After the Tether co-founder participated in an interview on Squawk Box, a short clip caught the attention of several people. One was John Reed Stark, a former SEC chief, who immediately called the largest stablecoin in the industry a Ponzi scheme.
In the clip in question, Reeve Collins is asked why Tether has never shown his reservations to the public. His answer, of course, was evasive, as his company has been since its inception more than eight years ago.
However, the market is experiencing a unique moment, with brokers running out of time to show that they are not working with fractional reserves. So this could increase the pressure on Tether.
In May this year, the company already experienced a run on the banks after the crash of LUNA’s UST stablecoin infected the market. USDT processed about $17 billion in withdrawals at the time, or about 20% of its market value, and even today uses that to its advantage, pointing out that it is financially sound.
But what if the withdrawals are even bigger, would Tether have the money to honor them all? That’s the question everyone would like to know the answer to, whatever it is.
In August of this year, Tether claimed to have reduced its holdings of commercial paper, reflecting the company’s concerns, but its overall accounting remains a mystery.
The evasive response from Tether’s co-founder
After an interview with FTX’s Sam Bankman-Fried, Andrew Sorkin spoke with Tether co-founder Reeve Collins (2) last Friday. The most important question, of course, was about your company’s reserves.
“Let me ask a question about the trust issues related to Tether”Sorkin said, citing examples of newspapers calling it suspicious. “If you have reservations, why don’t you show them?”
The answer, as seen below, raises even more questions about the company’s business model.
“Well, what I can say is that for the last eight years of Tether’s company history, they have always exchanged every token for exactly $1”Collins replied. “I sold the company at the end of 2015 and I believe the Principles have continued to work, to the best of their ability and with the best risk mitigation tactics in the industry. [a Tether] has stood the test of time.”
“Why don’t you show the reserves?” @andrewrsorkin asks @Tether_to co-founder @Reeve_Collins🇧🇷 pic.twitter.com/dBkRxMaoZf
— Squawk Box (@SquawkCNBC) December 2, 2022
Former SEC comments on interview claiming Tether is running a Ponzi scheme
With more deposits than withdrawals, it’s hard to imagine a company going bankrupt right away. For example, Bernard Madoff’s pyramid lasted almost 20 years. That is, the “test of time” cited by Collins is irrelevant.
So even John Reed, a former SEC officer for 18 years, was surprised by Collins’ response: to claim that Tether is a financial pyramid.
“Wow, tell us that Tether is running a Ponzi scheme without telling us that Tether is running a Ponzi scheme. Just listen to their answers. In my opinion, as an 18-year-old former SEC employee, the avoidance/distraction/lack of responsiveness leads me to believe that Tether is a pyramid of cards.”
Finally, some comments show that Tether is much like FTX and that it wouldn’t survive a withdrawal run. A user shared a July 1920 newspaper cover about Charles Ponzi.
“Ponzi will not disclose trade secrets.”
Source: Live Coins
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
