Ciaran Murray @C1aranMurray Formerly of BSkyB and The European Commission. Been thinking about blockchains and fintech for many's the year. rulesofthegame.blog/ May. 01, 2019 3 min read

1/ More on Tether/Bitfinex.

The reality in this industry is that banking is *very* hard. When you send money to a crypto exchange, there’s a non-neglible chance it gets stuck.

Thanks to regulator announcements, people are aware of the risks. Even noobs.

2/ Bitfinex isn’t a special case. It’s the norm that banks are hostile to crypto businesses. Because it’s the norm, it was forced to do business with agents it would prefer not to. Many of the more reputable businesses in the space have done business with Crypto Capital.

3/ The aforementioned risks came to bear for Bitfinex and its customers.

When they did, Tether was the natural place to turn. Not only are the same people involved but the interests of both companies are genuinely aligned. What’s good for the goose is good for the gander.

4/ When the two companies first got together to come up with a solution to solve this problem they acted rationally in the sense that a) it’s clear that both parties genuinely expected Bitfinex to retrieve the seized funds quickly and b) they didn’t want to spook the market.

5/ They still crossed the line of impropriety IMO. The swapping of good money for (even if temporarily) bad money is not a good deal for Tether shareholders and customers.

It’s a good thing that arrangement was brought to an end and a loan deal was negotiated in its stead.

6/ At the time of this loan, Bitfinex was - and still is - a very profitable business. It is also worth a of a lot of money - even given its loss - so is in a position to secure the loan with equity.

7/ Given its creditworthiness, a 6.5% loan is a bloody good rate. It’s a very good deal for Tether shareholders.

Apart from the interest received, Bitfinex is also an *extremely* important part of Tether’s business. Issuing this loan is very much in Tether’s interest.

8/ Tether couldn’t agree to this loan under its former TOS without defrauding its customers so it changed them in order to accommodate it.

I think Tether should have issued their own press release but the press picked up on it the day the TOS were changed in any event.

9/ Anyone that read these well-publicised new TOS was under no illusion that 100% cash backing was no longer part of the offer.

They are free to sell their USDT at any time.

10/ “Why keep the terms secret?” is a common question. My response to that is “why on earth reveal them in full? What business does that?”

The loan filled Bitfinex’s liquidity hole so there was no issue to inform customers of.

Tether remains collateralised in line with TOS.

11/ There was - and still isn’t - any need to divulge more. The proof is in the pudding. The only thing the NY AG announcement achieved was a sell-off in the market!

12/ There’s a premium on Bitfinex now as people are using crypto (including USDT) to exit the platform. Since traders have information that Finex’s liquidity hole is plugged, there are only two ways I can rationalise this premium.

13/

A. Traders are irrationally responding to the trumped up case/hype in the media and on Twitter.

B. Traders are pricing in *legal* risk as opposed to operational risk.

If it’s the latter, is the legal risk justified? For the most part I think not.

14/ I’m all for policing fraud but that policing should involve people with basic business acumen. How the NY AG can view this loan as detrimental to Tether shareholders or customers is fairly mind-blowing.

15/ Tether’s shareholders want a liquid Bitfinex. It’s one of the main venues that makes Tether money!

Tether’s customers want liquid USDT collateralised with quality assets. 74% cash & 26% a loan to a profitable business secured by valuable shares = quality.

16/ To conclude, I think Tether deserves a slap on the wrist for the creative accounting it engaged in last year. I think the current credit arrangement is a good one for both businesses & their customers alike.

The current injunction is helping nobody. Should be lifted.

17/ There remains a broader question here for not just Bitfinex but all the major exchanges. Yes it is AML banks are mostly worried about and yes you're in compliance, but why not get fully regulated now? You've got the money and it might just make your banking issues go away.


You can follow @C1aranMurray.



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