The Future of Money: The 3 New Ideas You Need to Know This Week (Issue 64 - 10 October 2021) - The Tether Debate, Athletes & Crypto, Blockchain vs DLT

Dear Friends,?

Welcome back to my weekly newsletter where I share some of the major developments on the future of money that you need to know about!

Make sure to subscribe (and join the 44,000+ others who have done so) to receive your Future of Money newsletter in your inbox every weekend!?

If you enjoy this content, you will also love what I post on Twitter (@HenriArslanian) and the library of videos on my YouTube channel.

Here we go!

Powered by?ACX

1. Why is the Tether Stablecoin Debate Back On?

The debate around the US dollar stablecoin Tether resurfaced after Bloomberg published a lengthy article titled “Crypto Mystery: Where's the $69 Billion Backing the Stablecoin Tether?”

And it featured the topic on the cover of Bloomberg Businessweek.

Source: Bloomberg

Tether responded to the article with the following statement: “The Bloomberg BusinessWeek piece published today is a one-act play the industry has seen many times before, taking snippets of old news from various places and dubious sources, and making it fit a pre-packaged and pre-determined narrative.”

Whilst the article indeed mentions nothing new or meaningful, it brought the topic of Tether back in the discussion.?

To fully understand the debate, it is worth understanding the history of Tether.

Launched in 2014, Tether was one of the earliest US dollar stablecoins to hit the market.

It has since grown into easily the most popular and widely held stablecoin in the ecosystem, judging by market cap.?

Tether tokens exist as digital tokens built on most of the large blockchains networks, including Bitcoin (Omni and Liquid Protocol), Ethereum, EOS, Tron and Algorand, to name just a few.

Tether also supports several of the world’s major currencies, including US dollars (USD), euros (EUR), and the offshore Chinese yuan (CNH), although USD is by far the most popular.?

Whilst Tether is not regulated, it has nearly 70 billion of supply at the time of writing, more than any other stablecoin out there.?

Source: The Block

There have been numerous allegations against Tether over the years, but the three most serious claims are:

• that its tokens are not fully backed by reserves;
• that its reserves were used to cover the shortfall of Bitfinex (a related crypto exchange); and
• that Tether coins have been used to manipulate the price of Bitcoin.?

Let’s tackle them one by one.

The allegations that its tokens are not backed by reserves have always been lingering around Tether due to the fact that it is not regulated.

Tether tried to address this issue by having a law firm confirm that the U.S. dollar balances are indeed in accounts owned or controlled by Tether at its bank.

Tether also started publishing its balances and the composition of its reserves as part of its transparency efforts on its website.

For example, it turned out that 75.85% of Tether’s reserves are cash or cash equivalents.?

But 65.39% of those cash or cash equivalent reserves are commercial paper, on which there is no information.

Source: Tether

Tether also publishes a quarterly independent accountant’s report that includes a consolidated reserves report.?

Source: Tether

But the reality is that getting granular data is difficult and none of the regulated peers of Tether offer any additional information.?

For example, regulated exchange Gemini publishes an independent report by its accountants in which very basic information is provided.

The same goes for Tether’s rival USDC, which publishes a monthly reserve account.

But these allegations resurfaced in March 2019 when it changed its terms and conditions to stipulate that it can hold additional reserves beyond just cash or cash equivalents.

The following is an excerpt from the Tether website:

“Every Tether token is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”).”?

This statement raised a number of eyebrows from those who’ve always held doubts or suspicions about the company’s claims.

Whilst most would expect Tether to hold all reserves in cash or cash equivalents, the fact that the company was now openly giving itself the option of including other assets or other receivables was seen by many as problematic.

For instance, in the event of a black swan phenomenon, a large number of users (or exchanges) could try to redeem their Tether tokens for the underlying cash and the lack of liquid cash fully backing these assets could be a concern.?

In addition, many believe that a stablecoin issuer should not be in the business of speculating or using those assets that are backing the stable coin for other purposes.?

In early 2020, Tether came under the spotlight once again.

Tether’s bank, Deltec, which is based in the Bahamas and holds some of the reserves backing Tether tokens, had to confirm that it indeed holds those reserves.

Tether has also repeatedly reaffirmed that its tokens are fully backed.

The second allegation is that Tether reserves were used to cover losses at a sister company, the crypto exchange BitFinex.

This came under the spotlight in April 2019 when New York’s Attorney General announced that her office had obtained a court order against the team behind crypto exchange Bitfinex, which shares a parent company with Tether (iFinex).

The court order alleged that Bitfinex used funds from Tether to cover up $850 million in losses stemming from challenges that BitFinex was having with a Panama-based firm.

However, Bitfinex later announced that it has repaid the remaining balance of the outstanding revolving loan facility to Tether.

And this matter was settled in February 2021 when Tether agreed to pay US$18.5 in penalties.?

The final allegation asserts that Tether tokens were used to artificially pump up the price of Bitcoin.

This theory entered the mainstream following the publications of a study from professors John M. Griffin, from the University of Texas at Austin, and Amin Shams, from Ohio State University.??

The academics concluded that Tether was indeed used during the 2017 Bitcoin boom to manipulate the Bitcoin price, and that this activity was linked to an account at Bitfinex.

The authors allege that Bitfinex must have been aware of what was going on, although these claims were subsequently denied by Bitfinex.?

Yet despite all of these issues, the reality is that at the time of writing, Tether is by far the biggest and most widely used stablecoin, with over $70 billion in assets.

That's far more than any other stablecoin, including all of the regulated ones combined, which now reach over US$125 billion.

There are a couple of ways to at least try to explain this.?

First of all, many crypto traders arguably do not believe that these allegations hold any weight.

Being the leader in any field obviously makes you a target, and Tether is the de facto leader when it comes to stablecoins.

As a case in point, many large exchanges have mentioned that they have been able to consistently deposit and redeem Tether.?

Second, Tether is essential for anyone actively trading, as most trading pairs use Tether.

For instance, between half to two thirds of trading pairs use Tether, which makes it an essential for trading.?

Source: The Block

And finally, many argue that Tether is the only liquid asset that gives access to US dollars without touching the US, as seen when compared to the other US regulated stablecoins on the market (USDC, PAX, TrueUSD).

This is why it is estimated that over 90% of stablecoin volumes are conducted in Tether in certain parts of the world, like Asia.

However, it should be noted that some of these other stablecoins are quietly closing the gap.?

There are a lot of developments taking place these days with stable coins so definitely an area to keep an eye on. But one thing is for sure: the debate around Tether is far from over.

---

Powered by ACX

ACX enables crypto platforms to offer 24/7 and multilingual outsourced customer support to their clients.

ACX is the first and only customer support outsourcing provider globally that is 100% focused on the crypto industry with 100% of staff trained in crypto.

Looking at improving the customer supprt experience of your clients?

ACX can help.

---

My Latest Podcast

Want to understand the why/who/what/when/how of some of the large cryptocurrencies, blockchains and tokens in a concise, insightful, and easy to understand manner?

Then you will love the new educational Crypto Deep Dive series that I am launching on my podcast.

Kicking off the series with Algorand! What is Algorand? How is it different from other blockchains? What are the latest developments on the network?

I cover it all with Sean Lee, the CEO of the Algorand Foundation

You can listen to/watch the podcast here:

Spotify: https://spoti.fi/2Yp2pwd

Apple: https://apple.co/3mvuJVU

Google: https://bit.ly/3iBeXI0

Stitcher: https://bit.ly/3oDRGJg

YouTube: https://bit.ly/3mrDccO

---

2. Why Are Athletes Falling in Love with Digital Assets??

Recent weeks have seen a newfound surge of interest in the cryptocurrency space from some of the top athletes on the planet.

Late last month, NFL superstar and seven-time Super Bowl champion Tom Brady revealed that he would love to get paid in Bitcoin, Ethereum, and Solana.

This is hardly Brady’s first foray into the crypto space, with the quarterback and his wife, Gisele Bündchen, taking an equity stake in FTX in June whilst signing on as global brand ambassadors for the exchange.

Joining Brady is NBA icon Steph Curry, who made quite the splash last month with his 55 ETH purchase (equivalent at the time to $180,000) of one of the wildly popular Bored Ape Yacht Club NFTs.

And it’s not just the young athletes getting into crypto, either.?

Another professional athlete who was an early pioneer in the cryptocurrency world was arguably current Washington Wizards guard Spencer Dinwiddie, who announced back in 2019 that he was looking to raise $13.5 million by tokenising the first year of his three-year, $34.5 million contract with the Brooklyn Nets.?

This outside-the-box approach to professional athlete contract negotiations would provide cash flow to players whilst allowing accredited investors the opportunity to bet on certain players and fans to show support for their favorite athletes.

Whilst this idea hit roadblocks with the NBA, it generated a lot of buzz.

Since then, Dinwiddie has raised $7.5 million for a token-based app, Calaxy, that allows creators and celebrities alike to raise money with tokens whilst allowing fans to directly interact with them via video messages, online classes, video calls, and fan club subscriptions.

Dinwiddie’s unorthodox thinking was shortly after followed by Lionel Messi when he inked his new contract with Paris St. Germain this past summer.

The contract contains a provision that allows Messi to receive part of his salary in the French club’s fan token, with trade volumes of the PSG token topping out at a whopping $1.2 billion in trading volume whilst rumors swirled around Messi’s pending arrival in Paris.

Top-tier cryptocurrency companies have also become much more aggressive in landing sponsorship contracts with professional sports leagues, with FTX securing the naming rights to the Miami Heat’s arena this past April in a $135 million deal.

This was followed by the exchange coming to terms with Major League Baseball on an agreement to have umpires throughout the sport wear FTX patches as part of their uniforms.?

And speaking of uniforms, both StormX and Crypto.com have made major forays into the NBA, with StormX and the Portland Trail Blazers teaming up and launching a redesigned jersey with the StormX logo.?

Crypto.com, meanwhile, signed a similar deal with the Philadelphia 76ers, meaning that once the NBA season starts in a few weeks, two perennially playoff-bound teams will be displaying prominent advertisements for each respective firm all season long.

Ultimately, sports and crypto are becoming increasingly more intertwined.

Who knows what the next several years will bring?

---

Interested in Crypto Educational Sessions or Workshops?

Do you want your board, executives, or staff to better understand the impact of crypto-assets on the future of finance or money??

I offer in-person or virtual courses that range from "Introduction to Bitcoin, Blockchain, and Crypto-assets" to more advanced and tailored topics, all ranging from 60 minutes to half-day sessions.

Simply contact me at [email protected] if interested in more details.

Examples of courses are available on my website: www.henriarslanian.com

---

Money Quote of the Week

?“If there is anyone to whom I owe money, I’m prepared to forget it if they are.”?

Errol Flynn

?

---

?

3. What Is the Difference Between Blockchain and Decentralised Ledger Technology (DLT)?

Many tend to use the terms “distributed ledger technology (DLT)” and “blockchain” interchangeably.

However, there is an important distinction.?

DLT is the generic term for a decentralised database that is managed by various participants.?

Blockchain, meanwhile, is simply one type of DLT with a specific set of features that consists of having blocks form a chain.??

We covered the history of the name "blockchain" in a recent issue of our newsletter.

DLT is the generic umbrella term and blockchain is a sub-category.?

Or another way to look at it is that all blockchains are DLT but not all DLT is blockchain.

To use an analogy, it's like saying that all cars are vehicles but not all vehicles are cars.

As a matter of fact, there are now numerous DLT networks out there that are not using blockchain (e.g. IOTA, Hashgraph).

So there you have it!

My Latest Crypto Capsule Commentary

Enjoyed this content? Make sure to subscribe or share it with a friend!

A new Future of Money newsletter will be in your inbox each weekend!

See you all next week!!?

Henri Arslanian

*Please note that this newsletter reflects Henri’s personal views and not those of any organisation he is involved with.

Who is Henri?

Passionate and focused on the future of finance and money, Henri Arslanian is the PwC Crypto Leader and Partner, the former Chairman of the FinTech Association of Hong Kong, and an Adjunct Professor at the University of Hong Kong where he teaches the first FinTech university course.

Henri advises many of the world’s leading crypto exchanges, investors, financial institutions, and tech firms on their FinTech and crypto initiatives as well numerous governments, regulators, and central banks on Fintech and crypto regulatory and policy matters.

With over 500,000 LinkedIn followers and 30,000 newsletter subscribers, Henri is a TEDx and global keynote speaker, a best-selling published author, and is regularly featured in global media including Bloomberg, CNBC, BBC, CNN, The Wall Street Journal, The Economist and the Financial Times.

Henri was named by LinkedIn as one of the global Top Voices in Economy & Finance and is the host of the FinTechCapsules? and CryptoCapsules? social media series.

Henri was recently named by Onalytica as the #1 most influential individual on Finance globally on LinkedIn out of 50k+ individuals working at the top professional services and management consulting firms in the world.

Chambers Global named Henri the “highest-profile FinTech consultant in Hong Kong”, Blockchain Asset Review named him the “Most Influential Crypto and Blockchain Thought Leader in Asia”, and Asian Private Banker awarded him the “FinTech Changemaker of the Year” award.

Henri’s latest book “The Future of Finance: The Impact of FinTech, AI and Crypto on Financial Services” published by Palgrave Macmillan, was ranked as one of Amazon’s global top 10 best-sellers in financial services and was recognized as one of the “Best FinTech Books of All Time” by Bookauthority.

Before joining PwC, Henri was with a FinTech start-up and previously spent many years with UBS Investment Bank in Hong Kong. Henri started his career as a financial markets and funds lawyer in Canada and Hong Kong.

Henri speaks five languages including English, French, Armenian, Spanish, and Mandarin Chinese.

He holds a Masters in Chinese Law from Tsinghua University; a joint Global Executive MBA from Columbia Business School, London Business School, and Hong Kong University; a Bachelor of Law from the University of Montreal (Dean’s List of Excellence) and a Masters in Transnational Law from the University of Sherbrooke, where he was awarded the Governor General of Canada Gold Medal for Academic Excellence for having graduated with the highest grades of the university.

You can learn more about Henri on his website (www.henriarslanian.com) and you can reach him at [email protected]