we've talked about on here before back in like 2008. 65 billion was systemically important for the Reserve Primary fund when Lehman Brothers was unable to roll their commercial paper. Right. And so that was 65% of the size tether is currently. So even in the categories that tether exists and tether is massive and important.

00:04:34:23 - 00:04:47:05
Bennett Tomlin
I just think that there's a bit of a categorical error, categorization error when people try to compare what tether calls profits to what some audited and recognized firms call profits.

00:04:47:05 - 00:05:18:18
Cas Piancey
I think that's a that is a really fair acknowledgment and and important. I think also when you reflect on, like, just the numbers of employee is that like Goldman has, I think like 70,000 employees and tether has like 11 or something. So yeah, there's just really they're not the same kind of business You're right And that that that was an unfair comparison but it is still a comparison that was made and one that kind of gave everyone pause, I think,

00:05:18:17 - 00:05:36:05
Bennett Tomlin
It does show that tether is massive. Tether is important and tether is a new type of financial firm. And I was being a little bit glib and I was quickly summarizing Tether's recent assurance results and some of their investments and stuff like that. But there is a little bit of stuff there that's worth digging into a little bit.

00:05:36:07 - 00:06:01:22
Bennett Tomlin
Like Tether's more recent investment activities and Tether has been investing in doing venture type investing for years, right? They were one of the investors in Samson Mow’s Exordium his token sale for the developers of the Infinite Fleet video game. They led the series A round for Celsius and if you believe Jason Stone would later step in to try to bail it out as well.

00:06:02:00 - 00:06:05:05
Bennett Tomlin
What's new is now tether is much more

00:06:05:05 - 00:06:27:06
Bennett Tomlin
public about announcing when they're doing various investments and they claimed in their newest blog post that there is a new segregated VC umbrella that they're doing this under. They didn't disclose the name. The executives structure or anything about that structure, but we were told it exists. So that's one of the things Tether's doing recently.

00:06:27:11 - 00:06:50:16
Bennett Tomlin
And they're also still playing games with words like one of Tether's commitments was that in 2023 they were going to remove secured loans from their reserves. Now you may look at their most recent assurance and say, Wait a second, there's still over $4 billion in secured loans. And Tether would say, Yeah. Tether would say, you've fallen for our trick, you see, because we don't call those reserves anymore.

00:06:50:22 - 00:07:04:10
Bennett Tomlin
Those are excess reserves. A whole new thing. They don't count anymore. Now you may say tether excess reserves has reserves right there in the name, but alas, here we are.

00:07:04:10 - 00:07:11:15
Cas Piancey
it's funny how our first episodes were about tether and the issues that we saw with Tether at the time.

00:07:11:14 - 00:07:18:06
Cas Piancey
People have made points about these, you know, auditors report, which I think that's another thing we should point out.

00:07:18:06 - 00:07:33:17
Cas Piancey
Like these are called independent auditors reports. They're not audits. They don't say audit. They're not an audit. They're not they're not even like an attestation, really. Like these are auditors reports. It's a completely different categorization.

00:07:33:17 - 00:07:58:13
Bennett Tomlin
we've talked about this before, but it's probably been over a year since we've talked about tether audits and things like that. And there's still not audits and they still fall to the same criticism then, which is tether management provides a set of documents to the auditors which are tasked with a relatively narrow question. Are there assets in these accounts that seem to match up at this time with the number of tethers in circulation?

00:07:58:15 - 00:08:08:14
Bennett Tomlin
And the auditors say, according to the documents we got. Yes. Right. And that's that's what those assurances have been since the New York attorney general settlement. And before that, too. But.

00:08:08:13 - 00:08:22:12
Bennett Tomlin
And so there's still pretty big limitations to that. We still haven't gotten the audit that Stu was promising in 2021. And Paolo, the new CEO of Tether, has kind of stopped promising that as much.

00:08:22:14 - 00:08:31:09
Bennett Tomlin
They're still working on it, but in the kind of ambiguous way that involves not mentioning who's doing it when they're doing it or what it's going to look like.

00:08:31:09 - 00:08:48:06
Cas Piancey
mean, would you say it's fair to say that at least we have I guess not, right? Because we don't this is not an audit. This is not an actual attestation. This is just these auditors taking they're taking the word of management at tether.

00:08:48:08 - 00:08:56:07
Cas Piancey
So do we have more insight than we used to have, or is this just us feeling like we do because they're saying this is what they have

00:08:56:07 - 00:09:03:00
Bennett Tomlin
I think we do have more insight. When we started this podcast. We started this podcast like

00:09:03:00 - 00:09:06:08
Bennett Tomlin
shortly after the New York Attorney General Settlement. So we started it.

00:09:06:10 - 00:09:16:06
Bennett Tomlin
We didn't know at that time who Tether's partners were beyond Deltec. We hadn't gotten any of the assurances they started issuing after that settlement really

00:09:16:06 - 00:09:40:18
Bennett Tomlin
Now, Cantor Fitzgerald is willing to make statements that suggest they hold lots of tether's reserves. We know some of their banking partners. We have a better idea of some of their structure. And there is a plausible mechanism now by which tether would be making the money they claim to be making.

00:09:40:20 - 00:10:01:00
Bennett Tomlin
Right. And so some of that part makes more sense now than it did when we started this podcast. However, there are still a bunch of outstanding questions that were issues when we started this that are still issues, right? There's still no audit. There's still like the open question of at what times did tether have, what assets and how did that like?

00:10:01:02 - 00:10:04:12
Bennett Tomlin
How did those assets arrive under tether's general control.

00:10:04:12 - 00:10:22:13
Bennett Tomlin
since we started this podcast, some of the statements that were still questions then later resolved as us being right. Like the CFTC Settlement Illustrated, that Tether was backed only one day out of four in the 26 month period that they looked like, according to Tether's own statements and stuff.

00:10:22:15 - 00:10:25:15
Bennett Tomlin
And we gained greater insight into like a

00:10:25:16 - 00:10:34:10
Cas Piancey
to be, to be clear, fully backed like they there there were there were assets there, but they weren't fully backed 1 to 1. Yeah, yeah, yeah.

00:10:34:09 - 00:10:51:21
Bennett Tomlin
the tension for me with tether now is that I think it is plausible to say that tether and tether related entities control somewhere close to 100 billion in assets valued somewhere close to fairly. Which means the outstanding questions are how did those assets get there?

00:10:51:23 - 00:11:03:18
Bennett Tomlin
Like why are those assets there? And is the core business being run in a way where it can continue to operate, meaning have they found a way to avoid regulator and law enforcement pressures?

00:11:03:18 - 00:11:06:15
Cas Piancey
Avoid or comply with Right.

00:11:06:15 - 00:11:25:06
Cas Piancey
when we started this I think a lot of the the pushing from people like us and you know others Bitfinex’ed and others who were trying to be pretty precise with what they wanted to see from tether and bitfinex largely centered around audits and

00:11:25:06 - 00:11:32:04
Cas Piancey
one of the things I keep thinking about is how they've repeatedly promised those those audits.

00:11:32:06 - 00:11:37:08
Cas Piancey
So they promised them I think they promised them ultimately like six or seven times over all these years,

00:11:37:08 - 00:11:49:23
Cas Piancey
what I think is really interesting about that is the constant excuse that they use when they can't get the audits is auditors just won't do it. They won't work with us to get these audits done.

00:11:50:03 - 00:12:08:00
Cas Piancey
They're being to I think you've mentioned recently about the Freedman LLP, audit that was going to happen where they, they were like they're being just they're digging in way too much. They're, they're checking too much stuff out, which is like, that doesn't make sense, right? That's how an audit works.

00:12:08:00 - 00:12:10:09
Cas Piancey
they keep saying they're going to get the audits.

00:12:10:11 - 00:12:18:01
Cas Piancey
Then when the audits don't happen, they keep saying it's the auditors fault. It's not our fault. But then I keep thinking, why are you promising the audits over and over again? Then

00:12:18:01 - 00:12:28:19
Bennett Tomlin
And it gets even more frustrating than that when you pay attention to the specific fix of what tether executives will promise. Right. Let's go let's talk about Stuart Hoegner here for a second. Everyone's favorite bald lawyer.

00:12:28:19 - 00:12:48:23
Bennett Tomlin
in 2021, Stuart Hoegner who took to Twitter to again assure everyone that they were working on audits and that they would be coming soon, although he could not provide an exact timeline. And what angers me the most is that he said that the audits would start with the 2018 financial year.

00:12:49:01 - 00:13:20:22
Bennett Tomlin
And the reason this makes me so mad and again, go back to those early episodes to really understand this is that 2018 would be a year in which Bitfinex would take hundreds of millions of dollars from Tether's reserves in undisclosed related party transactions in order to cover up their own effective insolvency. After giving over $1 billion to an unlicensed money transmitter operated operated out of Panama and Colombia after this undisclosed transaction to cover up Bitfinex is insolvency left tether unbacked.

00:13:21:00 - 00:14:03:06
Bennett Tomlin
The New York Attorney general would begin investigating and when the new York attorney general reached out, bitfinex and tether would then enter into a revolving line of credit agreement which tether would extend almost $1,000,000,000 of debt of credit to bitfinex to cover up this effective insolvency. And the same executives signed this loan agreement for both sides and Stuart Hoegner in 2021, after the New York Attorney General settlement took to Twitter to assure people that this that specific year is the year in which their audits would start, that they would be able to provide for financial audits for that year that would definitively show tether was continually backed during a year when we already objectively

00:14:03:06 - 00:14:17:14
Bennett Tomlin
know Tether was 100% not backed. That is offensive that the lawyer thought that that was a believable line to tell in public and that no one fucking cares.

00:14:17:15 - 00:14:28:16
Cas Piancey
Yeah. Well, that's the part that I think is the most interesting, is that they've actually been able to repeat the same lie. Right. And or maybe it isn't a lot.

00:14:28:17 - 00:14:42:09
Cas Piancey
Well, one part of this is absolutely a lie. The idea that the audit is always months away for about seven years or whatever is clearly li a lie, right? Like, clearly that is simply not true. And

00:14:42:10 - 00:14:55:22
Cas Piancey
But so but then the alternative, like when I think about it, I'm like, okay, if the if the auditors really because they're I well, I guess there's Coinbase but Coinbase doesn't operate a business like tether does, certainly.

00:14:56:00 - 00:15:17:04
Cas Piancey
I think everyone will admit that that is at least true and that a lot of what tether has done, whether you like them or not, because I'm sure there's plenty of people out there who listen to us and feel like, you know, tether is not so bad. I think it's worth noting that a lot of the stuff they've done is unsavory at best.

00:15:17:04 - 00:15:33:18
Cas Piancey
and even illegal at best. Right? Because they've been fined and slapped down for the for the stuff that they've done. They were monitored by the New York attorney general for years because of how they behaved. So whether you like them or not, you can admit that,

00:15:33:18 - 00:15:44:11
Cas Piancey
They're unsavory characters doing illegal things. And the reason they can't get these audits isn't because they're trying desperately to get them. And the auditors are just like, sorry, I can't do it.

00:15:44:12 - 00:16:04:13
Cas Piancey
I, I really don't. We haven't seen any proof that they've been seeking out auditors in any realistic way whatsoever to get an audit. And I, I don't think they have ever I think that is the reality. I don't think they want to get an audit. I don't think they've tried to get an audit, really. And, I wish they would.

00:16:04:13 - 00:16:20:21
Cas Piancey
I like these are the lies that they utilize to just fool people. They gaslight like the entire public and it works, you know, where they're just like we were trying desperately to get an audit and it's like, how could you be trying desperately for seven years? And it doesn't happen

00:16:20:22 - 00:16:37:12
Bennett Tomlin
what especially makes me angry, going back to that like Stu thing I just said is he could have simply stated having resolved these previous issues, we intend to like start an engagement going forward from this date, covering this period or whatever.

00:16:37:18 - 00:16:59:04
Bennett Tomlin
That was like deal with the future, right? Let the past be past. I say discussing 2014 on a podcast in 2024, let the past be past. And but instead he did it. He said no, actually, you know, that year where you just heard we were doing all that unsavory stuff, we had to pay millions of dollars to settle lawsuits about.

00:16:59:09 - 00:17:03:07
Bennett Tomlin
Yeah, no, actually, the lawsuit is going to cover that period. Cool,

00:17:03:07 - 00:17:13:16
Cas Piancey
You recently discussed how it's not even just tether right? It's bitfinex as well. Which by the way, I don't know, there's really no separation between these entities.

00:17:13:16 - 00:17:20:11
Cas Piancey
I think it's fair to say that while they conduct themselves differently, they're different businesses. But

00:17:20:11 - 00:17:38:09
Bennett Tomlin
This gets back into the Friedman audit that you were talking about in a way that I think is really compelling because back in 2017, Bitfinex had been promising an audit after the 2016 hack because they had come up with this cockamamie scam to give everyone a bunch of B effects tokens instead of the money they were actually

00:17:38:09 - 00:18:01:20
Bennett Tomlin
owed. And you can go back again to our early episodes to really get into the weeds on that. But as a byproduct of this process, there was a bunch of Bitfinex users who accused Bitfinex of either keeping back some corporate funds or not giving everyone the same haircut. In order to assuage these fears, Bitfinex agreed to a full financial audit and that they would publish their haircut methodology to prove that every user got the same haircut.

00:18:01:20 - 00:18:20:02
Bennett Tomlin
Initially, they would retain ledger labs to do this analysis. Ledger Labs is not a financial auditing firm and never could have done a financial audit. But did seem to do a security report that would leak, I think, last year and would show that it was Giancarlo Devasini’s keys that seemed to be responsible for the hack.

00:18:20:04 - 00:18:40:21
Bennett Tomlin
So we don't technically know that it was just a key named Giancarlo could have been a different Giancarlo working there maybe. Can't say it was the Devasini Giancarlo But there was also around the same time reporting from Nathaniel Popper that showed that not everyone got the same haircut. But

00:18:40:22 - 00:18:54:08
Bennett Tomlin
Bitfinex couldn't get their financial audit firm, Ledger Labs Tether announced that they had retained Friedman LLP to do an audit for them, and then Bitfinex announced that they had retained Friedman LLP to do an audit of them.

00:18:54:10 - 00:19:23:16
Bennett Tomlin
Cass You were talking about how there was no separation between the firms, and I think that was especially true back here in this period in 2017. We talked about before Tether's redemption window was not open from April 2017 until November 2018, all redemptions and issuances of tether were primarily done through Bitfinex and so especially in this period, I think if Tether wanted to get an audit, they was going to need to be an audit to bitfinex for the auditor to feel confident that they had adequately audited tether.

00:19:23:18 - 00:20:00:02
Bennett Tomlin
You know, and so what we eventually get to is the manipulated Friedman report where tether moves a bunch of money into a bank account, as Friedman checked it, when he comes back out and the eventual news that the tether relationship with this auditor dissolved because of the excruciatingly detailed procedures they wanted to do. My intuition is that the excruciatingly detailed procedures they insisted on was auditing the sister firms of tether that were holding tether assets in order to make sure that there was no other like encumbrances or leans against those assets.

00:20:00:04 - 00:20:20:10
Bennett Tomlin
And the reason we've never seen audits of either of these firms is there has not been a period where their financial situations have been disentangled enough that they've been able to cleanly get an audit on either firm. That's my intuition about what happened then. And one of the barriers that still prevents them from getting it

00:20:20:10 - 00:20:29:03
Cas Piancey
I mean, we're getting into the weeds of the auditing and the not auditing and the attestations and what they promised and what they haven't done.

00:20:29:03 - 00:20:33:19
Bennett Tomlin
Earlier you said or collaborating with law enforcement and or

00:20:33:20 - 00:20:36:01
Cas Piancey
Yeah. Complying. Complying with. Yeah.

00:20:36:01 - 00:20:40:19
Bennett Tomlin
and I thought that was an interesting direction. Do you have any thoughts on recent complying they've done?

00:20:40:18 - 00:20:58:19
Cas Piancey
you and I had a discussion recently where I people forget about this, but there was a gentleman named Peter Warrack who came from the Bank of Montreal, a Bank of Bank of Montreal or I don't remember which Bank of Canada something some Canadian banks that he had worked at.

00:20:58:20 - 00:21:08:15
Cas Piancey
when he went in as the chief of compliance, I think there were 2 to 2 mindsets when that occurred.

00:21:08:15 - 00:21:28:23
Cas Piancey
And one was this is B.S. They're just getting this guy there to make it look like they're trying to do some sort of compliance. And then there was the other end of that, which was, it's so over for tether, because if there actually is a compliance officer who's doing his job, no one will want to use tether anymore.

00:21:28:23 - 00:21:51:23
Cas Piancey
I don't think that made a huge difference necessarily. I, I, I tend to side with the he certainly was a big name to bring in and that looked good side. But also as you're kind of alluding to here, is that throughout the past year or two, Tether has really been pushing this narrative that they're constantly complying with

00:21:51:23 - 00:22:21:21
Cas Piancey
any law enforcement requests. They're complying with them. They're working with law enforcement hand in hand. They're suggesting that they're freezing addresses that are being asked to be frozen. The sanctioned any OFAC sanctioned addresses they're now complying with. there's a bunch of things that they're moving towards that at least to make it sound like they're trying to comply with U.S. federal laws to a degree.

00:22:21:23 - 00:22:23:13
Cas Piancey
What do you think? No.

00:22:23:13 - 00:22:36:14
Bennett Tomlin
I think that back in 2021 it was reported that Tether executives received target letters from the Department of Justice related to possible indictments for bank fraud.

00:22:36:16 - 00:23:04:23
Bennett Tomlin
Since that time, there's been additional reporting. Specifically, I'm thinking of like the Wall Street Journal piece that targeted hard borns activity at signature for Tether that gave further credence to the idea that bitfinex tether and friends of bitfinex and tether were engaged in a conspiracy to defraud the banks. But it's also been two and a half years since this target letters were initially reported and no indictments have been revealed publicly.

00:23:05:01 - 00:23:31:17
Bennett Tomlin
There's also, in somewhat of a different track, always been this false perception that tether was less likely to freeze your tethers than like circle would be to freeze your usdc that tether was in some sense more censorship resistance because they were more aligned with the ideals of the type of individuals needing censorship resistance who would be using stablecoins.

00:23:31:19 - 00:23:41:23
Bennett Tomlin
However, that was always false. Tether always froze more addresses and more coins than circle at any point during their existence.

00:23:41:23 - 00:23:55:23
Bennett Tomlin
More recently in late November of 2023, tether onboarded the Secret Service and the FBI and to their platform. And since then we've seen even more of an acceleration in the rate of tether freezing

00:23:55:22 - 00:24:25:20
Bennett Tomlin
I think that if Tether was previously useful for less than legal activities ranging from money laundering to capital flight to gambling to speculation that some of those activities are going to become meaningfully harder going forward as the as Tether finds it harder and harder to say no to various U.S. government fixtures.

00:24:25:20 - 00:24:57:13
Bennett Tomlin
What I'm curious about is whether there is like a formal agreement that will eventually be revealed in which this access was provided as part of like a good faith negotiation, as part of like a deferred settlement agreement, or if it was more informal, where as like a response to growing regulator in law enforcement pressure. Tether thought this collaboration would serve as like a relief valve because it's been a long time since the target letters and no one's been indicted.

00:24:57:12 - 00:25:08:03
Cas Piancey
this word, I think, is a loaded word that I'm going to say. So I don't want to. I don't want to propose it like I believe it in any meaningful sense.

00:25:08:05 - 00:25:36:13
Cas Piancey
But I think for a long time, the word honeypot has been thrown around when it comes to tether. And this idea that criminals have utilized tether because they think that it's safe and it's it has that has that, we don't give a shit what authorities say to us kind of executives to seem like they're like Wild West figures.

00:25:36:13 - 00:25:55:21
Cas Piancey
But maybe that has been a misperception on all of our parts. And perhaps they really as as you're pointing out, especially in the past few years, have been doing everything they can to work with authorities not only to save themselves, but to

00:25:55:22 - 00:26:07:04
Cas Piancey
get rich doing it at the same time and and not lose that money either. I mean, all of these executives could now walk away from Project probably.

00:26:07:04 - 00:26:15:01
Cas Piancey
I had like hundred incentive millionaires. Like they could have they could have hundreds of millions of dollars walk away forever at this point, I would suspect.

00:26:15:01 - 00:26:22:09
Bennett Tomlin
wasn't it, Zeke, that reported that Phil Potter's buyout from Tether in 2018 was worth 300 million.

00:26:22:10 - 00:26:23:07
Cas Piancey
Yes.

00:26:23:07 - 00:26:26:08
Bennett Tomlin
And that was when Tether was, what, $3 billion?

00:26:26:07 - 00:26:27:17
Cas Piancey
yes

00:26:27:17 - 00:26:33:21
Bennett Tomlin
Okay. Yes. So you're absolutely right. Like there's a lot of money in there.

00:26:33:21 - 00:26:41:07
Bennett Tomlin
the other thing to remember is the Sam Bankman-Fried of it all. He's now been found guilty of seven different felony charges.

00:26:41:13 - 00:26:51:12
Bennett Tomlin
His firm, Alameda Research, was the single largest issuer of tether. One of the primary things they used with those tethers is directed them into like the

00:26:51:12 - 00:27:06:05
Bennett Tomlin
I'm going to call it the Chinese market. But that's that market through like Genesis block and entities like that. And so now there's also lot of additional attention and some of those parts of Tether's use case.

00:27:06:07 - 00:27:26:14
Bennett Tomlin
And if you want to give tether the very most benefit of the doubt or at least allow them to preserve that benefit of the doubt in public, perhaps you say, well, tether was an unwitting tool. This was a company of unwitting tools. And now we have the opportunity for them to come in and help us. They can be productive tools instead.

00:27:26:16 - 00:27:39:16
Bennett Tomlin
And so Tether potentially has this opportunity under this pressure to be like to begin collaborating, sharing, pointing out addresses they know and don't know. And in doing so, perhaps avoid their own prosecution.

00:27:39:17 - 00:27:51:08
Cas Piancey
another thing I want to mention here as well is that I think a lot of people discuss us and others who criticize Tether.

00:27:51:10 - 00:28:09:07
Cas Piancey
we have this kind of blanket name that we've been given, which is tether traders with the idea being that we're a conspiracy theorist the same way that the people who say, you know, Bush did 911 are or whatever. Right, right. Yeah, they know that's true, actually.

00:28:09:07 - 00:28:20:19
Cas Piancey
I just want to say that we've been right, on, on most of the criticisms that we've given, like, almost all of them I think, were fair and accurate.

00:28:20:21 - 00:28:25:11
Cas Piancey
Tether being UNbacked, it was UNbacked. I mean, that's prove provably the case.

00:28:25:11 - 00:28:45:04
Cas Piancey
The idea that there was a solvency issue and that they were saved and bailed out by the the cryptocurrency community, I mean, that is provable. They work with money launderers, people like Zhao Dong who've been arrested. All of this is provable. None of this is something that we're making up. There's no conspiracy needed for most of the statements that we've ever claimed.

00:28:45:03 - 00:29:04:13
Cas Piancey
as time has gone forward, we've also shifted our perspectives. For instance, I think you and me, there might be others that disagree with this, but you and me generally think that tether is likely fully backed like that. They have all the assets that they need to cover the tethers that they have minted.

00:29:04:13 - 00:29:14:09
Bennett Tomlin
I still think there's a chance there's some encumbrance or other hypothecated and going on at the edges. But broadly they have lots of assets. They have many, many assets,

00:29:14:08 - 00:29:38:00
Cas Piancey
realistically, they could probably cover nearly any kind of near I'm saying nearly. There's always exceptions to every rule, but nearly any kind of major withdrawal. I suspect they could meet most of those withdrawals, I suspect. But again, the question the questions remain for a lot of things like how did they how did they get all this money in those years?

00:29:38:00 - 00:29:50:03
Cas Piancey
How did they how did they make things work when they when they had a much riskier portfolio and markets would go down or whatever, like when they got hacked, when all these things have happened that

00:29:50:03 - 00:30:02:00
Cas Piancey
have thrown their business model up in the air and thrown the ability for them to continue up in the air. And they have had some really strange ways of maneuver ing through those moments.

00:30:02:02 - 00:30:16:20
Cas Piancey
All of that is real. There is no conspiracy. And I guess I'm like, I'm tired of being gaslit by the public who love to be like, See tether's fine. It was fine all along. You're like, Well, no, that's not true.

00:30:16:21 - 00:30:23:23
Cas Piancey
And I don't appreciate that moving of the goalposts where I do. Our criticisms were not only valid, but good.

00:30:24:04 - 00:30:58:06
Cas Piancey
They were good criticisms and our concerns and our concerns that remain for tether things like the fact that they cannot get an audit, they cannot get an attestation, they won't share their real data with anyone about any of this stuff. Those are real concerns to have. There's nothing wrong with feeling concerned about those things, especially when it's $100 billion supposedly asset that everything in cryptocurrency relies on, like you should be looking at it very, very closely.

00:30:58:06 - 00:31:05:09
Cas Piancey
And if you think it's conspiratorial to do that, I would say you're not reflecting enough on how important tether is.

00:31:05:09 - 00:31:12:23
Bennett Tomlin
and at the most basic level, you go back to one of very least popular episodes. Stablecoins can fork your chain if they want a fork.

00:31:12:23 - 00:31:31:20
Bennett Tomlin
lay out the argument that basically these stablecoins less powerful affects every single cryptocurrency that these stablecoins they have an interaction with Stablecoins like Tether can be the arbiter of in Etherium Fork, a Bitcoin for all of these different things because of how important its role is.

00:31:31:22 - 00:31:47:16
Bennett Tomlin
And they just onboarded the Secret Service and the FBI. You crypto folks are giving a lot of power to the U.S. Secret Service and the FBI, and none of you seem to care. That's weird.

00:31:47:16 - 00:31:50:04
Cas Piancey
As we as we approach 100 billion tethers,

00:31:50:04 - 00:31:56:09
Cas Piancey
has been a real learning experience following this for so long.

00:31:56:11 - 00:32:05:23
Cas Piancey
I guess this is going on going on six years now that we've been following the tether saga, six, seven years, which is,

00:32:05:23 - 00:32:11:06
Cas Piancey
yeah, like a, it's actually like a significant portion of my life.

00:32:11:08 - 00:32:14:15
Cas Piancey
So I have learned a lot of things and,

00:32:14:14 - 00:32:47:00
Cas Piancey
part of my disappointment over the past few months where we haven't been we haven't been doing, we haven't been doing episodes. And I was kind of MIA and I think part of that had to do with the fact that I saw FTX and SBF, you know, in a sense get crucified, rightfully so, not like they, they deserved what they deserved, that they deserved their comeuppance.

00:32:47:02 - 00:33:10:21
Cas Piancey
But I think when you reflect on like Binance and and CZ and how many laws they've broken, I mean you'd probably be it'd be easier to list the financial rules and regulations they've complied with than the ones that they've broken. Like they've probably broken every fucking financial law in the books.

00:33:10:21 - 00:33:13:21
Bennett Tomlin
They didn't trade onion futures. That's the important one.

00:33:13:21 - 00:33:15:15
Cas Piancey
That's where cascoin comes in.

00:33:15:14 - 00:33:39:08
Cas Piancey
I think when I saw that CZ was going to walk away from that with a slap on the wrist, we've seen this before, like EOS offering a, like acquiring so many billions of dollars and being again, a slap on the wrist of what was it like a $55 million fine or something, something crazy, $80 million, whatever it was.

00:33:39:08 - 00:33:57:10
Cas Piancey
But like what you're going to, you're not going to stop any criminal from illegally raising funds if you're going to just take a percentage, a tiny percentage of what they raised. And if you think CZ’s getting sentenced, he's not even going to he's not even going to go to prison. Probably

00:33:57:10 - 00:33:57:23
Bennett Tomlin
He might

00:33:57:23 - 00:34:00:07
Cas Piancey
Yeah, I mean, I'm not holding my breath.

00:34:00:09 - 00:34:33:17
Cas Piancey
He can appeal. If if he does get sentenced, he can appeal. Right. Right. He can appeal, which tells you everything you need to know. He's going to do probably almost no time in prison is my that's what I'm trying to say. And he's like, if you think SBF broke laws and was a not necessarily yeah a pretty bad guy the only thing that CZ maybe didn't do or probably did do but just was smarter about it is utilize customer funds in the same way.

00:34:33:19 - 00:35:00:11
Cas Piancey
and he didn't have to deal with a bank run so he which again shouldn't happen at a cryptocurrency exchange but he's not going to do much time I think you and I after all these years of following tether I, I don't think they're going to I don't think anything is going to if it does ever go away, it will be just because it's not it's a honeypot and it's not useful anymore.

00:35:00:13 - 00:35:31:09
Cas Piancey
But if if it doesn't go away, I'm not going to surprised and if all these billionaires or these executives are billionaires at the end of it and they get to be rich and influential, that also won't surprise me. So I guess I am disappointed in regulators. I'm disappointed in the way the government has handled this stuff. I understand the wheels of justice grind slowly but always increasingly fine, or whatever the phrase is,

00:35:31:09 - 00:35:32:22
Cas Piancey
I don't think that's always necessarily true.

00:35:32:22 - 00:35:43:16
Cas Piancey
And sometimes they let certain people go just because they think they can get bigger fish or they can catch more fish, and you just never know you never, ever know what the government is going to do.

00:35:43:16 - 00:36:08:14
Bennett Tomlin
And the other thing we should remind people and I know we've talked about this before in the context of tether, but these international finance cases are not easy for the United States to prosecute, like even after where it had more obvious next say to the United States than some of these other cases still represented in some respects, some challenging jurisdictional issues.

00:36:08:16 - 00:36:34:15
Bennett Tomlin
Firms and executives who spend more and more time outside the United States makes that more difficult, makes the calculus look a little bit different if they can get cooperation and we talked about this, I think, a little bit. I think that's kind of what happened with Arthur Hayes in BitMEX. Right. Is not that there were wasn't rule breaking, but that eventually they got to a point where they're like, well, we can definitely get them on this rule breaking and they'll cooperate and we can record a win.

00:36:34:16 - 00:37:00:07
Bennett Tomlin
And then you see Binance and they do the same thing again. There was definitely other rule breaking, but we can prove this. We get the win, we get the cooperation, we get insight into their business going forward. I could see a point in the next year where they're the we're still in dire whoever's leading it at this point comes out and says, we negotiated a deferred settlement agreement with Tether Holdings Limited one, Carlo David and Paolo Arduino.

00:37:00:11 - 00:37:21:05
Bennett Tomlin
As long as they agree to our monitor these terms, whatever, no one goes to prison. Right. I think that's a logical endpoint for this still. And part of that comes from issues with like political will in the prosecution. Part of it is these are just hard cases and part of it is just like they want to get a lot of people in.

00:37:21:05 - 00:37:25:15
Bennett Tomlin
So if you can find out how a whole bunch of people are moving their money, maybe you let those three go

00:37:25:15 - 00:37:36:00
Cas Piancey
and also just to to drive one other point home with FCX, you had a ton of American citizens running the exchange for BitMEX.

00:37:36:05 - 00:37:43:15
Cas Piancey
You had to. We had one UK citizen, one American citizen and one Bermudan citizen,

00:37:43:15 - 00:37:51:09
Cas Piancey
for Binance. I think maybe part of the reason they were able to still get ceesay is that he's Canadian

00:37:51:09 - 00:37:54:20
Bennett Tomlin
Well, and Catherine Coley gave up the game

00:37:54:20 - 00:38:01:16
Cas Piancey
Catherine Coley. Yeah, yeah. Spoke up very loudly to people that she needed to, I guess.

00:38:01:16 - 00:38:06:21
Bennett Tomlin
speculating. Of course, we're speculating that she's the one who did. And that's why we haven't heard it

00:38:07:04 - 00:38:11:03
Cas Piancey
Could have been, could have been anybody. But I

00:38:11:03 - 00:38:15:06
Bennett Tomlin
could have been anyone who was chief executive officer of Binance's U.S. during the exact period.

00:38:15:06 - 00:38:17:13
Bennett Tomlin
She was chief executive officer. And it's you as

00:38:17:13 - 00:38:21:12
Cas Piancey
wasn't Bryan Brooks anyway.

00:38:21:12 - 00:38:55:06
Cas Piancey
there's reasons that certain people are able to be apprehended by U.S. authorities ultimately, like even Do Kwon, where South Korea is the one that are they want the U.S. they want to ship him to the U.S. So I, I think those ones all have reasons I can't necessarily fathom which government or why would give up the executives for tether and why they would ever be shipped to America.

00:38:55:06 - 00:39:02:09
Cas Piancey
These people are not in any way you know, they're not coming to America. Right. These people are not making their way over here ever.

00:39:02:09 - 00:39:17:03
Bennett Tomlin
on that point not to interrupt you, but going back to Phil Potter's buyout, it happens during a period where if you believe John Betts, Giancarloo came to John Betts at Noble and says, how do we take all this money we have now and start making more money with it?

00:39:17:05 - 00:39:34:07
Bennett Tomlin
And Phil Potter and John Betts were like, I don't think we can do that, especially with what we've been telling people and Giancarlo like, Yeah, but I bet we can do it. And then Phil Potter gets bought out. They leave Noble, Noble shuts down, they end up at Deltec and they start more aggressively investing their reserves. Right.

00:39:34:12 - 00:39:53:17
Bennett Tomlin
And so Phil Potter during this period was like the executive, like you're talking about with the strongest ties to the United States, the tether executive who most definitely wants to be able to come to the United States at some point during the remainder of his life. The others, that's perhaps less true.

00:39:53:17 - 00:40:09:14
Cas Piancey
Right. I don't think Paolo or Giancarlo or even. Yeah, I mean, maybe Stuart. Maybe Stuart comes to the U.S. regularly. I don't know. But also, he's a lawyer, so it's a little bit different.

00:40:09:16 - 00:40:14:09
Cas Piancey
Yeah, just in general, the major executives that we know,

00:40:14:08 - 00:40:57:20
Cas Piancey
they have no reason to come here and they have no reason for the countries they reside in. And I think a lot of them reside in places like Switzerland. where like why would the Swiss government send these people to America? They wouldn't. And I've seen personally how like Ravid and Oz Josef these two criminals who were associated with crypto capital Corp which yeah again we've discussed you did mention this company already today Reggie Fowler was also a part of this but regardless these two reviewed and Oz made their way back to Israel after stealing all this money and well, like I don't even know

00:40:57:20 - 00:41:20:02
Cas Piancey
if the US bothers to ask to extradite these criminals. But if they do, Israel says couldn't possibly care less. These guys have hundreds of millions of dollars and they live in Israel now and they're spending their money. So why would we extradite them? And I think that's how most countries operate when it comes to financial. I'm not suggesting Israel is particularly like the worst country about this.

00:41:20:04 - 00:41:39:07
Cas Piancey
I think Switzerland does things like this. And France in the UK like financial crimes are lower on the totem pole for some reason. So, you know, I just wouldn't expect anything from the US in regards to these guys but as you said, you never know. And maybe there's going to be some backdoor deal that we find out about later.

00:41:39:08 - 00:41:54:01
Cas Piancey
Who knows. Yeah, until the $200 billion mark then I guess, that's, that's our, our summary of seven long years of following Tether unfortunately.

00:41:54:01 - 00:42:22:17
Cas Piancey
thankfully, though, I do want to announce that with my return, Cass coin is up again, and obviously we're looking forward to working with Heather to get Heather on Cass coin. I think it's going to be a huge boon to our ecosystem and that way you can stake your Cass coin or stake your tether on Cass coin, which I think is going to be really huge for, just for the whole ecosystem in Cass Ex the exchange.

00:42:22:19 - 00:42:33:16
Cas Piancey
Again, sorry about the bankruptcy. I know I'm sending out new tokens for old token, and I appreciate all of your patience. Everybody, you know, were CasCoins back?

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3 responses to “Episode 144 – Tether: The $100,000,000,000 problem in crypto”

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