USDT: The time ticking bomb, why you should hold 0!

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Last Updated on September 2021.

TL;DR: All the USDTs are not (at all) backed by real USDs (united States Dollars), making USDT/Tether a ticking time bomb and they think we are fools! 

What’s wrong with tether ?

Word on the street is that Bitfinex (USDT mothership) go brrrrrrrrrrrr on USDT, buy BTCs with it and then sell the BTCs for anything they want. If this were true, if their little game were made public, God knows how much market would tank. If you liked Cred’s BS, you are going to like Tether’s one.

Certainly, this seems sketchy, how could this happen ? Well, that’s the issue: they refuse to have proper audits. Funny financial statements were released, authorities warned about their shenanigans, New York regulators banned them from operating in their state. However it had barely any consequences. Instead, you had the classical labeling of legitimate doubt as FUD, and the ostrich mode from most people.

Bitfinex/Tether originally claimed that each USDT was backed 1:1 with US dollars, until they were forced in march 2019 to change this statement to “all Tether tokens are backed 100% by Tether’s reserves.”

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usdt-tether-bitfinex-reserve-breakdown

It is only 3.87% in cash, and nearly 50% in unspecified commercial papers (65% of 75% = around 50%)! These commercial papers are highly suspected to contain a lot of, you might have guessed it, Bitfinex debt! Such level of BS is actually impressive. And of course, they don’t want to disclose this commercial papers data. And as written in this fantastic medium post:

Throughout Tethers history, every time they did not want to show something, we eventually found out why they didn’t want to show it.

What now? Is it safe to keep USDT ?

USDT is almost unavoidable right now, from trading to trying to generate some APY. My two cents: do not go on platforms that only offer USDT. Simple. Avoid the mothership of USDT, Bitfinex. Complementary insurances like Nexus Mutual are most probably useless in this case. And switch your USDT to USDC (or probably BUSD, but I haven’t checked into it yet). Also, have a look at my different advices on how to stay safe in DeFi.

USD Coin (USDC) is a digital stablecoin pegged to the dollar and runs on Ethereum. USD Coin is managed by a consortium named “Center” that includes members from the cryptocurrency exchange Coinbase and Bitcoin mining company Bitmain, an investor in Circle.

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Why USDC ?

Well, it’s better than USDT in terms of transparency. The total number of USDC tokens is fully and transparently viewable (check here to see on etherscan the contract), and each are backed 1:1 by real USDs. This is attested montlhy by the accounting firm Grant Thornton. The USDs are also deposited “in accounts held by the Company at federally insured US depository institutions and in approved investments on behalf of the USDC holders.”

Cave: even USDC is not fully transparent, and we still don’t have the full breakdown of their reserves. Thus we don’t really know if they are only invested in safe investments.

Update September 2021:

We finally have some breakdown on the USDC reserves. Well, it’s better than USDT, but Center’s claim of “every USDC is “backed by a dollar in a bank account” is not 100% true. They have things other than cash in the balance sheet backing USDC. Nothing really concerning as you will see below, but it means that Center will have to update this marketing statement. Here is the full report:

  • USD Coin (“USDC”) in circulation is: 22,176,182,251

USDC Reserve Breakdown:

  • Cash & Cash Equivalents 61%
  • Yankee CDs 13%
  • US Treasuries 12%
  • Commercial Paper 9%
  • Corporate Bonds 5%
  • Municipal Bonds & US Agencies 0.2%

If you liked my take on the USDT issue, learned interesting things, or want to support me, please feel free to send me a coffee over.

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