The Blockchain Debate Podcast

Motion: Tether will likely get crushed by authorities in the next two years, thanks to its shady practices and defiance against regulators (CasPiancey vs. Matthew Graham)

December 03, 2020 Richard Yan Episode 18
The Blockchain Debate Podcast
Motion: Tether will likely get crushed by authorities in the next two years, thanks to its shady practices and defiance against regulators (CasPiancey vs. Matthew Graham)
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The Blockchain Debate Podcast
Motion: Tether will likely get crushed by authorities in the next two years, thanks to its shady practices and defiance against regulators (CasPiancey vs. Matthew Graham)
Dec 03, 2020 Episode 18
Richard Yan

Guests:

CasPiancey (@caspiancey)
Matthew Graham (@mattysino)

Host:

Richard Yan (@gentso09)

Today’s motion is “Tether will likely get crushed by authorities in the next two years, thanks to its shady practices and defiance against regulators.”

In this debate about the controversial pioneer stablecoin, we talked about pending lawsuits, a lack of regulatory framework for Tether to work with from the outset that cornered them into the way things are for them, how Tether issuance is affecting bitcoin prices, why Tether dominates stablecoin market cap despite its troubles, and more.

Today’s debaters include CasPiancey, a long-time and vocal Tether skeptic; and Matthew Graham, the founder of a well-known Asia-based crypto fund.

If you’re into crypto and like to hear two sides of the story, be sure to also check out our previous episodes. We’ve featured some of the best known thinkers in the crypto space.

If you would like to debate or want to nominate someone, please DM me at @blockdebate on Twitter.

Please note that nothing in our podcast should be construed as financial advice.

I hope you will enjoy listening to this debate. Let’s dive right in!

Source of select items discussed in the debate (and supplemental material):

  • UT Austin paper suggesting correlation between Bitcoin price and Tether issuance: https://archive.is/fMboo
  • Paper #1 showing no correlation between Bitcoin price and Tether issuance: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3508006
  • Paper #2 showing no correlation between Bitcoin price and Tether issuance: https://www.sciencedirect.com/science/article/abs/pii/S0165176518302556
  • New York Attorney General case against Tether: https://finance.yahoo.com/news/ny-attorney-general-sues-bitfinex-210643545.html
  • Tether lawsuit from crypto traders: https://www.coindesk.com/crypto-traders-lawsuit-claims-bitfinex-tether-cost-market-over-1-trillion


Debater bios:

CasPiancey is an independent investigator and reporter of business and financial fraud. He writes regularly about projects, exchanges and scams in crypto.

Matthew is CEO of Sino Global Capital. He has seven years of mainland China investment banking experience with a focus on representing international technology companies in China for strategic partnership and investment. Matthew has been involved in blockchain since 2013, first slowly, then all at once. As Managing Partner of Sino Global's Liquid Value blockchain fund Mr. Graham invests in blockchain technology with strategic relevance for China. Significant 2020 investments include primary market deals such as FTX, Serum, Mintbase, Mask Network; and secondary market deals such as Solana and Nexus Mutual.

Show Notes Transcript

Guests:

CasPiancey (@caspiancey)
Matthew Graham (@mattysino)

Host:

Richard Yan (@gentso09)

Today’s motion is “Tether will likely get crushed by authorities in the next two years, thanks to its shady practices and defiance against regulators.”

In this debate about the controversial pioneer stablecoin, we talked about pending lawsuits, a lack of regulatory framework for Tether to work with from the outset that cornered them into the way things are for them, how Tether issuance is affecting bitcoin prices, why Tether dominates stablecoin market cap despite its troubles, and more.

Today’s debaters include CasPiancey, a long-time and vocal Tether skeptic; and Matthew Graham, the founder of a well-known Asia-based crypto fund.

If you’re into crypto and like to hear two sides of the story, be sure to also check out our previous episodes. We’ve featured some of the best known thinkers in the crypto space.

If you would like to debate or want to nominate someone, please DM me at @blockdebate on Twitter.

Please note that nothing in our podcast should be construed as financial advice.

I hope you will enjoy listening to this debate. Let’s dive right in!

Source of select items discussed in the debate (and supplemental material):

  • UT Austin paper suggesting correlation between Bitcoin price and Tether issuance: https://archive.is/fMboo
  • Paper #1 showing no correlation between Bitcoin price and Tether issuance: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3508006
  • Paper #2 showing no correlation between Bitcoin price and Tether issuance: https://www.sciencedirect.com/science/article/abs/pii/S0165176518302556
  • New York Attorney General case against Tether: https://finance.yahoo.com/news/ny-attorney-general-sues-bitfinex-210643545.html
  • Tether lawsuit from crypto traders: https://www.coindesk.com/crypto-traders-lawsuit-claims-bitfinex-tether-cost-market-over-1-trillion


Debater bios:

CasPiancey is an independent investigator and reporter of business and financial fraud. He writes regularly about projects, exchanges and scams in crypto.

Matthew is CEO of Sino Global Capital. He has seven years of mainland China investment banking experience with a focus on representing international technology companies in China for strategic partnership and investment. Matthew has been involved in blockchain since 2013, first slowly, then all at once. As Managing Partner of Sino Global's Liquid Value blockchain fund Mr. Graham invests in blockchain technology with strategic relevance for China. Significant 2020 investments include primary market deals such as FTX, Serum, Mintbase, Mask Network; and secondary market deals such as Solana and Nexus Mutual.

Motion: Tether will likely get crushed by authorities in the next two years, thanks to its shady practices and defiance against regulators (CasPiancey vs. Matthew Graham)

Richard: [00:00:00] Welcome to another episode of the blockchain debate podcast, where consensus is optional, but proof of thought is required. I'm your host Richard Yan. Today's motion is: "Tether will likely get crushed by authorities in the next two years, thanks to its shady practices and defiance against regulators."

In this debate about the controversial pioneer stablecoin, we talked about pending lawsuits, a lack of a regulatory framework for Tether to work with from the outset that cornered them into the way things are for them, how Tethers supply increases are affecting Bitcoin prices, why Tether dominates stablecoin market cap despite its troubles, and more.

Today's debaters include CasPiancey, a long-time, and vocal Tether skeptic; and Matthew Graham, the founder of a well-known Asia crypto fund.

If you're into crypto and you like to hear two sides of the story, be sure to also check out our previous episodes. We feature some of the best-known thinkers in the crypto space.

If you would like to debate or want to nominate someone, please DM me @blockdebate on Twitter. Please note that nothing in our podcast should be construed as financial advice. I hope you enjoy listening to this debate. Let's dive right in. 

Welcome to the debate. Consensus optional, proof of thought required. I'm your host Richard Yan. Today's motion: Tether will likely get crushed by authorities in the next two years, thanks to its shady practices and defiance against regulators.

To my metaphorical left is CasPiancey, arguing for the motion. He agrees that Tether will likely get in really serious legal trouble in the next two years. To my metaphorical right, is Matthew Graham arguing against the motion. He disagrees that Tether will likely get in really serious legal trouble in the next two years, please note that Matthew is debating this as an intellectual exercise and playing devil's advocate.

Nonetheless, it's safe to say that his skepticism of Tether is probably more mild than that from his opponent. Gentlemen, I'm super excited to have you joined the debate, welcome.

CasPiancey: [00:02:07] Hi Richard. Thank you.

Richard: [00:02:08] Great.

Here's the bio for the two debaters. CasPiancey is an independent investigator and reporter of business and financial fraud. He writes regularly about projects, exchanges, and scams in crypto.

Matthew is CEO of Sino Global Capital. He has seven years of mainland China investment banking experience with a focus on representing international technology companies in China for strategic partnership and investment. Matthew has been involved in blockchain since 2013 for slowly, then all at once as managing partner of Sino Global's liquid value blockchain fund.

Mr. Graham invests in blockchain technology with strategic relevance for China. Significant 2020 investments include primary market deals, such as FTX Serum, Men Paced, Mask Network, and secondary market deals such as Solana and Nexus Mutual. We normally have three rounds, opening statements, host questions, and audience questions.

Currently, our Twitter poll shows that 72% agree with the motion and 14% disagree with emotion after the release of their squirting. We'll have a post-debate poll between the two posts, the debater with a bigger change in the percentage of votes in his or her favor wins the debate. Okay. Cas, please go ahead and get started with your opening statement.

CasPiancey: [00:03:20] So my essential statement is that I believe there's a lot of reasons to be skeptical of Tether and their claims of being one-to-one backed of their claims that they are doing due diligence and that they're abiding by any regulations or rules a reason for believing that is because they've failed to follow through on any of the promises that they made.

In their white paper or since then, I believe that there are extreme consequences, in some way, shape, or form inevitably for them because not only Bitfinex is being tried by the New York attorney general and iFinex, but also Crypto Capital Corp, which is associated with Bitfinex and Tether.

And a lot of other cryptocurrency exchanges are also being tried by federal authorities, Regional Authorities, and other associates for fraud, bank wire, fraud, all kinds of other issues. So I think that it's inevitable, these guys have made a lot of mistakes and so far, there's no reason to believe that they're going to cooperate with authorities.

So I believe they're doomed.

Richard: [00:04:34] Okay. Great. Thank you. So Matthew, with your opening statement, please.

Matthew: [00:04:39] I would argue, first of all, that in the spirit of being a devil's advocate, I would argue, first of all, that, much of the behavior of Bitfinex Tether, and associated parties at all is consistent with the behavior of marginalized communities that don't have access to traditional banking services. I think we all are of the understanding that, especially in the early days, but even continuing up to now, it can be very difficult for companies in the blockchain space to have access to banking services. And actually what happens is this forces companies into a behavior that may be characterized as, as in the gray area or.

Or, look suspicious until you understand the motivation, which is that they're trying to keep a business afloat, and they're representing a marginalized community. That's the first thing. Secondly, my suggestion is that much of the behaviors, alleged, much of the alleged behaviors don't hold up.

When you look at closer scrutiny, for example, I think there are major causality issues related to the studies suggesting that Tether was largely responsible for inflating the 2017 bubble. And then the third thing, I would argue that the hurdle is quite high for conviction in some of the cases regarding some of the behaviors that are alleged.

There's quite a high hurdle for proving intent. And, I think it's going to be difficult to accomplish in the time period that we're discussing, which is two years or less. I would also add that. 

There's a considerable possibility that there could be increasingly favorable, an increasingly favorable view by regulators.

And that could be favorable for Tether, Bitfinex, et al as well.

Richard: [00:06:41] Before we move on to round two. So Cas, this question is for you. Can you introduce our listeners to the ongoing, most high profile court cases against Tether? What is the defense from Tether and what is your prognosis of the outcome of these cases?

CasPiancey: [00:06:57] There are two big court cases that involve them in some shape or form.

Then the main one people who are familiar with is the New York AG case, essentially saying that Tether is fraudulent and performing bad business practices and that they want to look at their books, if they get their books and everything is clean, there's no problem. But so far Tether has not complied.

And has been adamant about not doing anything. The government asks, I can understand being empathetic with that. But also I can see why that is a major issue for something that is a $18 billion asset. So that's the primary concern for Tether right now that the court case is moving forward voraciously quickly.

Richard: [00:07:42] What is the expected timeline for some kind of substantive outcome?

CasPiancey: [00:07:48] So we don't know yet, because right now we're at this point where the judge has ordered an arbiter, a third-party and objective third-party to come in and say, these are the deadlines that you need to abide by. And when you meet these deadlines, everything is okay.

But if you don't meet these deadlines, we're going to do something about it. I'm not a lawyer. I don't know. What does something about it means, I don't know if it means subpoenas. I don't know what, I'm not sure what, that, I don't know what that entails, but, right now they're at that arbiter stage and we don't know.

We don't know what those deadlines are. We don't know all of the documents that will be required and necessary for them to comply with, and on what timeline. So we're not sure yet. It's probably a few months right now. And then the other court case is Reginald Fowler who, federal authorities arrested and he's being charged with a litany of things, wire fraud, bank fraud, counterfeiting, a lot of things.

Richard: [00:08:57] And what is this person's role/involvement?

CasPiancey: [00:08:59] So Reginald Fowler was Cryptic Capital Corp, him with Oz Yosef and, Oz, Yosef, sister, and a couple of other accomplices formed the shadow bank.

In Panama, Yvonne Manual Molina lee is another gentleman involved. He's arrested in Poland right now. No one has heard from him in, I don't know, a year plus I like he got arrested and he disappeared. No one has heard from him. So no one knows what's going on with that court case, and, yeah, so Reginald was in charge of Crypto Capital.

And he was money laundering and doing wire fraud and all of these other things. And he got nabbed and he is out on bail right now in Arizona. But, he can't pay for his lawyers and he is looking at a lot of jail time. So the chances are that he's going to cop a plea and talk. And that is bad news for crypto in general.

Like cryptocurrency in general, that is bad news because every exchange worked with this dude. But it's really bad news for these guys for Bitfinex and Tether because they were the ones working with him Then when he got caught and he's indicted on a lot of things like this dude has done fraud forever.

And it's bad. This is very bad news for them because it's negligence. This is, we're talking about corporate negligence. We're talking about these guys, working with someone without doing any due diligence at all, and then trying to say, it's his fault, is it his fault? Or are you just being completely opaque and awful?

So I think these are the two main core cases that people need to keep an eye on and hopefully, there's going to be a resolution in the next year for both of them.

Richard: [00:10:56] Okay. That's very helpful. I just wanted to follow up on one point. Matthew raised, you mentioned that there were concerns with Tether, basically manipulating markets to result in a 2017 boom, and upon close inspection. The evidence was not really there. Could you elaborate on this observation?

Matthew: [00:11:18] Sure. So I think that there are some pretty, there was one study in particular, Texas, which I think had some pretty serious issues relating to causality. in other words, is it, is a demand that's fueling the printing of Tethers, or is Tether, printing, not related to demand and that's causing asset inflation and, overall I would suggest that.

It's not 2013, I think it was with the bots on Mt. Gox in 2017, we're already talking about a substantial asset class and I think it's probably much more difficult to manipulate in that kind of large scale fashion than the assumptions, in the Texas study and other advocates of the Tether inflation theory.

CasPiancey: [00:12:04] Yeah, I would, I'm happy to respond to that because I've seen no studies. I've seen no studies to counter any of the claims in Griffin and shams study out of the University of Texas. And not only do I take issue with that because it is, since been peer-reviewed from what I've been told.

But I think that isn't the heart of the issue here. It's the heart of the issue isn't how much Tether may or may not have manipulated the market. The issue becomes: are our Tethers fully backed and did Tether and Bitfinex keep the promises that they made to investors and consumers, and the answer outright easily is no.

Matthew: [00:12:42] So I don't think the critiques of the Texas study came in the form of peer-reviewed studies as much but I do think there was a substantial rebuttal. So wherever your suggestion is that's not at the core of the issue. And so let's look at what the core of the issue is, then we're promises in the white paper kept.

And first of all, I do think that we all are pretty understanding that the business model of anyone and everyone in the blockchain space changes pretty substantially from White Paper to fruition of a successful, blockchain project. I think that's probably true of everyone in the blockchain space.

And I think that's probably true for most companies in a traditional technology as well, but even putting that aside, sure. So they were not able to fulfill some of the promises in the white paper, but then the question is why. And again, it's because they were forced to the margins of the traditional bank system.

And that's what, by virtue of Bitcoin and blockchain associated companies, marginalized community.

CasPiancey: [00:13:50] See, I take issue with that again, because I see GUSD, TUSD, and I see Paxos and these guys are getting attestations, which is more than Tether can say. And not only are they doing that, but they're able to take on us customers.

I, it's unfathomable to me, that Tether, can't accomplish any of these things. They have apparently $165 million in assets right now, if they have 165 million extra reserves, why can't they get an attestation or not?

 Matthew: [00:14:27] I think part of that is probably related though to their Genesis, the fact that they started from, early days and had to make their way back to the center of the banking system, as opposed to, some of the other companies that started in a different fashion.

I think that may be part of it, but also I think if we look at some of these other companies, I'm not sure that they have been as successful, and that partly is as a result of having to comply with onerous regulations. I think you could make that point as well. Is that something you would disagree with too?

CasPiancey: [00:15:01] It's not that I'm, onerous, you say onerous and I say, is it onerous because we have no idea what Tether is up to you can't show me an audit of anything or an attestation of any audit..?

Matthew: [00:15:14] Who is going to do an audit? What company is actually going to do?

CasPiancey: [00:15:17] How come they were able to do it.

Matthew: [00:15:19] And I have a hard time...

CasPiancey: [00:15:21] How come they're able to do it for other companies?

That's so confusing to me. They're able to do it for all these other companies, but they can't do it for Tether? Why?

Matthew: [00:15:28] I think that for liability reasons, you would have a very difficult time getting an auditor to agree, to participate in a Tether audit

CasPiancey: [00:15:36] With a hundred, with..

Matthew: [00:15:37] And conservative by nature.

CasPiancey: [00:15:39] With $165 million in reserves, they can't find an auditor really? $165 million. 

Matthew: [00:15:47] I think you would have a pretty tough time getting a big four auditor to sign on.

CasPiancey: [00:15:51] Any auditor?

Matthew: [00:15:53] Any auditor I'm sure would be a different case. I fully agreed that they could probably find some kind of second-tier auditor.

CasPiancey: [00:16:01] But they haven't. And when they hired a second-tier one, they hired Friedman and it failed.

 Matthew: [00:16:08] Again, I would suggest though that a lot of these issues are related to the fact that, so let's go back to talk about owners, right? Do you think that the Bit license in New York state is onerous? I find it a little hard to understand with so many companies. They got dropped by Wells Fargo. Is that on them or is that on Wells Fargo?

CasPiancey: [00:16:27] They got trapped from Wells Fargo. Is that the argument they got trapped in?

Matthew: [00:16:32] No, they got dropped by Wells Fargo. So was that, is that, on Wells Fargo, or is that on Bitfinex and Tether?

CasPiancey: [00:16:38] I don't know. Why did Wells Fargo drop them? Just because crypto, I like, do you believe that? 

Why is that? why

Matthew: [00:16:47] Isn't Silvergate picking

CasPiancey: [00:16:48] It up? 

Matthew: [00:16:49] I believe that most companies in the crypto space. I've had substantial problems with banking access, at some point in the, in the life of the company,

But you'd agree. There's plenty of, There's less and less true, but it's something that has been true for most companies.

CasPiancey: [00:17:09] You'd acknowledge that there's plenty of banks available now for them to go to.

Matthew: [00:17:13] I think that it's Silvergate is a good example. I think there's increasing access to banking services, but I think it's still a major issue.

CasPiancey: [00:17:22] They have banks. They had bank accounts with Wells Fargo. They had bank accounts with a Bank of New York Mellon. They had, they had a lot of bank accounts in America that they weren't supposed to have and..

Matthew: [00:17:35] Don't have access to banking at a point in time, it's access to stable banking over a long period of time. And, regardless of the whims of regulators or banking officials. And I think that has been a pretty consistent problem, not just for Tether and Bitfinex, but for many companies in the group,

CasPiancey: [00:17:54] How many other stablecoins have suffered from those issues?

 Matthew: [00:17:57] I'm not sure there's a comparable stablecoin to Tether in terms of regulatory issues in many factors, but regulatory issues. Sure. So I think that other companies, again, started kind of from the center, and not from a crypto native place. And that starting point is very different in terms of getting back to a friendly relationship with the regulatory regime. I think that's something I would be comfortable saying. So you start from a crypto-centric place and now you have to find your way back. I think that's different than you start by applying XYZ with a bit license and things like that.

CasPiancey: [00:18:44] And Matthew, I think that's fair. But I, what I want to point out when you see that is that I think. When you say crypto-centric, the point is that like you're skirting a lot of the laid down rules because a lot of the laid down rules don't necessarily make sense.

And the unfortunate fact is that while there are a lot of rules that don't make sense, there's also a lot of rules that do make sense and that the reason that Tether can't comply. Is the same reason that libertarians and people who say don't trust verify should be saying, why am I not asking a hundred million questions about Tether?

Why aren't you asking?

 Matthew: [00:19:21] I think that it becomes a kind of trap though, because, once you start getting into a situation where you have ongoing litigation, that then precludes you from providing the transparency that you might even want to.

CasPiancey: [00:19:38] They..

Matthew: [00:19:38] For example, if I reached out to Tether and Bitfinex and I said, Hey, can you help me prepare for this debate today?

They would have to, I did not do that, but I'm quite confident that they would have to decline on the advice of legal counsel. There's your problem is that transparency becomes a legal risk. And so you end up getting trapped just as they got, trapped by being a marginalized community, from the get-go.

CasPiancey: [00:20:05] Transparency was a liability for them from the very beginning. And all you have to do is look at the history of Bitfinex to understand that, Bitfinex was started by a French guy who was known to start Ponzi schemes, that's how you can look it up on Bitcoin talk. That's how Bitfinex started.

Okay. You want to look up how Tether started shadily. You want to look up how Bitfinex bought Tethers. Shady, you want to look up how there's never been a proper audit or attestation performed on Tether holdings at all. Shady. Like these are questions that people need to be asking. It's not about having transparency now that there are legal issues.

It's about ever having any transparency at all. And they never did. There was supposed to be a security audit after they got hacked for 31 million Tethers. It never happened. There was supposed to be a, just a regular audit of Tether holdings. It never happened. There's supposed to be a security audit after the Bitfinex hack, it never happened. Why am I supposed to trust these guys with $18 billion now?

Matthew: [00:21:08] So it's hard for me to respond to things like shady, but that, because that can mean a variety of different things, but, as, especially with 10 things at once, but I would suggest that many people in crypto come from non-traditional backgrounds.

And so not everyone has a weight to shoot lawyer on day one, whereas accustomed to doing things in that fashion. And again, when you have a marginalized community that doesn't have access to banking services. Yeah. I think it is understandable that pushes you towards doing things in the shadows and to give a good example of that.

They did not, Tether and Bitfinex I've been good. It's okay to refer to them as affiliated entities. they are right. So Tether and Bitfinex did not fully disclose everything related to their use of payment processors, including the Panamanian company that ultimately caused them so many cases.

But I think that is because they were forced to be juggling a variety of means, most of them nonstandard by any measure in order to keep the business afloat. And again, why is that? It's because they've were pushed towards the fringes by stringent, regulatory by the astringent regulatory regimes.

CasPiancey: [00:22:23] Matthew, as an investor and as somebody who looks into this kind of stuff, I just think this raises a lot of red flags and that I've spoken to other people who worked with Crypto Capital.

I tweeted with Jesse Powell, right? This is the guy who runs Kraken. Okay.

They worked with Crypto Capital Corp.

Matthew: [00:22:40] Yes.

CasPiancey: [00:22:40] And they stopped. And why did they stop? I asked him, why did you stop? Because they raised a lot of red flags. So I go, why was Bitfinex still working with Crypto Capital Corp?

And the only answer is that they were willing to risk customer funds and their business to save it on a wing and a prayer. Instead of though, instead of doing something that maybe was more difficult and a longer process, and maybe it would lose the market share and maybe would do maybe complicate issues for them.

Instead of doing that, they chose the easy route and the easy route was to work with literally known scammers. We're talking about known scammers. We're talking about people who are fugitives from the law right now and are out on bail and looking at prison time, these are known scammers and they were willing to work with them and bet customer funds to do it.

There's no excuse. You can possibly give me that level of zero transparency.

Matthew: [00:23:41] I think there are some good points there, but I think that some of those come down to business risk issues. If they thought it was existential to their business, because they were cut off by Wells Fargo, then they had some difficult decisions to make.

And, I'm sure that came into play. Did they want to shut down the business at that point, which potentially was on the table at that juncture in time? Or do they want to continue in a manner that involved a lot of risks?

Richard: [00:24:14] So why don't we tackle the debate from a slightly different angle now?

So the reality right now is that USDT dominance is still around 80%, despite all the troubles and accusations that have been happening to them. Given the many alternative staple coins that do frequent audits. Why do you guys think the USDT dominance is still around 80%?

 Matthew: [00:24:36] I think it's a China story. USDT historically has been the primary pair for the China-centric exchanges such as Binance will be an okay exchange. And I think that in China, there's a comfort with Tether, in terms of it being a habit, but also in terms of the fact that, it is from a Chinese perspective, it's safer than using something like USDZ.

In terms of confiscation risk, for many reasons, I think it's really a China story. And I think that that's why it continues to have such a high market share. Why is the second thing? The second thing, of course, would be the fact that liquidity gets liquidity as they say. And there's a little bit of a moat there in terms of the fact that trading is a major use case.

Yup. And..

CasPiancey: [00:25:26] 100%, I agree with

Matthew: [00:25:28] Liquidity.

CasPiancey: [00:25:29] 100% agree with you on that point. Absolutely. Absolutely. I agree.

Richard: [00:25:34] So quick question about the confiscation risk. So for a Chinese resident to trade stablecoins or to park their assets and stablecoins, why would they think it's safer to have it in USDT rather than say TUSD or US

CasPiancey: [00:25:51] So can I just quickly. Sorry, I just want to quickly make a counterpoint to what he was saying, which is that there's safety involved, and I don't that I don't agree with. I agree with the last part of his statement, the first part of the statement I don't agree with and what I say, see,

Matthew: [00:26:06] I should clarify that I meant safety in terms of, I was speaking very narrowly in terms of that confiscation risk.

Yeah. Not the not risk related to a theoretical Tether collapse or anything along those lines. I was speaking more in terms of the fact that it's substantially less likely that the US government can get in there and make some kind of court order to confiscate fund something like that.

CasPiancey: [00:26:35] okay. I definitely disagree with that, but I do want to say that I think, what I was going to state was that I believe that there, that Tether isn't used like no one is almost nobody is going and trying to get dollars for Tethers. That isn't what Tether is for. And I think everyone knows that's not what Tether is used for.

It's to get in and out of trades all the time. And Tethers started as you could trade Bitcoins for Tether. So Tethered started as something where you didn't need dollars to get Tethers. You could trade Bitcoin others. So I don't think that's what Tether, no one goes into Tether expecting to get dollars for Tether because you would just be adding an extra step to something that doesn't need to happen.

If you want to cash out, you're going to go to an exchange that can cash you out. And it, and you're not going to go to Tether looking to cash out. So like, you're talking about safety. I don't think anyone's thinking about it as safety in terms of I don't think anyone's thinking about it as safety in terms of ever getting the cash that Tether represents.

I think they're looking at it as a safety in terms of liquidity.

Matthew: [00:27:40] But also safety could not necessarily safety in terms of getting into USD. Safety is getting into it. You need to, I don't think there's necessarily even. If you want to get into USD, because that's your motive, that's a specific use case, which I think we would agree. It's very common, but that's not necessarily safety related because you can have the safety just by going from 

CasPiancey: [00:28:03] If you don't need if you don't actually need the dollars. Sure.

Matthew: [00:28:06] So if you need it right. But that's not about safety, that's about having a need for dollars or a motivation for dollars, for whatever reason.

CasPiancey: [00:28:12] I think, but I guess what I'm trying to represent is the idea of Americans and people who utilize the dollar generally. Right or looking for safety when it comes to being able to then spend that dollar. And I think the way we're talking about Tether is you're not going to ever get a dollar for a Tether.

You're like, that's not the goal. The goal for Tether is that you are getting into something that represents a dollar and hopefully is stable around a dollar.

Matthew: [00:28:37] That's yeah. I mostly agree with that. And I, by the way, actually, probably like people have a China-centric way of thinking about some of these things. So that's, probably worth pointing out.

CasPiancey: [00:28:48] Fair enough.

Matthew: [00:28:49] I'm far more familiar with Chinese use cases for each other than I am for you as United States use cases for each other,

Richard: [00:28:55] Right. And on the confiscation risk. I, sorry, I still don't quite understand. So if I'm a Chinese resident and I have two us dollars, one is in the form of USDT and the others in the form of USDC.

Why is the confiscation risk lower for the U SDT asset? 

Matthew: [00:29:11] I think the very fact that it has a perception as being in the gray area and in a fight with the US government. I think that makes people feel more comfortable that they are safe from whomever the regulatory body SEC, or whoever that might, might try to mandate an address being blacklisted. 

Yeah. And I think there have already been scenarios with USDC or TUSD where the issuing entity was complying with regulators in terms of blacklisting addresses.

I believe that's the case.

Wait, so that's basically where...

CasPiancey: [00:29:54] Tether does that as well. Tether does the same kind of things. They blacklist addresses all the time.

Matthew: [00:30:00] Yeah. But it is, there is the reason is there a good mapping in terms of the reasoning. If it's related to some kind of hack or something like that, I think that's one use case if it's related to Chinese nationals, having assets in the blockchain world, although we're not seeing major issues related to the US with that at this current point in time, in terms of.

Fears that people might have. I do believe that they would be substantially more hesitant related to USDC, but I think this is really more, I do think it's also worth pointing out that this is really more a this is a smaller piece of the puzzle and probably more of a consideration for more sophisticated actors. Most people are using Tether and China. It's really about liquidity and consumer habits.

CasPiancey: [00:30:57] Yep. I agree with that.

Richard: [00:30:59] And also part of it could just be irrationality. Short-sightedness, a habit to not be very scrutinizing when it comes to these second-order risks.

Matthew: [00:31:11] The lingua franca for, it's just, it's the common media of exchange, medium of exchange for blockchain in China, in terms of a stablecoin. And so that's where people parked there. Their crypto assets when they don't want market exposure and that's the way they transact it.

Richard: [00:31:32] So there's a related audience question. This is from jiangji20 and this person's question has mostly been answered, but the last part of it is what effect would the China OTC ban affect Tether and crypto? I think this person is referring to the recent incidents with people like Zhao Dong, for example, because OTC has always been officially banned. It's just now a matter of individuals being cycled up by the police for their activities.

Matthew: [00:32:01] There's a Chinese expression Shang You Zheng Ce, Xia You Dui Ce, which basically means that there are official measures and then there are people taking countermeasures. I think in the short term, this could be, this is something that's a big issue and that's pretty significant. But I also think that the mainland China market is enormously creative about, finding ways around these rules. it's basically, whether it's capital controls or whether it's VPN restrictions, etcetera. I think these things become major problems in the short term, but not necessarily the medium or long-term.

Richard: [00:32:38] Okay. So one major complaint with Tether in terms of its interaction with the crypto market is this claim about manipulation of prices. Given the fact that Tether has unpacked issuance of USDT, at least allegedly. So what you think the, and this is a question primarily for Cas, but feel free to jump in Matthew as well.

How much of Bitcoin's price movement do you think has to do with the unpacked issuance of USDT?

CasPiancey: [00:33:09] Yeah, we obviously referred to the paper, from before. And, I can't answer, I can't answer that question. I'm not a data scientist and I don't know the answer to that, but I do think that there's a good reason to ask questions about. How Tether is distributed. I don't necessarily think that it's entirely correlated to Bitcoin price, but I would say that a lot of alternative currencies benefit from Tether issuances. And I do think that there is some data to back that up as well. I have a lot of concerns about it because. Even the way this question is presented is at like at least you acknowledge like Tether is unbacked there.

You, they admitted it in court. And we're talking about people who admitted that for every hundred Tethers there was 74 cents backing it. That's what they said in court. We don't even know if that's true because there's nothing to back that up. But I do think that what we're talking about here is something that is unprovable by me or anyone else because the transparency isn't there.

If you want me to answer to this, show me the books so I can answer it, but I can't see the books. So I don't know. I'd love to say. There's zero. I'd love to say there's zero like the Tether issuances have zero repercussions on Bitcoin price. And I have no idea. And realistically, no one else does either because we have no idea how flow of funds work.

How many Tethers are backed, how loans work with others, we, none of us have any idea.

Richard: [00:34:47] So Matthew from the secondary investor, vantage point in your circles are Bitcoin traders concerned with the fact that. There might be unpacked issuance of USDT basically moving the prices around and therefore the price is built on a house of cards.

Matthew: [00:35:07] And in China at this time, at this point in time, that's a very small concern that people have, I think in 2017 and 2018, that was a far more significant concern. So I..

Richard: [00:35:22] Why is the concern now less than 2017? 

Matthew: [00:35:25] So I, I think that there's more, I think that when there was the initial shock of hearing the 74% number, then, there's a lot of, hesitation around 

Richard: [00:35:40] You are saying there is basically a decaying effect on the negative news.

Matthew: [00:35:44] Yeah. I think to some extent that's true, if you have a single impetus, then you would expect that the probability of that causing a complete collapse would be less and less over time as we get further and further away from what happened. I think it was a major concern and I think it's much, very substantially less of a concern now.

I also want to add a couple of things about what we're just discussing. So I think that, based on the information that we have, which is plausible that Delta of 26% resulted from assets, from Crypto Capital that were confiscated. So then my suggestion is since that if that narrative were to be true, that's money that loaded into the crypto ecosystem and then was confiscated, then that would not be relevant to the question of o Tether as having inflated asset bubbles in 2017. So I just wanted to make that point. And then also I would add that, I think really, I think it's when you get to the size of where Bitcoin was in 2017, as opposed to 2013, I think it's really substantially more difficult to manipulate, the Bitcoin market over a long period of time then than people probably think. I shared the view. There was a point made that probably it was much more relevant to, ICO tokens and things like that. the extent to which any manipulation took place. And I really strongly sure that if you had one thing to manipulate the price of, token number 400, whatever that might be on the coin gecko list, going back to 2017, not to pick on that token, but it that's it, but that's a, that's something that I think is straightforward and extremely plausible, but then I think if you're talking about, big point itself over a long period of time, why is substantial, in a very substantial way. I think that's, I'm much more skeptical at the that's a much higher bar, I think.

CasPiancey: [00:38:00] Yeah. I just want to say if like we're not having an argument about how deeply this would affect Bitcoin necessarily. Cause I tend to agree with you on a lot of things. I don't think. At no point did I really think that Bitcoin was going to go to zero?

And, I don't think that Tether a complete and utter collapse would bring Bitcoin to its knees necessarily. So I like I'm with you on that. but I do think it would dramatically affect the ecosystem in general.

Matthew: [00:38:34] In the short term. Yeah. I think in those Merlin, in that Merlin transcript, I think he was right on point that if there had been a Tether collapse, then Bitcoin could have been in 2017 or 18 then Bitcoin could have even collapsed down to low four digits. I think it could have been very substantial damage at that point in time. Now I think it would, it would still be quite, quite a very serious problem. And, in the short term.

CasPiancey: [00:39:03] It depends.

Matthew: [00:39:04] I think when it's too big to fail already though.

CasPiancey: [00:39:06] I think the short term is relative to Bitcoiners because Bitcoin tends to think about the short-term being like years. And I like short-term, like short is like a few weeks in real-time. So I think It would be a medium-sized problem for Bitcoin and for other things. I think it would be something that would go on for a year or two or three, but do I think it would be a death blow?

Matthew: [00:39:29] No, it's already its work or too big to fail already. Yeah. I do tend to use short-term in kind of the traditional sense, not the crypto sense. 

Richard: [00:39:38] Okay. The way I think about it, one potential way for Tether to be making money is they basically have a printing machine that can print the USDT with no transparency or accountability and use that to pump and then dump. And then exit back their USDT. So my question is, if the authorities were to essentially seize their operations at USDT and all this wash, rinse, repeat the operation, were to stop, wouldn't the crypto secondary market now be missing one of its momentum generators. Is there enough interest or capital in the space to continue trading this and allowing various altcoins and mainstream cryptos to have all this volatility?

CasPiancey: [00:40:32] In the short term? No, as Matthew was talking about. What we're talking about is something that controls most of the market cap for stablecoins. And even if everyone tried to exit all at once, it just couldn't happen. There's nowhere to go and there are rules and regulations with a lot of these other stablecoins. There's nowhere to go. Do I think it's a death knell for everything that is decentralized finance or whatever? No. I don't, and I don't think that there wouldn't be very interesting creative ways that people would try to go about solving a complete Tether seizure.

Matthew: [00:41:08] What probability would you place on that kind of a death penalty scenario though for Tether?

CasPiancey: [00:41:15] A death sentence would be like 35%. And that's why I don't take the risk. That's why I'm not interested.

Matthew: [00:41:22] One in three chance of a death penalty?

CasPiancey: [00:41:25] For me, yes, because they aren't complying and they've done a lot of things wrong and to me, to me, there's, they've shown no proof that they can come up with anything substantial to get the heat off of them.

Like the idea that the New York AG would stop being like, this looks like fraud. Like they can't produce books, they haven't produced anything.

They can't produce any documents. For any other company in the world, if you're publicly traded like an $18 billion company, you're talking about bigger than Domino's, this is a massive company. They can't report their paperwork. So is that a red flag? I guess a lot of people, for a lot of people know, I guess for a lot of people, that's a 2%, a 1% red flag and that's fine that the market proves that.

Because Tether trades one-to-one. But for me, that's a huge red flag because it's been three years and they haven't shown anything.

Richard: [00:42:28] Okay.

Matthew: [00:42:29] I'd put that maybe at one in 10, one in eight, one in 10. That's where I would probably put those odds.

CasPiancey: [00:42:35] Got it.

Richard: [00:42:36] But to be honest, I'm actually a bit surprised Cas that you would only assign a one-third chance. Given the evidence, you have been producing.

Matthew: [00:42:45] We said complete death penalty though. 

Richard: [00:42:47] No no, but I'm saying there are different kinds of deaths, right? So there's death penalty, which is a mandate from the authorities. And then there's also just death from people not wanting to hold their assets there, given enough negative shocks.

CasPiancey: [00:43:02] I would have no argument to back up that hypothesis. Cause the market proves me wrong. So if I wanted to say, people are fleeing this crazy risky asset are they fleeing it? Because there are eight, there are 18 billion Tethers right now they printed a billion and a billion Tethers in the past week and a half. I have no evidence to back up the idea that people are fleeing this incredibly risky asset. So I can't possibly suggest that realistically, the data isn't there to back it up.

Also, I don't necessarily have a lot of faith in regulatory action. And I think the decisions I've seen in regard to EOS and regard to others lead me to believe that there could be a regulatory opportunity for Tether to accept a heavy fine as opposed to complete seizure, and that is my 65% that is that they're just going to get fined.

Richard: [00:44:06] Although after that, they would have to become a clean business, so to speak though, right? After the legal action, they presumably need to be subject to audits and provide more transparency, no?

CasPiancey: [00:44:20] Yeah. If they would have to do that and that would, you would see a market depletion from that. And I think we're already seeing alternatives develop in the decentralized finance world in terms of derivatives and baskets of derivatives. And this is why I don't think that a complete seizure and collapse of Tether would be any kind of death now because I think, there are alternatives, and they

Richard: [00:44:43] Wait a minute, you said there will be market depletion as a result of them coming clean and becoming more compliant. Why is that?

CasPiancey: [00:44:51] Because I think that, I think everyone acknowledges that Tether is used one way or another for escaping capital controls. I think that this is something that is used not for again, no one is redeeming Tethers.

It's obvious. No one is trying to redeem a Tether for a dollar. Why not? because they're using it for other stuff. And what are they using it for? we're talking about again, evading capital controls in China or evading capital controls in the US or evading capital controls, wherever, or, jumping out of crypto and being into a stable market is like the normal retail crypto trader. That's that's what normal people are doing. But the alternative, the people who are moving millions of dollars of it are not doing it for that.

Richard: [00:45:35] Okay. So in terms of sustainability, there's another issue with stablecoins and that is the near-zero interest rates that are killing the deposit income for these stablecoin operators. So is there a sustainable business model for these stablecoins, USDT included with near-zero interest rates?

Matthew: [00:45:57] Very difficult. I think it will be increasingly difficult. I think you need to have it need to build a business adjacent to a stablecoin in order to be successful. And that could be probably a wide variety of adjacent businesses of different types. But I think if you're going to have the stable point itself, be your business, I think it's going to be pretty tough and get tougher over time.

CasPiancey: [00:46:23] Yeah. You're basically describing commercial banking, it's you're the concept is that there's an issuer and then the people making money off of it are the people putting out loans? So we're redoing finance, but we're doing it again exactly the same exactly the same thing.

Matthew: [00:46:39] Yeah. I agree with that.

Richard: [00:46:41] Okay. Great. Okay. So let me ask you one other audience question. This is from youngbusiness. If you anticipate a blood bath in crypto and want to convert to stable going for a bit, which stablecoin do you trust besides USDT? 

CasPiancey: [00:46:55] I personally would trust almost any other stablecoin over Tether. But, I don't necessarily love the idea of stablecoins in general. And I do think that being able to cash out is a nice thing to have. trading on an exchange that can, if you're American, if you can trade on a Coinbase or Kraken or whatever, even though I don't, I'm a no coiner. And also I don't really recommend Coinbase because I don't like them. but, but yeah, I think the ability to trade into actual cash is really wonderful. Like you're asking me which derivative I trust more than Tether and the answer is all of them, but how much do I trust any of these fiat derivatives? And the answer is not very much.

Richard: [00:47:41] Okay. How about you, Matthew?

 Matthew: [00:47:43] I, for a generic person. I think a lot of this is specific to the exact situation, but for a generic person or an entity, let's say a generic European person or entity, a basket [00:48:00] of non Tether stablecoins is probably a good choice. If a person has made the decision that they definitely want to be in stablecoins for XYZ reason.

Richard: [00:48:12] thought that I had was, this is based on someone else's comment on Twitter. Actually, one way to test if Tether was printing USDT out of thin air in the order of $1 billion in the last week, whether that's backed or not is to cross-check other stablecoins. So if other stablecoins were to see commeasured with growth in there, Market cap as a result of this bull run, then maybe there is a case for Tethers printing to be valid, right.

But if you're seeing others shrink or not move at all, then this basically suggests more reasons for suspicion.

Matthew: [00:48:51] Circumstantial at best.

CasPiancey: [00:48:55] The intense growth of Tether over the past year. So we're talking about something that went from 4.2, $4.3 billion, to $18 billion in the course of a year. You look at other metrics and it just, it doesn't really add up. And also, if you look at the chart, it doesn't go down; they don't ever redeem it doesn't happen. Other ones have that other one, whether you're looking at USDC or you're looking at TUSD, or you're looking at Paxos, they go up, they go down, they go up, they go down GUSD great example, going straight down, and Tether just, just goes up, In round numbers, always round numbers, which is a, something auditors and, attestation, people who issue attestations. They look for big round numbers and Tether issues though.

Richard: [00:49:47] Okay. So that concludes the audience questions. Actually, we're moving towards the concluding remarks. So this is a chance for you to synthesize your thoughts and to maybe mention one thing or two, you picked up from your opponent during the debate, and we will start with you, Matthew.

Matthew: [00:50:05] So I, again, would emphasize, first and foremost that, there is a lot of behavior from Tether and Bitfinex that is consistent with people that don't have access to traditional banking services and have to scramble, define alternatives. And you could look at the sex industry to see similar forced behavior, back page or whatever, and I think that explains at least some of the choices made by Tether and Bitfinex. So that's the first point that I would reiterate. And then the second thing is that I would emphasize that, in my view, the weakest part of the argument is related to, its usage in 2017 to fuel the bull market and manipulate the bull market.

I think that's the, especially with Bitcoin specifically, I think that's the weakest part of the case. 

CasPiancey: [00:51:07] Yeah, I think the main issue at hand is that Tether and Bitfinex had been opaque in every way that they possibly could be from the very beginning, whether we're talking about in 2013 or 14 or whatever, when, the guy founded Bitfinex, Nicole.

And, it started as a Ponzi scheme. We're talking about how Bitfinex acquired Tether without publicly acknowledging it, all of this, all of that from the very get-go was opaque and questionable, but it's been nonstop, opaque and questionable. There's no reason for anyone to trust Tether at all. You can talk about liquidity. You can talk about the market. You can talk about a lot of data. But if we're asking whether or not you as an individual should trust this corporation, the answer is absolutely not. Because if you were dealing with any other corporation and they were saying, trust us with your money and you looked into it, you would say no way.

So like they're under investigation from two major government agencies. And I like, I don't think there's any question I don't need to, defend whether or not there's a lot of reasons to look into them. The only question is whether they have the paperwork to make sure that they're not proven guilty, because right now it doesn't look good.

Richard: [00:52:38] Okay. Thanks for joining the debate today, Cas and Matthew. How can our listeners find both of you starting with Cas?

CasPiancey: [00:52:45] You can find me on Twitter at @CasPiancey. That's C A S P I A N C E Y. And I have a medium page where I post, stories and articles. and that's @thecaspiancey.

Richard: [00:52:59] Great. How about you Matthew?

Matthew: [00:53:01] mattysino on Twitter. And sinoglobalcapital.com is our website.

Richard: [00:53:09] Perfect. Thank you. So, listeners, we would love to hear from you and to have you joined at the debate via Twitter, definitely vote in the debate poll. Also, feel free to join the conversation with your comments on Twitter. We look forward to seeing you in future episodes of the Blockchain Debate Podcast, consensus, optional proof of thought required. Thank you, guys.

CasPiancey: [00:53:26] Awesome.

Richard: [00:53:28] Thanks again to CasPiancey and Matthew for coming on the show.

I appreciate Matthew's willingness to play devil's advocate and participate in this debate as an intellectual exercise. To summarize, Tether's troubles include their under-collateralization, lack of transparency, and alleged market manipulation. Despite all these problems, Tether still enjoys dominance in market cap amongst stablecoins. Part of this may be the coins popularity in the China market. But Tether's blackbox money printer has something to do with this also. The pending lawsuits might lead to a complete undoing of Tether, or they might get a slap on the wrist in the form of a fine the way some other projects like EOS did.

What was your takeaway from the debate? Don't forget to vote in our post-debate Twitter poll. This will be live for a few days is after the release of this episode. And feel free to say hi or post feedback for our show on Twitter. If you like the show, don't hesitate to give us five stars on iTunes or wherever you listen to this.

And be sure to check out our previous episodes with a variety of debate topics, Bitcoin's store of value status, the legitimacy of smart contracts, DeFi, POW vs POS, and so on. Thanks for joining us on the debate today. I'm your host Richard Yan. And my Twitter is @gentso09. Our show's Twitter is @blockdebate. See you at our next debate.