The Tetherer's Dilemma
Whales and rats pump on into the infinite long.
45 DAYS LATER: AN UPDATE INFORMED
BY THE BENEFITS OF HINDSIGHT
Research done since this piece was initially published
strongly suggests that the hypotheses put forth here
about how the practical mechanics of Tether’s enormous
financial crime might work should be regarded as totally
wrong about the details but directionally extremely
Some Ideas About How The Mechanics Of Tether’s Endless Scam Might Actually Work
In broad strokes: the crypto bros injected enormous amounts of fake money into the cryptocurrency market through (what were originally) Chinese exchanges. These bros thought that because this fake money couldn’t escape China that they’d never get in trouble with American/Japanese/etc. regulators. But the authorities probably already know everything in this document, which is why the bros are scrambling to eject their Chinese co-conspirators and the exchanges those co-conspirators run from the cryptocurrency markets in a hurry right now. This, in turn, is why we see so many small and mid-size exchanges (AEX, Hoo, CoinSwitch Kuber, CoinDCX, CoinFLEX) closing up shop and not returning any of their customers money.
I kind of rushed this out because, while it was exciting to figure this out in real time live on Twitter with @crasl7 (and a lot of help from the legendary Bitfinex’ed), the residue of that process was not so easy for most people to understand. This will get better/more organized with time - more pictures, more links, etc, but it’s way better than it was a few hours ago already. Most of the evidence is in the right place although a few source documents are over there in the thread I was writing as I figured this out. (For instance, stuff about Tether’s bullshit fake “attestation” numbers is still only on Twitter. Hat tip @intel_jakal by the way; your sheets were useful.) If you can’t find the source material for any particular claim check the Twitter, respond here, or DM me. And send me corrections for typos or whatever; I’m sure there’s some things I typed wrong or misremembered from Twitter.
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I’m sure there are some details that are missing or slightly incorrect, but the overall pictures fits the data far too well for any of this to be a coincidence. Also I have at this point received no less than [too many to count now] approaches, replies, and comments by obvious sock puppets since this post went up just hours ago. Here’s five. Personally, having seen how Tether’s “PR” operates on social media, that’s all the evidence I need. I’ve talked a lot of shit about Tether in the past but I’ve never seen anything like this. They’re everywhere. (Thankfully they’re also totally obvious.)
SEND ME ANY TIPS! Already I’ve gotten so much amazing info from people that has made this argument so much tighter.
THE CONTENTS OF THE TABLE
Tronned Out Chains - history lesson
Commercial Papyrus - “Commercial Paper” is an important part of the story
The Illumination Situation - recent events that brought us a realization.
The Meanings Of Boxes Now Open - .implications.
THE ALMIGHTY TL;DR
Tether prints fake money that is not backed. We knew this.
What's new is that now we know how they deploy that fake money only to chinese exchanges through a "cryptocurrency" that is the opposite of what you think of as a blockchain coin in every way. Tether also tries to keep that money only in markets that were originally in China so U.S. regulators never see it. Key things:
Only some of it is faked. The fake money is on a special “blockchain”. Chain is called TRON, built by Justin Sun, who is on the run from police all over the world for other stuff. Tether says about half the tethers are on this chain, half on ethereum. You can even see this in the Tether “Transparency” documents. It's not hidden. The ethereum half of Tethers might even be real (unclear). May or may not be split 50/50 like their “transparency” says. But this part is very real:
The Tether blockchain is not a real blockchain as you know it. Either the chain or the on chain Tether implementation allows coins to be deleted and moved around without consent of owner. Tether docs even say this. Tether can destroy coins remotely. It’s closer to a totalitarian nightmare than a Bitcoin.
All of the fake money is controlled with the TRON chain to make sure it stays on the exchanges that were in China. That way the American regulators can't even see it let alone touch it. Most of them claim to not be in China now because of the ban, but it’s very hard to know for sure.
Chinese exchanges are only allowed to use the fake money to pump and dump on retail. They give part of the money they earn from this pumping and dumping - Bitfinex’ed says 50%, can’t vouch for that number but can vouch for BitFinex’ed - back to Tether.
If exchanges fuck up the rules, Tether vaporizes their cash. The case this essay argues for is based on the real time observation of Hoo/AEX.
The fake money is not meant to ever be turned back into USD. It's just for the exchange to use for a pump and dump and then probably wash trading for their own purposes. Exchange get allocated maybe $400M in fake money and then hang onto it.
China kicked all the exchanges out in 2021. So now they’re “Chinese” exchanges, but (maybe) not in China.
TRONNED OUT CHAINS (A HISTORY)
 Tether is busted by NYAG for printing unbacked USDT. They were claiming that they had cash deposits equal to the number of tethers in the wrold. NYAG proved there were not. Tether paid a substantial fine.
 Justin Sun develops a new blockchain called TRON. You can see in Tether's own docs that fully half - $32B- of the outstanding tethers are on the TRON chain, the other half are on the ethereum chain. (Note that I don't totally believe this number - the $32B on TRON - is exactly accurate. but it is eerily close to some other numbers about commercial paper we'll see down below.) He also develops a DAO. Note that the DAO is obviously for the Chinese market.
 Justin Sun paired up with Tether. They decide to inject fake money into Chinese Bitcoin “exchanges” only. Goal: Create fake dollars that will be able to be spent in the specially designated scam exchanges but not get to the USA to avoid regulatory action like that they face from the NYAG.
[This is more speculative - someone just sent me a tip and I can’t 100% vouch yet] The NYAG order became public April 24th. Tether knew the date was coming. My source claims that the first known Tether pump that could be from this scheme came on April 1st, 2019. Tether then went into court and used the events of April 1st as evidence of “the market’s confidence in Tether”. See Amy Castor’s Tether Timeline.
USDD is an algorithmic stablecoin. When? Relatively recently. After he fled the authorities in Dec. 2021 and became an ambassador in Grenada (no, seriously). USDD is documented to not work in Bennet Tomlin’s investigation thread. In fact according to Tomlin, it is broken in such a way that there is no public mechanism for stabilizing it. It claims to be like Luna/Terra but it is not. It’s like a balance scale that only allows you to put weight on one side. And yet it stays stable. Thus there must be something we cannot see that keeps it stable… Some buying/selling/burning mechanisms that are manipulated by… someone. The way Tomlin explained it really stuck with me:Related: do not short TRX anticipating a death spiral. The protocol is too broken for it to even do a death spiral rightAs far as I can tell $USDD is not an algorithmic stablecoin. The only interaction that the TRD members can do is to burn TRX to get USDD. I see no contract to go the other way, and no algorithm adjusting either mechanism, except that minting depends on oracle price of TRXBennett Tomlin @BennettTomlin
CONCLUSION: TRON chain - or at least some installations of it - are broken on purpose to allow manipulation by its creators or TRON chain is built in such a way that things can be built on top of it that lack the features most people think of when they think “blockchain”. I have been watching USDD fall off its $1 peg in wild ways recently. If there’s no stabilization mechanism we can see, what is keeping it stable?
UPDATE: A Redditor reminded that one of the things Tether can do on their chain is reverse transactions and destroy USDT at will. (Cryptobriefing story, Tether’s own documentation). I knew about this at one point but then I forgot about it. I’m sure it only applies to the TRON chain… maybe only to the Tether implementation or installation. This is bizarre because TRON’s public docs talk a lot about the “irreversible” nature of the transactions.
CONCLUSION: Half the tethers in the world right now are on this sketch blockchain made in China which appears to have a mechanism for manipulation built in from the start. And It may even be sketchier than that. $32B worth of USDT right now. $39B according to WayBackMachine in January. Even more before that.
Look at the wacky shit in the Tether documentation about how tether uses TRON TRC20 in some way that is extra special just for USDT. Tether's own documentation is careful to note that TRC20 USDT “does not return a boolean value in the transfer function” and users must “take care." Seems like the issue is that you can't get a confirmation of whether you actually sent the money. The details on how this exactly facilitates the scam are unclear to me so far but the important part is this is fucking sketch for any blockchain and it is specifically sketch about actually sending and receiving USDT. Think about it - if you wanted to create a coin that cannot be sent anywhere or could be incinerated remotely or [insert manipulation] but looks like it’s being sent on chain safely like on a “real” blockchain, then not actually offering any way to guarantee that the money was sent would be a necessary starting criterion.
HYPOTHESIS: USDTs on this chain - ($32B of them) - do not work correctly and cannot be sent and received like other coins. The blockchain is fake, or something. Again I don’t know the exact mechanism, all I know is that it seems like a) this TRON blockchain doesn’t work right and b) Justin Sun (and Tether, presumably) can do things to it. Remember they want to make fake money but keep it out of America.
Here’s where you should read Bitfinex’eds thread about how fake Tethers can create real money for Tether and also pump BTC price. I don’t know Bitfinex’ed sources but he/se is has been a reliable source for many Serious Publications. The short version is:
Chinese national makes fake company ChinaCorp23. Official documents etc. - but no assets.
ChinaCorp23 gives Tether a piece of paper that says “
ChinaCorp23 owes Tether $100M” and Tether gives ChinaCorp23 $100M in newly printed USDT. The only backing is this paper. It’s basically an I.O.U. In finance this is called “commercial paper”
The deal is that ChinaCorp23 can inject this money into the crypto ecosystem but it must not leave the China part of the ecosystem. From the evidence we’ll get to shortly re: the AEX/Hoo Chinese exchanges it would appear that this USDT on TRON somehow has a mechanism to keep it on the exchange to which it was sent. Related to how the TRON chain allows broken coins in general. If a user needs to send their $100 USDT to another exchange they will either call up the other exchanges (if it’s, say ChinasBestCorporation99) and tell them to allocate the user $100 USDT of the fake tethers ChinasBestCorporation99 was give OR if it’s an non fake USDT exchange, they have to buy and send some “real” USDT on the Ethereum chain.
ChinaCorp23 uses the fake USDT to buy Bitcoins on its own exchange.
ChinaCorp23 then sells these Bitcoins to its users in a classic pump and dump, getting actual fiat from users of the exchange.
ChinaCorp23 kicks back part of this real money to Tether. THIS IS HOW TETHER ACTUALLY MAKES MONEY.
ChinaCorp23 keeps the TRON USDT around and maybe uses it for wash trading or similar. I don’t know specifically. We know it’s in use though.
If you are unfamiliar with the concept of “commercial paper”, the simplest way to put it is that commercial paper is just an IOU written on a piece of paper that promises to repay a loan plus interest.
Example: I borrow $100 from you and write down on a piece of paper that I will pay you back $101 tomorrow.
For those just tuning in, Tether’s commercial paper holdings have been the focus of most of the speculation about whether USDT has the backing Tether says it does because Tether claims to hold enormous quantities of it. See the Bloomberg article. Or see Paolo himself from Tether's PR shitstorm from just two weeks ago. We know a few things about this commercial paper reported by Zeke Faux in Bloomberg:
There’s a lot of it. Tether says $20B as of their last accounting statement.
Tether knows it is suspicious and is making noise about reducing the amount of it in a very public way, just last week. Here’s Paolo:
It didn’t come from American companies. No one who buys and sells CP in the USA has heard of Tether. Odds of buying $40-50B of commercial paper from American companies and one of the people at the major trading desks in NYC or London doesn’t notice it: fully 0%. (Bloomberg)
The writing on a bunch of it is in Chinese. (Bloomberg)
Do you see where this is going?
THE ILLUMINATION SITUATION
This investigation started with me observing that two exchanges serving the Chinese market AEX and Hoo.com - seemed to be owned by the same people. Stopped trading same day, same exact approach to releasing the shitcoins in batches but never any USDT/BTC/ETC, same design theme, same use of language, etc. Check their twitters or even better their Chinese language support groups. Their customers are PISSED.
AEX posted a tweet about "to be honest we had a $1B bank run". What? What? WHATTTT? What in the name of fuck is some mid-size exchange in the Chinese language market doing with a billion dollars USDT just… laying around? American banks don't keep $1B in ready cash on hand. This is just crazy talk. Unless… it's not real money.
If we believe AEX’s tweetIt's in the chart. Detectives don’t believe in coincidences and I don’t either. This was the Hoo/AEX USDT and Tether somehow burned it at a distance or maybe somehow it sent itself back to Tether.
Some people have asked me whether I am sure it was a $1B burn done by the Tether wallet. Well first of all they told us that was their plan. Oh, and then there’s this:
Which I remember seeing around the time of the $1B burn. It’s even better if you click through the link.
25 other exchanges have also vanished in the last month. I noticed one of them myself - the Coinbase backed CoinswitchKuber, a big indian exchange -had halted withdrawals during the time Tether was drawing down. Recently it’s just… vanished from CoinMarketCap. I’ll let you draw your own conclusions about that situation.
Tether has done 23-25 burns in the past month or so while they say they are "reducing commercial paper". Look at the chart. 23-25 drawdowns… 25 exchanges missing… 23-25 drawdowns, 25 exchanges missing… Do you really believe this and the exact timing of exactly $1B going missing from AEX/Hoo and Tether burning $1B is a coincidence? What about the fact that all these other exchanges just started halting (ignore the style; the time line is accurate)? Detectives don’t believe in even one coincidence. This is 3.
THE MEANINGS OF BOXES NOW OPEN
After 2018 Tether needed a way to print money but didn’t want the American government sniffing around after the debacle of getting caught just making up money out of thin air by the NYAG. So the Tether bros paired up with Justin Sun in an unholy alliance to implement the systems described above. Around 2019, after the NYAG gets finished punching Tether in the face, Justin Sun & Tether Bros make a small CEX in the Chinese market to test out their new scheme and… it works! So they try it again, making another Chinese CEX and… it works again! No doubt working out kinks along the way. They do it again and again and again…
Eventually what happens is there is basically a CEX assembly line set up in China where anyone with guanxi (Chinese for “connections”) can get the official paperwork - probably from an property developer, maybe even a real one, maybe even a very real and very large one - to set up a fake business and go get 9 figure amount of unbacked USDT on the TRON chain and set themselves up a very profitable business for almost no work. Each ChinaCEX uses this USDT allotment to pump and dump Bitcoins and give Tether a kickback.
Now, If a user named Poor Sucker on one of these ChinaCEXes wants to move 100 USDT from his account on GamblusMaximusExcahange to his account on ExploitativeAddictionFactoryExchange, GamblusMaximusExcahange doesn’t actually have to send any USDT. The owner of GamblusMaximusExcahange can just call up the owner of ExploitativeAddictionFactoryExchange and say “Put $100USDT on Poor Sucker’s books.” ExploitativeAddictionFactoryExchange, having plenty of extra USDT on hand, does just that.
FWIW the best sources I’ve talked to have, up until now, been saying that Tethers in exchanges are just numbers in a database. If what I suggest is true then that is both and isn’t true. They are like numbers in a database in that you can move them without a chain. And if medium exchanges like AEX/Hoo have $1 billion USDT around there’s probably plenty of room to do this. But there is still a chain and it’s very important, but Tether can use the chain to blowup the USDT, meaning they can control the behavior of the exchanges. It’s only the control mechanism that makes it chain like…
I’m just going to post this here:
There’s also the case where Poor Sucker wants to send his USDT to a “legitimate exchange. In that case GamblusMaximusExcahange does have to send “real” Tethers on the Ethereum chain. It’s OK. He or she has already become very wealthy stripping gamblers of their money and humanity of its dignity; they can afford to buy a couple ETH here and there. Until, of course, they can’t.
1.5 years ago “Crypto-Anonymo” made this famous Medium post just as this worldwide pump and dump project was really getting going. Read it. You will see that Tethers are created right before the BTC price jumps, and in oddly round numbers… just like a factory. It’s important to realize that nothing I am saying here about what is happening is new. A large number of scholars and journalists have, throughout the years, shown over and over and over that Tether must be printing money out of thin air. The only difference in this document is that I believe we have managed to piece together the how. Both how they are doing it and how they are keeping the troops in line.
THE SOMETHING THAT HAPPENED
In Dec. 2021 Justin Sun moved to Grenada and became a diplomat by donating a lot money. Diplomats have immunity from prosecution. He then fired up a new scam of an algorithmic stable coin, USDD. The article about how he has been pursued by the authorities points out he’s always one step ahead of his pursuers. Seems likely either he got wind of an investigation or he just got paranoid and he bolted last year.
Now for some reason - prolly the same reason Justin Sun, who is often running from investigations, bailed - Tether is demanding the exchanges give back or burn the USDT. AEX/Hoo did not do as asked so Tether used the broken TRON chain to erase their tethers.
Yes, this is exactly my view, though I didn’t realize it until @tavit_ pointed it out to. Good looking out. Because that’s an incredibly important point.
Let’s look at what Paolo says:
Of course Paolo and Tether are telling us they met this crazy amount of redemptions! Tether is fully backed! You have nothing to fear! We’re honest bros in an honest bros’ game!
Have fun in spending the rest of your life in prison, Paolo. It’s gonna be a wild ride.
PS SOME OTHER STUFF THAT IS WEIRD BUT DOESN’T PROVE ANYTHING
Q: Paolo’s Tether Tweets are often going on about “rumours”. You know who else talks a lot about “destabilizing rumours”?
A: The government of China.
Q: Evergrande is an enormous property developer in China that blew up recently and wouldn’t pay off its debts. Given that we know Tether has Chinese commercial paper and also that Evergrande isn’t going to pay back any money to non-Chinese holders of its commercial paper, there has been suspicion that Tether may hold some Evergrande paper. But if you’ve ever talked on Twitter about Evergrande and Tether in the same Tweet you know that there are all these… accounts out there that are usually bots shilling Bitcoin but suddenly become sock puppets and come on your thread and attempt to squash the “rumours” about Tether holding an Evergrande paper. Take a look at these search results for one of them. Or here’s a screenshot. Does this look like an effective way to squash rumours?
Westerners who see this kind of thing instantly grow more suspicious. The English it’s fluent but it’s so… obvious. But you know who does do PR like this? Who are well known to do PR like this?
A: The Communist Party of China.
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According to Tether. Many numbers in this doc will need “according to Tether” appended to them.
It’s also totally bizarre that there are basically exactly as many tethers on the TRON chain as on the Ethereum chain… maybe they decided to only print 1 fake dollar for every real dollar? I dunno. It’s weird though.
Other algorithmic stablecoins are neither coins nor are they stable, but USDD really takes the price but also not having a visible algorithm.
I have seen someone else talking somewhere (or maybe it was Bennet’s thread) about how the “stabilization mechanism” includes a way for Justin Sun to "reinject" coins that he was supposed to burn… or something similar. Don’t quote me on that; it’s almost dinner time, I can't find the link, and for now knowing it’s broken is enough. Also this isn't a post about USDD. But If you remember the specifics of what I’m talking about please send it to me here or on Twitter! Moving on -
This tweet is the core of the argument so it’s worth a little exposition. First of all, who would tweet about “a billion dollar bank run” if that were not true? It’s just… weird. Judging by the frantic customer reactions I saw, the money did really seem to be missing. And having observed Rexy_Hoo on Twitter in the 3 weeks since the tweet they seem more overwhelmed than anything.
We also know that when Tether announced the burn it was an awfully round number. Tethers can be redeemed for dollars in units of $100,000. This wasn’t in units of $100,000, $1M, or $10M. It was in units of $100M. That's… weird. Very, very, very weird.
How weird? Let’s use smaller units that give equivalent calculations to get a better picture. Imagine there were $10,000 in the world and you had a bunch of people buying and selling stuff to each other all price levels for years and years. At the end of that activity, what are the odds that all the players in that market are holding a a number of dollars that is a mulltiple of $1,000?
This is sort of a fudge (mathematicians don’t come at me) but we’ll get the right order of magnitude. There’s only 10 numbers between 1 and 10,000 that end in “thousand” and there are 10,000 total numbers. 10 / 10,000 = 1 / 1,000. So it’s ~ 0.1% chance. There’s more to it in this case even if you add an entire order of magnitude fudge factor you come up with a 1% chance - and the fudge factor is not nearly that big.
This is called “a burn” in the language of Coiner.