Tether Company Claims to Have Made $700 Million in 'Profit' in Q4 but will Not Reveal How

During the tumultuous final quarter of 2022, the company behind the controversial Tether stablecoin claims that it made hundreds of millions of dollars in profits. Once again, we have to take this company's word for it, but it certainly seems likely.

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It was reported Thursday that Tether Holdings Ltd. released its latest quarterly assurance opinion regarding the financial reserves backing the tens of billions of USDT stablecoins that are currently gumming up the wheels of 'crypto' commerce.

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Tether's management asserts that as of December 31, 2022, its total assets amounted to 'at least’ $67 billion, which is approximately $1 billion more than its total liabilities at that time. It is further claimed that Tether booked a $700 million 'net profit' for the three months ending December 31.

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There is no evidence that Tether has ever made profits from it, according to its threadbare attestations, and it appears that this claim came despite a period of upheaval in the crypto sector that was unprecedented. There was an upheaval that was highlighted by the November bankruptcy of Sam Bankman-Fried's FTX exchange and its affiliated market maker Alameda Research, which had been the single largest recipient of USDT before the exchange filed for bankruptcy.

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There is a possibility that Tether's profit came from the interest it earned on the (allegedly) growing supply of U.S. Treasury bills. There is a possibility that it may have come about as a result of the bankruptcy of Celsius Network, a crypto lending platform last year. After filing for Chapter 11, Celsius announced it had borrowed over $1.8 billion worth of USDT from Tether, as collateral, and provided over $2.6 billion worth of BTC tokens as collateral, which Tether announced it had liquidated after Celsius filed for Chapter 11. The Tether team claimed that they had "returned the remainder of the part to Celsius" following this liquidation, but we can't help but notice that the difference between these two figures is in the neighborhood of $700 million.

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It was reported earlier this week that Tether's CTO Paolo Ardoino, a notorious flop sweater, had given an interview in which he praised Tether's ability to redeem $7 billion - 10% of its claims - during last year's crypto meltdown in just 48 hours.

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Ardoino claimed "hundreds of millions" of these redemptions were made through USDT borrowed from companies by short-sellers, which were then sold off on secondary marketplaces in an apparent bid to cause USDT to lose its 1:1 peg with the U.S. dollar. He warned that "before attacking a company like Tether, you should really make sure you have a good understanding of how it operates in the first place."

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In theory, that would be great, but Tether's own statements make it impossible to comprehend how it works. The idea of trusting its representatives is a fool's game, to put it mildly.

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Beguile, deceive, obfuscate

As part of its most recent assurance, Tether has engaged BDO Italia, the seventh or eighth firm it has engaged for such purposes within the relatively short period of time since it was founded. There is no doubt that Tether's claims are habitual, but these assurances are nothing close to what could be considered a thorough audit.

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In a report released by BDO Italia, the report states that its conclusions are entirely based on data supplied by Tether and that they "are limited to a point in time as of 31 December 2023." This is evidence of the meticulous care BDO Italia took to inspect Tether-supplied information. You have to admit, it seems that they traveled forward to the end of this year in order to conduct this report, which is pretty impressive. 

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Even if we were to assume that BDO was just fat-fingered in its attempt to type '2022,' we would still be unable to tell whether, as Tether has demonstrated in the past, it may have shuffled assets from a sister firm on December 30 and then returned those assets to that sister firm on January 1.

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BDO states that “activity prior to and after this time and date was not taken into account when testing the balances,” and that “we have not performed any procedures or provided any level of assurance regarding financial or non-financial activity on dates or times other than those stated in this report.” Additionally, “we do not give any assurance” regarding the notes Tether added to the report.

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In 2021, there was a fine of $42.5 million issued by the Commodity Futures Trading Commission (CFTC) against Tether because it lied about its reserves, and the New York Attorney General issued a statement saying that "Tether claims that its virtual currency was backed by U.S. dollars at all times were a lie."

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There is only one reason why Tether releases any information regarding its reserves: the NYAG enforcement action. It is possible that this latest report will be the last under the two-year requirement. A civil lawsuit in New York could result in the publication of Tether's financial dealings in the future. The fact is, if that happens, Tether will have the freedom to resume its previous cloak-and-dagger financial status for the time being.

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Tether's request to prevent the publication of financial documents that Tether provided to NYAG as part of the latter's 2021 settlement was rejected by Justice Laurence Love on Friday by the New York Supreme Court. The CoinDesk media outlet filed a freedom of information request for the documents—which detail the assets backing Tether's reserves—that same year. Love’s ruling is likely to be appealed by Tether.

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Cushioning the blow

There is $39.2 billion worth of U.S. Treasuries in Tether’s reserves, up from $30 billion in the Q3 report based on BDO’s breakdown of Tether’s reserves. In a report cited by the Wall Street Journal on Friday, unnamed sources claimed that Tether is using Cantor Fitzgerald to manage its bond portfolio, according to the Journal.

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According to Forbes, Tether and Cantor have also been linked, citing a source that claims Cantor's sister firm/trading desk, BGC Partners, has "bought and sold large volumes of Tether." Cantor is yet to confirm or deny the reports.

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There has been controversy surrounding Cantor's ventures into less traditional sectors even though it is a mainstay on Wall Street. There was a settlement in 2016 between a sports betting technology offshoot and a federal prosecutor for a $22.5 million penalty after federal prosecutors linked the company to an illegal messenger betting operation. There is yet to be a clear indication of whether ties to Tether will also backfire on Cantor in the future.

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In 2021, after the NYAG settlement, Tether moved $37 billion into Capital Union, a Bahamas-based bank. Deltec Bank & Trust and Ansbacher, which Deltec announced it had acquired in January 2022, are believed to hold Tether's other reserves.

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There is a close link between Deltec owner Jean Chalopin and the curious case of Moonstone Bank, which Chalopin acquired in 2020 and rebranded from its original name Farmington to Moonstone Bank. It was announced last March 2022 that Alameda had taken an $11.5 million stake in Moonstone at the same time that the bank announced a new crypto-focused strategy for the future. It appears though that the attention garnered by the FTX/Alameda bankruptcy seems to have blown their cover, and the bank announced last month that it would be “returning to its original mission as a community bank.”

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In a statement made last October, Tether announced that it had "eliminated commercial paper from its reserves," and its current assurance does, in fact, show an emoji when it comes to this category. However, it is important to remember that Tether had historically denied that its billions in commercial paper reserves had been issued by dodgy Chinese real estate firms in the past. Despite this, we can see in the recent court-appointed examiner's report on Celsius that Celsius executives requested information regarding "Tether's Chinese CP exposure" in an internal email. So who knows what's what?

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Even though Tether's reserves have been reduced by $300 million recently, the 'secured loans' still account for $5.85 billion worth of Tether's reserves. It is interesting to note that this is despite Tether's previous pledge that it would only issue USDT if “they were requested and purchased by customers.”

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A $700 million profit, when combined with a $300 million loan reduction, equals Tether's 'capital cushion.' Yet, it is not surprising that Tether's 'transparency' page shows a surplus of just $250 million, just ten days before the end of 2022.

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The transparency page, which indicates that it is "updated at least once every day", showed a similar surplus as late as February 6 when it claims to be updated every day. After someone pointed out that Tether's assurances were far from trustworthy, the page has since been updated with what is considered to be the 'correct' figure.

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It has been noted by more devoted Tether skeptics that “Tether's shareholder equity figure appears to remain near-static between attestation release dates, in stark contrast, to its sudden shifts on those same dates. This is entirely inexplicable.”

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Bad actors abound

As a man who enjoys piling on your leg and claiming that it is raining, Ardoino expressed pride in the fact that his company "has continued to be a driving force in rebuilding trust within the crypto industry" while also "setting itself apart from the bad actors of the industry." How is that possible? Are we going to make things worse by being even worse?

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In November of last year, the equally controversial Binance exchange released its own half-assed 'proof of reserves' which was criticized for displaying only assets instead of liabilities and was referred to as "hand-wavey bullshit" by other exchange managers. There was a time when Mazars, the accounting firm that prepared the audit, became so annoyed by Binance boss Changpeng 'CZ' Zhao's public misrepresentation of the report as if it were an actual audit that they dropped out of the crypto space altogether.

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The Asia-Pacific head of Binance, Leon Foong, told Trade Algo earlier this week that there was no way the company could release a full audit in the near future. This isn't Binance's fault, he said, whose concern for the rules can charitably be described as nonexistent, but rather the fact that cryptocurrency is not the core competency of traditional accountants.

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If Sam Bankman-Fried comes to his senses and realizes that he faces 115 years in prison for the role he played in the failure of FTX/Alameda, Ardoino and the rest of the Tether crew may soon find themselves tagged with their own scarlet letters. Due to his former role as one of Tether's largest customers, it is likely that he knows exactly where the bones are buried. It is almost certain that if he is forced to contemplate a life behind bars without the ability to play video games, he will be aiming to leverage whatever dirt he can find.

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Our money's on Ardoino taking home a Golden Raspberry sooner than he can possibly imagine if it is bad actors you are looking for.