WEBVTT - This Is What We Know About How Tether Works 0:00:10.039 --> 0:00:13.800 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:13.920 --> 0:00:17.279 I'm Joe Wis and I'm Tracy Hallaway. Tracy, you know, 0:00:17.400 --> 0:00:19.520 one of the funny things, I guess I don't know 0:00:19.520 --> 0:00:21.119 if funny is the right word, but one of the 0:00:21.160 --> 0:00:25.040 funny things with crypto is that, you know, it's shocking 0:00:25.400 --> 0:00:29.479 when a big entity like f t X collapses, and 0:00:29.520 --> 0:00:32.400 there have been other collapses as well, But on some level, 0:00:33.400 --> 0:00:36.080 I don't think anyone really thinks anyone in the space 0:00:36.159 --> 0:00:40.320 is like blue chip or like completely legit, right, Like, 0:00:40.360 --> 0:00:42.560 there's no one. There's no one in crypto that you 0:00:42.600 --> 0:00:44.720 would like trust the way like say you trust, like 0:00:45.000 --> 0:00:47.800 putting your money at like JP Morgan or something. I 0:00:47.840 --> 0:00:50.920 think that's true, but everything in crypto is kind of relative. 0:00:51.080 --> 0:00:54.720 So I have previously described f t X as like 0:00:54.920 --> 0:00:58.480 the Microsoft of crypto exchanges, because it was the one 0:00:58.720 --> 0:01:02.400 that people thought was kind of best practice, and it 0:01:02.480 --> 0:01:05.640 had all these connections with traditional finance and Sam Bateman 0:01:05.720 --> 0:01:09.880 Freed was lobbying for stronger crypto regulation, and everything seemed 0:01:10.000 --> 0:01:11.560 kind of like up and up, and it had this 0:01:11.680 --> 0:01:16.920 wonderful liquidation engine that everyone talked about, and clearly clearly 0:01:16.959 --> 0:01:20.839 that wasn't the case. But you're right. There are actors 0:01:20.959 --> 0:01:24.560 in the crypto space of varying quality. Let's say, right, 0:01:24.640 --> 0:01:28.119 and you said the key word, which you nailed is relative, 0:01:28.200 --> 0:01:31.679 because sure, there are some that seemed to be kind 0:01:31.680 --> 0:01:35.320 of well run and decently well regulated, and then there 0:01:35.319 --> 0:01:37.880 are others that people have been saying, oh, this is 0:01:37.920 --> 0:01:40.679 going to collapse, this is a fraud, this is whatever 0:01:40.880 --> 0:01:43.520 for years and years, and you don't really know which 0:01:43.560 --> 0:01:45.400 one is going to go. And it turns out that 0:01:45.480 --> 0:01:49.440 a lot of the critics of crypto may you know, 0:01:49.560 --> 0:01:51.880 get things right, but on the other hand, like don't 0:01:51.920 --> 0:01:54.640 really know which which domino is going to tumble next. 0:01:54.880 --> 0:01:58.080 It's been surprisingly hard to figure that out. Yeah, and 0:01:58.120 --> 0:02:01.520 again I hesitate to use the fun but I guess 0:02:01.560 --> 0:02:05.240 that's one of the unusual things about crypto is the 0:02:05.280 --> 0:02:09.440 guys you think aren't gonna make it can persist for 0:02:09.480 --> 0:02:12.600 a lot longer that those that you think have a 0:02:12.639 --> 0:02:16.079 better chance. So you know, things like doge coin, it's 0:02:16.080 --> 0:02:19.440 still here yet, I know, like something that is clearly 0:02:19.480 --> 0:02:23.040 a joke still has a nominal monetary value. And then 0:02:23.200 --> 0:02:26.680 of course there is tether, yes, and so I think 0:02:26.720 --> 0:02:29.880 when ft x collapsed. Both of us sort of had 0:02:29.919 --> 0:02:33.000 the same thought at the same time, which she's like, Man, 0:02:33.120 --> 0:02:35.640 you know, it's funny again. I don't know funny is 0:02:35.639 --> 0:02:38.760 the right word. But Tether is still here. And people 0:02:38.760 --> 0:02:42.080 have been betting against Tether or predicting its demise, or 0:02:42.440 --> 0:02:44.600 claiming that it's a fraud, or claiming that it's going 0:02:44.639 --> 0:02:46.960 to get shut down by regulators, or claiming that it's 0:02:46.960 --> 0:02:50.720 going to lose its peg forever. Meanwhile, all of these 0:02:50.760 --> 0:02:54.000 things implode that aren't tether, and Tether as of right now, 0:02:54.080 --> 0:02:57.239 which is we're recording this on December five, is trading 0:02:57.280 --> 0:03:00.600 about one to the dollar, right, So Heather is a 0:03:00.639 --> 0:03:04.240 stable coin. One Tether is supposed to be worth one 0:03:04.320 --> 0:03:08.959 dollar at all times. It has previously dipped below that level, 0:03:09.120 --> 0:03:12.440 particularly after the big crypto blow ups in the spring 0:03:12.480 --> 0:03:15.120 of this year, when Tera Luna collapsed, and then when 0:03:15.240 --> 0:03:19.760 FTX collapsed, it slipped slightly below it's one dollar peg. 0:03:19.840 --> 0:03:22.600 But it's come back, and I think it has been 0:03:23.280 --> 0:03:28.680 remarkably resilient when you consider that. Literally for years people 0:03:28.840 --> 0:03:32.840 have been asking about this company, how it's run, the 0:03:32.919 --> 0:03:37.680 sort of web of relationships around it, and perhaps most crucially, 0:03:38.400 --> 0:03:42.440 are there actually things backing Tether, because as I mentioned, 0:03:42.480 --> 0:03:45.600 it's a collateralized stable coin. It is supposed to be 0:03:45.680 --> 0:03:49.440 backed by dollar assets, but there's always been a lot 0:03:49.480 --> 0:03:53.280 of doubt and questioning over whether or not those exist. 0:03:53.440 --> 0:03:57.400 In fact, last year, Tether and bitfin x we're ordered 0:03:57.400 --> 0:04:00.040 by the CFTC and also the New York Attorney a 0:04:00.160 --> 0:04:04.560 role to pay millions of dollars in fines for misleading customers, 0:04:04.600 --> 0:04:07.880 and Tether's own PR strategy when it comes to this, 0:04:07.960 --> 0:04:10.280 I think it's fair to say it's been a little 0:04:10.320 --> 0:04:12.560 bit weird, and I'm just thinking, you know, one of 0:04:12.600 --> 0:04:15.480 the ultimate ironies is I remember we had Sam Bankman 0:04:15.560 --> 0:04:18.600 freed On the f t X founder with Matt Levine, 0:04:18.680 --> 0:04:21.520 I think our first conversation with those two, and we 0:04:21.640 --> 0:04:26.040 asked SPF about Tether, and he basically said something along 0:04:26.040 --> 0:04:28.760 the lines of like, oh, it's just you know, it's 0:04:28.760 --> 0:04:31.440 a complete mess, Like, you know, it's kind of a 0:04:31.480 --> 0:04:34.200 mess of a process maintaining this thing. And so if 0:04:34.320 --> 0:04:37.240 SPF is telling you that this thing is messy, I 0:04:37.279 --> 0:04:40.400 think it deserves its own episode, right it does? You 0:04:40.440 --> 0:04:43.440 know SPF, f t X and el Amta, they were 0:04:43.480 --> 0:04:47.280 big Tether users he felt that. But anyway, I have 0:04:47.320 --> 0:04:49.760 so many questions about Tether, and in the wake of 0:04:50.040 --> 0:04:51.640 f t X, I thought it would be a good 0:04:51.640 --> 0:04:54.520 time to, yeah, revisit what it is, what its role is, 0:04:54.640 --> 0:04:57.200 what we know about it, what we don't know about it, etcetera, 0:04:57.240 --> 0:05:00.000 and just sort of like take stock of this pretty 0:05:00.320 --> 0:05:04.680 I think, critical piece of crypto infrastructure totally, and also 0:05:05.400 --> 0:05:09.760 why it's proven so resilient and what could actually kind 0:05:09.800 --> 0:05:12.400 of knock it down. All right, let's go. We are 0:05:12.440 --> 0:05:14.960 going to be speaking with someone who knows the company 0:05:15.040 --> 0:05:17.040 very well, has been reporting on it and talking about 0:05:17.040 --> 0:05:19.320 it and analyzing it for a long time. We're going 0:05:19.400 --> 0:05:21.599 to get all of our questions cleared up. We're gonna 0:05:21.600 --> 0:05:23.960 be speaking to Bennett Tomlin. He is the co host 0:05:24.000 --> 0:05:27.320 of the Crypto Critics Corner podcast and he's also the 0:05:27.360 --> 0:05:30.280 head of research at protost Media, and he is an 0:05:30.360 --> 0:05:34.080 encyclopedic knowledge of the crypto ecosystem and who does what 0:05:34.279 --> 0:05:37.040 and who is who. So Bennett, thank you so much 0:05:37.040 --> 0:05:40.200 for coming on odd lots glad to be here. All right, 0:05:40.279 --> 0:05:46.279 let's just start like really simple, who started Tether and why? 0:05:46.960 --> 0:05:49.640 That's a surprisingly challenge. I thought that would be an 0:05:49.680 --> 0:05:54.080 easy question to start with, Okay, Nominally, Nominally it was 0:05:54.120 --> 0:05:57.240 started in two thousand and fourteen by a bunch of 0:05:57.320 --> 0:06:01.640 the master Coin slash Omnique cruise. This typically Brock piers 0:06:02.120 --> 0:06:07.240 yantis Quigly Reeves and sellers came over and decided to start. 0:06:07.279 --> 0:06:09.240 But if they called at the time real Coin, which 0:06:09.240 --> 0:06:12.920 they advertised as this dollar batted token on the block 0:06:13.000 --> 0:06:15.120 chain that was going to use what was then called 0:06:15.160 --> 0:06:17.719 the master Coin layer and is now called the omni 0:06:17.880 --> 0:06:21.960 layer on top of Bitcoin. Sometime in that summer of 0:06:21.960 --> 0:06:24.360 two thousand and fourteen, when they were going around pitching 0:06:24.400 --> 0:06:28.960 this idea, one Carlo Davissini, Jean Ludoviticus Vandervelt and Phil 0:06:29.040 --> 0:06:34.040 Potter got involved, and the exact timeline of their involvement 0:06:34.160 --> 0:06:37.240 and when the control of the entity fully shifted is 0:06:37.279 --> 0:06:40.280 difficult to parse out. But by the time the first 0:06:40.320 --> 0:06:43.960 tethers were issued in October November of two thousand and fourteen, 0:06:44.560 --> 0:06:49.160 Tether was entirely under the control of one Carlo Davissini, 0:06:49.279 --> 0:06:53.760 Phil Potter, and Jean Ludovit Jean Ludoviticus Vanderbilt, the bitfin 0:06:53.920 --> 0:06:56.440 X executives. So it started by this group of people 0:06:56.440 --> 0:06:59.360 from master Coin and then taken over and really launched 0:06:59.760 --> 0:07:03.080 on to the bitfin x executives in two thousand and fourteen. 0:07:03.600 --> 0:07:05.960 So I'm going to ask the same question in a 0:07:06.040 --> 0:07:09.960 slightly different way, but why the need for stable coins 0:07:10.000 --> 0:07:14.320 at all? Like why in crypto can't you just transact 0:07:14.440 --> 0:07:18.600 in US dollar deposits for the majority of offshore exchanges, 0:07:18.720 --> 0:07:22.480 Like why this market need that this group of very 0:07:22.520 --> 0:07:26.280 disparate people came together to serve. My understanding is that 0:07:26.320 --> 0:07:29.960 it was very challenging even for the most quote unquote 0:07:30.000 --> 0:07:33.600 legitimate of cryptocurrency businesses in this era, to get and 0:07:33.640 --> 0:07:37.600 maintain consistent banking relationships. And so the idea with Teather 0:07:38.080 --> 0:07:42.760 is that Tether would build these relationships and in doing 0:07:42.800 --> 0:07:46.440 so allow a variety of other cryptocurrency businesses to effectively 0:07:46.520 --> 0:07:49.720 benefit from their banking relationships by allowing them to have 0:07:50.000 --> 0:07:53.920 this pseudo dollar token that allowed them to mimic trading 0:07:53.920 --> 0:07:57.239 against the dollar and all the conveniences therein without having 0:07:57.280 --> 0:08:00.640 to seek out and maintain relationships with banks that could 0:08:00.720 --> 0:08:04.280 transact in the US dollar. Right, So this is a 0:08:04.360 --> 0:08:07.160 really key thing. Rather than if you want to set 0:08:07.200 --> 0:08:10.600 up a crypto exchange, rather than you going through all 0:08:10.640 --> 0:08:13.240 of the work to set up bank accounts in different 0:08:13.240 --> 0:08:15.600 countries and all that, you're just like, oh, you're just 0:08:15.720 --> 0:08:19.000 like create a platform that allows you to onboard Tether. 0:08:19.200 --> 0:08:22.880 Tether already has the banking relationship and instead of trading 0:08:22.880 --> 0:08:26.920 a dollar, as you trade in the dollar denominated stable coins. Now, 0:08:27.200 --> 0:08:29.480 who is Tether's bank in the beginning. So if they're 0:08:29.480 --> 0:08:31.840 going to have this dollar denominated stable coiners they're going 0:08:31.880 --> 0:08:34.280 to hold their dollars, where were they holding their dollars? 0:08:34.280 --> 0:08:37.000 How did they get a banking relationship? Again, it's a 0:08:37.040 --> 0:08:39.360 little bit difficult to pass completely. We know at least 0:08:39.600 --> 0:08:41.800 part of the reserves were held at a variety of 0:08:41.840 --> 0:08:45.560 Taiwanese banks, many of which relied on Wells Fargo for 0:08:45.640 --> 0:08:49.200 their US correspondent banking services. And we found this out 0:08:49.280 --> 0:08:52.640 because in two thousand and seventeen, Wells Fargo ended up 0:08:52.640 --> 0:08:56.520 cutting off correspondent banking access for bitfoin X and Tether, 0:08:57.080 --> 0:09:00.000 and bitfoin X and Tether filed a lawsuit they describe 0:09:00.360 --> 0:09:04.640 as purely to buy time against Wells Fargo at that point. So, yeah, 0:09:04.720 --> 0:09:07.080 they were banking at a variety of Taiwanese banks, and 0:09:07.120 --> 0:09:11.040 getting correspondent banking from Wells Fargo. The reason I'm pausing 0:09:11.160 --> 0:09:14.160 is that bitfn x is and Tether's relationship with payments 0:09:14.200 --> 0:09:18.199 processor Crypto Capital Core stretches back to two thousand and fourteen, 0:09:18.440 --> 0:09:22.120 and so it is possible that some portion of the reserves, 0:09:22.160 --> 0:09:25.320 besides being held in these Taiwanese banks, was already being 0:09:25.360 --> 0:09:28.760 held in Crypto Capital Core. Besides that, we know from 0:09:28.800 --> 0:09:32.160 the CFTC settlement with Teather that as early as six 0:09:32.720 --> 0:09:35.640 Tether was being backed by non cash assets, and so 0:09:35.679 --> 0:09:38.120 we have to expect that some portion of those were 0:09:38.120 --> 0:09:41.280 being held outside of those bank accounts as well. So 0:09:41.559 --> 0:09:44.360 this kind of gets to the question over the weird 0:09:44.520 --> 0:09:47.840 pr strategy, which I expect that's going to be sort 0:09:47.880 --> 0:09:50.560 of a theme that comes up a lot in this conversation. 0:09:50.600 --> 0:09:54.280 But but if we know that Tether was created to 0:09:54.400 --> 0:09:59.079 allow sort of easier on boarding of dollar deposits into 0:09:59.120 --> 0:10:02.560 the crypto so um by allowing them to build and 0:10:02.840 --> 0:10:07.040 establish these relationships with various banks, why wouldn't they just 0:10:07.280 --> 0:10:13.000 be upfront about who their bank partners are. Bitfn X 0:10:13.000 --> 0:10:17.240 and Tether in whale pool team speaks and official communications 0:10:17.280 --> 0:10:20.600 have often expressed a fear that if the extent of 0:10:20.600 --> 0:10:24.280 their relationships with various banking partners is made public, those 0:10:24.320 --> 0:10:28.480 banking relationships will cease to exist. For some reason, it 0:10:28.559 --> 0:10:33.280 seems that Tethern bit pnexes banks and the relationships therein 0:10:33.640 --> 0:10:36.040 have to be kept somewhat secret in order for tether 0:10:36.120 --> 0:10:39.880 and bit pnex to continue to offer that. The fear 0:10:40.240 --> 0:10:43.120 when they say something like that is that the reason 0:10:43.480 --> 0:10:45.680 they need to be coy about it is because the 0:10:45.840 --> 0:10:49.679 banks are not fully aware of what they may be banking, 0:10:50.760 --> 0:10:53.480 or there is some other challenge that presents itself to 0:10:53.640 --> 0:10:56.840 these banks when it becomes public that they are banking 0:10:56.880 --> 0:11:01.680 these entities, you know, speaking of Okay, maybe the bank 0:11:01.880 --> 0:11:04.240 doesn't want you to do crypto stuff, or maybe an 0:11:04.360 --> 0:11:07.559 entity is obfuscating what it did or what its relationship 0:11:07.600 --> 0:11:09.880 with bank the bank was when they opened the account. 0:11:10.679 --> 0:11:13.480 I seem to recall there being some video in which 0:11:13.520 --> 0:11:17.920 Sam Bankman Freed talks about having named Elma Research so 0:11:17.960 --> 0:11:22.320 that it wasn't just Alameda. Is that my hallucinating that 0:11:22.440 --> 0:11:24.920 or did that actually happen? No, there was an interview 0:11:24.920 --> 0:11:27.520 with Sam Bankman Freed was asked why Elma Research was 0:11:27.600 --> 0:11:30.520 named Alameda Research and he talked about how when he 0:11:30.679 --> 0:11:34.680 was arbitraging the Japanese premium that having the name Elma 0:11:34.720 --> 0:11:37.440 Research and convincing people that this was a research firm 0:11:37.800 --> 0:11:40.840 made it easier for him to access and maintain banking 0:11:40.880 --> 0:12:01.240 relationships that allowed them to arbitrage. That came. Maybe just 0:12:01.320 --> 0:12:04.280 going back to the beginning of Tether for a second, 0:12:04.360 --> 0:12:08.320 so I understand the function that Tether was serving in 0:12:08.360 --> 0:12:11.880 the crypto community, but what was their own business model? 0:12:11.960 --> 0:12:15.160 So what was the idea behind how Tether as a 0:12:15.200 --> 0:12:18.079 company was going to make money. They charged a few 0:12:18.120 --> 0:12:22.360 basis points and issuance and redemption, and I think if 0:12:22.360 --> 0:12:25.000 their reserves were going to be earning any yield in 0:12:25.040 --> 0:12:27.439 the bank accounts they were stored in, then that yield 0:12:27.480 --> 0:12:30.480 would go to Tether the corporation. Stable coins are a 0:12:30.559 --> 0:12:34.520 challenging business model. Circle has struggled to do it profitably. 0:12:36.240 --> 0:12:39.600 So just on this note, and again we're sort of 0:12:39.679 --> 0:12:43.240 diving headlong already into one of the bigger issues with Tether. 0:12:43.600 --> 0:12:46.920 But it does seem like if you're expecting Tether to 0:12:47.040 --> 0:12:51.200 maintain the peg with dollar denominated assets, but the company 0:12:51.240 --> 0:12:55.640 itself is making money by generating yields from those assets 0:12:56.000 --> 0:13:00.440 that would seem to be almost immediately a conflict of interest, right, 0:13:00.640 --> 0:13:04.720 or at least a temptation to potentially invest in higher yielding, 0:13:04.960 --> 0:13:09.840 riskier assets to generate more money for the company itself. Well, 0:13:09.880 --> 0:13:13.280 I think that Bloomberg Business Week's reporting seek Fox is 0:13:13.280 --> 0:13:16.600 reporting on this really kind of points to that. Specifically, 0:13:16.920 --> 0:13:19.560 where you see when they're banking at Noble Bank and 0:13:19.600 --> 0:13:24.200 Trust founded by John bettson brock Peers, supposedly one Carlo 0:13:24.280 --> 0:13:28.319 Davissini going to John Betts and pleading asking for ways 0:13:28.360 --> 0:13:31.440 that they can earn additional yield on their reserves. And 0:13:31.480 --> 0:13:34.679 I think this is consistent with one Carlo Davissini, the 0:13:34.720 --> 0:13:38.160 chief financial officer of Tether and Silvano di Stefano, the 0:13:38.200 --> 0:13:41.199 chief investment officer of Tether, being partners together in Blue Bit, 0:13:41.240 --> 0:13:44.880 the cryptocurrency hedge fund. Right, is that around this period 0:13:44.920 --> 0:13:48.080 we have pretty solid reporting that Tether was very much 0:13:48.120 --> 0:13:51.480 interested in going out and trying to find additional ways 0:13:51.520 --> 0:13:54.240 to earn yield, and that if we look, even if 0:13:54.240 --> 0:13:56.480 we take Tether completely at their word, if we look 0:13:56.480 --> 0:14:00.160 at their attestations today, their reserves are far riskier than 0:14:00.200 --> 0:14:02.320 they were promised to be back. When Tether was started 0:14:02.320 --> 0:14:06.000 in two thousand fourteen, the original promise was that every 0:14:06.000 --> 0:14:08.760 single Tether issued would have a corresponding dollar in a 0:14:08.800 --> 0:14:11.680 bank account to back them. Now the promise is that 0:14:11.720 --> 0:14:15.040 there is a dollar of value in some nebulous collection 0:14:15.120 --> 0:14:18.640 of assets that backs that tether. And so I think 0:14:18.679 --> 0:14:21.000 that it's very clear it has presented a conflict of 0:14:21.000 --> 0:14:23.720 interest and that Tether has continued to move further and 0:14:23.760 --> 0:14:26.800 further away from their initial promise as a way to 0:14:26.880 --> 0:14:31.000 generate additional yield and income for the people running Tether. Yeah, 0:14:31.040 --> 0:14:34.160 you mentioned the word nebulous, and I remember there was 0:14:34.200 --> 0:14:38.160 this great note from Barclays from their money market and 0:14:38.200 --> 0:14:41.960 credit guys basically saying that Tether was using language around 0:14:42.040 --> 0:14:45.560 its investments that no one in the financial industry had 0:14:45.600 --> 0:14:48.120 ever seen. They kept referring to something called a reverse 0:14:48.200 --> 0:14:52.520 repo note, and then yeah, they seemed to imply it 0:14:52.560 --> 0:14:55.760 was some sort of like structured credit note but also 0:14:55.840 --> 0:14:59.840 a reverse repo, which was all very very strange. So 0:15:00.360 --> 0:15:02.960 speaking of language, you know, I want to get a 0:15:02.960 --> 0:15:05.560 little bit more to the bank, the post Wells Fargo 0:15:05.640 --> 0:15:09.360 or post Taiwan bank banking relationships, but before gone what 0:15:09.520 --> 0:15:12.640 is an attestation? Because I know that Tether does not 0:15:12.760 --> 0:15:16.080 get a formal like audit, but they say they published 0:15:16.120 --> 0:15:21.320 an attestation. What is that? So I'm not an account intern, 0:15:21.360 --> 0:15:23.240 auditor or a lawyer, and so I want to get 0:15:23.280 --> 0:15:26.360 that off the jump. But based on the auditors I've 0:15:26.360 --> 0:15:29.480 talked to about this, and attestation is a much lower 0:15:29.560 --> 0:15:33.120 level of assurance where the auditor or accountant is looking 0:15:33.160 --> 0:15:35.880 at a set of records compiled for them by the 0:15:35.920 --> 0:15:38.840 management of the entity, and they are attesting that the 0:15:38.920 --> 0:15:44.160 records they have received match up with whatever they're supposed to. Generally, 0:15:44.200 --> 0:15:46.840 they don't involve the same kind of controls testing as 0:15:46.880 --> 0:15:49.920 an audit. They're generally done point in time and are 0:15:49.960 --> 0:15:52.600 not looking at necessarily the flows leading up to that 0:15:52.680 --> 0:15:55.480 point in time, which has historically been a problem with 0:15:55.520 --> 0:15:59.880 Tether's at the stations. And so they provide some level 0:15:59.880 --> 0:16:02.960 of assurance, but notably less than like a full financial audit. 0:16:03.400 --> 0:16:06.400 So let's go back two things, I guess, but you know, 0:16:06.560 --> 0:16:10.680 after the they lost the ability to use the correspondent 0:16:10.960 --> 0:16:14.040 the banks that had a corresponding relationship with Taiwan or 0:16:14.080 --> 0:16:17.320 sorry without Wells Fargo, with whom did they start banking, 0:16:17.600 --> 0:16:23.080 and can the the assets that Tether claims it has 0:16:23.440 --> 0:16:29.320 can they be seen on published regulatory filings of those banks. 0:16:30.160 --> 0:16:35.520 So after they lose correspondent banking from Wills Fargo, Tether's 0:16:35.560 --> 0:16:40.680 banking becomes a bit of an enigma. They held little 0:16:40.680 --> 0:16:43.960 over sixty million dollars at the Bank of Montreal in 0:16:44.200 --> 0:16:48.240 Stuart Hogner's account their general counsel. The remainder of their 0:16:48.240 --> 0:16:51.280 banking from that period until they opened their account at 0:16:51.400 --> 0:16:55.600 Noble Bank was supposedly a receivable from Bitfinex's account at 0:16:55.600 --> 0:17:00.320 Noble Bank, which was the international financial entity started brock 0:17:00.400 --> 0:17:03.080 Pearson John Betts in Puerto Rico. The issue with this 0:17:03.560 --> 0:17:06.560 is that if you look at Bitnex's account at Noble 0:17:06.560 --> 0:17:08.359 Bank during this period, and this is based on the 0:17:08.359 --> 0:17:12.359 New York Attorney General investigation, bitfn x only received deposits 0:17:12.400 --> 0:17:16.800 from two other institutions, and neither of those institutions purchased tethers. 0:17:17.200 --> 0:17:20.000 The amount in Stuart Hogner's account over this entire period 0:17:20.119 --> 0:17:22.080 did not change at all, and yet the number of 0:17:22.080 --> 0:17:25.520 tethers in circulation exploded during this period, and so it 0:17:25.680 --> 0:17:28.600 is incredibly difficult to figure out what the flow of 0:17:28.640 --> 0:17:31.840 funds was during this era and how they were directly 0:17:31.920 --> 0:17:37.080 backing Tether. My guess is that many users were interacting 0:17:37.080 --> 0:17:39.840 with Crypto Capital Court, the payments processor that both bit 0:17:39.880 --> 0:17:42.480 pohn X and Tether depended on, and that they were 0:17:42.520 --> 0:17:46.320 sending both tethers and dollars to Crypto Capital Court to 0:17:46.440 --> 0:17:49.439 issue and redeemed tethers, and these were then marked like 0:17:50.000 --> 0:17:53.520 on their accounting records as funds that were then owed 0:17:53.640 --> 0:17:56.760 to the account at Noble Bank, which was nominally holding 0:17:56.800 --> 0:17:59.240 the reserves of Tether despite being in the name of 0:17:59.280 --> 0:18:03.479 bitfn X. This continued until it was time for Freedman 0:18:03.640 --> 0:18:06.879 LLP to finally give their September fifteenth at testation to 0:18:07.000 --> 0:18:10.840 Tether's reserves. On the morning of September fifteen, Tether finally 0:18:10.880 --> 0:18:13.320 got an account at Noble Bank and Trust, and they 0:18:13.359 --> 0:18:16.600 transferred hundreds of millions of dollars from bitfnex's account that 0:18:16.680 --> 0:18:20.080 morning to Tether's account on that day, and then that 0:18:20.200 --> 0:18:23.040 evening Freedman LLP comes in and attest to the state 0:18:23.040 --> 0:18:25.600 of Tether's reserves. Then from that point on the bank 0:18:26.600 --> 0:18:29.720 believed to be largely continuously at Crypto Capital Court and 0:18:29.760 --> 0:18:34.119 Noble Bank until Noble Bank starts to close down in 0:18:34.200 --> 0:18:37.480 two thousand and eighteen. Then we get to the period 0:18:37.480 --> 0:18:40.520 where they start relying really heavily on Crypto Capital Core 0:18:40.600 --> 0:18:43.720 until Crypto Capital Core ends up having about eight hundred 0:18:43.720 --> 0:18:47.399 and fifty million total dollars seized, and we eventually in 0:18:47.440 --> 0:18:49.440 the summer of two thousand and eighteen into the fall 0:18:49.480 --> 0:18:51.919 of two thousand and eighteen, get more and more into 0:18:51.960 --> 0:18:54.960 their reliance on del Tech Bank and Trust. In the Bahamas, 0:18:55.000 --> 0:18:57.160 Dell Tech Bank and Trust, you were able to see 0:18:57.200 --> 0:19:00.800 a large inflow of deposits based on a Central Banka 0:19:00.800 --> 0:19:04.439 Bahamas regulatory records showing that Dell Tech was receiving a 0:19:04.480 --> 0:19:07.720 bunch of assets that they had not had before, suggesting 0:19:07.760 --> 0:19:11.040 that Tether was moving something into there at that point. 0:19:11.800 --> 0:19:14.480 So we kind of have a couple of things to 0:19:14.600 --> 0:19:17.040 look at when it comes to trying to figure out 0:19:17.119 --> 0:19:20.440 what tether is actually doing. So we have the at 0:19:20.440 --> 0:19:23.120 of stations, you know, which may or may not be accurate, 0:19:23.160 --> 0:19:26.960 but we also have just the sheer volume of tether 0:19:27.359 --> 0:19:31.959 in existence, because we know that every tether issued is 0:19:32.000 --> 0:19:35.159 supposed to be backed by you know, it used to 0:19:35.200 --> 0:19:38.560 be one dollar and now it's one dollar of dollar 0:19:38.720 --> 0:19:43.399 denominated assets. But what does the sort of expansion of 0:19:44.080 --> 0:19:47.840 tether supply actually tell you about what the company has 0:19:47.880 --> 0:19:51.120 been doing and experiencing. I don't know that the expansion 0:19:51.160 --> 0:19:55.120 of tether supply really gives us that much information, except 0:19:55.160 --> 0:19:58.520 that it's supposed to indicate that actual dollars are flowing 0:19:58.560 --> 0:20:02.280 from other entities in this as into Tether's accounts, and 0:20:02.280 --> 0:20:05.520 then tethers are being issued. And so it's primarily interesting 0:20:05.600 --> 0:20:10.320 because there should be a corresponding like, there should be 0:20:10.320 --> 0:20:14.280 corresponding flows through the banking system for all the tethers 0:20:14.280 --> 0:20:16.720 that have supposed that they ever been issued and redeemed, 0:20:16.920 --> 0:20:19.760 and that is a reasonably large amount of money to 0:20:19.840 --> 0:20:23.879 have been flowing through the banking system. So just on 0:20:23.920 --> 0:20:26.879 that note, and also kind of going back to the 0:20:26.920 --> 0:20:29.880 Barclays analysts who were talking about, we've never heard anything 0:20:29.920 --> 0:20:33.360 called a reverse repo note, but there is this expectation 0:20:33.520 --> 0:20:36.399 that if tether is out in the market with you know, 0:20:36.880 --> 0:20:41.120 fifty or sixty billion dollars worth of assets that it's investing, 0:20:41.800 --> 0:20:46.000 that someone in the traditional financial system would know them 0:20:46.240 --> 0:20:49.479 and be familiar with them, and that people you know, 0:20:49.880 --> 0:20:53.280 on repo dusks and things like that would be familiar 0:20:53.280 --> 0:20:55.840 with them as a customer, and yet if you talk 0:20:55.920 --> 0:21:00.679 to people in traditional finance, that doesn't really seemed to 0:21:00.720 --> 0:21:03.200 be the case, Like no one is talking about how 0:21:03.240 --> 0:21:07.680 they're transacting with Tether on a regular basis. What's going 0:21:07.720 --> 0:21:11.919 on there. That's a really fantastic question, Tracy, and I 0:21:11.920 --> 0:21:14.120 think it was last year that Financial Times went out 0:21:14.200 --> 0:21:16.560 after Tether announced that they were one of the seven 0:21:16.640 --> 0:21:19.399 largest holders of commercial paper in the world and asked 0:21:19.400 --> 0:21:22.399 a whole bunch of commercial paper trading desks, hey, have 0:21:22.480 --> 0:21:25.000 you noticed this new entrant into the commercial paper market? 0:21:25.040 --> 0:21:27.919 And they all universally said who. So, yeah, that's a 0:21:27.960 --> 0:21:31.600 fantastic question. Where is Tether in these markets? It's possible 0:21:31.720 --> 0:21:35.840 that Tether is transacting using entities that aren't called Tether, like, 0:21:36.080 --> 0:21:39.600 for example, blue Bit Capital, the cryptocurrency hedge fund that 0:21:39.720 --> 0:21:43.199 one Carlo da Vissini and Silvannod Stephane were partners in. 0:21:43.600 --> 0:21:47.360 Could be del Chain, the cryptocurrency focused offshoot of Dell 0:21:47.400 --> 0:21:50.080 Tech Bank and Trust that Paulo Ardoino used to be 0:21:50.080 --> 0:21:53.199 an executive director of. It. Could be full ger Alpha, 0:21:53.400 --> 0:21:56.080 the cryptocurrency hedge fund spun off from del Chain that 0:21:56.160 --> 0:22:00.000 was onboarded onto bitfin x well. Paulo was a director 0:22:00.040 --> 0:22:03.560 it bell Chain. There's a possibility that just these deaths 0:22:03.600 --> 0:22:06.360 don't recognize the name of Tether because Tether isn't transacting 0:22:06.359 --> 0:22:10.719 in the name of Tether, or it could be a 0:22:10.720 --> 0:22:14.440 lot of other things that we don't have visibility into yet. 0:22:14.680 --> 0:22:17.399 But it is challenging to figure out just where is 0:22:17.400 --> 0:22:19.480 all this money coming from, where is it going, and 0:22:19.520 --> 0:22:23.320 why is no one noticing it coming or going? You know, 0:22:23.359 --> 0:22:26.280 I wanna talk compare and contrast Tether a little bit 0:22:26.280 --> 0:22:30.480 to other stable coins. The other like really big one 0:22:30.960 --> 0:22:34.320 is u S d C, And in fact, just today 0:22:34.400 --> 0:22:37.200 December five, we got the news that they're actually canceling. 0:22:37.359 --> 0:22:41.040 Circle is no longer doing it's back, so that's kind 0:22:41.040 --> 0:22:44.879 of interesting timing. But like, okay, with with something like 0:22:45.040 --> 0:22:48.120 us d C, do we have very clear visibility into 0:22:48.160 --> 0:22:51.200 where their money is and like compare like the sort 0:22:51.200 --> 0:22:54.320 of level of transparency we have with Tether versus these 0:22:54.359 --> 0:22:57.280 other stable coins, which my understanding is they seem to 0:22:57.320 --> 0:23:01.880 be people are less suspicious of them. I'm generally less 0:23:01.920 --> 0:23:04.879 suspicious of Circle than of Tether. Part of this is 0:23:04.880 --> 0:23:09.320 because Circle has made fewer misrepresentations in public than tether has, 0:23:09.600 --> 0:23:12.120 though to be clear, there was a period where coin 0:23:12.160 --> 0:23:16.160 based was advertising USDC is fully backed by cash after 0:23:16.200 --> 0:23:19.600 they had started using other assets, including treasuries and commercial 0:23:19.600 --> 0:23:22.600 paper to back it. But broadly USDC and Circle have 0:23:22.680 --> 0:23:25.520 been much better at their disclosures than tether has. They 0:23:25.520 --> 0:23:27.960 are not being forced by the New York Attorney General 0:23:27.960 --> 0:23:31.520 to do attestations, but are doing them monthly instead of quarterly. 0:23:31.960 --> 0:23:36.359