> ... In fact, in our dealings with law enforcement we are sometimes made aware of addresses potentially related to crime and are specifically instructed not to freeze the addresses without the explicit request from law enforcement as this could alert suspects of the law enforcement investigation, cause liquidations or abandonment of funds and jeopardize further connections that might have been established.
I'm not sure what's worse: the fact that an important chunk of Tether can be with blocked with just the slightest due process, or the fact that that the same lack of due process can keep addresses unblocked.
It's also hilarious how different parts of the executive branch seem to be at odds with each other over what to do. Treasury says blacklist now, ask questions later, and DoJ says (or might at least be thinking) wait, wait - don't blacklist, we're following perps on the blockchain.
Those who believe that the long arm of the law is bearing down on Tether might want to consider the possibility that Tether will remain operational much longer than seems reasonable. As revealed in this article, it's become a very useful tool for conducting criminal investigations.
This is the fundamental contradiction at the heart of anti-money laundering compliance, and it's part of the reason I left the field. Part of government wants FIs to shut down accounts / transactions, the other wants to essentially wire tap them. Anyone on the front line of AML work gets stuck in the middle and often has to do the wrong thing as a form of CYA.
You are just describing a tradeoff between two competing goals. It's not hypocritical to have those. In fact it's entirely unavoidable to juggle such situations all day, every day, your whole life: go to bed now or work a bit longer? Buy the beach house or the boat? If you appoint one person to manage your sleep and another to get you to exercise, the everyday tradeoff will be represented by different people, just like Tether is experiencing it.
It is not, however, best practice to react to government requests by explaining to them that there are other strategies that they could pursue, and that you believe them to be much better to get at these darn criminals, and that you will therefore ignore the request.
If they truly believe in their argument, they would sue and make it in court.
Yeah, it's really not even a tradeoff in the same area in this case. The OFAC sanctions on TC are because they believe that it was being used by and enabling North Korea and various foreign terrorist organizations.
DOJ asking Tether not to interfere with other investigations is presumably because they are tracking some fraud or other crimes and want to use that intel to either identify the culprits or to build up a solid body of evidence that they can use to prosecute.
They already know who North Korea and various terrorist organizations are and the DOJ can't exactly prosecute them.
Claiming or implying equivalence between OFAC sanctions and DOJ investigations is either stupid or disingenuous.
This kind of cognitive dissonance is, I think, not unusual. I once worked for a website that was largely used by teenagers and we cooperated extensively with police to deal with predators on the site, but were largely told to keep that fact hush hush so they could use us as a honeypot.
Maybe. That's a somewhat different issue though. The police had us implicitly make the site more attractive to predators, making it even more dangerous than it could have been at a baseline while still having us work hard to prevent it.
On the issue of the baseline, though, I think this is a tricky thing. The alternatives teenagers used at the time were far more lax in their enforcement and moderation policies, but because they were made by bigger companies they got a pass from parents.
The idea that we can keep teenagers completely away from dangerous things on social media feels a lot like abstinence education to me. The reality is complicated.
But I don't think we were perfect - tbh I don't think we were at all well equipped to the responsibility. But I do think we tried.
Why would you comply with a request to keep criminals on your website? I'm sure it made the police's job easier, but I would never comply with something like that for my own, and for my users sake.
If you kick them off before they do criminal behaviour then the police can't do anything and you'll just wait to see them back with a new VPN/identity.
To be clear, we didn't leave individual predators on the site. We did whatever we could to remove them and helped the police catch them if there was enough evidence.
That is what I said a few posts up. It's a policy I felt uncomfortable with even then. I just wanted to clear up that we didn't leave individual bad actors on the site to my knowledge.
There’s a conspiracy theory that the CIA created Bitcoin and promoted it as this anonymous secure way of money transfer so they could identify global crime networks.
I don’t think that’s true at all, but if the CIA had thought of doing something like that and had done a good job of it, I suspect whatever they would have created would have looked awfully like Bitcoin.
It appears anonymous as hell on the surface, but even with the slightest bit of metadata and effort it can be deanonymized. And let’s not forget that the CIA and friends are legally allowed to collect metadata in situations such as wiretaps, etc. and have massive troves of it at their disposal.
I remember the forum threads when lead developers were invited to give talks to the CIA about Bitcoin in the early years. I don't think the CIA created Bitcoin. Judging by the Satoshi's GMX email address and software coding style of the early software, I believe it was a German who grew up in Germany. Absolutely NO-ONE outside of Germany uses GMX.
In a system where every transaction is public, how on earth would anyone think "it appears anonymous as hell on the surface"? One of the main features is the public ledger, and it's one of the first things you learn if you try to understand blockchains.
Still, many people do think it is anonymous. Maybe it's because on the blockchain you have a long number instead of your name and surname, so some people think that the number isn't traceable back to them.
if you use cash to onramp and offramp and good vpns to transact your crypto, it is effectively anonymous, transactions will be public but there is no way to tell who's on the receiving end. The hard part here would be finding the cash, which is possible for organized crime. Lately, many have started accepting crypto so there is no need to offramp to buy many things.
Do you wear a ski mask while exchanging cash and bitcoin, or how do you keep that private? Don't forget that your exchange partners are linked to your transactions.
ROFL good point! Imagine if this whole time, critics were right, both that Tether is insolvent, and that it’s used for crime, but didn’t realize that (the truths of) these two criticisms “cancel out” and result in keeping Tether alive…
As I understand it, Tornado Cash was used to launder money and all of the money laundering elearning I've ever done (due to working in a bank) has emphasised the fact that "tipping off" - letting someone know they are being looked at for money laundering - is an offence in itself.
I think, and I might paraphrasing someone said on this forum before, that it indicates the government is not a monolithic entity, but rather a collection of various institutions each with its own mandates, goals and related agendas. Since I am, for better or worse, part AML industry, I get to see some of the contradictions and opposing demands.
Just the other week, I was listening to a guy complaining banks don't make SARs useful to to LEOs and not long before that regulator making a banks defend its non-submission of some SARs effectively forcing banks everywhere to adopt defensive SAR filing. It is truly weird to watch from a distance.
>>Tether has not been contacted by US officials or law enforcement with a request to freeze the addresses sanctioned by OFAC, but as noted above, Tether normally complies with requests from US authorities, being in contact with them almost on a daily basis.
Rephrased as: "US Treasury, we're ready to lock & freeze as many addresses as you need -- just give us the word!"
That's not how this work. Sanction violation is a strict liability offense - it is incumbent on companies to make sure they don't violate sanctions.
With this statement Tether is.. dumb? It's impossible for them to claim they didn't know about it.
They are domiciled in Hong Kong, but BitFienex (their sister company) recently agreed to pay $18M+ in fines to New York for finance law violations so it's not like they are beyond the reach of US law.
They're a U.S. dollar stablecoin operator. If they get hit with secondary sanctions it literally becomes illegal for a Tether to be redeemed for dollars. I have no doubt it will continue printing tape at parity, but at least the smart money will know what's going on.
Tether is already under no obligation to redeem Tethers for dollars according to their own terms and conditions [1].
They are only obligated to redeem for people they at their sole discretion deem to be 'customers,' ([1] § 3) they can then arbitrarily delay that redemption for as long as they see fit for basically any reason ([1] § 3) and they can substitute the redemption for any assets they may or may not have on hand ([1] § 3). Most assuredly at any value they deem fit. On top of that there's a final blanket ban (net of 'exceptions') for any and all US persons ([1] § 3.3).
> can then arbitrarily delay that redemption for as long as they see fit for basically any reason
If they're sanctioned, they can't redeem whether they want to or not. Holding Tether if it gets sanctioned would be like having U.S. dollar bank deposits at an Iranian bank. Yes, they may have other assets, but you can't legally accept them nor their proceeds.
> there's a final blanket ban (net of 'exceptions') for any and all US persons
This is meaningless. Tether use U.S. dollars. They're subject U.S. jurisdiction.
My point is their terms of service preclude basically anyone holding Tether from redeeming Tether in exchange for US dollars at Tether's sole discretion so even so-called good actors are being ripped off. This is by no means a substitute for OFAC compliance.
They're not actually domiciled in Hong Kong - not that it matters - but instead in the BVI. More specifically somewhere on Tortola. This of course came out in the Paradise Papers after the Bitfinex folks pretended not to have a business relationship with Tether (while of course they shared the same parent entity). Bitfinex btw is also registered in the Virgin Islands. Both Tether and Bitfinex are owed by iFinex which is Hong Kong registered.
And for good measure they 'bank' with Deltec bank in the Bahamas whose head, Jean Chalopin, is the creator of Inspector Gadget.
Either way they are very definitely not outside the reach of the long arm of Uncle Sam. The wheels of justice grind slow but they grind exceedingly fine.
I am ignorant, but do they expect government to contact them? I assumed sanctions are sanctions - you broadcast publish them rather than try to inform each and every entity specifically. So this feels like either incompetent ignorance, Or wilful pretence ignorance.
They already do, it's the OFAC SDN list. [1] Everyone in the money transmission business is not just free to leverage this list but required by law to. If you search for 'tornado' in the plain text version, you'll find the list of blacklisted addresses.
This is nothing compared to China-level internet censorship, but barring Americans from interacting with a decentralized protocol that a contract address on the SDN list resolves to, is censorship.
And the restrictions will have to massively escalate, possibly to CCP-levels (with restrictions on end-user access strong encryption) to effectively enforce such prohibitions, as cryptocurrency becomes more ubiquitous.
Yes, the quote was originally Linus Torvalds saying "If Microsoft ever builds applications for Linux then I've won". Can't find a direct source from when he said it but that's what the joke was referencing.
I mean.. that is basically how ALL entities ( and individuals ) in US are expected to behave. Now, Tether as an entity is based in Hong Kong, but, as one theory goes, the moment it touches US dollar it is in OFAC's scope. And tether does do just that.
Not to search very far, more recent SDN update had a whole bunch addresses to be blocked. I am all but certain none of the US based entities even thought of not complying.
I've worked in a company which dealt with user money and it was our duty to figure out if someone opening an account was sanctioned. Which was actually hard because you just have lists of names which can be pretty vague like "John Doe, Florida".
I’m surprised their lawyers don’t understand this. Sanctions are not a thing that you get a alerted to. You need to follow who and what is sanctioned and bake compliance into your entire company when handling money.
Tether is not referring to the addresses added to the OFAC SDN list. It's referring to the addresses that have in the past interacted with them, which are not on the SDN list, and thus not explictly sanctioned.
Over the past few years people have presented a lot of (seemingly credible, IMO) red flags that Tether could be something resembling a scam, and on the verge of a sudden "bankrun" at any moment. The consensus opinion, at least 6 months ago, was that Tether = scam.
Yet they've survived the crypto crash, and their coin is still pegged to the dollar. I'm curious what people make of this? Have opinions changed?
> The consensus opinion, at least 6 months ago, was that Tether = scam.
I think you're combining two different questions with the word "scam".
(A) Is Tether stable and able to keep its peg?
(B) Is Tether lying about its reserves (composition, quantity, or both)?
The answer to (A) is "not all the time" and perhaps that will turn into "not most of the time" (as we have seen with other stablecoins recently). Tether has actually lost its peg in the past by a substantial margin[1] before recovering.
The answer to (B) is still almost certainly "yes". They have resisted legitimate audits and have even said that full transparency would destroy their company[2]. We know they don't hold $1 for every 1 USDT, and some of their other reserve assets are more dubious than others.
The company has survived a "slow-motion bank run" recently[3], but it's unclear how much bigger or faster of a bank run it could withstand. Experts and investors are still betting that Tether will collapse in the near future[4].
Tether's just a fractional reserve bank without all the regulation. Of course they survived. If they ever do suffer a bank run I wouldn't be surprised if some government bails them out.
Tether, centralized exchanges... They are all just poorly reinvented banks really. Cryptocurrencies went wrong the second they showed up. They were supposed to replace the USD, not turn into USD backed tokens.
Stablecoin issuers are one of the largest treasury holder today. They are growing and capitalising fast. It's a matter of few years before they pose systematic risk outside crypto.
I have to admit, I did not expect them to be able to weather a crash like the recent one, and I've mentally upgraded Tether from 'could go at any moment and take the crypto market with it' to 'will need some good reason to tank, and likely be only one of the later dominos to fall'.
That doesn't mean I think of Tether as an asset to put much trust in, since I still expect there to be quite some shenanigans at work in the background, but it seems they've at least built their empire on more solid ground than many people expected.
If you want to follow this, the thing to watch is the USDT market cap. It fell from $83B to $66B, then climbed to $67.5B. As long as it's not making new lows (i.e. people redeeming their USDT for USD), the chances of failure are basically 0. If it does start dropping lower, that's when people will start getting nervous again.
As with all of these things it’s about confidence.
If there is another wobble, and significant redemptions, any hint that they aren’t going to be fulfilled will cause a run. At which point the whole house of cards will fall, if as seems likely they don’t have the $67.5B in the bank.
The crash has not ended yet, and it's mostly second-tier players that have gone down so far. If somebody like Coinbase or Robinhood collapses, which is quite possible given their dire finances, there's going to be a whole new level of carnage.
If the trade volume is low wouldn't that mean the value of any assets would not be reflective of the market?
Like if I peg my stuffed animal to a dollar and then made a bunch of blog posts about the stability of my stuffed animal value, is it really noteworthy?
I'm a crypto noob, so my comment is pure curiosity - apologies if its naive of info I'm just unaware of.
Sure, and I'm free to value my home at 1 gigadollar.
Sellers are free to decide what prices they will not sell below, but they do not determine price. It takes buyers and sellers to do that.
I'd have a better argument that my home was worth $1 billion if inside the guest bedroom there was USD 1 billion. That'd be a pretty good way to convince buyers that my home's price was pegged to the value of one giga dollar. If it was $900 million in cash and $100 million in IOUs, that'd still convince some people too, so on and so forth.
I gather the issues with Tether are a) we don't know just what they have because of a lack of transparency, b) from what we DO know, in chasing yield, they've picked up some higher risk assets that they say are baaaaasically the same as cash (Commercial paper from Chinese real estate developers iirc?) that could be susceptible to losing value in a financial contagion scenario, and therefore be worth less than the dollar put in when Joe Q Crypto wants to take his dollar back out.
This is mostly just "the concensus opinion" on HN, which is very skeptical of crypto in general.
I used to work in the cryptocurrency industry and my impression was that the concensus of the people actually working on crypto or handling large amounts of money was that there is no particular reason to believe that tether is insolvent. Tether's honesty and integrity aren't held in very high esteem and it might well have been the case at one point that they were printing unbacked tethers, but that doesn't mean tether is not properly backed now - if they used that tether to buy lots of bitcoin, and bitcoin went up, then they would have made out like a bandit.
Personally I wouldn't be surprised either way, but I lean towards thinking that tether is not in any immediate danger of collapsing.
A lot of people who like to say all crypto is a scam liked to say tether was a scam. After Luna, people who didn't understand the difference between an algorithmic stable coin and a fiat backed one said tether would be next.
Maybe it is a scam. But there is no evidence of that today and there was no evidence 6m ago...
Tether is likely to have the money, or most of. It may not (have) always be(en) as liquid as stated and/or possibly needed.
The problem the cryptocurrency community had with them was really more about their use of the tools of the enemy (treasury notes! horror!) rather than cold hard cash.
This is not correct. The problems people have are (1) lack of transparency/audits, and (2) putting the money in high risk bets like commercial paper and crypto, essentially leveraging the entire crypto sector.
Confidence in Tether would skyrocket if they were audited and found to be solvent and had 100% treasury notes. Ihis "tools of the enemy" hyperbole is childish - they literally have "USD" in the ticker symbol.
I’ve said it before on here but I think the commercial paper on their books is just the balance of a loan of Tether with the interest payable in USD and the principle payable either in USD or USDT.
Essentially what they did was create an unregulated private bank and issue a counterfeit digital USD.
Wouldn’t people just buy BTC and ETH with the banned Tether and pump them to the stratosphere as they tried to leave the sinking ship? I remember something similar happening in 2019 or so when there was some extreme Tether worry and the price of BTC started going up and up.
There’s a lot of money in stablecoins at the moment.
Somebody would! (Or rather, some thing.) There are a lot of smartcontract liquidity pools in Ethereum that facilitate trade between two tokens. The set an exchange rate by a formula that only looks at how much of each token is currently in the pool, not at prevailing market price[1].
So if and when it's apparent that Tether will be worthless, there will be a mad dash to dump it in those LPs in exchange for the other tokens, which was what happened to TerraUSD [2].
Here's a list of the LPs that have Tether as one token, just on Uniswap:
Both would happen simultaneously. Think of crypto like a balloon with only a narrow exit at one end going out into fiat: if you push down on Tether, BTC/ETH will inflate in Tether terms (because everybody who can moves into other cryptos) but deflate in USD terms (because there will be a run for the exits and a lack of buyers).
If the crash is bad enough: Tether itself. Or Bitfinex, its parent.
If they buy up their own debt at $0.01 on the dollar then they got away with their fractional reserving scheme, and their executives walk free. Free and very wealthy.
There is always a clearing price. The question is simply "how low"?
My experience in crypto tells me that there is usually always someone willing to be on the other side of the trade. People exiting Tether would still be exiting through a smaller and smaller door of BTC and ETH going up and up. More and more desperate to pay any price to exit Tether.
Suppose you owned clean ETH and someone offered you a 10% premium over the going rate if you were willing to accept sanctioned Tether in exchange. Would you really accept that deal?
According to the article, Tether is in direct and daily contact with US government institutions. So I guess, for whatever reason, the US gov is perfectly fine with Tether, probably because it's a great tool to spy on international transfers. This probably means Tether is here to stay.
Teather and USDC will freeze funds with any court order. Unless it's defi, these are worse even keeping money in a Greece or Lebanese bank account...pure centralization, no protection.
So, if Tether _were_ to freeze Tornado Cash addresses, do we have any idea of how bad this would be for Tether? As in, how much of the volume through Tether would be impacted? I'm just speculating here, but is it perhaps the case that Tether cannot afford to freeze Tornado Cash addresses without entering some sort of vicious spiral downwards, as lower volume makes it harder to keep the peg, which makes volume (in) even lower, which makes it even harder to keep the peg, etc.?
Just uninformed speculation, I don't know the crypto space, just throwing it out for the more informed to comment on.
What does it mean to "freeze Tornado Cash addresses"?
I can't make anything of this sentence. Wouldn't miners be the only ones to "freeze" assets on an Ethereum address, and only if 51% of them collude to not accept blocks in which funds from those addresses are moved?
Not all ERC20 tokens are created equal, it simply means that the token implemented the ERC20 interface, it has a transfer() function as per the ERC20 spec, but that transfer() can check if an address is blacklisted. For example, take the WETH
(I am providing a different answer, not building on the prior one.) Tether is a centralized financial service which mints USDT in exchange for USD and lets you redeem USDT later for USD (using fiat bank wire transfers in and out, taking a small but non-negligible cut in both directions, and so $0.9987 or somewhere around there is the true power bound target of the currency, not $1.00). Honestly, I am not sure how their service is legal in the US under merely FinCEN regulations (the ones that prevent you from selling large prepaid gift cards and redeeming them for cash), OFAC aside...
So if tether or usdcoin freezes an address and that address never gets unfrozen like it looks like will be the case here. Who gets the dollars presumably held by tether? Is it just left at tether or would tether pay the us treasury?
Freezing is not the same as seizing, and it's not even clear in which countries all those alleged Tether dollars are or in what form they are held
If it's true that Tether is based on fractional reserves, then having the US freezing their customers' assets seems helpful for Tether, as they will have more free assets to use
- "And what are you gonna do to us? Force operations to the offshore? Force us to use shady offshore bank? Not allow USD to USDT pairs?" (c) Giancarlo, laughing probably, sitting on a billions of mafia cash.
Think they are looking for the USG to sanction them....hear me out:
what better way to never have to redeem ppl than being sanctioned? oh we are a stablecoin and we want to cash your tether to USD but unfortunately we got sanctioned ---> pass blame to USG
I can't believe they are this stupid and brazen enough to challenge the USG like this.
They can attempt to pass the blame to the US Gov't, and maybe some individuals would be fooled, but larger investors wouldn't be and would see through their ruse and would both be upset and basically lose any faith they have in the system, making the value of Tether plummet. No one would touch Tether, making it worthless, since the big exchanges would then not let you exchange between <Coin> <-> Tether, and so even if they have some assets backing them up they would effectively be worthless as a company because of loss of trust.
So they lose faith in the system... so what? Tether still has all the assets, why would they care that the itchy and scratchy money they gave everyone is worthless?
Another comment in this thread asked what happens to the backing assets when USDT gets sanctioned. Imagine if large amounts of USDT get sanctioned so Tether can refuse to ever redeem them, yet they keep the collateral. They could go from insolvent to super-profitable overnight!
I don't rally get what the US made illegal in this case? The name? The instance?
It is trivial to fork tornado.cash and deploy it as hurricane.cash, is that legal then?
One indication that its action stands on weak legal footing is that it had to mischaracterize the autonomous protocol as part of an entity that includes the Tornado Cash developers and DAO in its press release, just to rationalize the designation.
The protocol, being immutable, is outside the control of any party, including the open source developers who wrote its code, so is obviously not a part of any such entity.
Way to go Tether you're our decentralized hero! You're so awesome!
You should book an appearance on "Bankless" and take a bow so the crypto community can bask in your bravery.
I'm not sure what's worse: the fact that an important chunk of Tether can be with blocked with just the slightest due process, or the fact that that the same lack of due process can keep addresses unblocked.
It's also hilarious how different parts of the executive branch seem to be at odds with each other over what to do. Treasury says blacklist now, ask questions later, and DoJ says (or might at least be thinking) wait, wait - don't blacklist, we're following perps on the blockchain.
Those who believe that the long arm of the law is bearing down on Tether might want to consider the possibility that Tether will remain operational much longer than seems reasonable. As revealed in this article, it's become a very useful tool for conducting criminal investigations.