I have struggled for years to parse Tether’s behavior. It is very difficult to determine which of their inexplicable actions are motivated by incompetence, by negligence, by desperation, or by malice. Were they unbacked because they were taking advantage of their users, because they thought they had no better option, or because they didn’t realize that their disclosure was inadequate? More recent reporting has started to bring it into focus for me, but this post is going to be much more speculative than is my usual ilk. Take statements of fact as that, but when I speculate on the intent of Tether or its executives be sure to keep the appropriate amount of salt handy.
First, recent reporting by Bloomberg Businessweek (archive) has given us a new window into the period where Tether leaves Noble Bank and Phil Potter leaves his role as Chief Strategy Officer. They discuss how John Betts of Noble Bank insists that when Tether banked with him (you should probably read about the period right before though) Tether always had “in excess of 98% of their cash reserves and [Noble] received and validated monthly statements from their other account.” (The other account was in Stuart Hoegner’s name if you were not aware) They also go on to claim that Giancarlo Devasini wanted to invest Tether’s reserves so that they could earn a higher return and that Phil Potter disagreed. The end result was apparently Phil Potter being bought out in June of 2018 for $300 million. (For context the Tether marketcap was ~$2.5 billion at this time)
This period in June of 2018 is when we begin to see some extraordinarily interesting behavior from Bitfinex and Tether. Crypto Capital Corp was not responding to Bitfinex requests for withdrawals so Bitfinex ‘borrowed’ hundreds of millions of dollars from Tether, and in exchange credited Tether with inaccessible funds held at Crypto Capital Corp. This started a pattern of behavior that would eventually result in their investigation (and eventual settlement) with the NYAG. However, that is not all they were doing.
Giancarlo Devasini, the Chief Financial Officer of Bitfinex and Tether, in partnership with Silvano di Stefano, the Chief Investment Officer of Tether started a cryptocurrency hedge fund called BlueBit several months before this in December of 2017. A strange side gig for the Chief Financial Officer of two multi billion dollar companies, but perhaps makes sense if you are building up the infrastructure too much more aggressively invest with the funds that your clients have entrusted you with.
Furthermore, he was not the only c-level Tether executive who was diversifying his employment. Paolo Ardoino, the Chief Technical Officer for Bitfinex and Tether became a director for Delchain, the cryptocurrency focused offshoot of Deltec, where Tether was banking. Delchain then launched Fugur Alpha (archive) (after Paolo was no longer a director) a cryptocurrency focused hedge fund who Bitfinex touted when they were onboarded. Paolo even said (archive) ““It is really rare that a fund of this size chooses to trade almost exclusively in a single location. The onboarding of Fulgur Alpha cements Bitfinex’s position as the go-to venue for major crypto funds, market makers and arbitrageurs.”
None of this is definitive evidence of wrongdoing by Bitfinex or Tether. However, it reads to me that many of their countless errors may have been well-intentioned incompetence, or perhaps even more simply acts of poor judgement and negligence. However, it seems that when Phil and Giancarlo came to this moment in the summer of 2018 the overall tack of the organization seems to change to be much more aggressive, and very distant from their original promise to ALWAYS be backed 100% by cash.
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