Examining Cumberland, Tether’s biggest client left standing

Following the collapse of Sam Bankman-Fried’s trading empire, Cumberland has emerged as arguably the most important trading firm in cryptocurrency.

Protos analysis showed in 2021 that Bankman-Fried’s Alameda Research and Cumberland had received the majority of all tether (USDT) ever made. Since then, Alameda has gone bust and its largest shareholder, Bankman-Fried, has been convicted of multiple felonies.

When we published the Tether Papers in late 2021, Alameda was responsible for at least $36.7 billion in USDT issuance; Cumberland for $23.7 billion at minimum.

Read more: Tether gives FBI peek behind the curtain

What’s Cumberland?

Cumberland is a subsidiary of Chicago-based DRW, named after its founder Donald R. Wilson. DRW is an important commodities trading firm that has previously jousted with the Commodity Futures Trading Commission (CFTC).

The CFTC filed a lawsuit in November 2018 alleging that DRW manipulated illiquid markets, and in an unusual twist, DRW won the case with the court ruling that “it is not illegal to be smarter than your counterparties in a swap transaction.”

Cumberland has focused on the cryptocurrency markets ever since it launched in 2014. Its long history with the industry means that when the Securities and Exchange Commission (SEC) needs a better understanding of “the nature of trading in the over-the-counter market for bitcoin” or other questions in the cryptocurrency market, the agency will turn to Cumberland for a better understanding.

Cumberland serves a wide variety of purposes in the cryptocurrency industry, including market-making, over-the-counter (OTC) trading, venture capital investing, and proprietary trading.

Cumberland’s interactions with big names and shadowy firms

Cumberland was an incredibly important market maker on Binance; the vast majority of USDT issued to Cumberland was sent directly to Binance — approximately 79%. Smaller amounts were sent to other exchanges, including Poloniex, FTX, Bitfinex, Huobi (now HTX), and OKEx.

Cumberland primarily issued USDT on Ethereum, though also issued on Omni and Tron; Alameda Research primarily issued USDT on Tron, though also issued on Ethereum.

Cumberland interacted with a variety of other trading firms as well, including transacting with a web of companies we dubbed ‘Shilong’s Web’ comprised of Paretone Capital, Aoide Capital, Max Victory Wealth Management, and ZB Trade.

Read more: Tether froze $225M but $70M slipped the net

Cumberland was also engaged with cryptocurrency lenders, noting in a tweet that it previously borrowed from Genesis.

The crypto firm has begun sending significant amounts of USDT to Coinbase addresses since the publication of the Tether Papers, following Coinbase’s listing of USDT in May 2021. Cumberland has also started interacting more frequently with Kraken, especially using its Tron-based wallets.

FTX Debtors sent Cumberland stablecoins

Cumberland and Alameda Research have a series of interesting interactions.

0xF02e86D9E0eFd57aD034FaF52201B79917fE0713 is an address believed to be Alameda Research and is thus labeled by Breadcrumbs and Arkham Intelligence.

Arkham posted on X (formerly Twitter) the following month that this address appears to be used by liquidators to consolidate assets.

So, what’s up with the $1.82? At first glance this seems to be a strange amount for one trading firm to send to another; it’s not even enough for a Big Mac.

However, this amount closely mimics other stablecoin transactions between these firms:

  • On March 17, 2023, Alameda Research sent $1.83 in BUSD, $1.82 in DAI, and $1.81 in Paxos Standard (USDP) to Cumberland.
    • Unlike the November 8th transaction, these were followed by larger transactions, including $2,896,700 in BUSD, $2,107,100 in DAI, and $138,000 in USDP.
  • On March 13th, 2023, Alameda Research sent Cumberland $1 in USDT.
    • This was followed on the same day by another $49,929,000 in USDT and $379,078 in USDT the next day.

The earlier transactions almost seem like test transactions, but no larger transaction ever followed the small transaction on November 8th. These transactions are presumably the FTX debtors in possession working on converting and consolidating assets.

A love for algorithmic stablecoins

Cumberland was one of the firms that provided input on the President’s Working Group Report on Stablecoins, making clear that it believes stablecoins should be regulated by banking regulators, reserves should be limited, and stablecoin issuers should be publishing proof-of-reserves.”

In the document An Overview of Stablecoins in the Marketplace, the firm also makes clear that it still believes that Terra does not prove algorithmic stablecoins are dangerous.

“The incentives paid by UST overwhelmed the utility that existed for the Luna taken by itself,” Cumberland wrote. “This was unique to UST and is not representative of the structure of most algorithmic stablecoins.”

Read more: Explained: How Binance’s stablecoin BUSD can be a security

Cumberland is also a very active participant with other stablecoin issuers, including USDC, and previously interacted with Binance-peg BUSD before its end.

It’s important to note that none of this behavior is evidence of malfeasance by Cumberland, and a major market-making and OTC desk would be expected to use a variety of stablecoins as a function of its role in the ecosystem.

Update December 7th, 2023 18:38 UTC: A previous version of this article misstated the timeline of interactions between Alameda Research and Cumberland. These transactions all occurred in 2023.

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