The crypto industry has long been a popular target for skeptics due to a number of high profile blowups, frauds, and scams. The history of bad actors in crypto is unfortunately much longer than we would hope it would be.

Despite the intense focus that skeptics and critics have on the industry, it is surprising how many of the actual bad actors, frauds, and unsustainable investment schemes flew completely under their radar. Tether has been a popular target for many of these skeptics, journalists, and even mainstream media outlets for years.

Given this, a fair question to ask is: How many of Tether's entrenched critics warned about FTX, Alameda, BlockFi, Genesis, Celsius, 3AC, or Terra, just to mention a few? Surely individuals and entities that are focused on rooting out bad actors and protecting investors would have also at least investigated these entities with the same energy they spend combing over every detail of Tether's operations? 

Disappointingly, the answer is "No". 

Critics and media outlets have spent years criticizing, investigating, and warning against the purported "ever impending" failure of Tether, yet they were completely asleep at the wheel as a hugely significant portion of the crypto industry imploded due to irresponsible leverage, outright fraud, and regulatory arbitrage. Does this add to their credibility? Does this prove their understanding of the crypto market?

How could they call for Tether's impending collapse every time the price of crypto assets dropped more than 15% and totally miss the structural grift that took down practically every lender and destroyed billions and billions of dollars of wealth?

Unfortunately, rather than introspect, apologize, and self-correct it appears that most media outlets have doubled down.

"Bank Runs"

One narrative that has been repeated is that FTX was simply the victim of a bank run. A bank run occurs when a large number of customers of a bank or other financial institution withdraw their deposits simultaneously over concerns of the bank's solvency.

Every organization is responsible to properly manage its own assets and liabilities, to meet its own payments schedule, no different from any household.

Calling FTX a bank run is either the height of ignorance or amounts to political cover by media outlets who spent the last two years writing hagiographies of Sam Bankman-Fried and would have a tremendous amount of egg on their faces if they were to admit the reality of the situation.

Let's be clear: there are two main reasons you cannot characterize FTX as a "bank run":

1. Crypto exchanges are supposed to protect customers’ deposits while allowing them to invest, not lend client assets to a related party (e.g., a company with shareholders in common) and speculate with clients’ money. 

2. FTX didn't just lend out customer deposits and was unable to recall the loans in a timely manner. It used them to engage in a series of increasingly risky bets and suffered losses. The money might be lost, but time will tell. That is what raised the customer concerns.

The rationale some people and media outlets have given is that we don't have all of the information. This is, of course, correct. More information is needed to know the details.

However, these two basic points have been more or less stated by SBF in his interview with Vox, so it is challenging to understand why we "need more information".

Say the Right Things, Look the Right Way

How did all of this happen? How did FTX manage to get so much fawning coverage while operating such a large structural failure?

A big part of it is that SBF knew how to play the game. He crafted a carefully curated persona that "said the right things". He also "looked the right way". 

More importantly, this specific case is a clear example of how part of mainstream media, either for political reasons, or for hefty checks (or donations, as they prefer to call them), is ready to look the other way. For them, it’s not about sending a message; it’s about the money.

The evidence is reinforced by the fact that, even after SBF clearly stated that he was carefully constructing his persona for the media, the same media keeps supporting him without shame. Hopefully information about these donations will be public as part of the information revealed by the bankruptcy process.

Arthur Hayes discusses this dynamic in much greater detail in his piece here.

Interestingly enough, a similar pattern can be seen with respect to Silbert’s group DCG. While DCG, their core product GBTC and one of its companies Genesis have been subject to similar concerns expressed by many sides of the crypto community (good summary here), including reportedly having to quickly raise billions in capital to cover a substantive hole in their balance sheet, it seems the mainstream media have been extremely reluctant to report on this matter, or chosen to ignore it.

Moreover, while CoinDesk has been focused for years on Tether, including trying to access Tether's private reporting to the New York Attorney General, in the name of transparency, it failed to ask for the same transparency from its own owner. 

Yes, CoinDesk is owned by DCG.

And yes, DCG is also an investor in Circle, a direct competitor to Tether. 

Coincidence? Who knows…

DCG's main product is trading at close to a 50% discount all while they extract a 2% fee from the full value of the assets (which investors cannot realize). Investors are trapped in a product which has turned toxic, which DCG could fix by dissolving the product. 

GBTC was a critical pillar of the failure of Blockfi and 3AC. DCG gave these investors a backdoor to issue GBTC shares at a discount and extract value from retail investors. When this trade blew up it took both parties down.

And Genesis was not just an enabler of the entire FTX fiasco, they lent FTX cash against worthless collateral eventually leading to  a disaster for both the entire industry and FTX customers, they also enabled the Terra blow up by facilitating the trades and borrowing against worthless UST collateral.

We wonder if the devastation and widespread fraud of the last several months could have taken place without DCG. 

Where is the Op Ed on DCG? Where are the calls for scrutiny? Tether has been the target for all financial stability concerns in the crypto industry, yet at the end of the day Tether appears to be one of the only adults in the room with actual risk management and functional business practices.

It shouldn’t be surprising that media is weaponized against competitors, for political or monetary reasons, but if media control starts to be used to cover potentially compromising behaviors, it’s just simply surreal and filthy.

On Making Up Your Mind

It is impossible to know why so many of these organizations received zero scrutiny from media outlets and skeptics, and why Tether continues to receive so much. This is despite the Consolidated Reserves Reports and the independent assurance attestations, published over almost two years, on Tether’s website.

However, it may be at least in part due to the dangers of making up your mind in advance. This means that these parties have already decided what they believe is true.

In this view of the world, it is a foregone conclusion that Tether is the "real risk" and so, much like SBF's moral justifications of his actions, the ends justify the means, the facts notwithstanding

There is no point in staying open to new information or to questioning one's assumptions when you arrogantly suppose that you already "know" the answer.

Much like a horse with blinders on, you can only see the thing that you have placed right in front of you and everything else (FTX, etc. ) is simply outside of your field or vision.

After all, "everyone knew" Tether was "sketchy" and, concurrently, "everyone knew" FTX was a highly profitable business supporting the most important political causes.

It looks like "everyone" was wrong!

Volatility and Stability 

During times of high volatility, investors are frequently concerned that something will break, and given how many formerly-perceived stable firms have gone bust this year, that is understandable.

Tether's reserves remain well-positioned to navigate through this turbulent period in the traditional financial markets since investments are predominantly short term. Tether's reserves overwhelmingly maintain their value and liquidity independently from any drawdowns in the financial markets or in crypto/digital asset prices.

Recently the WSJ published an article calling into question Tether's secured loans and insinuating that they may pose risks to Tether's redeemability.

The article had many misconceptions of Tether and USD₮, the most glaring of which was the claim that because Tether's secured loans of USD₮ were denominated in USD₮, Tether was exposed to a decline in the value of USD₮. 

This completely misses the mark and mistakes the USD₮ itself for the collateral that underpins it. Tether's secured loans are extremely overcollateralized and even backstopped by Tether's additional equity if needed. 

The Equity is now growing quickly so that 82.45% of total Tether reserves are in US Treasuries and other cash equivalents whose yields are at multi-year highs. Between the high level of liquid overcollateralization, as well demonstrated publicly in the case of the Celsius failure, a growing equity cushion for an increasing rate environment and Tether’s precise and thorough risk management, it is rather difficult to think of a scenario where secured loans present a risk to Tether's ability to redeem USD₮ tokens.

While many companies, including some public ones, YOLOed into lending programs based on pinky swears, Tether keeps educating the market and even Wall Street's Old guard on risk management.

Additionally, the WSJ misses the point that in a secured loan that a decline in the price of USD₮ tokens is immaterial since these declines only reflect exchange value and not redemption value for the underlying collateral. As with practically all things, the collateral is the asset which truly matters. Not what USD₮ trades for on a given day.

How Does Tether’s Secure Lending Program Work?

It’s something like what private banks do with their customers. We use this analogy, so that this simple concept can be understood easily and everyone can call his own banker to ask questions directly, instead of publishing an article or a tweet. 

When a private banking client needs some short term liquidity and he has an important investment portfolio that he does not want to sell, the client asks to pledge his portfolio for the  short term liquidity. The bank decides the value that can be attributed to the collateral pledged (the so-called lending value) based on the liquidity of the instruments, the currency, the type of the instruments, the issuers, and other factors. If the price of the pledged collateral decreases in value, the bank contacts his client and asks the client to reimburse the short term loan or to provide additional eligible (liquid) collateral. This is referred to as a margin call.

If the bank request is not fulfilled by the client, the bank immediately exercises the collateral by selling it in the market and collects the cash that the client owes to the bank to reimburse the loan. The bank is not selling the client loan to another financial institution or a crypto company as the WSJ seems to be convinced about.

Tether’s lending program works in a similar way but, as Tether did its own homework professionally as usual, benchmarking other financial institutions, with more conservative lending value (see definition above) compared to well known banks and stringent requirements regarding margin calls. And more importantly Tether always requires wide overcollateralization by extremely liquid assets.

While banks are generally allowed to end up in a fractional reserve scenario, this is not the case for Tether. Tether collateral size and quality ensures that Tether backing remains above 100% at any time 

Tether lending policy is very conservative and the margin call very effective as was demonstrated in the case of Celsius. If it was not the case, as mentioned in the article, Celsius would not have been able to recover anything. Instead of recognising and showing some appreciation of it, the article presents it in a discriminatory way, once again with reference to the need of disclosing the collateral in Tether reports. Tether is not aware of regulated banks disclosing it. We also would like to emphasize, as already mentioned to journalists, that Tether is not purchasing any distressed loans from companies in financial difficulties, but rather offering an overcollateralized facility to eligible clients while controlling the collateral/pledge. 

Tether’s clients take advantage of the unique utility that Tether tokens offer, being by far the most accepted and reputable stablecoin in the world.

Tether is professionally managing its reserves because it’s committed to guarantee any clients’ redemption with the same liquid reserves that are reported in the Transparency page, in the CRR report on which a top-5 audit firm published an independent attestation also made publicly available on the website.

Tether is profitable and will remain solvent even in critical scenarios. Tether is not gambling clients money but is and has been accurately managing its reserves and does not apply fractional reserve. 

Tether is weary of explaining to “savvy journalists” that write “articles”  how basic financial industry products and Asset-liabilities management works.