Tether became an intermediary because many crypto exchanges struggled to obtain conventional banking. Customers sent dollars to Tether, received tokens, and transferred those tokens to exchanges, adding another institution rather than eliminating one. The arrangement remained dependent on opaque and potentially unreliable operators.

Banks were reluctant to serve early crypto exchanges.
Tether acted as a cashier between customers and exchanges.
The process added an intermediary to a supposedly disintermediated system.
Users still had to trust private companies holding or moving their value.

“Tether is basically like the cashier”
Zeke Faux · 37:02

“Crypto is always sold as trustless, and in reality it turns out you keep having to trust these people who prove themselves to be totally…”
Zeke Faux · 37:35

#tether#trust#intermediaries#banking

Hot Take· 1

Hot Take43:17

An 18% Yield Was the Celsius Warning Sign

Celsius accepted crypto deposits while promising returns as high as 18 percent and extremely cheap loans. Faux argued that such returns were implausible when conventional rates were near zero, while founder Alex Mashinsky countered that traditional banks were the real scammers. Celsius later collapsed and Mashinsky was charged with fraud.

Celsius presented itself as a crypto bank.
It promised deposit yields far above prevailing rates.
Its explanation relied on distrust of banks rather than transparent economics.
The company collapsed and its founder faced criminal charges.

“somebody's lying. Either JP Morgan is lying or Celsius is lying.”
Zeke Faux · 45:28

“Celsius did collapse in the end, and actually a month or two ago, Mashinski got arrested and charged with fraud.”
Zeke Faux · 45:46

#celsius#yield#fraud#risk

Explainer· 4

Explainer19:07

Why Bitcoin Mining Consumes So Much Electricity

Faux describes Bitcoin mining as a power-intensive guessing competition that helps secure the network. Warehouses of computers run continuously, consuming energy on a scale compared with an entire country, even though their computations have no separate productive use.

Mining makes attacks on Bitcoin more difficult.
The process consists largely of competitive guessing.
Its electricity consumption has been compared with Argentina's.
The computational work has little independent utility.

“by some estimates, bitcoin mining uses more energy than the whole country of Argentina.”
Zeke Faux · 19:25

“They're just playing sort of this guessing game that makes it difficult for anyone to hack bitcoin and steal all the bitcoins.”
Zeke Faux · 19:46

#bitcoin#mining#energy#environment

Explainer40:06

How Higher Interest Rates Transformed Tether's Business

At zero interest rates, Tether had an incentive to place reserves into riskier assets to generate returns. With Treasury yields near five percent, a fully backed reserve pool could instead produce billions in annual income with little operational effort, potentially repairing even a past reserve shortfall.

Zero rates encouraged reserve risk-taking.
Faux found evidence of commercial paper and crypto-company loans.
Higher Treasury yields created a lucrative low-risk income source.
Profitability still depends on the accuracy of Tether's reserve claims.

“you just put it in treasuries earned five percent.”
Zeke Faux · 41:00

“they're one of the most profitable companies in the world. It's a shoe string operation.”
Zeke Faux · 41:03

#tether#interest-rates#treasuries#stablecoins

Explainer52:28

How Alameda Treated FTX Customer Funds as a Piggy Bank

Trial testimony indicated that Alameda received privileged access to FTX customer funds from an early stage. Those funds financed investments and absorbed exchange losses, while customers believed their assets remained available for withdrawal. Even profitable bets could not retroactively authorize the taking of customer money.

Alameda received broad access to customer funds.
FTX shifted concealed exchange losses to Alameda.
Customer money financed external speculative investments.
Recovering money later would not erase the original fraud.

“Alameda was allowed to treat like the customer money like a piggy bank and use it to gamble on whatever.”
Zeke Faux · 1:07:43

“that would be like I robbed the Federal Reserve and then I went and bought a million Powerball tickets.”
Zeke Faux · 1:06:02

#ftx#alameda#fraud#customer-funds

Explainer59:08

FTX Used Bipartisan Donations to Shape Its Own Regulation

Bankman-Fried treated political spending as an investment capable of influencing much larger government decisions. Donations were routed through associates identified with different parties, while FTX sought legislation that could establish it as the compliant US exchange and disadvantage less politically connected competitors.

FTX-linked money reached roughly one in three members of Congress.
Donations were divided across Democratic and Republican channels.
Bankman-Fried wanted the CFTC to regulate crypto.
Preferred legislation could have entrenched FTX and boxed out competitors.

“he had this idea that you know, a lot of people say there's too much money in politics. He said, there's not enough money in…”
Zeke Faux · 59:22

“you're the Democrat and you're the Republican. We're going to funnel our donations through you.”
Zeke Faux · 1:00:14

#ftx#politics#regulation#campaign-finance

Story· 5

Story14:44

The Hunt for Tether's Missing Reserve Evidence

Faux entered crypto by investigating whether Tether possessed the reserves backing tens of billions of tokens. The trail led through a former child actor, a secretive Italian executive, a Bahamian bank, and Inspector Gadget co-creator Jean Chalopin, while basic evidence about the complete reserves remained elusive.

Tether claimed each token was redeemable for one dollar.
Its circulation implied tens of billions of dollars should be held in reserve.
The company would not clearly identify where all reserves were held.
Past reserve claims had already attracted action from the New York Attorney General.

“I'm the guy who's gonna see if they have this fifty billion. I'm going to track it down.”
Zeke Faux · 16:50

“That even John would say, I didn't know where all the money was, I could only account for a portion of it.”
Zeke Faux · 18:42

#tether#stablecoins#reserves#investigation

Story20:02

Buying a Mutant Ape Exposed Crypto's Usability Crisis

Faux spent roughly $20,000 on a Mutant Ape NFT to experience blockchain ownership directly. Installing a wallet, protecting a seed phrase, moving funds, and facing irreversible theft risk convinced him that mainstream users would not tolerate the process without expectations of extraordinary profits.

Buying an NFT required direct interaction with a blockchain wallet.
Seed-phrase custody placed security responsibility on the user.
A single mistake or hack could permanently remove valuable assets.
Faux saw the process as a major obstacle to mainstream adoption.

“no one normal will do this.”
Zeke Faux · 22:38

“this is a huge obstacle the crypto ever taking off. No one normal is gonna do this unless they think they're gonna get rich.”
Zeke Faux · 23:25

#nfts#wallets#security#user-experience

Story23:59

How Axie Infinity Left Filipino Players in Debt

More than a million Filipinos joined Axie Infinity after it was promoted as a new form of work. Some borrowed substantial sums to purchase the required game characters, then suffered serious losses when the economy collapsed. A subsequent North Korean hack diverted hundreds of millions of dollars from the affiliated network.

Players had to buy teams of digital monsters before participating.
Some Filipino users borrowed money to enter.
The collapse caused meaningful financial setbacks, not merely entertainment losses.
The US government attributed a major network theft to North Korean hackers.

“more than a million people in the Philippines started playing.”
Zeke Faux · 25:43

“For these people who took out loans to get in on it, it had been a real setback in their life.”
Zeke Faux · 25:59

#axie-infinity#philippines#gaming#north-korea

Story54:36

Inside the Scam Compounds Using Tether and Trafficked Workers

Faux traced a small Tether payment from a fraudulent message into a wider system of Southeast Asian scam compounds. Trafficked workers were confined, beaten, and forced to cultivate victims online, while cryptocurrency made international payments and ransom flows easier to conduct beyond conventional banking controls.

Many scam messages originate from forced-labor compounds.
Workers can be trafficked through fraudulent job offers.
Victims face confinement, beatings, and electric shocks.
A United Nations estimate placed as many as 200,000 people in scam compounds.
Investigators said Tether made financial tracing and enforcement harder.

“the people sending them are often victims themselves.”
Zeke Faux · 56:25

“as many as two hundred thousand people work in these scam compounds.”
Zeke Faux · 58:36

#human-trafficking#tether#scams#cambodia#forced-labor

Story1:13:08

The Legal Document That Let Lenders Seize Everything

Faux's earlier investigation uncovered merchant cash advance lenders using confessions of judgment against small businesses. Borrowers effectively signed away their right to contest a claimed default, allowing lenders to obtain judgments and seize bank accounts with little warning. Reporting prompted New York and Connecticut to close the loophole.

Merchant cash advances carried extraordinarily high effective rates.
Borrowers signed confessions of judgment before receiving funds.
Lenders could claim default and seize assets without a normal contest.
Legislatures in two states changed the law after the investigation.

“there's no chance for them to contest it.”
Zeke Faux · 1:15:47

“New York State passed the law closing this loophole.”
Zeke Faux · 1:16:02

#lending#small-business#courts#investigative-journalism

Tool· 1

Tool1:25:09

How Financial Reporters Get Insiders Talking

Faux advises young financial journalists to enter the industry's ongoing gossip network rather than approaching every conversation with excessive formality. Finance professionals already spend much of their day exchanging workplace information, so a reporter who sounds informed and comfortable can become part of that flow.

Finance professionals regularly exchange workplace gossip.
Reporters can participate by sounding informed and conversational.
Specific inside-baseball questions invite useful responses.
Excessive formality can make sources less candid.

“If you just act like you belong, you can call these guys up”
Zeke Faux · 1:25:33

“If you don't act super official and you just feel like you're part of the mix, people will talk to you about what's going on…”
Zeke Faux · 1:25:48

#journalism#reporting#sources#finance

Takeaway· 2

Takeaway49:57

Judge Crypto Utility by Adoption, Not Theoretical Use Cases

Faux argues that a technology operating for more than a decade should demonstrate practical demand. Bitcoin usage remained weak even in El Salvador, while NFT ticketing claims failed a real-world test at ApeFest. Consumers often prefer reversible payments, customer support, and accountable central operators.

Long-lived technologies should show practical adoption.
El Salvador's promotion did not produce broad Bitcoin usage.
ApeFest did not use NFTs as its actual ticketing mechanism.
Customer service and payment reversibility are valuable features, not defects.

“I think a lot of this stuff sounds good in theory”
Zeke Faux · 50:56

“if this crypto stuff was so great it would sell itself, you wouldn't need to be pushing it on people.”
Zeke Faux · 52:16

#bitcoin#adoption#utility#ticketing

Takeaway1:09:21

FTX Became an Argument for Old-Fashioned Financial Regulation

The exchange concealed losses, lacked meaningful disclosure, and operated without the safeguards expected in traditional finance. Faux concludes that longstanding financial rules exist precisely to expose losses and conflicts before customers discover a hidden hole during a collapse.

FTX concealed major losses instead of reporting them.
Crypto lacked equivalent disclosure and transparency requirements.
There was no public backstop comparable to regulated banking protections.
Faux faulted the SEC for responding too slowly.

“some of these age old rules make sense.”
Zeke Faux · 1:10:10

“There's a reason why companies have to disclose stuff, and it's to prevent exactly things like this FTX collapse.”
Zeke Faux · 1:10:13

#regulation#ftx#disclosure#consumer-protection

Frameworks in this episode

Number Go Up Technology

Ponzinomics Circular-Value Test

Insights & moments

⚡Myth Buster· 1

Crypto's Trustless Promise Created More People to Trust

◆Hot Take· 1