Recently, the Securities and Exchange Commission (SEC) settled with TrustToken and TrueCoin, previous operators of TrueUSD (TUSD), over allegations that the firms sent the backing for the stablecoin to “a speculative and risky offshore commodity fund.” 

The fund, which invested in “trade finance, structured trade, export finance, import finance, supply chain financing, and project financing of entities,” appeared to be offered by First Digital Trust in Hong Kong. Allegedly, “more than 99% of the assets backing TUSD” were placed in the speculative fund.

Furthermore, the complaint alleges that in 2022, TrueCoin and TrustToken were aware of redemption issues at this fund.

Importantly, this settlement didn’t include Techteryx, the firm that now owns TrueUSD. This firm has repeatedly denied that it’s under the control of Justin Sun, described as an “Asia markets advisor” for TrueUSD, though the former chief executive of TrustLabs has claimed that Sun tried to acquire the firm.

A review of an attestation for TrueUSD reveals that approximately 99.7% of the reserves for this stablecoin are still held at First Digital Trust, despite the allegations in the previous SEC settlement.

Read more: TrueUSD bank FlowBank forced into bankruptcy

The attestation further notes that Moore Hong Kong, the firm behind it, valued investments in that fund “at cost” and makes sure to note that its “procedures do not include an examination over the fair market value of the investments within the Fund.”

This means that even if the fair value of assets in that fund had fallen to zero, this attestation would continue to report the value at cost invested.

Additionally, the notes from Techteryx management signed by Jennifer Jiang (also of Sun-affiliated BiT Global, Sun-owned Poloniex, Sun-advised HTX, and Sun-owned BitTorrent), also state that these assets “may not be readily convertible to cash, subject to market conditions or fund performance.”

Currently, the reserves for the approximately $495 million in TUSD are made up of approximately $502 million held at First Digital and approximately $1 million in cash. 

Protos has reached out to TrueUSD to determine which fund it is currently invested in, but it did not immediately respond.

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The post TUSD up to 99.7% backed by speculative assets despite SEC settlement appeared first on Protos.

When Shan Hanes, the former CEO of Heartland Tri-State Bank, was sentenced to 293 months in prison for his part in an embezzlement scheme that saw him direct over $47 million dollars into a “pig butchering” scheme, it was assumed that the failure of the bank would lead to a “complete loss of equity for investors.”

However, thanks to the intervention of Tether and its willingness to blacklist addresses, those investors will receive compensation.

An Amended Judgement filed today notes that Hanes was forfeiting his claim to funds held in 0xef2797225aCEF65d583F157bbAf023C290D0e7dB, an Ethereum address that the judgment notes is “held by or under the care or custody of Tether Limited.”

Checking this address in the tether token contract allowed Protos to confirm that it has been blacklisted by Tether and can no longer transact using the tether token.

Read more: Tether gives FBI peek behind the curtain

Fortune reported that yesterday Judge John W. Broomes was able to inform all shareholders that they would be reimbursed in full for their investments.

The Federal Deposit Insurance Corporation had already fully backstopped depositors at this institution. 

Tether freezing this address is likely part of its cooperation with the Federal Bureau of Investigations.

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The post Tether blacklist saved shareholders defrauded by bank CEO appeared first on Protos.

On the eve of the US presidential election, the Bitcoin Policy Institute published a report endorsing a strategic reserve of bitcoin akin to US strategic reserves of gold, medical equipment, minerals, or petroleum.

Asking whoever becomes president to ask the US Treasury Secretary to buy bitcoin, the 53-page research paper attempts to cover the pros and cons of investing in the crypto as a sovereign.

The authors distinguish between bitcoin as a central bank asset held by the Federal Reserve and bitcoin as a discretionary investment of the US Treasury. The paper specifically advocates for the latter.

Authors tossed around proposals like a multi-year, dollar cost-averaging purchase program — or buying enough bitcoin to equal the amount of the Treasury’s gold reserves. After these far-from-conservative examples, the authors recommended forming governance boards to plan a realistic fiscal policy.

Readers might also be curious as to why the paper is asking for a strategic bitcoin reserve in the first place, given that Donald Trump has already promised a national strategic bitcoin stockpile. This plea is more understandable, however, when we consider that Trump’s stockpile is simply a re-naming of existing criminal seizures with no plan to actually purchase any bitcoin. 

Given this context, the plea is authentic to both Democrats and Republicans; neither Trump nor Kamala Harris have announced plans for any strategic bitcoin reserve.

Stablecoins prominently featured in pitch for bitcoin-only reserve

Straying far from bitcoin-only, the paper makes almost as strong a case for stablecoins as it does for bitcoin. Without naming any particular brand, it glowingly reported on stablecoins’ size, speed, popularity, and expansion of US dollar dominance abroad. 

Throughout the paper, the authors advocate for dual support by the US Treasury for bitcoin and stablecoins. Of course, they argue for a formal reserve of bitcoin as a sovereign investment, whereas they ask for general support of — not investment in — stablecoins.

Ironically, stablecoins fulfill many of the value propositions of bitcoin as listed in the paper: auditability, permissionless transactability, enabling capital flight for residents of collapsing regimes, extension of US dollar hegemony, technological leadership, supporting human rights, and control of the crypto-eurodollar market.

For some reason, the paper insists that bitcoin is superior to all other crypto assets on these and other functions.

Its authors never mention the actual, primary use case for stablecoins — denominating exotic derivatives and altcoin transactions in offshore crypto exchanges. They also never mention de-pegs, fraud, or theft of assets — perennial features of stablecoin projects.

Read more: History of Tether’s peg: Every time USDT traded above or below one dollar

The authors also never admit that stablecoins mostly operate on non-bitcoin blockchains like Tron, Telegram, Solana, EOS, Cosmos, and Algorand whose founders, according to the SEC, issued illegal securities to fund unregistered enterprises. 

Moreover, the authors failed to mention the dozens of stablecoins whose peg failed entirely. In particular, the paper contains no mention of Terra, a once-$18 billion stablecoin that has lost 99.8% of its value.

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Tether’s most recent report on its reserves shows a significant increase in what it describes as “equity.” Additionally, it claims it has made over $7 billion in profits over the last nine months and that its secured loans business has grown.

The world’s most popular stablecoin has reached a market capitalization of over $120 billion, and it holds over $80 billion in United States Treasury securities, mostly with Cantor Fitzgerald. 

History of Tether’s secured loans

Some of Tether’s clients, including Celsius and Nexo, received secured loans from it that frequently used bitcoin as collateral. However, during the industry issues in late 2022, following the bankruptcies of Celsius, FTX, Alameda Research, and many others, Tether published a blog post titled Tether Addresses FUD Around Secured Loans, Reveals Plans to Reduce These to Zero in 2023.

Read more: CHART: Tether has attracted US government action 19 times

In this post, Tether announced its intention to reduce the role of secured loans in its reserves to $0 throughout 2023. 

Instead, what it did was make enough in profits to begin describing these secured loans as “excess reserves.” This would mean the ‘excess’ funds in the reserves were greater than the size of the secured loans.

Since then, the program has continued to grow and has reached a total size of $6.7 billion. Interestingly, this now exceeds the ‘excess’ in the reserves, which totals only $6.1 billion. This means Tether is once again partially backed by these secured loans.

However, the total Tether Group “equity” of approximately $14 billion still exceeds the size of the secured loans.

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The post Tether’s Q3 attestations prove that it can’t quit secured loans appeared first on Protos.

The Terra-Luna Ponzi scheme grew to an incredible size, with the TerraUSD algorithmic stablecoin reaching a mind-boggling $40 billion and the Luna governance token growing to a market capitalization of $40 billion.

This growth was subsidized by Terraform Labs paying an unsustainable lending rate through the Anchor protocol.

Then the music stopped. The value evaporated and the subsequent collapse of Terra-Luna had a devastating effect on the wider crypto ecosystem, destroying trading firms, exchanges, and lending platforms.

However, Terra was far from the sole algorithmic stablecoin, and its spectacular collapse caused a ripple effect that was felt by many of its competitors. Some have pivoted, finding alternative designs with more collateral, but most have failed to see adoption in the industry.

Here we take a look at the current state of some of the better-known projects impacted by Terra’s spectacular demise.

Terra

Terra still exists as ‘TerraClassic,’ and it doesn’t look too dissimilar to how it did before the collapse.

This system has maintained much of the design of the original Terra-Luna system but doesn’t have the subsidized yield of Anchor.

This asset, which has completely failed to maintain its peg, currently trades for less than three cents and is no longer, meaningfully speaking, a stablecoin. It has a market cap of approximately $130 million, a tiny fraction of the nearly $20 billion it once commanded. 

Luna Classic, the corresponding governance token, has a market cap of approximately $500 million, a tiny fraction of the $40 billion it once commanded, according to data from CoinMarketCap.

USDD

USDD is the TRON native algorithmic stablecoin that was announced before the collapse of Terra-Luna. It was intended to duplicate much of Terra-Luna’s model but with an elevated lending rate of approximately 30%. 

USDD was supposed to be integrated into the heart of TRON, analogous to Luna, by November 2022, but this wasn’t achieved by the time Terra failed. This has since been abandoned as one of the project’s goals.

In many senses, USDD has abandoned almost all of the trappings of algorithmic stablecoins and has instead become a stablecoin collateralized by ‘burned’ TRX tokens and a few other assets. A significant amount of its reserves are held at Sun-advised HTX.

Read more: Justin Sun’s USDD removes 12,000 BTC without DAO approval

Nominally, there is a Decentralized Autonomous Organization (DAO) that governs this protocol. However, this appears to be fiction, with actual control over this project being much more centralized.

The governance page shows only a single vote; one that allowed burned TRX to be deployed by USDD, making it unclear if the DAO knows what ‘burning is.’

There are no votes for other major decisions, including the massive changes in protocol directions, the decision to hold reserves at HTX, or the substantial changes in the reserve composition for the stablecoin.

In a recent example, the stablecoin removed 12,000 bitcoins from its reserves without a corresponding vote.

The market cap for the coin has been remarkably stable since its launch, holding around $700 million, according to data from CoinMarketCap.

Celo/Mento

Celo is now a level-2 solution on Ethereum; when it launched, it was a layer-1 that closely mimicked the way in which Terra functions with an algorithmic stablecoin exchangeable for a corresponding governance token. 

This function has since been spun out into Mento, and instead of deriving value from convertibility into Celo Gold, it maintains value by over-collateralization of the Mento Reserve, including assets like CELO, sDAI, USDC, ETH, and BTC. 

The USD-pegged version of these stablecoins has a market capitalization of approximately $26.5 million, down from a peak of almost $120 million, according to data from CoinMarketCap.

Frax

Frax is a dollar-pegged stablecoin that started partially collateralized. However, now on version 3.0, its aim is to be wholly collateralized, principally by cryptocurrencies. 

Currently, the collateral for this coin is largely staked and directly held FRAX. 

The market capitalization for this token is approximately $640 million, down from a peak of approximately $2.9 billion, according to data from CoinMarketCap.

Read more: How to submit a Terra Luna or Anchor loss claim

Conclusion

Many projects that once hoped to emulate Terra’s incredible success have had to pivot as the consequences of its failure reverberated throughout the ecosystem.

Very few of these projects have seen new adoption since Terra’s failure, and more attention seems to be spent on alternative stablecoin designs like Ethena’s eUSD.

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The post How Terra collapse nearly killed algorithmic stablecoins appeared first on Protos.

Maker, the organization that has been issuing so-called stablecoin DAI since December 2017, has decided to introduce the ability to remotely freeze some of its stablecoins. It is incentivizing users to convert DAI into a new stablecoin, USDS, which will grant Maker insiders the ability to remotely freeze coins.

For years, the self-described decentralized autonomous organization (DAO) has described DAI as a “decentralized currency that is not influenced by any entity or factor.” Now, its team has replaced that description at the top of its homepage — still cached at search engines like Google — with the much briefer “A better, smarter currency.”

USDS’ freeze function “is generally expected to follow rule of law from jurisdictions where Maker needs a high level of certainty that the legal system will enforce recourse against real-world asset collateral.”

Maker insiders noted that although the intention is to activate the remote freeze function, the exact timeline for activating it on-chain might be months or even years.

For years, Maker distinguished itself from centralized stablecoin issuers like Tether that openly admit their ability to remotely freeze coins. Despite Tether’s USDT stablecoin existing on blockchains like Ethereum or Solana and generally trading for $1 apiece, Tether executives have the discretion to devalue the backing of particular USDT to $0 no matter where they are circulating in the world.

Read more: Moody’s reports 600 stablecoin depegs in 2023

The end of Maker’s “not influenced by any entity” era has arrived. Although it’s keeping certain DAI tokens circulating that don’t have the ability for a remote freeze function, it’s rebranding DAI entirely and emphasizing its new stablecoin, USDS.

During a phase-out period that is presently underway, Maker will enforce a 1:1 convertibility peg between DAI and USDS. Furthermore, it’s incentivizing users to leave DAI for USDS with a suite of financial rewards at Sky.money, its new application for “native token rewards.”

Maker is also introducing a new governance token, SKY, that’s apparently superior to Maker’s prior governance token, MKR. Founder and leader Rune Christensen assures his fans that all of these changes will attract vast sums of capital to Maker that will somehow, in his view, match Tether’s reserves within three years.

A better, smarter currency — with a remote freeze button

Crypto veterans immediately criticized Maker for introducing its remote coin freeze capability, claiming it simply allows executives to comply with international banking regulations — anathema to the crypto ethos.

Indeed, Maker backs its stablecoins with many real-world assets, including instruments benefiting from the yield of US treasuries.

All of these changes follow Christensen’s occasionally bizarre string of promises to ultimately make DAI a non-stablecoin for the benefit of the world. He has promised to tackle climate change, use AI to govern Maker, abandon Ethereum for Solana’s blockchain, introduce “metaDAOs” or “subDAOs,” and abandon seven years of DAI’s $1 peg entirely for a free-floating exchange rate.

As a waypoint along this circuitous path toward whatever future Maker is heading toward, Christensen is putting financial incentives on USDS to encourage DAI holders to convert to USDS — with its remote coin freeze ability — and SKY.

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A recent Wall Street Journal report revealed that German billionaire Christian Angermayer has been connecting Tether to various investment opportunities, including his portfolio companies Northern Data and Blackrock Neurotech.

Angermayer takes a fee from firms to introduce them to various investors. Additionally, he makes investments through a variety of entities underneath Apeiron Investment Group, his family office.

These entities include Elevat3, which partners with Peter Thiel’s Founder’s Fund, Presight Capital, Apeiron Partners, re.Mind, Cryptology (which he co-founded with Mike Novogratz), and Limestone Capital. 

Overlaps with Tether

Angermayer owned a stake in Northern Data through Apeiron Investment Group. Northern Data has been accused by former executives of stock manipulation schemes. 

He was reportedly paid a 5% fee for transactions that followed from introducing Tether to Northern Data. 

Tether and Angermayer are also linked through Angermayer’s investment in Block.One, which was founded by the stablecoin’s co-founder Brock Pierce. 

Block.One was also an investor in Northern Data.

Angermayer also invested in Bullish, the exchange spun out from Block One, via the Presight Capital investment fund. Additionally, Angermayer served as a ‘senior advisor’ to the firm, which has subsequently purchased CoinDesk.

He also invested in Blackrock Neurotech, a firm developing brain-computer interfaces via the re.Mind entity. Tether purchased a majority stake in this firm earlier this year. 

Wirecard

Angermayer previously connected beleaguered Wirecard with SoftBank, eventually leading to SoftBank’s $1.1 billion investment into Wirecard. 

Shortly after this investment, Wirecard collapsed due to accounting fraud.

Angermayer additionally helped coordinate HNA Group’s investment in Deutsche Bank, which saw his friend Alexander Schütz appointed to the supervisory board for Deutsche Bank.

Schütz was subsequently investigated for insider trading allegations in Wirecard, though the criminal probe was dismissed by prosecutors.

Tether itself has some distant ties to Wirecard. Freeh Sporkin & Sullivan, a consulting firm, once provided a letter that claimed Tether had the funds it was supposed to. Louis Freeh, a former FBI director, defended Allied Wallet, a payments firm that was a longtime client of Wirecard and provided services to questionable businesses, including Ponzi schemers, debt collectors, and online poker firms. 

Additionally, FTX/Alameda Research, one of Tether’s top two largest clients, relied on Cuscal Bank in Australia, a former Wirecard partner. 

Read more: Casino operators with ties to Tether, Wirecard busted for money laundering

Other investments

Angermayer, a former biotech entrepreneur, has a varied investment portfolio.

As well as a number of biotech and pharmaceutical investments, he has also invested in psychedelic therapies, something he chooses to partake in regularly. This is only part of his personal supplementation and pharmaceutical regimen, which also included Modafinil and Ozempic. 

He also used to be a prominent investor in banks, purchasing the Banque Rwandaise de Développement, followed by a bunch of other banks across the region.

His investment portfolio also includes things like Boring Company, the tunnel company started by Elon Musk, which is part of the portfolio for Presight Capital.

He has also started paying “literal cowboys” to try to dig up dinosaur fossils in Montana, both because he loves dinosaurs and because he thinks it can be profitable. 

Additionally, as previously mentioned, Elevat3 invests alongside Thiel’s Founder Fund regularly, including investing in the Enhanced Games, the international sports event that allows competitors to use any performance-enhancing drug they can get access to. 

Angermayer’s role as a connector and networker sometimes stretches beyond simple business transactions; supposedly he is friends with Angela Merkel, the former German Chancellor. 

Additionally, he reportedly introduced Thiel to Daniil Bisslinger, who works in Russia’s Ministry of Foreign Affairs. Bisslinger reportedly offered Thiel a meeting with Vladimir Putin, which Thiel reported to the FBI.

Angermayer told Forbes that this was an absurd controversy, stating, “I had a birthday party. I had two friends. They met each other there. Whatever friends of mine do, it’s not my thing.” 

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The post Christian Angermayer helped Wirecard, now he helps Tether appeared first on Protos.

USDD, the algorithmic stablecoin on Tron supposedly governed by the TRON DAO Reserve, has removed approximately 12,000 bitcoins from its collateral, despite the DAO not approving the change.

The coin was originally planned to be a Terra rip-off promoted by Justin Sun, however, ambitions to integrate it into the core of TRON were abandoned following the ignominious failure of Terra-Luna.

Previously, the USDD transparency page included approximately 12,000 BTC in 1KVpuCfhftkzJ67ZUegaMuaYey7qni7pPj; however, that address is no longer included. 

Despite Sun and USDD’s frequent claims that it is governed by a decentralized autonomous organization (DAO), there are no governance votes that seem to correspond to this change. 

There has actually only been one vote in the entire history of the DAO, back in May 2023, when a vote was held to allow USDD to use ‘burned’ TRX for the stablecoin. This suggests that neither Sun or USDD understand what ‘burned’ means. 

USDD has had other issues surrounding its collateral, including storing a significant quantity at HTX, despite not consulting with the so-called DAO.

Read more: How involved is Justin Sun with WBTC’s new custodian BiT Global?

USDD has a total supply of approximately $744 million, making it larger than TrueUSD, Tether Gold, and the inspiration for the system, Terra Classic. 

The ‘Peg Stability Module’ for the token, which enables users to easily swap it for other stablecoins, is nearly drained, holding $19 million USDT, 0 USDC, 0 TUSD, and 0 UDSJ.

Protos has reached out to USDD for comment on these issues but has not received a response at time of publication. 

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The post Justin Sun’s USDD removes 12,000 BTC without DAO approval appeared first on Protos.

Five weeks ago, Tether, the most profitable company in the crypto industry partnered with its subsidiaries Moon Gold and Moon Gold El Salvador to launch a new token, Alloy (aUSDT).

The stablecoin giant, which manages over $114 billion in assets and posted an annualized profit of $18 billion, says it “aims to redefine stability in the digital space” with aUSDT.

It also claims that its “innovative approach provides consistent value and stability between the reference asset and its tethered counterpart.”

However, according to current statistics, just five wallets have opened aUSDT positions and only 32 wallets hold the token.

And the embarrassing statistics don’t end there. Despite its claim of a “very useful and innovative combination for users who want to engage in digital transactions, payments, and remittances with a currency that feels as familiar as the US dollar,” CoinGecko and CoinMarketCap agree that over the last 24 hours, a mere $34 of aUSDT has transacted.

Read more: Tether’s new asset currently backed by 0kg of gold

Tether launches gold-backed USDT to crickets

Tether claimed that aUSDT would allow crypto users to hold a dollar-like Ethereum token backed by gold in Swiss vaults. For clarification, XAUT is the tether actually backed by gold while aUSDT is the over-collateralized stablecoin currently collateralized by XAUT.

With oversight by El Salvador’s Comisión Nacional de Activos Digitales (CNAD), Moon Gold and its El Salvadoran division helped to set up and coordinate the elaborate sequence of events and ownership transfers needed to keep aUSDT backed by physical gold.

As with most digital assets offered by Tether — USDT, XAUT, LEO, RSR, EURT, CNHT, AUSDT — any proof of reserves is mostly based on statements from corporate executives. Unless someone is interested in arranging for delivery or physical inspection of their allocation of gold in Switzerland, they must trust Tether’s assurances and paperwork regarding the backing of Alloy by Tether.

Perhaps for this reason — the trust in a centralized intermediary that is embedded into all Tether tokens — less than a few dozen people have cared to adopt its latest version of a ‘gold-backed’ stablecoin.

Read more: Let’s talk about Tether’s investments

Promoters of gold stablecoins have been trying to push tokens onto the crypto community for six years or more. Despite their efforts, however, there are approximately $1 billion worth of gold-backed stablecoins today. This compares to $157 billion worth of USD stablecoins.

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The post Tether’s gold-backed aUSDT barely minted since its launch a month ago appeared first on Protos.

In late 2023, Tether, the world’s largest stablecoin, announced it was taking a significant stake in Northern Data, a firm that principally focuses on Bitcoin mining but has since expanded into artificial intelligence.

Since then, former executives of Northern Data’s North American subsidiary have filed a lawsuit against Northern Data, alleging securities fraud and tax evasion, as well as whistleblower retaliation. 

Joshua Porter, the former CEO and president of Northern Data US, the company’s North American subsidiary, and Gulsen Kama, the former chief financial officer of Northern Data US, filed the lawsuit.

The lawsuit alleges that Northern Data regularly misrepresented its financial situation to investors, even as its executives, including Porter and Kama, raised concerns about the solvency of the parent company. These issues came to a head in early 2023 when KPMG insisted on performing a liquidity forecast before signing off on its audit.

Kama felt that the financials were being misrepresented to KPMG. As the engagement with KPMG kept being delayed, Aroosh Thillainathan, the founder and CEO of the parent company, allegedly insisted that the firm find a new auditor and suggested it did not matter who the auditor was, as people didn’t care. 

Thillainathan also allegedly told Kama that the Legal and Finance departments were acting as “road blockers,” interfering with his ability to find new opportunities for the firm. He insisted that these departments were meant to “execute deals that were negotiated… no questions asked.”

Furthermore, the lawsuit alleges that Northern Data was improperly managing the revenue of its North American subsidiary, described in the complaint as ‘committing tax evasion to the tune of potentially tens of millions of dollars.’ Porter allegedly insisted that “Northern Data should recognize its profits in the United States (and thus pay taxes thereon).” However, management disagreed.

Read more: Tether teases new assets as old ones are forgotten

Both Porter and Kama also allege that they were fired from their positions as retaliation for raising these issues. 

Financial Times reporting claims that Tether is the majority owner of Northern Data, owning 51% of the stock. 

The allegations in this lawsuit echo earlier issues raised by Germany’s financial regulator BaFin in 2021, which alleged that Northern Data had engaged in market manipulation related to misrepresentations in 2019. BaFin had referred the complaint for potential criminal prosecution, but prosecutors decided not to pursue the case.

A Northern Data spokesperson provided the following comment after publication: “It is no coincidence that these allegations from disgruntled former employees are being publicized just days after unconfirmed media speculation that the company is evaluating a potential capital markets event. The allegations are clearly financially motivated and completely baseless.  We will contest them vigorously. Integrity is paramount to Northern Data and its leadership. As a publicly listed company we have comprehensive policies and procedures to ensure the accuracy and credibility of our financial reporting. Our 2022 accounts received an unqualified audit opinion, and we will release our 2023 audited financials as scheduled. We are well capitalized and have a very robust growth plan, with revenue expected to more than triple in 2024 – a clear demonstration of Northern Data’s stability and strong investment strategy.”

Protos has contacted Tether for comment but had no response at time of publication.

Update 2024-07-08 15:12 UTC: Added comment from Northern Data.

Update 2024-10-29 15:14 UTC: The lawsuit described in this piece has since been dismissed, and declarations from Porter and Kama provided by a communications firm associated with Northern Data appear to show both executives recanting their previous claim they were fired for whistleblowing.

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