Was Tether at the center of Sam Bankman-Fried’s empire?

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Out of all the companies in the crypto industry, the demise of Sam Bankman-Fried’s (SBF) crypto exchange FTX was the most likely to pull stablecoin Tether (USDT) down with it. Tether has always maintained close links with SBF’s former empire. Indeed, the vast majority of all transactions that FTX processed involved USDT. 

FTX was seemingly hacked last week. The $600+ million taken was used to short USDT. Within hours, the crypto industry’s arch-nemesis Avraham Eisenberg also shorted tether with the same thesis: the collapse of FTX would de-peg the stablecoin.

These bets were not unfounded. Protos has led public disclosures regarding the close relationship between Tether and FTX. Our Tether Papers investigation revealed that Alameda was Tether’s second-largest customer and received over $36 billion worth of Tether directly from Tether Ltd.

Tether distribution since inception up to November 2021, when the Tether Papers were published.

Yet despite dropping by a few pennies during the initial panic amid FTX’s collapse, Tether has held its peg. The token remains the world’s third-largest crypto asset behind bitcoin and ether with a $65 billion market cap.

Tether’s ability to hold its $1 peg is impressive. So far, it has withstood the bankruptcy of its once-second-largest customer plus two multi-hundred million dollar bets on its demise. Still, it’s worth examining the ties between SBF and Tether.

SBF founded FTX same day Tether begins billion dollar fundraise

A little-known date from Tether’s history is May 8, 2019. On that day, Bitfinex, Tether’s sister exchange that shared executives with the firm, published its LEO whitepaper. Bitfinex’s LEO token offering sought to raise $1 billion and ultimately allowed Tether’s exchange to receive a bailout from Block One and other LEO investors.

Interestingly, SBF founded FTX on that same day.

Read more: Is LEO token manipulating Tether’s balance sheet?

Uncanny connections continue. Most large crypto exchanges prefer proprietary stablecoins. To list just a few examples, Gemini preferred GUSD, Binance preferred BUSD, and Coinbase preferred USDC.

However, FTX never issued its own stablecoin. For some reason, unlike other major crypto exchanges, FTX simply preferred tether. The overwhelming majority of transactions on FTX used USDT.

Lots of money from Block One and EOS

Tether has a close relationship with EOS through its early backer, Block One, due to Tether’s sister exchange, Bitfinex. Block One money purchased LEO tokens from Bitfinex. 

Block One and EOS’s co-founder, Brock Pierce, also co-founded Noble Bank, one of Tether’s banking partners.

Brock Pierce’s other associations include Noble Bank’s CEO John Betts, whom he knew from a failed attempt to acquire Bitcoin’s first major exchange, Mt. Gox. BitMEX Research pegged the Puerto Rico-based Noble Bank as a likely banking partner for Tether, citing aggregate financial system data. Any uncertainty on this stems from Puerto Rico being a growing hotspot for digital asset businesses.

A brief bio of Brock Pierce in a press release from October last year lists him as a co-founder of EOS Alliance and Block One. In it, he denies that he was ever a director or officer for Tether even though he had claimed to be a principal founder. Later, he incredibly claimed he transferred his stake out of the multi-billion-dollar Tether for zero consideration.

Block One gained notoriety from its curious, year-long offering of EOS tokens. Integra President Dr. John Griffin led an investigation into EOS’ allegedly multi-billion-dollar token sale. Integra found suspicious exchange accounts that were buying a lot of EOS in its token sale.

  • Its initial coin offering (ICO) lasted for over a year.
  • These suspicious wallets had ample time to sell the EOS they purchased in the ICO for ether (ETH), and then use that ETH to buy more EOS from the ICO.
  • This recycling activity created the false impression that buyers were expending billions of dollars to acquire EOS.

In reality, Griffin’s paper suggested that the non-recycled, authentic amount of ICO purchases for EOS was just a few hundred million dollars ⏤ a small fraction of EOS’ oft-heralded $4 billion. Worse, the advertising claims about EOS “succeeding” at raising “billions” of dollars induced demand from duped investors who believed EOS was more popular than it really was.

Crypto investigator Bitfinexed alleged that through these recycling mechanisms, the Tether/Bitfinex-backed Block One effectively gave EOS a $500 million bailout. Another investor lawsuit claimed that Block One and its former Chief Strategy Officer, Brock Pierce, conspired to conduct an illegal securities sale and artificially inflated EOS’ price during its year-long token sale.

The lawsuit also alleged that EOS was not as decentralized as investors were led to believe, citing Brock Pierce’s later admission that a Chinese oligarchy controlled its blockchain.

The Securities and Exchange Commission (SEC) validated some of these concerns by charging Block One with conducting an unregistered initial coin offering.

Alameda Research’s OTC manager mints Tether

In May 2021, Alameda Research Head of OTC Ryan Salame admitted to having extensive experience minting Tether. “I’ve been minting/redeeming USDT on an institutional scale for over 3 years with multiple desks! … Note the process has always been smooth.”

The Ethereum address involved in this minting continued to move USDT between Bitfinex and FTX. The most recent transactions occurred on November 1, 2022.

Final notes

FTX, Alameda, and Tether have always been intertwined. Nowadays, Tether denies that FTX’s demise poses a risk to USDT. However, Tether executives have not always told the truth. The New York Attorney General has documented a series of lies told.

SBF also admitted to withholding the truth about Alameda’s operations when opening certain bank accounts. Indeed, SBF admitted that he omitted crypto activities entirely when describing Alameda, and selected the generic name “Alameda Research” to avoid certain banks’ hesitation to serve the crypto industry.

Deltec Bank – with which Tether established a banking relationship in 2018 – released a statement denying any exposure to FTX. According to Deltec, FTX did not hold any of the bank’s assets and neither did Deltec Bank trade any assets on FTX.

For more informed news, follow us on Twitter and Google News or listen to our investigative podcast Innovated: Blockchain City.