Gambling with Tether: Ultimate Bet, USDT perps, Tron bets, and the $1 peg

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Throughout history, many online gambling and poker sites have been subject to fraud. Owners would cheat, overstate the odds of winning, operate like a Ponzi scheme, refuse to process withdrawals, or simply exit-scam altogether.

The 2006 Unlawful Internet Gambling Enforcement Act banned transferring money to and from illegal gambling websites, making it impractical for an online gambling business to serve US residents. With USD transfers nearly impossible, demand for censorship-resistant cryptocurrencies increased.

USDT and other cryptocurrencies met the niche market demand. Bitcoin financial transactions started in 2011; Mastercoin in 2013; Tether in 2014; and Ethereum in 2015. All quickly found traction in online gambling.

Eric Voorhees founded SatoshiDICE in 2012, a gambling site with odds that were fully on-chain and auditable using only the Bitcoin protocol itself. Unrestrained by typical USD and banking transfers, SatoshiDICE became one of the fastest growing gambling sites in the world soon after it launched. Voorhees was able to boast millions of wagers and earned over $500,000 in profit within just eight months.

Links between Tether, FTX, and online gambling

For years, exchanges have reported more Tether-denominated transactions than any other cryptocurrency. Indeed, Tether trading volumes have consistently outpaced Bitcoin. USDT on the Tron blockchain is particularly popular; Tron is overwhelmingly used for gambling.

Similarly, Tether was the primary denomination for gambling-like leveraged futures and margin pairs across all Asian exchanges for years, including Binance, OKEx, Huobi, OKCoin, Bitfinex, Kucoin, and Bybit.

Tether’s ties to FTX and the gambling industry are of note. Tether used Alameda Research as one of its few market makers. A former lawyer for poker site Ultimate Bet, Daniel Friedberg, went on to join FTX’s legal team. Friedberg has agreed to cooperate with US law enforcement regarding FTX and Sam Bankman-Fried.

Friedberg used to work at the same company as Tether’s current general counsel, Stuart Hoegner. Friedberg was a chief executive at Ultimate Bet while Stuart Hoegner was working as a compliance officer for Excapsa. Excapsa owned Ultimate Bet, which was caught cheating on its own customers through a secret, “god mode” view.

Friedberg could have access to some interesting information about the relationship between FTX, Alameda Research, and Tether.

One of the final trades made using FTX customer funds was a massive bet against Tether (USDT) via decentralized exchanges Aave and Curve using Circle’s USDC stablecoin. That bet caused USDT to briefly de-peg several cents from its $1 target price amid the collapse of FTX and Alameda.

FTX, Alameda, or another Tether-associated entity might also have made massive bets using USDT during FTX.com’s final hours. The exchange’s transaction logs during the hours before its bankruptcy are in disarray and might never be reconstituted.

Tether’s close run-ins with the law

Internet gambling-related arrests after 2006 include an Australian man charged by the Justice Department with laundering more than half a billion dollars for unlawful online poker operations. Bitcoin wasn’t involved in the money laundering — instead, the Australian man used USD and the intrabank Automated Clearing House system to launder USD proceeds of his crimes. He used several shell companies to transfer fiat in ways that appeared unrelated to gambling.

Subsequently, law enforcement actions have targeted big poker websites like PokerStars, Full Tilt Poker, and Absolute Poker. A Canadian gambling site called Ultimate Bet ran afoul of similar Canadian regulations and ended up paying a $1.5 million fine.

Could Tether be playing a similar game of cat-and-mouse with US regulators? As Protos previously described in a timeline on Tether and its sister exchange, Bitfinex, both entities have become the subject of several investigations and legal actions by regulators.

Tether famously settled a major criminal investigation by the New York Attorney General.
Like New York State, the province of Ontario has also banned crypto platforms from offering Tether.
One lawsuit has accused Tether of market manipulation.

Tether did not proactively freeze Tornado Cash-related addresses after the US Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash.

In September 2021, the SEC hinted about another investigation into Tether by denying a Freedom of Information Act request for Tether-related documents.

Tether users are betting all the time

Tether’s recent depegging could have been a brief, harrowing reminder of the risks of stablecoins. At the end of the day, Tether holders are betting — not just by using USDT to play online poker or buy leveraged perps, but also by simply believing USDT will remain worth $1.

Smart Tether users typically only hold the token for long to move money between properties. It’s hard not to feel like users are playing roulette in an environment where fortunes arrive and disappear in an instant.

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