Over the past five months, we’ve catalogued and investigated every single USDT sent from Tether to third parties since its inception in 2014.
We chose this endeavour to present the crypto ecosystem with the most extensive and transparent research on exactly who buys Tether to date.
In a bid to collect the most common queries that will arise, we’ve collated some of the most frequently asked and anticipated questions below.
How did you identify the addresses analyzed in the Tether Papers?
We obtained and vetted information that led to identifying more than 70% of all USDT ever distributed by Tether Treasuries. Protos does not and will never comment on our sources.
Why can’t you identify 30% of USDT?
We can say with confidence that our investigation identified more than 70% of all USDT ever sent. This is more than any other published research in history.
Unfortunately, around 30% of outflows from Tether Treasuries were directed straight to crypto exchange hot wallets (sent directly to crypto exchanges).
Information we obtained allowed us to link large amounts of these kinds of transactions to the entities detailed in our report.
But while blockchains are generally public ledgers, hot wallets of crypto exchanges present black holes in which it’s practically impossible to identify intended recipients without access to each platform’s internal systems.
Why does this information matter?
It’s important that crypto traders understand the sheer size of the entities that they trade against.
Crypto traders must not only work against enormous market makers like Cumberland and Alameda — which operate in almost every major exchange — but they must also face off against hedge fund trading outfits like Three Arrows and Heka.
Realizing the scope of the forces that work in crypto markets, specifically those with USDT pairs, equips those who trade cryptocurrencies with knowledge to make more informed decisions.
What tools did you use?
Independent researcher Matt Ranger also maintains a list of known Tether-related addresses, which we also leveraged. Outside of these tools, we mostly analyzed and sorted transactions manually in spreadsheet software.
How did you sort entities into categories (market makers, funds and companies, and individuals)?
After analyzing the issuances of major entities like Cumberland and Alameda, we determined that firms operating as market makers within the space frequently acquire lots of USDT equal to $100 million or more.
So, we consider any individual entity that regularly received amounts of this size to be in the same group. This is not perfect. As highlighted in the research, both Cumberland and Alameda wear multiple hats.
No doubt, some of the funds they acquired were leveraged in other business operations, including quantitative trading and proprietary trading desks.
Renowned blockchain analytics unit Chainalysis determined in its recent DeFi investigations that crypto transactions worth $10 million or more belonged to “large institutions.” This means our $100 million-plus metric for “market makers” seems absolutely justified.
We also took into consideration how certain companies define themselves. For instance, Heka notes that it is a market maker, and other companies like Blockchain Access and RenRenBit operated as market makers for their own exchanges, but on a much smaller scale.
So, these kinds of companies also found themselves in the market maker category.
We then re-appropriated Chainalysis’ $10 million transactional benchmark for “funds and companies.” Protos classified any entity that regularly received this amount or more in USDT in single batches in this bracket.
And lastly, individual traders. While most of the USDT volumes by value sent from Tether Treasuries were distributed to our two largest categories, thousands of smaller transactions were distributed to individuals, according to the information we gathered.
Most of these transactions were valued at under $10 million, which led us to conclude that these entities belonged in the “individual traders” bracket.
Does Tether (USDT) pump crypto markets?
It has long been rumored that market markers and other entities that acquire large amounts of USDT use those fund to boost crypto prices in a coordinated manner.
As far as Protos’ analysis goes, it is true that an overwhelming majority of USDT in circulation was issued in the leadup to major bull runs, as shown in the chart below.
As well, Tether issuances have historically waned as crypto markets peak, before ramping up again just before they bottom out. Flows back to Treasuries — in which entities send USDT back to Tether — also increased after markets reached their local crescendos.
The common defense of these patterns is that Tether — and its customers — need more USDT as crypto prices increase.
Crypto volumes rise in terms of raw dollar value as the price of Bitcoin goes up, for example, so it stands to reason that those providing liquidity to the ecosystem (and trading within it) would also need more US dollar value to function efficiently — and they use USDT as a proxy for that.
It’s also possible that quantitative trading shops and other professional trading units anticipate rising prices, so they must acquire more USDT in case those hunches materalize.
So, the matter of whether USDT pumps crypto markets is unfortunately, at this point, still a “chicken and egg” problem.
It’s difficult to know which comes first without further granular analysis of USDT flowing into entities and then flowing out to various markets — cross-referencing market movements in the wake of those deposits.
Why can you only prove that some firms received less USDT directly from Tether than what they sent back?
Three Arrows is a perfect example of this conundrum. Our charts and analysis show the fund only receiving $670 million in USDT, but we also say it sent nearly $2 billion back to Tether.
The answer to this question is a function of the explanation above. For most of Three Arrows’ existence, it was acquiring USDT from Tether to addresses that are external from crypto exchanges.
However, in early March, Three Arrows received its last Tether issuance to those identified wallets. Since then, it has sent more than $1.4 billion in USDT back to Tether — more than double its known issuances until March.
Protos mapped Three Arrows addresses and found it pulled significant amounts of USDT from major exchange Binance before sending it back to Tether.
So, it stands to reason that Three Arrows switched from receiving USDT in its external wallets to requesting it directly to crypto exchanges like Binance.
Between Three Arrows’ last identified issuance and October 31, Tether Treasuries sent over $9 billion in USDT to Binance’s hot wallet. It’s reasonable to assume that some of those funds belonged to Three Arrows.