The world’s largest stablecoin Tether recently confirmed that a significant portion of its reserves were in commercial paper and other securities connected to banks and entities in China.
But Tether’s connections to China run far deeper than this commercial paper. Since the very beginnning, China has been an important part of Tether’s history — from the experiences of its executives to the assets which make up the reserves, and to the real world use-cases that Tether has found.
Tether founders and China
Brock Pierce is a founder of Tether. Before that, he ran a company called Internet Gaming Entertainment (IGE) which sold virtual goods for Everquest, World of Warcraft, and other online games. IGE relied on workers across China who would mine digital gold and then sell it to IGE who would then re-sell it into the primarily Western market.
This business was run (with various legal disputes) together with Jonathan Yantis, another Tether co-founder. William Quigley, another Tether co-founder, also sat on the board for IGE. The firm’s CEO was Steve Bannon, who later helped support Pierce’s ill-conceived and ill-fated political campaign in the US.
Bannon is also deeply connected to Chinese billionaire Guo Wengui. Both were charged by the Securities and Exchange Commission (SEC) with selling unregistered securities related to G-coin.
Read more: Tether bought commercial paper from subsidiary of alleged terrorist-linked bank
Devasini and van der Velde’s history
Bitfinex and Tether’s chief exec and chief financial officer, Jan Ludovicus van der Velde (sometimes known as Jean Louise) and Giancarlo Devasini, used to operate an electronics import-export business together.
The firm’s Italian branch was a company called Perpetual Action Group — incorporated in Monaco and run by Devasini, according to Financial Times. The Asian side of this import-export business was called Perpetual Action Group (Asia) and reportedly run by van der Velde. Tether told the FT that Perpetual Action Group in Monaco was independent from Perpetual Action Group (Asia) — though it did admit that van der Velde and Giancarlo “had some level of involvement with both companies.”
Perpetual Action Group (Asia) was also listed as a shareholder for DigFinex, which owns Bitfinex and is a shareholder in Tether. Besides owning this stake in Bitfinex and Tether, the FT claims that it owns Huashun Electronics, a company formerly operated by van der Velde that manufactured television receivers and similar equipment for export.
Huashun Electronics is now listed on China’s Seriously Illegal and Dishonest Entities List, which supposedly precludes van der Velde from running other companies in China.
Devasini’s Monaco-based Perpetual Action Group was eventually banned from Tradeloop. In April 2010, one buyer complained that the memory chips they purchased were actually a large block of wood. In response, Tether first told FT that Devasini sold the entity in 2008; later it clarified that he began to wind it down in late 2009.
However, in contradiction to these claims, Tradeloop’s forum (as reviewed by the FT) showed Devasini dealing with the complaint from this purchaser. An associate said that Devasini personally packed the box and suggested it was tampered with en-route.
According to his biography on Bitfinex, van der Velde also serves as an executive director for a Hong Kong-based venture capital firm and a Chinese automotive group. Protos hasn’t been able to identify these entities. A search of Hong Kong corporate records only returned SafeFinex, Renrenbee, and Tether Limited.
Protos has reached out to Bitfinex to attempt to determine which companies van der Velde is associated with as an executive director but at press time, has not received a reply.
Tether and Bitfinex in Hong Kong
Bitfinex was started in Hong Kong as Bitfinex Limited on March 8, 2013. Two weeks later, van der Velde was appointed as a director. On December 10 that same year, Devasini was appointed as a director as well.
This entity would be renamed to Renrenbee on April 29, 2014. According to Hong Kong corporate documents reviewed by Protos, it was dissolved on May 24, 2019.
Van der Velde was also a director of SafeFinex, a Hong Kong-registered entity founded on June 21, 2013. This one was dissolved several days after Renrenbee, on May 31, 2019.
Tether Limited was founded on September 8, 2014 by van der Velde in Hong Kong. A little less than a month later, Devasini was added as a director.
Reporters who have visited the registered addresses of these entities didn’t find any actual operations. Instead, the addresses appeared to solely be used for correspondence.
Zhao Dong, RenRenBit, and gambling
Zhao Dong was the founder and CEO of RenRenBit, an over-the-counter (OTC) trading desk and cryptocurrency lending platform. He is (or was) a shareholder in Bitfinex, and was the partner for the launch of a stablecoin issued by Tether that was backed by Chinese yuan. RenRenBit was also a Tether client.
Back in 2019, Dong tweeted that Devasini told him, “I want to express my deepest gratitude to all the chinese community that supported us in this battle and understood what the situation is. Unus sed leo! China is an army of lions.” This was a reference to Bitfinex successfully closing its investment round into the LEO token, intended to fill the shortfall in Bitfinex and Tether’s books.
In 2021, Dong pled guilty in China on charges equivalent to money laundering and operating without the appropriate licensure. Dong apparently helped launder funds totalling $480 million for various online casinos through applications called Everyday Up and Tian Tian.
Read more: Did Tether falsify documents to fool cautious banks?
The similarity in name between RenRenBit and Renrenbee have caused some to speculate that an even deeper relationship between Bitfinex and RenRenBit exists — a theory to which Dong responded, “I have to admit that no asshole in the world can make a more ridiculous rumor than you!”
Apart from Dong’s efforts to launder gambling funds in China, Tether is also commonly used for gambling in the nation. In October 2020, China cracked down and arrested 77 individuals and shuttered multiple sites connected to gambling using tether.
China and Russia flows
In 2019, CoinDesk reported on one of the most important use cases for Tether in an article titled Millions in Crypto Is Crossing the Russia-China Border Daily. There, Tether Is King.
The article discusses how Chinese merchants selling goods in Russia acquire cash. Reportedly, they rely on OTC desks like Huobi Russia in order to exchange it into tether so that it can be easily sent back to China.
An OTC dealer in Russia, Roman Dobrynin, is quoted in the article as saying “China is totally reliant on USDT, they trust in it a lot, plus it’s very liquid.”
Chinese capital controls
It has been repeatedly suggested that one of Tether’s use cases has been evasion of capital controls, especially in China. Chainalysis published a report in 2020 which suggested that Tether was “disproportionately popular” and “particularly useful for capital flight.”
Tether’s blog post called What Can We Attribute To The Explosive Growth of Stablecoins? attempted to give Tether’s perspective on things that have driven its growth.
The firm explained how capital controls can contribute to growth for Tether, even specifically saying that “USDT provides an alternative that allows entities and individuals to circumvent capital controls by utilizing an entirely different financial infrastructure.”
Money laundering and crime
In December 2022, Chinese officials arrested 63 people in a money laundering gang crackdown. It turns out the gang laundered $1.7 billion using tether as a key part of their operation.
Tether is often commonly one of the currencies of choice for illicit operations like the import and export of fentanyl precursors. A recent indictment against Hubei Amarvel Biotech, among others, described a scheme which involved the import of 200 kilograms of fentanyl precursors.
The indictment revealed an invoice which offers several virtual currency ways to pay, including tether on both Ethereum and Tron. This is not an anomaly — tether is often mentioned in other indictments, like this Chinese money laundering and drug trafficking scheme where criminals attempted to use tether to buy a passport.
Read more: Crypto payments to China chemical suppliers fuel US fentanyl epidemic
Tether’s relative stability and the few limits on who can make transactions has made it an attractive choice among criminal operations. That said, these benefits also result in tether being used by legitimate companies in international import/export.
Alameda Research
Sam Bankman-Fried’s trading firm Alameda Research was one of the two largest issuers of Tether. Conservatively, it issued $36.7 billion as of November 2021 — a year before its bankruptcy.
At least $31.7 billion of these tethers were received between November 2020 and November 2021, as Alameda Research massively increased the scale of its operations. The bankruptcy proceedings of FTX and Alameda have revealed that Alameda misappropriated $8.7 billion in customer deposits from sister company FTX.
Genesis Block was an OTC trading desk in Hong Kong which was integrated into Alameda Research and FTX, according to FT. Apparently, people would line up around the block with bags of cash to exchange them for cryptocurrency, including tether; and Genesis Block described how it relied on a network of dozens of bank accounts in order to continue its operations.
Read more: Tether Papers: This is exactly who acquired 70% of all USDT ever issued
Genesis Block was also a Tether client, transacting hundreds of millions of dollars with Tether between 2019 and 2021.
Alameda’s owner Sam Bankman-Fried has been indicted on many charges, which includes bribing Chinese officials with $40 million in cryptocurrency to unfreeze Alameda Research trading accounts on Chinese exchanges. The accounts contained approximately $1 billion in cryptocurrency.
Chinese commercial paper
Recently, CoinDesk and Bloomberg’s Freedom of Information requests for Tether’s backing from the New York Attorney General settlement revealed that Tether was backed by a large variety of Chinese commercial paper in March 2021.
This commercial paper included several Chinese banks:
- The Agricultural Bank of China,
- Bank of China Hong Kong,
- Bank of Communications,
- Industrial and Commercial Bank of China,
- China Merchants Bank,
- China Construction Bank,
- China Everbright Bank, and
- China Development Bank.
During this period, commercial paper made up approximately half of Tether’s reserves.
Tether and Babel Finance
Babel Finance was an important cryptocurrency lender in China before its collapse. Notably, it lended to a variety of different Chinese cryptocurrency miners.
A whistleblower told Decrypt in 2020 that Babel Finance misappropriated customer funds for leveraged trading strategies. This recording also claimed that Tether’s loan to Babel was a bailout so it could continue operations. One part of the recording claimed that Silvano di Stefano, Tether’s chief investment officer, described Babel Finance as “bad customers.”
At the time, Babel Finance claimed that the “the firm never lost clients’ funds, nor faced any liquidation from lenders.” Since then, Babel Finance was forced to halt withdrawals and file for restructuring, including a filing which suggested it lost over $280 million in proprietary trading with client funds.
The total amount lost for Babel eventually rose to over $750 million as the restructuring continued. It then proposed issuing a new stablecoin in order to begin paying back creditors.
Deltec Bank and Isola Capital
Tether has relied on Bahamas-based Deltec Bank since 2018. Deltec even issued a letter that claimed Tether’s ‘Portfolio Cash Value’ on October 31, 2018 exceeded the number of tethers in circulation.
Isola Capital is an asset management and family office platform in China that was originally established as Deltec Capital. Jean Chalopin, the current chairman of Deltec Bank and Trust, was also listed as the executive chairman for Deltec International Group on older versions of Isola’s website. Chalopin isn’t listed on newer versions of Isola’s website.
Deltec Bank was liquidated in 2000 and sold to DISA Liquidating Co.
On its website, Isola Capital describes merging with Atlas Capital Group in 2001. The biography for Robert Dwek of Hyposwiss private bank discusses Atlas Capital Group acquiring Deltec Bank and Trust in 2002.
An interview with Patrick Stevenson, then CEO of the Atlas Capital Group, discussed merging with Deltec Bank and Trust in 2001. Atlas Capital Group would sell off Deltec Bank and Trust in 2006. The remainder of Atlas Capital was sold off in 2008, according to Isola’s website.
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Source: https://protos.com/tethers-history-with-china-goes-far-beyond-commercial-paper/