The Tether Whitepaper and You

The Abstract

Is this traditional fiat currencies?
Could decentralized protocols do that?

The Introduction

  • Tether cannot be used “just like bitcoins.”
  • Tether Limited essentially performs no proof of reserves besides updating the blockchain.
  • There have already been proven liquidity constraints and redemption issues.
  • There have already been black swan events. Side note: I’ve never seen any company ever claim that they would be immune to black swan events.
  • Tether’s 1–1 backing claim is easier for non-technical users to understand. Too bad that is no longer the promise.

Tech Stack and Processes

Weaknesses

At first glance, it seems like Tether is relatively honest about the weaknesses around the concept:

  1. If the banks were so aware of how Tether was conducting business, they wouldn’t have dropped them.
  2. If Tether were in full compliance, $700-$800 million wouldn’t be frozen in a Bitfinex/Crypto Capital Corp bank account and they wouldn’t have to desperately seek out shady banks in the Bahamas.
  3. AFAIK, no one knows exactly where JL Van der Velde (CEO) or Giancarlo Devasini (CFO) are currently located. I visited the Finex offices in Hong Kong and found nothing. As for “rigid internal policies,” that’s patently false, considering they loaned their parent company hundreds of millions of dollars without letting the public know.

Main Applications

As far as main applications for Tether is concerned, generally, the Tether whitepaper is quite accurate. Without taking multiple screencaps, the ideas are something like this:

  • It is easier to send and receive Tethers quickly than to do so with traditional fiat currency (for exchanges and individuals).
  • It’s easier for Tether to reverse a fraudulent transaction than to do so with traditional cryptocurrencies like Bitcoin (where if the Bitcoin is lost, it’s lost forever).
  • Tether is less volatile than most cryptocurrencies and is therefore more likely to be used as a payment mechanism.
  • No bank account needs to be opened to acquire Tethers, so KYC/AML can be avoided, and if the Tethers can be spent after that, a consumer ensures privacy.
  • Easier to price goods in Tether than to constantly change the price of something due to the volatility of alternative and unpegged cryptocurrencies.

Conclusion

  • Tether again claims it receives regular profession audits, of which it has received zero. The conclusion is baseless.

Appendix (Questions)

The Tether whitepaper appendix takes up a full third of the entire whitepaper, so while it may feel like a slew of information for who-knows-who, there’s actually a lot of fantastic information buried in there.

  • Tether mentions a company called “RenRenBee,” a Hong Kong company, as the KYC/AML enforcer. This company was created around the same time as Tether and ceased to exist after the first renewal fee came up:

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