Tether touts profits and new ‘compliance’ plan, loses transaction war with USDC

Tether can’t stop bragging about its alleged profits even as the cries grow ever louder for a U.S. law enforcement crackdown on the world’s largest stablecoin.

On May 1, Tether issued the latest attestation of the fiscal reserves allegedly backing the roughly $104 billion in circulating USDT at the end of the first quarter of 2024 (currently over $110 billion). Tether claims to have enjoyed a “record profit” of over $4.5 billion in the first three months of the year, but as always, the devil’s in the sparse details that Tether deigns to share with the public.

A reminder that the attestation, conducted as usual by BDO Italia, is based solely on data provided by Tether that it claims were accurate on March 31—not the day before, nor the day after. Take that for what it’s worth, but what it isn’t is a professional third-party audit, something Tether has been promising (but failing) to deliver for years.

And if you ever doubt that Tether is hiring only the absolute best and brightest to perform its ‘trust us, bro, we’re totally good for it’ attestations, consider that the original version of its Q1 report was rife with typos and grammatical errors. If that’s the crack attention to detail that BDO Italia is bringing to this table—and Tether management neglects/forgets to proof—then all we can say is uffa!

Anyway, back to the numbers. Of the assets backing the $104 billion in USDT, the majority ($74 billion) is allegedly held in U.S. Treasury Bills, $11 billion more than stated in Tether’s Q4-2023 attestation. The high rates of interest delivered by these T-bills, allegedly custodied by Wall Street giant Cantor Fitzgerald (NASDAQ: ZCFITX), are largely responsible for Tether’s alleged profits.

More alleged profit came via the BTC tokens that Tether claims to hold for investment purposes, with the fiat value of these tokens rising from $2.8 billion on December 31, 2023, to nearly $5.4 billion at the end of Q1. Tether doesn’t disclose how many tokens it holds, but the near-doubling in dollar terms largely reflects the value bubble that (until recently) BTC has enjoyed this year.

Tether still isn’t making much progress on reducing the value of its ‘secured loans,’ which totaled $4.73 billion at the end of Q1, down only about $65 million from the previous quarter. At this rate, Tether will fulfill its two-year-old promise to expunge these loans from its balance sheet sometime around, oh, never.

Tether has been using its alleged profits to splurge on outside investments, including a $200 million majority stake in Blackrock Neurotech, “the globally leading pioneer for Brain-Computer-Interface (BCI) technology.” (Note that this Utah-based firm has nothing to do with the Blackrock of Wall Street renown.)

Tether’s other significant news of late is the launch of USDT on the The Open Network (TON), a blockchain integrated with the Telegram encrypted instant messaging service. Originally developed in Russia, the Dubai-based Telegram has roughly 900 million global users and has been both praised for enabling dissidents to bypass censorship and criticized for serving as a conduit for Kremlin propaganda.

What makes USDT-on-TON unique is Telegram’s ability to provide fiat on-ramps, with off-ramps to bank cards/accounts in the pipeline. Despite only launching a few weeks ago, nearly $95 million of USDT has already been issued on TON. Asia-based users currently account for the largest slice (38%) of Telegram’s user base, followed by Europe (27%) and Latin America (21%).

Trouble with a capital (USD)T

Despite the rosy profits, Tether still can’t buy favorable media coverage that underplays its criminal ties. For instance, Reuters reported last month on Venezuela’s ongoing efforts to use USDT to conduct oil sales that can’t be done using U.S. dollars due to economic sanctions.

Venezuela’s state-run oil company PDVSA has been using USDT to evade U.S. sanctions for a while now, but the country’s oil minister, Pedro Tellechea, told Reuters that digital assets like USDT are becoming the ‘preferred payment method’ for some traders.

This has its risks for those buying Venezuela’s oil, as one trader put it last October. “USDT transactions, as PDVSA is demanding them to be, don’t pass any trader’s compliance department, so the only way to make it work is working with an intermediary.”

Last December, Tether updated its terms of service to add Venezuela to its list of prohibited markets while also claiming to be working with the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) to freeze wallets linked to individuals on OFAC’s Specially Designated Nationals (SDN) list. But Tether’s actions are largely reactive and inefficient, barring the door long after the USDT tokens have fled these digital barns.

On April 28, Reuters reported that Chinese firms looking to do business with OFAC-sanctioned Russians were increasingly turning to digital assets to evade the barriers thrown up by traditional financial institutions. While Tether went unmentioned in the report, an April 1 Wall Street Journal report stated that “for Vladimir Putin’s war machine, Tether has become indispensable.”

Look! Compliance! Seriously!

The April 30 sentencing of Binance founder Changpeng ‘CZ’ Zhao to four months in prison for violating U.S. anti-money laundering laws has led to all sorts of speculation as to who CZ might have ratted out to receive such lenient treatment. Tether looms large in this ‘crypto dead pool,’ given the pre-FDUSD dominance of USDT on Binance.

Making matters worse, the U.S. Department of Justice (DOJ) issued a superseding indictment on May 2 regarding a purported member of the famous Cartier family and five Colombian nationals. This unlikely gang is accused of “conspiring to commit money laundering based on their alleged participation in a network that laundered millions in Tether, which constituted the proceeds of drug trafficking, through the U.S. to Colombia.” Oops.

Clearly feeling the heat, Tether issued an announcement the same day regarding a new collaboration with blockchain data analysts Chainalysis to “develop a customizable solution for monitoring secondary market activity.” Tether claims this will offer new insights into USDT use “beyond the limited entities that directly buy and sell USDT from Tether.”

Tether offered no indication on when this new monitoring mechanism will be in place, nor whether the U.S. law enforcement agencies that Tether claimed to have ‘onboarded’ last December will have unfettered access. Regardless, hopefully, Tether makes greater progress on this front than its promises to conduct a proper third-party audit, because that ship never seems to come in.

It’s also worth remembering that Chainalysis entered into a similar partnership with Binance “to tackle global cryptocurrency money laundering” way back in 2018. How’d that work out again?

Sit right down, write yourself a letter

The same day Reuters’ China/Russia report was issued, U.S. Senators Elizabeth Warren (D-MA) and Roger Marshall (R-KS) sent a letter to a number of Biden Cabinet members, including the heads of the Departments of Defense (DoD) and Treasury, as well as National Security Adviser Jake Sullivan and Treasury’s under-secretary for terrorism and financial intelligence.

The letter references the Journal report and “rogue nations’—including Russia, Iran, and North Korea—reliance on cryptocurrency to evade sanctions.” The letter wants the recipients to detail what “additional authorities you may need in order to neutralize this threat” while observing that “Tether has become the cryptocurrency of choice for sanctions evaders and other bad actors.”

Warren writes a lot of these ‘crack down on crypto’ letters—she issued another one on May 2 about Iran’s token-mining efforts—and she and Marshall have collaborated on bills that would strengthen anti-money laundering and counter-terrorist financing requirements for digital asset firms.

But, the Senate banking committee on which Warren serves recently gave a mixed reception to Treasury’s plea for additional tools to combat Tether, with most of the pushback coming from Republicans wary of giving the Biden administration any more power.

Regardless, multiple bills that would regulate stablecoins are in play in the current session of Congress, all of which are far more welcoming to USDC-issuer Circle, Tether’s closest rival in the stablecoin game. Circle, along with the Coinbase (NASDAQ: COIN) exchange (Circle’s USDC partner), has begun urging Congress to take action against Tether by targeting Cantor Fitzgerald, the alleged custodian of Tether’s alleged T-bills.

Stablecoin transactions are 90% bots

USDC underwent a crisis of confidence following the near-loss of $3.3 billion of its reserve assets in the spring of 2023. USDC’s market cap swiftly sank below $24 billion but has regained some ground since, currently sitting comfortably over $33 billion (although still well off its mid-2022 peak of $56 billion).

Credit card giant Visa (NASDAQ: V) recently released a new tool that found USDC surpassing USDT in terms of monthly stablecoin transactions. There were nearly 167 million USDC transactions in April, about three million more than USDT.

This came despite USDT being used by 34.2 million unique wallets vs. USDC’s 9.6 million, and also the fact that USDT accounts for over two-thirds of the overall stablecoin market cap.

But a far more interesting stat came from Visa’s revelation that its new analytical tool can separate the transactions that give off the telltale signs of being produced by ‘bots’—such as accounts that initiated over 1000 transactions and $10m in volume in the last 30 days. Applying that filter, April’s total stablecoin transfer volume dropped from $2.65 trillion to $265 billion. In other words, 90% of stablecoin transactions aren’t human.

While Visa’s new tool only monitors on-chain transactions, many bot-driven stablecoin transactions are wash trades on exchanges intended to give off the impression of heightened consumer interest in this or that token so unsuspecting retail fools will rush in with their fiat currency and someone holding big bags of the things can use these rubes as exit liquidity. Never change, ‘crypto.’

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