The CFTC doesn't have that authority; a company can only get shut down for a criminal offense and Tether is not accused of any crime. Only the Department of Justice can prosecute or investigate crimes, the CFTC is an independent agency and as such has no authority to do so.

All the CFTC can do is levy a fine, so both parties are fairly indifferent as to whether that money comes from a judgement or from a settlement. There could be some minor benefit of not having to admit any "wrongdoing" for press release purposes, but overall it makes no difference.

Not a lawyer, but I'm not sure that's correct.

Per the CFTC's Enforcement website, they can bring civil enforcement actions in court--without the other party present aka ex-parte--seeking to freeze and enjoin the operations of a person or entity they can convince a judge is violating the Commodity Exchange Act.

From [0]: "At the conclusion of an investigation, the Division may recommend that the Commission initiate administrative proceedings or seek injunctive and ancillary relief on behalf of the Commission in United States District Courts around the country. Administrative sanctions may include orders imposing civil monetary penalties, suspending, denying, revoking or restricting registration and exchange trading privileges, and orders of restitution. The Commission also may obtain temporary restraining orders and preliminary and permanent injunctions in Federal court to halt ongoing violations. Other relief may include appointment of a receiver, a freeze of assets, restitution, and disgorgement of unlawfully acquired benefits. The CEA also provides that the Commission may obtain certain temporary relief on an ex parte basis (that is, without notice to the other party). When those enjoined violate court orders, the Division may seek to have the offenders held in contempt. When the Division obtains evidence that criminal violations of the CEA have occurred, it may refer the matter to the Department of Justice for prosecution.

[0] https://www.cftc.gov/LawRegulation/Enforcement/OfficeofDirec...

Here's an example: https://www.investmentexecutive.com/news/from-the-regulators...

> The CFTC doesn't have that authority; a company can only get shut down for a criminal offense and Tether is not accused of any crime.

Fraud is a crime.

> Fraud is a crime.

CFTC does not prosecute crimes. CFTC could make a referral to DoJ, but where a regulatory agency can both engage in civil enforcement actions and make criminal referrals, even when it does both in the same case, the civil action will usually be filed and often resolved before any visible action (indictment, etc.) on the criminal referral.

So, the resolution of the civil case doesn’t mean anything with regard to any potential criminal charges.

Yeah, so the DOJ would need to prosecute.

I'm more surprised that anyone still holds Tether, unless they're stuck with it. The company has been caught in lies several times before, it's not as if a $41M fine will turn them honest.

Lending rates for USDT on the major decentralized lending platforms are more favorable than other stablecoins.

The lending rates are higher because lenders are paid a premium for owning a potentially worthless (USDT denominated) credit. The idiom that comes to mind is "picking up pennies in front of a steamroller".

It flips back and forth with USDC, which one is higher, at least on compound.finance. Right now USDC is higher, but it's been different. Here are the historical charts (click the "borrow" tab, doesn't seem to be a way to link it with that one selected):

https://compound.finance/markets/USDC

https://compound.finance/markets/USDT

For example, on October 7, it shows USDT at over (sorry, "north of") 13%, while USDC was (sorry, "clocked in at") ~5%.

The rates are mostly affected by sudden changes in demand.

The demand for Tether comes mostly from Binance and the other centralized Asian exchanges. The demand for Circle dollars comes from the DeFi ecosystem and FTX.

Basic question: why doesn't this affect the currency pair exchange rate? If lending rates reflect the (realistic!) idea that holding 1 USDT is less valuable than holding 1 USD, how does 1 USDT trade at par?

If the price is under $1, the backer can purchase the coins with reserves and pocket the difference. The price will only depart from the peg if selling forces the market price down and the backer doesn't have enough reserves to purchase tokens sold beneath the peg. This scenario is similar to a bank run and would require high selling volume to set if off.

The lending rates are determined by a separate mechanism and reflect the probability of a future departure from the peg.

The rumor is the backer is using the reserves to trade crypto. You won't ever see an attack on Teather during a crypto bull run as the reserves will be strong.

In the depths of a crash, the potential is definitely there. Last time Bitfinex bailed out Teather when its reserves came up short. So to really see Teather fail, we probably need a crypto crash and a weakened Bitfinex.

This is why people still use Teather. Even though it is risky, the current market dynamics make a failure unlikely.

IMHO failure due to embezzlement (Teather reserves stolen by an inside man) is a real possibility. The management team has already proven to be very shady...

Or doj freezing assets...

The platforms that deal in USDT have a very strongly vested interest in seeing its continuation. To the long term detriment of nearly everyone else.

Once the peg is broken it will collapse quickly. That means it's in their interest to keep the peg. If they have enough reserves (hard to imagine they have even 5% in cash but maybe they managed to buy enough BTC with their tokens to keep afloat for a while) they can keep the facade going for a very long time (until some kind of bank run is triggered).

Many people are also assuming that unlicensed unregulated offshore exchanges keep 100% of client funds in reserve. LOL.

The last few years of BTC, ETH, and DeFi all collapse quickly if the USDT peg fails.

How much crypto is borrowed on platforms like Compound against USDT? That collateral takes a 5% haircut, we’ll see painful liquidations. 10% or 20%? Fire sale everywhere.

> How much crypto is borrowed on platforms like Compound against USDT?

Close to zero. Compound, Aave, Maker - none of them allow folks to use USDT as collateral to borrow against. You can lend it for yield, and borrow it from others, but you can't use it as collateral.

There are some riskier protocol that allow it (rari, cream) but those are much smaller.

I'm assuming because a lot of people would lose a lot of money if it stops trading 1:1.

Manipulation by exchanges

This might not entirely accurate.

I would speculate that the premium is because of USDTs network effects -- the USDT/crypto trading pairs are the most liquid on centralized exchanges.

There is no reason that holding any "worthless" commodity by itself should incur any premium on the market.

Really? I've been using compound.finance, and it fluctuates, heavily -- sometimes a lot less than USDC, sometimes a lot more.

Edit: More details in my other comment: https://news.ycombinator.com/item?id=28882422

>I'm more surprised that anyone still holds Tether,

The price BTC shooting up right now (it is around $61k as I write this) is probably because lots of USDT holders are starting to realize what a bad idea that is.

If you were in their shoes ... what would you be doing right now?

For the past 3-4 years, this has happened time and time again whenever tether is in the news in bad light. It's beginning to sound like a broken record at this point "this event is finally going to do tether in!" Nothing will happen like it did before, cryptocurrency doesn't operate the same way international law expects it to abide by. It's all rigged.

If Tether holders were fleeing, they would be going into other stablecoins like USDC, not BTC.

> If Tether holders were fleeing, they would be going into other stablecoins like USDC, not BTC.

That's assuming other stablecoins are:

    a) actually backed up by non-risky assets, Quite a stretch.

    b) can easily be exchanged to USD in large quantities

    c) can be purchased with USDT

Neither of these are particularly guaranteed to actually exist.

If I was holding USDT right now (I am not, thank god), my preferred exit route would most definitely be BTC. And in very short order.

The BTC price increase is because of rumors of a US BTC ETF being approved. The Tether fine is a non-event in crypto social networks.

I haven't looked into it, but it looks like they lied about being backed by cash (or at least, somehow implied it).

Now they claim to be backed by cash and cash equivalents, namely a lot of "commercial paper" (short term debt obligations), which is widely believed to be in Chinese markets.

For some reason though, they won't reveal exactly what it is they hold. It could be that they think the market will not react kindly to the kind of assets they hold, or that they entered some kind of weird agreement no to reveal them.

I highly doubt they're not backed by assets whose face value adds up to the total UST distribution, because multiple auditors have said they were fully backed. But it is possibly that some of these assets are junk that won't (or have a high risk not to) redeem at face value.

Even in very bad scenarios, UST could fall to 0.8$ if 20% of Tether's asset default (and they burned through profits). Problematic but not quite such as a risk as it going to zero, which is why people still hold it.

No auditor audited tether.

Tether got few attestations from an unknown company a few times, but they have also been caught red handed by NYAG for moving funds a day before attestation snapshot is taken, and moved it the day after.

For the uninitiated, attestation verifies a single point in time, so it's easy to game it. And this is something tether has done.

It might indeed have been such an attestation.

The problem is worse than that. They also use their BTC holdings as part of their assets they hold, which allows them to pump the BTC/USDT rate (print USDT, use it to buy BTC, see prices of BTC going up because of artificial demand, say "BTC is up, our holdings have increased in value and we can print more", rinse and repeat.

Once they do circular dependency with BTC and tether, they might even go one step further and back 1000 tethers with 1000 tethers they hold themselves.

Isn't that just a pump and dump?

No. "Pump[ing]" by buying something is entirely legal. And the price should come down just as much when you are trying to cash in, so the mechanism doesn't really work, or anyone with enough money could just do it repeatedly using whatever traded asset they want.

"Pump and dump" refers to promoting some investment by other means, usually spreading some false news.

> "Pump[ing]" by buying something is entirely legal.

I beg to differ. The Securities and Exchanges Act of 1934 criminalizes all sorts of things that are deemed market manipulation, and inflating the price of a security by false trading, i.e. selling it to yourself or a conspirator, is one of the very things it was created to prohibit.

It can be still pump and dump because rising price induces fomo.

Market manipulation, yes. Pump and dump is a subset of it.

> multiple auditors have said they were fully backed.

Which auditors? The only ones I know of quit before making a statement (which is a very bad sign).

makes me wonder if they loaned Tethers to their buddies (or themselves) so they can buy cryptos then "backed" the Tethers with the loans. wouldn't surprise me given the kind of unscrupulous scumbags that are often found operating crypto related ventures.

Really any large reserve of stagnant cash is a flat out attractive nuisance for fraud and theft - while also failing to invest it properly. Of course their whole shtick is warmed over gold-bug fallacies.

Does anyone “hold” tether? As a stable coin isn’t it something you just use on the very short term?

You hold it if you want to use the money to trade crypto, because banks really don't like you moving around large amounts of money.

So you hold USDT in a wallet instead of transferring it back to the bank. It's also a lot faster to transfer money using stablecoins then it is with banks.

If your regular bank account is in USD that thinking is reasonable. But if your bank account is in another currency you might hold tether to protect yourself against hyperinflation or other things you can't control in your home currency.

Someone must be holding them unless they are popping in and out of existence.

> why this is something they can settle rather than something that gets them completely shut down

I'm a Tether sceptic. I wouldn't want to be the regulator (note: not prosecutor, different standards) to shut it down.

There was a moment when I suspected Tether may hold U.S. dollar money market securities. That would mean a collapse could spill to our financial markets. But that doesn't seem to be the case. The only people who would get hurt in its wake seems to be those who choose to keep using Tether despite the screaming warnings.

Those same people would make you public enemy No. 1 for bringing down the house of cards. So given the problem is contained to the people who oppose its solution, there isn't a great argument for allocating regulatory resources to this over anything else.

Or why outright lying that every Tether was backed by a U.S. dollar is termed “misleading”.

It’s incredible - they had 4x as much Tether as dollars backing it and lied about audits taking place that never happened.

More than 7x ("at one point")

That was then. This is now:

https://pbs.twimg.com/media/FBwhKnmXEAE1whT?format=jpg&name=...

The fact the number of Tethers in circulation basically never goes down even when the crypto market gets more then halved says it all as far as I'm concerned, but without an investigation it is speculation. I was referring to the ratio highlighted by the article.

I'm not saying they shouldn't be shut down, but I genuinely wonder how that process would work. People don't have an account with Tether itself, so how would they be able to compel people to "return?" the Tethers and get their cash back?

In theory, by announcing a changeover period and a deadline for turning them in? If they don’t, it’s on them.

A similar thing was done when upgrading national currencies to the Euro: https://europa.eu/european-union/about-eu/euro/exchanging-na...

* They don't need to? If Tether, the company, disappeared, the market can decide what to do with the, now entirely unbacked, Tether cryptocurrency.

* Tether, the company, can freeze specific Tethers they have issued, making them unusable as currency. Whoever shuts them down might be able to force them to do this en masse.

That's the thing, though, Tether is supposed to be holding all these assets and individuals are able to redeem Tethers proportionally. Leaving aside the strict notion of 1 Tether = 1 Dollar convertibility, just closing up shop would mean all those actual real world assets now belong to... who exactly?

I'm confused as to what 'real world assets' you are referring to.

If Tether goes away, any value goes with it, like a gift card to Blockbuster's.

Fwiw, it's likely just the pretence of redemption that would go away - it may never have been really there. Tether is explicit that they only redeem Tethers at their discretion. While they also specify that they will only redeem them for high value, non-US parties, I suspect this is misdirection.

There is no evidence of any appreciable redemption going on, though they have announced the burning of $1.5 billion Tethers - all in the last six months. According to Tether, this is because they just 'keep them for later'.

https://cointelegraph.com/news/tether-explains-why-it-hasnt-... https://cointelegraph.com/news/bitfinex-is-constantly-printi...

I agree completely, the founders should be criminally prosecuted and the fines should be multiple times all time profits from the illicit activity.

Tether is not a US-based company. So does US have the authority to shut them down?

> Tether is not a US-based company. So does US have the authority to shut them down?

You are talking about a country that managed to force foreign banks to rat on US citizens accounts abroad. You are talking about a country that conducts drone assassinations on their own citizens overseas, without trial.

USA has de-facto authority on a lot of country where they feel entitled to (hard power), save maybe from Russia or China and India mainly. Russia because they actually have little ties with USA economically and politically since the war in Libya, China because of the exact opposite as it poses a systemic risk to USA, India because they don't trust the US who are "allied" with Pakistan.

Often when USA and the EU clash, ultimately the EU tend to bend the knee (soft power). The Trump era was a significant exception.

There is an entire branch of the Department of Treasury designed to enforce stiff sanctions and financial penalties against people, companies, and even countries that defy US regulations.

If the federal government decides Tether needs shut down, it won't be a struggle.

Since I didn't really talk through this before, a bit of an effort post.

OFAC sanctioned Suex, a crypto exchange based in the Czech Republic, less than a month ago[1]. As far as I can tell it is gone from the face of the earth. Here's why:

> As a result of today’s designation, all property and interests in property of the designated target that are subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. Additionally, any entities 50% or more owned by one or more designated persons are also blocked. In addition, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to sanctions or be subject to an enforcement action.

    suex.io.  676 IN SOA ns-648.awsdns-17.net. awsdns-hostmaster.amazon.com. 1 7200 900 1209600 86400

suex.io's hosting is gone due to OFAC's ruling: Amazon is barred from providing them service.

They used to take Visa & Mastercard[2] – even if they were online today, they wouldn't find a payment processor in the world willing to touch them: that would expose the payment processor to OFAC sanctions which is as close to "existential risk" as you can get in finance.

Suex was listed on the SDN list[3]. As a result no US based exchange can touch any crypto from those addresses. If, say, you wanted to cash out that crypto by sending it to Coinbase, they'd be legally required to freeze it and deny you access to it: otherwise, they're at risk of OFAC sanctions.

Every bank in the US monitors the OFAC SDN list, and as a result, they will be monitoring transactions. If Suex attempted to move their money into a bank account controlled by the US, they'd be blocked. But most likely their accounts are already frozen, because OFAC jurisdiction attaches when funds pass through any US financial institution or any foreign financial institution owned by a US person.

OFAC has recently decided that the mere presence of US dollars in a financial transaction is sufficient to establish jurisdiction: if Suex had their entirely foreign owned bank process any transactions in dollars, this would cause a US counterparty to indirectly provide financial services to an SDN. This risks sanctions at their foreign-owned bank.

At the end of the day, most global financial institutions assume a US nexus is present and deny any service to targets of US sanctions – the risk is much lower.

To wrap this up, OFAC has published an interesting guide[4] to sanctions that directly relate to cryptocurrency, and it's well worth a read.

[1]: https://home.treasury.gov/news/press-releases/jy0364

[2]: https://web.archive.org/web/20210414074952/https://suex.io/

[3]: https://home.treasury.gov/policy-issues/financial-sanctions/...

[4]: https://home.treasury.gov/system/files/126/virtual_currency_...

This is really interesting. I've long thought of as the US' empire being a primarily financial one (as opposed to military, like many other past empires) and I didn't even realize OFAC existed until reading your comment, much less the types of activities they engage in. This certainly cements my suspicions even more about the financial empire of the US and how they exercise that power.

Thanks for the post.

What is the difference between a financial empire, a military empire, and a resource empire (eg petrodollar) ? Each aspect reinforces the others. If the US didn't have the military, it couldn't enforce financial laws outside of its borders. If the US didn't have energy, it couldn't run its military. If the US didn't have a reserve currency, then it wouldn't be able to obtain as many resources.

Without taking a moral/ethical stand, it really is an amazing thing how much subtle power the US government wields.

The difference is we use debt and currency as the primary means of control and domination, as opposed to storming in and killing people. Obviously two sides of the same coin (empire) but different methods.

Thank you for such a detailed comment (do you work in finance?). I never realized how easily US can control/destroy "bad" financial properties.

Among the points you mentioned, the most significant one is Visa and Mastercard. These are effectively the only 2 payment processors out there today, and if they deny you service, you are dead. AWS can be replaced and you don't need an intermediary exchange if you can find a payment processor.

The SEC is in the business of protecting investors not destroying peoples savings over a few inaccuracies.

Why would misleading statements ever result in a shutdown of a company instead of a fine?

Because the "misleading statement" (i.e. deliberate lie) is the entire basis of Tether's business. The service they claim to provide is fiat backing for their cryptocurrency and they didn't do that. That's not "a few inaccuracies", it's fraud.

Isn’t the basis of the business that tethers are exchangeable for USD? Have they failed to provide USD when asked?

Essentially yes. They throw up all kinds of roadblocks to make it difficult to exchange tether for cash in order to preserve the facade.

Just one article I found: https://www.google.com/amp/s/micky.com.au/irredeemable-why-i...

Wait, has anybody ever in the entire existence of Tether actually withdrawn their USDT for USD??

“Misleading statements” is doing a lot work here.

When we’re talking about organizations who exist solely in the realm of toying with people’s finances, a “misleading statement” is nothing more than a lie. They were misleading people. There is a reason some things come along with incredibly complex language to explain the nuances of what is actually happening as accurately as possible.

We can’t attempt to downplay “misleading statement” in an effort to misdirect away from why they were misleading people.

It's debatable whether Tether has a few inaccuracies or massive fraud.