The precarious state of Tether (USDT), the ever-present 1,000 tonne elephant in the crypto asset-themed room, can no longer be ignored.

At the time of writing USDT is trading for $0.93 vs. USD and $0.90 vs. TrueUSD, a regulated fiat-collateralized stable coin. Spreads across USD and USDT exchanges now exceed $500, having peaked at $1,500 this morning.

On Thursday October 11th I wrote the following in preparation for this week’s newsletter. I remain slightly confounded as to why it took another 5 days for the wider market to react.


USDT: The Reddest of Flags

All signs point towards the imminent collapse of Tether

Rumours of Tether’s (USDT) insolvency are a staple of the crypto asset industry.

Initially I considered myself part of the skeptics camp: the persistent refusal to release full audits did not instill confidence that USDT was fully collateralized, and it seemed largely apparent that there was no easy way for the average investor to redeem USDT for USD.

Around January/February 2018 I reevaluated my position: how could Tether possibly be insolvent when crypto asset exchange BitFinex, which shares the same operators, was generating multi billion dollar profits?

The markets seemed to have shared my shift in sentiment, with USDT maintaining a near-perfect peg to USD since Februrary 2018 following a period of marked turbulence in the final months of 2017.

And now, roughly 8 months later, I’m back in the skeptics camp!

The End is Nigh

For the first time in 8 months USDT has broken its peg from USD and it has done so in dramatic fashion.

To many, this peg-breaking does not seem particularly significant — indeed, the peg broke numerous times throughout 2017. I have since spoken to several active industry participants, none of whom have so much as batted an eyelid at this instance of peg-breaking.

However, within the current market context, this situation seems more alarming, and thus deserving of attention, than usual.

Banking Relationships Sour

Tether, which commands a $2.68bn market cap and over $3bn in daily volume, recently ended its relationship with Noble Bank.

Since then it has opened a private account with HSBC under the name ‘Global Trading Solutions’.

The Block’s Larry Cermak notes, “it was not clear whether HSBC is aware that Bitfinex was banking with the firm. Now it appears that the private account is no longer functional. Bitfinex currently has no active method of deposits as all USD, EUR, JPY and GBP deposits are paused.”

Cermak’s report does not explicitly comment on withdrawals and to my knowledge withdrawals have not officially been halted (although there are numerous complaints surrounding the withdrawal process).

Nevertheless, that customers are no longer able to deposit into Tether’s bank account raises serious questions as to the state of their accounting, and consequently the ability for USDT holders to seamlessly redeem their holdings for USD.

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October 16, 2018

Last week I featured Vlad Zamfir’s Governance 101 article, which outlined the various challenges – with emphasis on coordination mechanisms (or lack thereof) – to governing decentralized systems.Governance 101 was great.

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October 9, 2018

In last week’s CryptoChat I briefly discussed the Fee Ratio, a new Key Performance Indicator proposed by Nic Carter, founder of CoinMetrics and Managing Partner at Castle Island Ventures.The Fee Ratio measures total miner revenue as a percentage of transaction volume, providing a sense as to what percentage of transaction volume will have to be paid in fees in order to maintain existing security levels once block rewards eventually trend to zero.

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October 2, 2018

A major bug was discovered in the Bitcoin Core client this week: had it been exploited, an attacker would have been permitted to:a) print unlimited coins, thereby decimating the sacrosanct 21 million supply cap b) mount a denial of service attack, forcing honest nodes to go offline

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September 25, 2018

Leading crypto asset fund Polychain Capital was the subject of an unflattering Wall Street Journal profile this week.Having realized over 2,000% returns in 2017, Polychain’s assets under management (AUM) have now shrunk by 40%, the result of a combination of investment losses and investor redemptions.

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September 18, 2018

New York’s leading crypto asset exchange, Gemini, announced the launch of their own US Dollar-collateralized stable coin (SC) this morning. GeminiUSD (GUSD) exists as an Ethereum-based token (ERC20 standard) and will be regulated by the New York State Department of Financial Services (NYDFS). You can check out the GUSD smart contract here.

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September 11, 2018

The Ethereum community has come to consensus regarding its inflation rate: Constantinople, the hard fork planned for October, will include a reduction of the block reward from 3 ETH to 2 ETH, with the Uncle reward falling by the same rate. As a result, ETH's approximate inflation rate will be 4.7% at the start of 2019, down from 7.2% at present. For comparison, BTC inflation currently sits at 4.11%. It is expected that the issuance rate will be revisited 8 months after Constantinople, with the community analyzing the effects of reduced block rewards on network security and adjusting parameters accordingly.

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September 5, 2018

Vitalik details the history and state of Ethereum’s Casper research, touching on the great FFG vs. CBC debate, the transition from hybrid to full Proof of Stake implementation, and the role of randomness.Confused as to where we stand today?

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August 28, 2018

Leading mining hardware manufacturer and mining company, Bitmain, is back in the headlines for all the wrong reasons.Bitmain recently secured pre-IPO investments from Tencent and Softbank at a valuation of $15bn, having been valued at $12bn in June following a $400m funding round. Bitmain is expected to list on the Hong Kong Stock Exchange in September at a valuation between $30bn-$40bn.

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August 14, 2018

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August 13, 2018

Cuy Sheffield has published a fascinating thesis for Ether (ETH), Ethereum’s native digital asset, as a Store of National Security.In order to fully understand Sheffield’s thesis it is worth reviewing the various competing value capture narratives driving this market: Fat Monies; Protocol Wars; Tokenized Securities, and dApps. Nathaniel Whittemore does a phenomenal job summarizing these narratives here.

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August 10, 2018

BlockFi, the leading crypto asset-to-USD lender, announced that it has raised $52.5m from Mike Novogratz’s Galaxy Digital Ventures to expand operations, marking the first institutional investment in the crypto asset backed loan industry. $50m will be reserved to lend capital on the platform, with the remaining $2.5m acting as an equity investment.BlockFi currently operates in 42 US states — with plans to expand into the remaining 8 in the near future — and is backed by other leading investors including ConsenSys Ventures, Kenetic Capital, and SoFi.

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July 31, 2018

The conversation around EIP-999, the proposal to recover funds stuck in the Parity multi-sig wallet, resurfaced this week after Ryan Zurrer, a partner at the prolific Polychain Capital, published an article laying out a path towards Ether fund recovery. Disappointingly, Ryan did not disclose that Polychain is a large investor in Polkadot, the Parity-led project most affected by the frozen funds.

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July 25, 2018

Plenty of controversy in the last two weeks around the Zcash (ZEC) Founders Reward (FR).

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July 17, 2018

Eric Meltzer, INBlockchain: “If the cheapest anyone got involved with your project is at a $200m valuation, then you simply cannot have a community similar to that of Bitcoin, where there is a mass of HODLers who got in at a very low price and are almost completely unperturbed by subsequent price volatility.”

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June 26, 2018

After what felt like centuries of uncertainty, the U.S. Securities and Exchange Commission (SEC) has issued a statement declaring that the Ethereum network has reached a level of decentralization such that its native digital asset, Ether (ETH), should not be regulated as a security.

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June 21, 2018

Several interesting developments on the EOS front this week as the smart-contract platform attempts to move towards a mainnet launch.

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June 12, 2018

All eyes on EOS this week as the firm behind the software production, Block.

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June 5, 2018

Leading crypto asset exchange Coinbase acquired Paradex, a 0x relayer, this week.

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May 29, 2018

Brian Venturo, CTO of Atlantic Crypto, published an analysis of the economics of Casper FFG, Ethereum’s hybrid Proof of Work/Proof of Stake consensus mechanism.

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May 25, 2018

The response to my EOS critique has been overwhelming: close to 1,000 comments across various Reddit threads; over 2,000 likes/upvotes; over 10,000 reads on Medium, and even a reaction from EOS founder, Dan Larimer.

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May 8, 2018