Re: Proof of reserves? Insurance fund? Best I can do is a random number generator!
Some new absolute hilarity from the trial, this time involving BlockFi, which lost $1 billion in the FTX collapse and ended up collapsing themselves. Zac Prince was the CEO of BlockFi (emphasis added):
So the entirety of BlockFi's "research" and "evaluation" as to whether they should lend over a billion dollars to another company consisted of "Hey, we can totally trust you, right?", without any independent audits, examination, or verification of any sort whatsoever. So essentially FTX said "You can totally trust us, bro", and BlockFi said "OK, here's a billion dollars of our customers' money!"
Prince testified to all of this on Friday, and outlined the details of how BlockFi evaluated whether to lend to a given institution. The company would review the financial records of a prospective borrower and evaluate the likelihood the company could repay the loans it was requesting. Alameda Research never provided BlockFi with audited financial statements, testified Prince, but that was the norm for BlockFi’s crypto customers — “because of issues with getting audits as a cryptocurrency firm”, he reasoned.
“We always relied on the information that we were given by counterparties as being truthful and accurate,” said Prince. That was ultimately their downfall. The statements provided by Alameda didn’t disclose the true extent of the firm’s liabilities, nor the existence of substantial loans from Alameda to FTX and company executives.
“We always relied on the information that we were given by counterparties as being truthful and accurate,” said Prince. That was ultimately their downfall. The statements provided by Alameda didn’t disclose the true extent of the firm’s liabilities, nor the existence of substantial loans from Alameda to FTX and company executives.
So the entirety of BlockFi's "research" and "evaluation" as to whether they should lend over a billion dollars to another company consisted of "Hey, we can totally trust you, right?", without any independent audits, examination, or verification of any sort whatsoever. So essentially FTX said "You can totally trust us, bro", and BlockFi said "OK, here's a billion dollars of our customers' money!"
How are we sure that Tether has the assets or reserve it claims it owns?
It's worse than that - we know for a fact that Tether doesn't have the assets it claims to have. They revealed in court that at one point only 14% of USDT was actually collateralized: https://bitcointalk.org/index.php?topic=5322147.msg56656992#msg56656992. They also admitted that their collateral includes loan repayments they are making to themselves after printing almost $1 billion USDT out of nothing and loaning it to themselves to stop them going bankrupt. So print USDT out of thin air, loan it to yourself, claim USDT is backed up by future loan repayments.