Attention Tether!

There are a number of questions that I would like to analyze in order to understand what risks we take on when working with USDT tokens

Let's try to understand Tether tokens.

- What are USDT, EURT tokens?

On the Ttether.to website, in the White Paper section there is an abstract description of the idea, which can be summarized as follows: fiat currencies based on Bitcoin BlockChain are digital tokens, the value of which is backed by the real monetary unit of the corresponding state, which are provided to individuals and legal entities to ensure the possibility of reliable and fast exchange of cryptocurrencies. The idea is that, using the familiar and understandable cost of fiat money, the rate of which is rigidly fixed at 1USD = 1USDT and 1EUR = 1EURT, we obtain ownership of a highly liquid cryptocurrency that is not subject to the high volatility inherent in the cryptocurrency world, but has all the advantages of decentralized blockchain technology. A kind of hybrid that combines the best properties of fiat currency and cryptocurrency.

- How can centralized emission exist in a decentralized environment?

The Tether technical documentation states:

- the emission of the USDT token occurs when the corresponding amount in US dollars is deposited into the company’s account;

- tokens are redeemed when money is withdrawn.

And so that no one doubted the value of the issued tokens; the Proof of Reserves method is used. The Reserve Confirmation method (or in other words, confirmation of the presence of real money in the security) comes down to the fact that, through the Omni Layer protocol, each participant in the decentralized system could compare the volume of tokens in circulation with the volume of reserve in real currency, which is in the bank accounts of Tether Limited. In turn, the independent auditing company Friedman LLP confirms and publishes bank statements of Tether Limited. On the face of it, it appears to be a simple, accessible and transparent audit system.

However, last year Tether Limited issued a statement which reads, in part:

“We confirm that our relationship with Friedman LLP has been terminated. Given the extremely complex procedures that Friedman resorted to to audit the relatively simple balance sheet of Tether LTD, it is clear that such an audit cannot be carried out in an acceptable time frame..”

The auditing company Friedman LLP itself made a statement, the essence of which is as follows: reserve accounts with cash collateral belong to a trusted person whose connection with Tether Limited could not be established.

At the moment, Tether Limited is cooperating with another auditing firm Zeppelin Audits, which conducted an audit related to the issuance of new Ethereum tokens based on the ERC20 protocol. Tokenized USD and EUR compatible with Ethereum protocols and decentralized applications that allow transactions with fiat-backed cryptocurrency.

Judging by the report of the auditing company Zeppelin Audits, it did not find any critical problems and proposed measures to eliminate individual shortcomings

The Tether company claims that compared to Omni-based tokens, ERC20-based tokens will have lower fees and high confirmation speed.

As a result of a journalistic investigation by representatives of leading world publications and the ICJI journalistic consortium, information was published online, which is better known as the Panama Papers and Paradise Papers, revealing the mechanisms of offshore transactions and the names of their participants. Papers revealed the connection between the management of Tether Ltd and the Bitfinex cryptocurrency exchange.

In 2014, the director of strategic planning of Bitfinex, Phil Potter, and the financial director of the Bitfinex exchange, Giancarlo Devasini, registered the company Tether Ltd in the British Virgin Islands. Moreover, Phil Potter is currently both the director of Tether Ltd and the director of strategy of Bitfinex, and G. Devasini is the founder. Tether.

In addition, publications by an anonymous blogger under the nickname Bitfinex’ed, which detail the consequences of a criminal conspiracy, are gaining popularity online. exchange broker Bitfinex and Tether - the issuer of the tokenized dollar. His publications contain accusations that the Tether company, having the uncontrolled ability to issue USDT tokens, increased their issue without appropriate cash backing in such quantities that it was able to achieve an artificial pump in the price of Bitcoin on the Bitfinex exchange, which sold bitcoins for USDT tokens without restrictions... The consequences of this large-scale scam may be felt by other exchanges that also accepted these tokens as payment for Bitcoin. In its investigations, Bitfinex’ed proves that the backing of USDT tokens took into account not only US dollars, which are in the company’s accounts, but also the equivalents of other cryptocurrencies that were exchanged in pairs with USDT.

After a series of scandalous publications, representatives of the Tether company made a statement saying that their software platform was the victim of a hacker attack, as a result of which crypto assets, the total value of which is estimated at about 31 million US dollars, were stolen from investors’ wallets. 

The company published a bitcoin address 16tg2RJuEPtZooy18Wxn2me2RhUdC94N7r, to which the stolen funds were transferred. Users were prohibited from receiving funds from this address because they were not redeemable. It was reported that there are plans to launch a new crypto-financial platform with updated Omni Core software, which allows you to freeze stolen assets and prevent new hackers. 

At the same time, Tether announced that it will no longer support old addresses and user wallets. The company's website contains instructions on the procedure for withdrawing funds from old wallets and an announcement warning customers about the possible loss of funds when replenishing them.   

It is not yet possible to register on the new platform, and third-party exchangers and exchanges were recommended for working with Tether assets. Some exchanges, in particular Huobi.Pro and OKEx, posted statements on their information resources about the temporary suspension of USDT withdrawals until the Tether software is updated. 

The US Commodity Futures Trading Commission (CTFC) has become interested in the activities of related companies Bitfinex and Tether. Bloomberg News Agency published information that the CTFC sent a subpoena to representatives of Bitfinex and Tether. The market reacted negatively to this news with another decline in the Bitcoin rate...  

The independent rating agency Weiss Ratings, which recently published its report with ratings of leading cryptocurrencies, warns investors about the dangers of using Tether (USDT). Weiss Ratings ranks Tether as the third most traded cryptocurrency. The daily trading volume of Tether tokens regularly exceeds their market capitalization.

Exchanges that accept this type of token for payment are very dependent on the Tether liquidity provider. And if the Regulator applies any enforcement measures against Tether, the entire cryptocurrency ecosystem will feel a significant imbalance.