The mystery of Tether’s finances is slowly being unraveled.

The Wall Street Journal (WSJ) yesterday published a report claiming that the stablecoin is using investment firm Cantor Fitzgerald to help manage its $39 billion treasury bond portfolio. The firm is a primary dealer in the Treasury Market, a designation that enables it to conduct direct trades with the New York Federal Reserve.

Separately, Forbes published another report that claimed Tether moved $37 billion of its reserves to an offshore bank called Capital Union in 2021 after it settled with the New York Attorney General’s office over charges that its stablecoin had misrepresented its reserves. It is not clear why Tether moved its reserves from Deltec Bank, the entity named in the New York Attorney General’s complaint, to Capital Union.

Capital Union is based in Bahamas, as is Deltec, and offers cryptocurrency solutions to clients. It also uses crypto compliance software made by Chainalysis and has connections to Deltec. The current executive vice president of Capital Union used to work at Deltec.

Meanwhile another Bahamas bank, Ansbacher, was also used to hold some of Tether’s reserves, said Forbes. Ansbacher was acquired by Deltec last year. Essentially, this means that Tether’s banker Deltec might be simply recycling reserves between related entities to evade lawmakers.  

A Second-Hand Source

Cantor Fitzgerald did not confirm the Journal’s account of its relationship with Tether. In fact, the reports mentioned above do not have confirmed quotes. They are second -hand accounts based on sources who may have an agenda in feeding information to journalists.

This, of course, does not mean that they are untrue. The problem is that they continue a narrative about Tether that is largely based on attestations, hearsay, and second-hand accounts of its operations.

The timeframe for the hiring of Cantor Fitzgerald by Tether is also not clear. In the past, senior Tether executives have struggled to answer questions relating to their relationships with brokers for sale or purchase of supposedly large amounts of commercial paper.

Still, something, as they say, is better than nothing. The coming days should bring more transparency into Tether’s finances. A New York Judge has denied Tether’s request to block online publication CoinDesk’s Freedom of Information Law (FOIL) request for records related to Tether’s reserves.

What Happened to Tornado Cash?   

In August last year, the Office of Foreign Assets Control (OFAC) sanctioned crypto mixer Tornado Cash because it had been used for money laundering. The sanctioning, which prohibited U.S. – based persons from sending or receiving funds using the service, riled up the crypto community and instigated lawsuits and heated online discussions about privacy.

Amid the brouhaha, there was snark too. Someone began impersonating celebrities and sending money to U.S. celebrity accounts, thereby flouting OFAC sanctions. The demonstration was an argument that it was impossible to impose sanctions on a supposedly decentralized platform like Tornado Cash because authorities could not prevent users from receiving funds from the service.

But that argument ignores the fact that Tornado Cash resides on the Ethereum blockchain. Its recent move to Proof of Stake (PoS) has resulted in a consolidation of validators – entities required to confirm transactions occurring on the blockchain.

Some of the biggest validators on Ethereum’s blockchain, such as Coinbase and Kraken, fall under the purview of regulators. The former exchange funded a lawsuit brought by its employees against the Treasury Department.

Censoring Tornado Cash      

The recent earthquake in Turkey has galvanized users to send funds using Tornado Cash. Their transactions are still pending, meaning the Ethereum block containing the Tornado Cash transactions has not been confirmed by validators.

According to a site that tracks OFAC sanctions compliance for Miner Extractable Value (MEV) blocks on Ethereum, approximately 60% of all blocks are sanctions compliant as of this writing. Entities that are enforcing the Treasury Department’s diktat include the likes of Coinbase and Binance.

Meanwhile, the Tornado Cash community lies in disarray. One of the promises of Tornado Cash was privacy in the form of anonymous transactions. Now its community website requires the downloading of an app and registration credentials from well-known platforms like Facebook and Apple.

The experiment in permissionless services, it seems, is over and now requires a go-ahead from government authorities for continued operation.

Because this is crypto, Tornado Cash’s TORN token still has value. Seventy percent of the supposed value for the token comes from the world’s biggest cryptocurrency exchange by trading volume, Binance. There, the token is wash traded and 0 ETH is continuously traded between two bots.