Billions of USDT were issued to two companies? One belongs to SBF and the other is very mysterious

Wu Shuo Author | Tan Shu

Editor of this issue | Colin Wu

The vast majority of Tether's additional issuance was provided to two companies

According to an exclusive report by blockchain media Protos(1), the vast majority of newly issued USDT was provided to two companies, Alameda Research and Cumberland Global. Among them, one-third of the USDT currently in circulation was provided to FTX's parent company Alameda Research, while Cumberland Global purchased more USDT from Tether than FTX.

Most people are already familiar with FTX, the cryptocurrency exchange founded by Sam Bankman-Fried, but few people seem to know about Cumberland Global, which bought more USDT.

In fact, Cumberland Global is similar to Alameda Research, both of which are major liquidity providers in the cryptocurrency world. Although Alameda Research has "Research" in its name, it is actually an investment and trading company in the cryptocurrency field. The name "Research" is just to avoid some troubles at the banking and regulatory levels. Sam himself admitted this earlier this year.

The mysterious Cumberland Gobal and its parent company DRW

Cumberland Global is a cryptocurrency trading company. On the CME [official website](2), it can be seen that it is one of the main liquidity providers listed by CME. According to Protos, Cumberland is synonymous with cryptocurrency liquidity. Considering that transactions in the cryptocurrency world are mainly completed through USDT, and Cumberland Global is the main target of USDT issuance, this statement is not an exaggeration.

Cumberland is part of a Chicago-based investment company called DRW, which is named after the initials of its founder, Donald R. Wilson. When Lehman Brothers collapsed during the 2008 financial crisis, DRW took over Lehman Brothers' foreign exchange, fixed and agricultural futures businesses. According to the Financial Times, DRW now provides huge trading volumes for many futures exchanges around the world. In 2014, DRW established Cumberland Global, a cryptocurrency trading company.

DRW is also a low-key company. Although it employs 1,200 people worldwide, there are not many reports about it. However, the company has a huge influence in the field of cryptocurrency. In 2019, when VanEck's Bitcoin ETF Solidx, which is aimed at institutional investors, applied for listing on CBOE, SEC officials held a special [teleconference](3) with DRW executives to consult them on matters related to cryptocurrency and its ETF.

The risk of Tether issuance being too “centralized”

According to the financial verification report released by Tether, its asset reserves are mainly composed of commercial paper. However, most of the funds that hold commercial paper in the market have never heard of Tether. The current relationship between Tether and Cumberland Global reveals a possibility - the main issuers of the commercial paper held by Tether may be Cumberland Global and Alameda Research. These two companies obtain Tether's additional USDT by issuing commercial paper, and relying on these USDT, and then taking advantage of their own quantitative and market-making advantages, they can completely cover the interest costs of commercial paper.

Tether has long been criticized for not having enough cash reserves to cope with sudden withdrawal requests, thus triggering the risk of a "bank run". At present, the withdrawal demand faced by Tether is very small, with the ratio of deposits to withdrawals being about 20:1, which means that Tether only needs to retain cash equivalent to 5% of the total USDT issuance to cope with withdrawal demand. As the main provider of liquidity in the cryptocurrency market, both Cumberland Global and Alameda Research have had negligible withdrawal demand over the years.

Of course, Tether’s current issuance of the main USDT to two major customers also increases the risk of “centralization”. Whether Alameda Research or Cumberland Global encounters financial problems, the blow to Tether will be huge.

For Alameda Research and Cumberland Global, in addition to the risk of a global financial crisis, they also face regulatory risks. According to The Block, in June 2019, Cumberland Global's COO Bobby Cho and global director Jason Leung resigned from the company, which coincided with the time when the New York prosecutor's office launched an investigation into Tether.

According to the requirements of the New York Attorney General, Tether is not allowed to do business in New York State. Although it has no impact on Cumberland Global and DRW in Chicago, since Tether has always been the focus of supervision, future supervision will inevitably affect its cooperation with American companies such as Cumberland. (Head picture from New Republic)