A response to Tether releasing their prior audits.

Today Tether finally released the prior Tether audits that I have been asking for, for the past several months.

I want to start with this…

Bitcoin investors and speculators have been beaten to a pulp with shady exchanges and fraud in the cryptocurrency sector.

Bitfinex and Tether are commercial enterprises. You’re either doing things right, or you’re not.

When Phil Potter admits to engaging in “cat and mouse” games with banks with hundreds of millions of dollars which do not belong to them, it is very indicative that they are not doing things right.

This is precisely why Tether and Bitfinex lost traditional banking in the first place. They were engaging in “cat and mouse” games with banks that were unaware of what their business really was. Banks have not permanently terminated accounts with Bitstamp, Kraken, Coinbase, or Gemini.

Only Bitfinex and Tether is unable to regain traditional banking for several months. They are doing something wrong.

By trying to keep it a secret about what banks they are using, it implies that the banks don’t actually know what they are doing, and these accounts could be at risk of termination once a bank figures it out, and they are right back where they started, or worse, government seizure of the accounts for regulatory violations.

The money Tether is holding does not (in theory anyway) belong to Tether or Bitfinex. It is supposed to belong to the people who are holding a Tether. Simply saying “Trust Us” is unacceptable.

Bitfinex and Tether do not get to claim “It’s a secret! We won’t tell you!” about where they are putting other peoples money.

In order for people to send and receive money from Tether… they need to know the bank, jurisdiction, etc. This isn’t a super secret private information. This should be public knowledge.

If you are operating in the blockchain space, you need to be what I call… TAF.

Transparent As Fuck

Responses to Tether’s recent claims

Source (Archive)

The information we have been spreading has primarily come from two sources.

  1. Tethers Website & Legal Terms of Service.
  2. Tethers own Legal counsel.

I disagree that this is “misinformation”, citing your own legal terms, is not misinformation. Citing your own legal counsel, is not misinformation.

Source (Archive)

“ We have been busy establishing a global network of money-transfer channels designed to be resilient against further aggressive action from correspondent banks. We have also opened an escrow-based relationship with a U.S.-based institution to service qualified corporate customers. While we are aware of and understand users’ desire for specific, public updates, we believe at this time that it would be a mistake to be too forthcoming about the specifics of any particular money transfer solution.”

This is unacceptable. The money Tether and Bitfinex has, does not belong to them. It belongs to people in the bitcoin and cryptocurrency space. These people have a right to know where their money is, what banks it is in, and what jurisdictions it is in.

Exchanges have KYC. Customers should have KYE. Know Your Exchange.

Phil Potter has admitted to shell account banking and constantly shifting bank accounts and corporate entities to evade banks internal controls.

Rather than appropriately trying to run a business and letting banks know what they are up to, they attempt to operate in the shadows and under the radar. This is unacceptable for an exchange with nearly a billion dollars of other peoples money when you take into account the value of Bitcoins and US Dollars on their exchange.

Here’s what I want to know.

  1. What jurisdiction is the peoples money in?
  2. What banks is the peoples money in?
  3. Is the bank account under the proper name, “Tether Limited”, or is it under a shell corporation which legally has no affiliation to “Tether Limited”? This is the most important question.

When you are holding nearly half a billion US Dollars of other peoples money, you don’t get to say “It’s a secret!”. If you are trying to keep it a secret because you’re worried the banks might close down the account… you’re doing something wrong. Just like Tether and Bitfinex should be transparent with clients, they need to be transparent with their banks.

We know where Bitstamp Banks.
We know where Kraken Banks.
We know where Coinbase Banks
We know where Gemini Banks.

Anyone who has sent or received money from these exchanges knows where they bank. They have to in order to send or receive money from them. Period.

Source (Archive)
  1. There has been no proof of this, and people have come forward to me telling me they could only get out by either buying Bitcoin, or selling to other users on Kraken. I have screenshots of peoples support tickets confirming this.
  2. While they claim millions of dollars flow in, and out of Tether, Tethers in circulation historically has never gone down, indicating that they have never actually redeemed a large Tether holder.
Source (Archive)

“ Our Terms of Service have been carefully picked apart by various malcontents and twisted to suggest that Tethers would not be redeemable for currency on some bizarre, malicious whim by Tether. That is untrue.”

I, Bitfinexed, did not write your Legal Terms of Service.

You did.

Legal terms of service means things. A legal terms of service is like computer code.

Let me put it this way. If I have code in an application that turns off the computer, but in an application GUI the button says “Open Internet Browser”, what happens?

Does the button magically open the internet browser, or is it going to do what the code tells it to do… and shut down the computer?

It’s going to shut down the computer, regardless of what the button says.

The entire Tether website is a GUI, and the Terms and Conditions is the actual code. This is important.

Now, let’s read the code once more.


Tether’s website can make any claim they want on the website. They can claim that Tethers are 1 to 1 backed by US Dollars all they want. They can claim 1 Tether is backed by a Hotdog and a Lamborghini with a eager Victorias Secret super model in the passenger seat, the Terms of Service… reigns supreme.

It’s right right there, black and white.

I didn’t write these terms.

Now, as I’ve pointed out countless times, let’s dig deeper into one of their claims.

While we reserve the right not to redeem for any particular customer, as we must, we will not do so for no reason. We have a duty to try to ensure that our service is not being used by persons from sanctioned countries, that is otherwise on a sanctions list, or that has some background check problem.

This is false. The legal terms declaring all Tethers as non-redeemable, is not required to comply with AML/KYC/OFAC regulations, in fact, they already have clauses for these cases.

These are the legal terms that actually apply to what they are talking about. They do not need to legally convert Tether into worthless non-redeemable tokens to comply with legal and government regulations regarding money laundering and KYC.

This would be ridiculous. A bank can seize your account despite you being a legal creditor to the bank, without making every dollar in the bank ‘non-redeemable’ for their clients, and the can certainly comply with court orders and government regulations.

“The Company” can consider Tethers to be liabilities all they want. The legal terms of service reigns supreme. They are legally not liabilities and until they strike this language, which originally did not exist in the Tether terms, Tethers are not liabilities, regardless of whatever they say elsewhere on the site.

Again, think of a GUI and a button that says “Open Internet Browser”, but the code shuts down the computer. You can make the button say anything you want, but the code dictates what it’s going to do.

The Legal Terms is the code, and I will ignore every single claim they make on their website and other channels until they ‘fix the code’. This language must be completely struck from the Legal Terms. PERIOD. Tether holders are CREDITORS to Tether Limited.

Now, for some positive advice for Tether.

How to make a Good Faith effort to back Tethers right now

The Kraken exchange is the only exchange which lists a USD/USDT Tether pair. The liquidity on this pair is a joke.

At the time of this post, this is the current state of USDT on Kraken.

Not even $1 million dollars can quickly cash out through Kraken.

Tether circulation at the time of this post.
  1. Open an account at Kraken under “Tether Limited”
  2. Transfer 10% of Tether USD to Kraken.
  3. Place a limit buy order at $1 with all 10% of the USD on Kraken to Buy Tethers.
  4. As people sell Tethers, place limit ASK orders at $1.00 to keep the currency peg in check.
  5. If reserves on Kraken fall below 5%, replenish the USD balance.
  6. Bonus! Totally WTF-PWNED-REKT-LOL me if I really am trying to short Tether on Kraken.
  7. The Tethers transparency page can be updated to query Krakens orderbook for Tether. Tethers sitting on an ASK order can be considered “Authorized but not issued”, the USD backing the buy order can be considered a Tether asset.

This simple thing would go a very long way to establishing credibility to Tether. If millions of dollars are infact floating in and out of Tether through “corporate clients”, I presume you’d be able to get USD onto Kraken to support your own project.

That is my constructive advice regarding your Tether project, and the good news is, you can do it right now.

Your move Tether.

With all of that said…

I find the claim that “institutions are buying Tethers” extremely suspicious.

The idea that large institutions would send hundreds of millions of dollars to a corporation in the bitcoin space that has:

  1. Not resolved their banking problems.
  2. The legal terms of Tethers being a total abomination.
  3. The frivolous lawsuit that was filed by Bitfinex and Tether against one of the largest banks in the world, and they knew it was frivolous when they filed it.
  4. The fact that Bitfinex confiscated 36% of everyone's US Dollars when they ‘got hacked’, basically bailing out Bitcoin holders with people who were not speculating on Bitcoin… is very suspect to me. This was absolutely the wrong move to make.
  5. The failure to provide a Bitfinex audit after the hack, both the security audit of how they got hacked, and the financial audit they never completed. This should have been the number one priority after the hack.
  6. The fact that they have been scrubbing information off the Internet and Website of who they are, and the amount of times I have been lied to by BFX employees telling me that Bitfinex doesn’t own Tether when that is provably false.

This simply does not make sense. Someone with hundreds of millions of dollars is going to be reading the fine print and would ignore anything that is verbally guaranteed to them.

There is also another issue, in my opinion Tether should not have taken on more deposits until they resolved their banking problems. Accepting deposits and issuing more Tethers without fully functional banking is simply irresponsible.

I look forward to hearing from Tether about my idea for backing their Tethers on Kraken. It would go a long way to building up some credibility.

Trade Carefully.




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Blog for @Bitfinexed on Twitter. Exposing possible fraud by largest Bitcoin exchange, Bitfinex/Tether