China court says Tether stablecoin ‘should not be circulated’

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A Chinese court has ruled that local companies can’t pay their workers’ wages with USDT (aka Tether) because the government—like everyone else—doesn’t recognize the stablecoin as legitimate.

A ruling recently handed down in the People’s Court of Beijing’s Chaoyang District sided with a Mr. Shen, a former executive at a defunct ‘network technology’ firm whose bosses tried to pay his outstanding wages and bonuses in USDT rather than renminbi (RMB).

According to local media, Shen was a vice president at the unidentified company with a monthly salary of RMB50,000 (roughly US$7,500). In June 2020, Shen announced his intention to resign but agreed to stay on until his project tasks were completed. It was after Shen’s work was done that his problems began.

The report claimed that Shen’s monthly salary and various bonuses were usually paid in a combination of RMB and USDT, but company principals—identified only as Hu and Deng—insisted on paying the total sum (around RMB270,000, or $40,250) owed to Shen entirely in USDT. Shen decided he wanted to be paid solely in RMB and sued Hu and Deng to get them to comply.

The Court sided with Shen based on the fact that RMB is China’s only legal tender and because the central bank, supreme court and 10 government ministries issued guidance last year—gloriously titled Notice on Further Preventing and Disposing of Hype Risks in Virtual Currency Transactions—making it clear that virtual currency doesn’t enjoy the same legal status. The media report quoted the court stressing that USDT “should not and cannot be circulated in the market.”

For years now, China has been rolling out its digital yuan (e-CNY), a form of central bank digital currency (CBDC) that is light years ahead of similar projects in other nations. Last year, the government reported that 10% of Chinese citizens had used e-CNY in some fashion, accounting for around US$13 billion in total transaction volume in 2021.

In keeping with its traditional heavy-handed approach, China’s government takes a dim view of technologies not under its direct control. But local media recently suggested that the ongoing ‘crypto’ crash—sparked in part by the failure of Terra’s ‘algorithmic stablecoin’ UST—may push the government to exert even more pressure on individuals and entities that insist on utilizing stablecoins such as USDT.

Accountable to no one

China has good reason to fear the negative impact that increased USDT use could have on its citizens. Tether is notoriously cagey when it comes to revealing the truth behind the assets it allegedly holds to support the nearly $66 billion in USDT circulating on various ‘cryptocurrency’ exchanges.

We’re now only a couple weeks away from the one-year anniversary of Tether’s general counsel Stuart Hoegner assuring CNBC that a full audit of Tether’s reserves was mere “months” away. That will make it about FIVE YEARS that Tether has been promising but failing to deliver any proper accounting of the magic beans in its magic vaults.

Meanwhile, the poor sods at MHA Cayman—the Inspector Clouseau of financial detective work—added some new language to its latest quarterly attestation of Tether’s make-believe reserves. Specifically, the report issued in May states that Tether’s management “have applied a going concern basis of accounting to value the Group’s assets” and MHA Cayman say they “do not provide any assurance in respect of such an assessment.” Small wonder that a growing number of hedge funds are now eager to short Tether.

More recently, Tether claims it will have reduced the volume of dodgy ‘commercial paper’—strongly rumored to be of Chinese origin—backing its reserves to around $3.5 billion by the end of this month. As of March 31, Tether’s commercial paper stash was around $20 billion, so that’s an impressive reduction.

However, that reduction coincides with Tether’s market cap falling by nearly $20 billion over the past two months. Which begs the question—is Tether actually converting this commercial paper to more concrete assets such as treasury bills, or is it simply scrubbing what was always a fictitious line item from its balance sheet?

One can’t help but notice that the current ‘crypto winter’ dovetails neatly with Tether’s infamous money printer suddenly going silent. Studies have shown that Tether is largely responsible for propping up the alleged ‘store of value’ BTC token and we guess the printer won’t be switched back on until the last leveraged position is liquidated and the crypto crime cartel primes the pump in the hope of attracting yet another wave of greater fools on which to dump.

It’s worth remembering that Tether doesn’t use generally accepted accounting principles (GAAP) like other financial firms, instead relying on a bespoke system it calls—we kid you not—iFAP, as in iFinex accounting principles (named after the parent company of both Tether and the Bitfinex crypto exchange). In other words, their numbers aren’t subject to any rules other than Tether makes for itself, which just so happen to be named after slang for masturbation.

Back off

Speaking of self-abuse, we’d be remiss if we didn’t spotlight this week’s most spectacular self-own, courtesy of Blockstream developer Adam Back. On July 4, Back tweeted a photo of himself with Tether/Bitfinex CTO Paolo Ardoino and CEO J.L. van der Velde. Sightings of the latter are about as rare as Halley’s Comet, but while science has confirmed the existence of said comet, whether or not van der Velde is anything more than a two-dimensional Weekend at Bernie’s promotional stand-up is still very much up for debate.

The photo showed Back with his arm around van der Velde, with Back’s t-shirt displaying the Blockstream motto: ‘Don’t trust. Verify.’ Given Tether’s history, Back’s shirt is either the height of irony or proof that the crypto crooks are now just straight out trolling the community on which they prey.

It will come as no surprise that Back, who for years has been promising that the dysfunctional and centralized Lightning Network will be fully functional in 18 months, is also a fierce defender of Tether. Back seemingly doesn’t think his oft-repeated maxim should apply to the stablecoin responsible for the utility-free BTC token’s peaks and valleys.

Back’s willingness to downplay the threats posed by outright scams isn’t limited to Lightning or Tether, as it was only six weeks ago that he was dismissing critics who warned that the Celsius digital currency lending platform was in a deep financial hole. Back had the effrontery to lecture these crypto Cassandras about the need to “do some analysis before posting FUD” (fear, uncertainty and doubt). Celsius halted withdrawals a couple weeks later and the fate of the billions under its custodial care looks bleak.

Oh, and that tweet of Back’s dismissing Celsius FUD? He tagged the wrong ‘celcius’ account. So maybe his shirt should say: ‘Don’t trust. Proofread.’

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Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.