USDT Alchemy: Concealment, Additional Issuance, Manipulation
Editor's Note: This article comes fromHoneycomb Finance News (ID: fengchao-caijing), Author: Hoho, reprinted by Odaily with authorization.
Editor's Note: This article comes from
Honeycomb Finance News (ID: fengchao-caijing)
Honeycomb Finance News (ID: fengchao-caijing)
, Author: Hoho, reprinted by Odaily with authorization.
There isn't much information on how Dutchman Ludovicus Jan van der Velde, Italian Giancarlo Devasini and American New Yorker Philip Potter met, but from 2013 , Bitcoin created an opportunity for them to work together
In May 2014, the "Willie Robot Scandal" exposed after the bankruptcy of Mt. Gox revealed a reality: in a place with low circulation, the price of Bitcoin can be manipulated.
For bitcoin investors, this is scary stuff. But for the aforementioned trio, it became an opportunity.
In the past 5 or 6 years, the team with these 3 people as the core has used 8 companies and several shell companies and shadow banks to build a "money-generating machine" in the emerging financial world of low liquidity and high volatility of cryptocurrency .
Just add a "T" after the abbreviation of USD, and declare that each USDT is backed by 1 dollar, and supports two-way payment between the two. The company named Tether has become a cryptocurrency within 5 years of its establishment. The largest stablecoin issuer in the market has created a stablecoin with a market value of more than $4 billion.
After the collapse of Mt. Gox, the exchange named Bitfinex became a leader among digital currency trading platforms during the same period, creating a daily turnover of 6.3 billion US dollars at its peak.
It was not until November 2017, when offshore investment documents involving more than 100,000 companies or individuals were leaked, that it was discovered that Tether and Bitfinex were controlled by the same group of people. Van der Velde, Devasini and Porter Is the main actual controller of these two companies.
The two companies involved in US dollar transactions have also attracted the attention of the US judiciary. The accounts of many companies, mainly Crypto Capital, which act as "shadow banks" for it, have been frozen or seized.
As the snowball rolled bigger and bigger, the traces left behind became more and more obvious.
In October 2019, the U.S. District Court for the Southern District of New York received a class action against Tether and Bitfinex. Five U.S. citizens holding cryptocurrencies acted as plaintiffs and brought the two companies to court. The allegations that attracted the most attention It is the first "market manipulation" on the list.
If this is confirmed, the thunderstorm of USDT does not rule out that it will trigger an avalanche in the cryptocurrency market.
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"Excellent" market
When Rafael Nicol announced the establishment of Bitfinex on the cryptocurrency forum Bitcointalk in 2013, Mt. Gox was already the world's largest bitcoin exchange, "handling 70% of the world's bitcoin trading volume".
Nicole has not been at the helm of Bitfinex for very long. He states on his LinkedIn page that after the successful launch of Bifinex in 2013, “a competent team of experienced investors took over the growing company to ensure its continued Counselors continue to help."
On April 1 of that year, the price of Bitcoin, which had been developed for more than four years, exceeded $100; 10 days later, under the stimulus of the economic crisis in Cyprus, Bitcoin was regarded as a safe-haven asset, and the price hit a record high, reaching $266; On November 28, Bitcoin broke through $1,000 for the first time, and its total market value reached $20 billion.
After that, a small wave of Bitcoin exchanges appeared, including Huobi and OKCoin, which were born in China at that time. That year, the total market value of China’s A-shares alone exceeded $2.8 trillion, which was more than 140 times the market value of Bitcoin.
Compared with the securities market, the market value of Bitcoin is small, the trading market is scarce, and the volatility is large. It is really not a highly liquid asset. According to financial theory, such a market is extremely easy to manipulate. But in the eyes of libertarians, dark web traders and speculators, it is an excellent choice.
In February 2014, 850,000 bitcoins worth $500 million were stolen from Mt. Gox, CEO Mark Capels filed for bankruptcy, and a large number of investors suffered losses.
In 2017, Mark Capels also admitted in court to having controlled a trading robot.
Since then, more academic articles have reached the same conclusion. Last year, some researchers observed Willy's account again and found that the price of USD against BTC increased by USD 21.85 during the 50 days when Willy was active; while the price of USD against BTC decreased by USD 0.88 during the days when Willy was inactive - Willy's Behavior can cause the exchange rates of all exchanges to surge dramatically.
After the theft of Mt.Gox, the "Wiley Report" brought the terrible "market manipulation theory", and the market confidence suffered a major blow. Throughout 2014, Bitcoin was falling, and there was no more "thousands" market.
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The person who signed the name Giancarlo responded that he was developing "Willie Robot"
But someone saw an opportunity in The Wiley Report. In June 2014, that is, one month after the report was published, a user with the ID "urwhatuknow" on the BitcoinTalk forum replied to someone else's post that he was developing his own "WillyBot" (WillyBot), signed by Janka Luo, Bitfinex Team.
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two secret weapons
Similar to Bitfinex after a change of ownership, Tether was not called by this name at first. Even the concept of "stable currency" comes from the company Realcoin before it changed its name.
In July 2014, the company claimed to have produced a stablecoin "backed 1:1 by an audited U.S. dollar reserve" in an attempt to "digitize the U.S. dollar and make the digital U.S. dollar accessible to the Bitcoin blockchain."
Four months later, Realcoin changed its name to Tether, and REACOIN also became USDT. Adding a "T" after USD, Tether declared that it can be exchanged with US dollars 1:1, and each USDT is backed by 1 US dollar. "When you want to redeem them, we will give you cash."
The generation of USDT is completely unilaterally controlled by Tether, and it was mainly issued based on the OmniLayer protocol of the Bitcoin network in the early days. After April this year, Tether began to generate USDT under these two standard protocols based on public chains such as ETH and Tron.
Its operating logic is also not complicated. According to the company's public process, users who want to buy USDT must first deposit USD into their Tether account, and then receive the equivalent USDT; users can also exchange USDT back to USD at any time, and Tether will transfer USDT from time to time Excess USDT will be destroyed.
In November 2014, when Tether officially acquired its new name, it announced a new partnership in the bitcoin space, "including a cooperation agreement with the Hong Kong-based bitcoin exchange Bitfinex." team. Since then, Bitfinex appears to have become Tether's spokesperson.
In September 2017, China, an important market for bitcoin transactions, encountered the most stringent regulation on ICO and digital currency exchanges. Go and never return.
Huobi Global and OKEx, which take the international route, launched USDT on the platform successively, and the remaining Chinese users got to know this stable currency that has been developed for 3 years. From the end of that year to the beginning of the next year, Bitcoin reached hit an all-time high of $20,000.
In the past 5 years, Tether has issued a total of 82 times, of which the number of destruction is only 5 times. The value of USDT is entirely derived from the US dollar reserve guarantee promised by its issuer Tether. As of now, USDT has a circulating market value of 4.05 billion U.S. dollars, which means that Tether should hold a deposit of 4.05 billion U.S. dollars in its bank account.
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After 5 years of issuance, the USDT circulation market value has reached 4.05 billion US dollars
However, contrary to USDT's open and transparent issuance mechanism, Tether has never publicly disclosed where its reserves are placed.
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Unlimited issuance
Since the birth of the first batch of USDT in October 2014, the number of USDT issued by Tether has been increasing every year.
May 18, 2015
200,000 new USDTs were produced, and the overall supply reached 450,000.
December 1, 2015
Tether issued another 500,000 USDT, and the overall supply rose to 950,000.
December 31, 2016
Tether issued 6 million USDT throughout the year, six times the amount issued in the previous year.
While Tether keeps issuing additional USDT, Bitfinex is correspondingly in constant trouble.
One of the troubles is the problem of user compensation caused by hacker attacks. On May 22, 2016 and August 2, 2016, Bitfinex was stolen 1,500 BTC (valued at 400,000 U.S. dollars at the time), 120,000 BTC (worth 7,200 U.S. dollars at the time). Ten thousand U.S. dollars). The second theft incident was the largest hacking incident in the history of Bitcoin after Mt.Gox. Due to the heavy losses, Bitfinex was unable to lose money. It tried to tide over the difficulties by issuing the bond currency BFX with an initial price of $1. , but BFX once fell to $0.3.
Another trouble is the fine - on June 2, 2016, the US Commodity Futures Trading Commission accused Bitfinex of providing illegal over-the-counter financial retail commodity transactions for Bitcoin and other cryptocurrencies, and failing to register as a futures commission in accordance with the requirements of the Commodity Exchange Act merchant, fined Bitfinex $75,000.
The chain reaction caused by these two troubles has appeared one after another since 2017.
On March 31, 2017, Wells Fargo no longer provided correspondent banking services to Bitfinex and Tether. The US Commodity Futures Trading Commission’s fine on Bitfinex was an important reason. The two companies have since filed a lawsuit against Wells Fargo.
Only then did people know that in the early days, Bitfinex and Tether were used to meet the needs of customers to redeem US dollars, which had been completed by their American correspondent bank accounts opened in Taiwan banks.
The unusable bank accounts directly blocked Bitfinex and Tether’s US dollar deposit and withdrawal channels: first, their income from operating digital currency businesses could not be turned into cash; second, without user deposits, they could not continue to issue according to their declared methods, etc. In addition, if there is no US dollar account, where is Tether's so-called reserve fund?
"It's getting harder and harder to turn over funds." Two weeks after Wells Fargo stopped its services, Porter, Bitfinex's chief strategy officer, told the cryptocurrency trading community WhalePool that Bank of America is withdrawing from the offshore bank clearing business because "in In many money laundering and criminal cases, banks are held accountable for their correspondent banking business”, “money laundering is their biggest concern”.
But Porter also said that Bitfinex will continue to evade the law, "We have other ways, and engaging in the bitcoin industry is actually playing a game of cat and mouse with correspondent banks... The downside of being a big company is that we have a lot of deposits in the bank, You can no longer hide from the 'radar' like you used to..."
Some evidence shows that Bitfinex has been using the "trick" of shell companies to open and use bank accounts to open up access to US dollars. From 2013 to 2018, these channels include Hong Kong's Renrenfeng (declaring independent existence, for Bitfinex provides compliance services such as KYC/AML), Haparc B.V. in the Netherlands, Rongli Commercial Co., Ltd. in Hong Kong, etc. Among them, the most trusted company is Crypto Capital registered in Panama, which is more like a " "Shadow Bank" has been helping Bifinex and Tether to process USD deposits and withdrawals.
After the Wells Fargo incident broke out, USDT dropped to $0.91 for a short period of time. As a stablecoin that claimed to be anchored 1:1 with the U.S. dollar, it was "unstable" for the first time, and doubts about the U.S. dollar reserve began to spread.
The fact that the U.S. dollar is so difficult to access has not prevented Tether from issuing new USDT in 2017.
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Intensive issuance of USDT in 2017
Throughout 2017, Tether issued about 1.4 billion USDT. During this process, Bitcoin also rose all the way. Even though China’s local exchanges, one of the largest trading markets at that time, encountered regulatory crackdowns, the currency price rebounded quickly after only half a month of falling.
relationship exposure
The accounting firm Friedman LLP’s audit report for Bitfinex stated Tether’s dollar reserves. This once again makes the outside world suspect that Tether and Bitfinex have some kind of close connection.
It was not until November 2017 that the close relationship between the two parties was officially confirmed.
An offshore investment document involving more than 100,000 companies and individuals in the "tax haven" country was leaked. The document was called the "Paradise Papers", and it also completely kicked out the same group of people who controlled Bifinex and Tether. Facts: Bitfinex’s chief strategy officer Porter is a director of Tether, and CFO Devasini is a shareholder of Tether. The two established Tether in the British Virgin Islands in 2014; and the company’s CEO Ludovicu S. Jan van der Velde is also the CEO of Bitfinex.
3 People Control Two Companies, Tether and Bitfinex
There isn't much information on how exactly Dutchman Ludovicus Jan van der Velde, Italian Giancarlo Devasini and American New Yorker Philip Potter met and got together" Planned" two companies.
A year ago, someone posted on Reddit asking, "Who is Ludovicus Jan van der Velde?" He said he couldn't find much information on the Bitfinex CEO, and LinkedIn There are only a few sparse profiles on the Internet, with blurry photos, and when the media reports on him, his name is often written differently. "Who is he? Is he just keeping a low profile? Is there anything else going on here?"
Indeed, the information about him included on the Bloomberg website and LinkedIn is somewhat different. The former shows that he worked at Taiwan University of Science and Technology, while the latter does not list this part of his professional resume. Instead, his educational experience shows that he worked in Taiwan from 1985 to 1988. Studied at National Taiwan Normal University.
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Van der Velde's LinkedIn profile
More often represented by Bitfinex is its chief strategy officer, Philip Porter, who is more informative. After graduating from Yale with a degree in physics in 1994, he worked for a while at hedge funds before joining Morgan Stanley in November of that year. As a result, in 1997, the 25-year-old Porter was fired from the company for bragging about his $3,500 Rolex, lavish lifestyle and aggressive money-making strategies in The New York Times.
Nor was the exchange's chief financial officer, Giancarlo Devasini, who founded a computer hardware company in the 1990s and was fined 100 million Italians in 1996 for selling pirated copies of Microsoft software. lira.
In any case, 3 people from 3 different countries, starting in 2013 and then concealing the apparent connection between the exchange Bitfinex and the stablecoin issuing company Tether, simultaneously manipulated these two commercial systems: one responsible for issuing A stablecoin that claims to be equivalent to the U.S. dollar, and another set is responsible for replacing the U.S. dollar with this stablecoin and sending it to the market to buy Bitcoin and other cryptocurrencies.
The question is, are these "gold" that are regarded as deposits really backed by US dollars? If not, then USDT has become the most terrifying "air currency" in history.
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Market manipulation?
Less than half a month after the "Paradise Papers" were exposed, Tether claimed that it had been attacked, and 31 million USDT was transferred from Tether's reserve wallet to an unauthorized Bitcoin address. To this end, Tether initiated a hard fork to prevent these funds from being transferred.
The occurrence of the "hacking incident" directly caused users to be unable to redeem US dollars from Tether and Bitfinex.
The days when Bitcoin stood at the peak of $20,000 did not last long. On January 31, 2018, the crash began. With the decline in currency prices, the speed of Tether's additional issuance has increased significantly. In January alone, Tether issued 850 million USDT, which was larger than any previous month's issuance. Among them, about 250 million USDT were issued when the price of Bitcoin collapsed in the middle of the month.
Tether continued to issue more, and Bitfinex raised the transaction threshold after resuming new user registration: deposit 10,000 US dollars or equivalent cryptocurrency to trade, and some users who did not meet the standard found that they could not withdraw fiat currency.
It seems that the speed of Tether's additional issuance obviously cannot keep up with the speed of bank deposits. The most important problem affecting its deposit is that the shell companies or agent banks it is looking for around the world have been seized one after another.
In January 2018, Bitfinex instructed customers to deposit funds into a bank account of Haparc B.V. in the Netherlands. The bank closed the company's account a month after Bloomberg reported it.
In October, Bitfinex used the Hong Kong bank account of "Rongli Commercial Co., Ltd." to conduct US dollar transactions through the agency account of Citibank. Afterwards, this account was also closed.
During the same period, the news that NobleBank, Tether's custodian bank, would be sold was blown up. Some people began to question on the Internet that Bitfinex lost the ability to pay US dollars. On October 11, Bitfinex announced the suspension of fiat currency storage, which exacerbated market panic.
On October 15, the stablecoin USDT reappeared as "unstable" and fell to $0.92. Its price dropped as low as $0.85 on the Kraken exchange.
Regulatory pressure has kept Tether and Bitfinex struggling to settle in U.S. dollars. The Attorney General of New York has accused Bitfinex of being unable to meet customer withdrawal requests due to the inability to withdraw funds held by Crypto Capital. The direct cause of this dilemma is the bank accounts of several Polish companies involved in money laundering by Crypto Capital. In April 2009, it was seized and frozen by the local law enforcement department.
During the period when bank accounts were closed one after another, public opinion and regulatory authorities began to notice a voice: Tether and Bitfinex manipulated the price of Bitcoin.
One of the important research evidences is that in June 2018, professors John Griffin and Amin Shams published "Bitcoin Is it really not tethered to (Tether)? " analysis article.
Griffin analyzed the additional issuance of USDT from March 1, 2017 to March 31, 2018, and concluded that USDT-driven price manipulation accounted for half of the increase in Bitcoin prices.
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From 2016 to 2019, the relationship between Bitcoin price and USDT issuance
He believes that the USDT issued by Tether during this period is more in line with the role of "supply-driven" rather than issuance under real market demand. Since Tether controls the distribution rights, Bitfinex and it can set a strategic price ladder to trigger the execution of buy orders with unsupported USDT. "Like the Willy robot, continuous buying will lead to an increase in the price of Bitcoin."
After Griffin checked more than 10 different sources and more than 200G of transaction data, he concluded that when Bitcoin fell, USDT was issued to buy Bitcoin, but when Bitcoin rose, there was no redemption data. reflect this. Therefore, he believes that USDT is used to prevent the decline, rather than real market trading behavior.
Regulators have also begun to take note of the special relationship between the two companies. On November 20, 2018, Bloomberg reported that the U.S. Department of Justice is cooperating with the Commodity Futures Trading Commission (CFTC) in criminal investigations. .”
A week later, the New York State Attorney General's Office subpoenaed Bitfinex and Tether. After half a year of legal entanglement with the New York Attorney General, in September this year, a report by the New York Attorney General confirmed that Bitfinex has the ability to implant trading robots like "Willie Robot", "Bitfinex provided Some 'special order types', 'useful only to professional autotraders using complex algorithmic strategies, where orders can be submitted and withdrawn, in response to market signal."
Questions from public opinion, academic analysis and research, investigations by the judiciary, and multiple evidence point the two "sister companies" in the direction of manipulating the Bitcoin market.
In October 2019, five U.S. citizens holding cryptocurrencies filed a class action lawsuit against related companies and natural persons such as Tether and Bitfinex as plaintiffs. In the lawsuit to the District Court of the Southern District of New York, the first allegation listed in the cause of action is "market manipulation."
