Charting the Shadow US Dollar Network in Asia, Tron
Part 2/3: What did Sam Bankman-Fried do?
This episode will be a bit dense, but the star of this show Sam Bankman-Fried (a.k.a. SBF) will be in the climax, in addition to recurring character Justin Sun. For those impatient, they can just see the first section, then skip to the last.
SECTION HEADERS:
Part 1 Addendum
“Decentralized Entertainment”
A Short History of Smuggling Billions On-chain
- Issue Here, Redeem There
- High Velocity Money
- The Rise of USDT on Tron is Tied to Burning
Pig Butchering in the Opposite Lane
Where Did SBF Get so Much Money?
- Bullshido Premium
- The Thing
- MOOONNNEEEYYY TTTIIIIMMMMEEEE
Shadow Central Bank
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ADDENDUM to Part 1/3
To people who haven’t seen, Part 1/3: What proportion of USD Tether on Tron is not criminal?
Fun Fact: To get a better idea where Tron users are, below is the popularity of the search term “波场”, the Chinese name for Tron, on Google, from 2020 onwards.
It’s not so surprising that the Chinese for Tron “波场” is most looked up in China, albeit a little funny since Google is blocked in China. But who knew there can be so many Chinese interested in Tron in Laos, Cambodia and Myanmar?
One can also go look up ‘USDT’, ‘Tether’ (Topic: Cryptocurrency), and ‘泰达‘ (Tether in Chinese) on Google Trends to see which countries those search terms are most popular on Google for the past 5 years. You might (not) be surprised again of the three top countries that is not China.
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How did Tron get so popular in Asia in the first place?
“Decentralized Entertainment”
Tron or TRX coin was first created by Justin Sun in 2017 with a stated goal of facilitating content creation, sharing and monetization of artists for their work. It would be a peer-to-peer network that cuts out the middlemen and be the ultimate entertainment content-sharing platform. This use case for Tron didn’t really fly, and so then in 2018 Tron became a full-fledged blockchain network marketed as the best blockchain for developing decentralized apps (programs on blockchains), just like Ethereum but better and faster. Its goal to outdo Ethereum is not really unique to Tron among all competing blockchain projects.
Nevertheless, to the crypto commentariat, Tron is a rather dull, uninteresting and mostly ignored copycat that is all about marketing. That is, unless the topic turns to Justin Sun or his many supposed shenanigans. I’m not going to recount them all here; instead, I’ll point readers to some of the greatest hits on Justin Sun:
Justin Sun: Hype Man of the Century - The Verge
“So these people would get on our [Tron] blockchain and scam. Scam all day, 24/7. It never ended,” a former employee said.
Tron founder Justin Sun and his many escapes (theverge.com)
“Justin’s tolerance for risk is absurdly high. Like, absurdly high.” [former employee]
Justin Sun’s International Game of PR - Global Coin Research
Without shame, he once announced publicly: “I measure the person by how much money he’s made.”
This is definitely not an exhaustive list of everything Justin Sun is (in)famous for; looking up ‘Justin Sun’ on Protos media will have plenty more. These characterizations of Justin Sun aren’t unique among crypto-preneurs, by the way, though some might say he’s the biggest bad-ass of them all.
A Short History of Smuggling Billions On-Chain
Honestly, what Tron became most successful for is being the cheaper and faster payment network for stablecoins like USDT. As early as April 2021 USDT circulating on the Tron network has surpassed USDT on Ethereum.
The following will be a short primer history of how billions of USD were smuggled on crypto through very grey areas. These were largely worked out by Jon Reiter of blockchain research firm ChainArgos in his blog series, by Protos media, and others hyperlinked here. I merely summarize and repackage information for new and non-followers of crypto.
Some basic jargons for those who don’t know:
Minting
Issuing or “minting” stablecoins means that someone gives real fiat money to a stablecoin issuer company, who then creates or “mints” stablecoins for the buyer. Stablecoin issuers like Tether control the stablecoin programs (i.e. smart contracts) for creating stablecoin tokens. Theoretically, they should only be issuing USDT on-chain that they have USD backing on hand in their dollar reserves.
Burning
The opposite process is redeeming stablecoins. That is, a redeemer returns his stablecoins to its issuer, who then destroys or “burns” the on-chain stablecoin tokens and gives the equivalent fiat money to the stablecoin redeemer. The total amount of circulating stablecoins on-chain should decrease to reflect the burned amount of stablecoins.1
The important point here is that whenever there’s minting and burning, money is moving between different bank accounts somewhere.
Issue here, redeem there.
You can maybe see now how this mint/burn process can be abused for cross-border transfers. One can imagine a very simplified scenario:
Vivian is restricted from having USD or sending funds outside her country (e.g. China). Fortunately, her bank/fund manager has a way2 to credit money to the bank account of the stablecoin issuer (e.g. a Hongkong bank). The issuer, thus credited, mints an equivalent number of stablecoins for Vivian’s crypto wallet.
The stablecoin issuer’s bank conveniently has its headquarters in another country, maybe an offshore Carribean country. Or the stablecoin issuer even has a custodial entity with a trust company inside the USA. Our imaginary Vivian or her fund manager might redeem her stablecoins into real fiat USD in those places.
So in this way, at least in essence, Vivian could have moved her millions across borders. She might claim that the withdrawn money is from crypto trading or so. Maybe she played around with her stablecoins first by sending them to various wallets before redeeming to not make it so obvious, but it isn’t really necessary.
High Velocity Money
Every mint and burn of stablecoins is permanently recorded on the blockchain. ChainArgos analysis finds that there are a few wallets that receive newly minted tokens, only to pass them straight to a burn address for destruction. And that’s almost what all those wallets do and nothing else. Although seemingly pointless, it makes sense if minting and burning actions correspond to banks moving money or credit somewhere.
ChainArgos finds that such short, closed mint/burn cycles were happening on an industrial scale. For example, below is the total market cap over time of USD Paxos (USDP), issued by Paxos, a US company that did business with Chinese exchange Huobi.
Its market cap throughout this period barely went over $1B. But those flat portions don’t mean there’s no activity with USDP. In fact, Paxos wallets minted and burned over $5B in the time period shown. The total burned is ~5X its market cap, and its burn rate was ridiculously high; it was burning way more than >5% of its market cap every day, for many months on end. Simply, USDP customers were not using USDP as a store of value or for trading, but as a pass-through to somewhere. With lots of churning was going on, some banks must have been very, very busy. This is unbelievably high “velocity of money” for something that almost no one uses.
More eyebrow-raising is Huobi USD (HUSD) issued by Huobi, which is now admittedly owned by Justin Sun. HUSD market cap never strayed far from $250M, but Huobi has minted and burned a little over $10B HUSD before getting discontinued (40X burn-to-market cap ratio). Around this time at 2021 a Huobi Trust was incorporated in Nevada, to custody Huobi’s USD reserves and access the US banking system.
There are other little-known small-cap stablecoins like TUSD, mostly active between 2019 to 2021 (update3), that also had extremely high turnover ($8.9B minted and $8.5B burned on a mere constant $380M market cap). The biggest known minters of TUSD are, in order, FTX/Alameda and Justin Sun. TUSD’s custodial entities had associated with a Chinese conglomerate associated with Justin Sun.
The Rise of USDT on Tron is Tied to Burning
There are clues that stablecoins issued by certain Chinese-affiliated entities4 were burned to be converted ultimately into USDT on Tron, at scale.
ChainArgos shows that the burning of such ‘minor’ (little-known) stablecoins closely tracked the increase of USDT on Tron around until 2021, suggesting that the minor stablecoins were used to feed the growth of USDT on Tron. In comparison, their correlation with the rise of USDT on Ethereum is not as tight.
Combined Burning of ‘Asian’ Stablecoins vs. USDT on Ethereum vs. USDT on Tron
More convincing details in Jon Reiter’s original posts. Along with the fluctuations in USD cash reserves declared from public quarterly reports in the 3 or 4 banks dealing with crypto, these coincidences highly suggest that it is the same USD billions that went from the minor stablecoins to USD Tether on Tron. The minor stablecoins ended up becoming a highway to onboard/smuggle money into USDT (on Tron). It could also be that USDT on Tron soon replaced whatever functions the minor stablecoins were fulfilling before.
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Pig Butchering on the Opposite Lane
Surprisingly, or not, pig butchering scams use the same payment rails, although seemingly in reverse, from US to Asia. (Actually, wouldn’t that money flow perfectly complement the theoretical imbalance in demand for real USD on one end?)
I might talk about it in detail in a future post. It’s just too rich. But to summarize, US Secret Service investigations beginning in 2023 unraveled a money laundering network from US to Cambodia. Basically, US pig butchering scam victims who used bank wires sent their money to dozens of shell companies that forwarded them to a New York bank account, which then “domestically” transferred all of those to a bank in the Bahamas. Not coincidentally, the Bahamian bank is Deltec Bank and Trust, most known now as the bank of Tether. In a curious way, it privately sold USDT on Tron to the pig butchering scam perpetrators. The Binance accounts receiving the USDT were controlled from Sihanoukville, Cambodia. About $80M of life savings from US victims were smuggled to Tron in this way.
Where Did SBF Get so Much Money?
Generally speaking, private individuals are not the ones directly, personally, getting issued and redeeming stablecoins5, but trading firms called market makers. We are talking about tens to hundreds of millions of US dollars’ worth of stablecoins getting issued and redeemed at a time. Retail crypto traders and users simply buy stablecoins on crypto exchanges. It is the market makers that sell those minted stablecoins on exchanges.
You may have heard already of one —infamous— market-making trading firm: Alameda Research, established by FTX Exchange founder and convicted grifter Sam Bankman-Fried.
This isn’t news, but Alameda Research was among the biggest market maker that bought and redeemed USDT. Actually, at that time, Alameda was the biggest buyer of USDT from Tether, and it was receiving practically all of those USDT on the Tron network. In its heydays around 2020-2022, Alameda Research was by far, by huge margins, the number one market maker that is pumping USDT to hungry Tron users. By its downfall in late 2022, Alameda Research/FTX Exchange was responsible for about $40B in USDT on Tron.
To this day (August 2024), no one else has broken Alameda Research’s record for the amount of USDT anyone has brought into Tron — wherever in the world Tron is used.
Additionally, ChainArgos CEO Jon Reiter in a Bloomberg reporting says that the USDT on Tron bought by Alameda or FTX weren’t really being used for normal trading expected of a trading firm. Rather, nearly all of Alameda’s USDT went to FTX customers and traders, more like a one-way USD-to-USDT money changer.
Where did Alameda Research get all the money to buy the billions of USDT on Tron?
Bullshido Premium
As SBF would like to tell publicly, Alameda Research got its early break in 2017/2018 milking the Bitcoin arbitrage in Japan or Korea (it’s really ambiguous which country), which is called the “Kimchi Premium”. He and his team of cowboys would profit off the price differences of Bitcoin and USD in and out of the currency-controlled Korean market. As SBF would have you picture it, they’d be on the edge of their computer chairs, jiggling their legs, constantly checking prices and bank accounts, clicking buy/sell Bitcoin as fast as they can, as soon as money hits their bank account on one shore or the other. Then rinse and repeat.
People really familiar with the Japanese or Korean bank culture call bullshit. Getting white, foreign, college-aged kids to open a bank account there and serve their needs in hauling millions of USD in and out the country sounded like bovine manure to them. In any case, South Korean regulators at the time found a mere $600M in illegal cryptocurrency foreign exchange. Not enough cow dung.
By the way, below is a LinkedIn ad in Korea from 2018:
Protos posit a theory where more Alameda funds came from — Sam Bankman-Fried got funded from Chinese capital flight. FTX got seed investment from a mysterious Chinese venture capital Redline DAO that boasts over a billion USD in funds under management. Maybe still not enough, but connections are what matters, right? Alameda Research didn’t headquarter in Hongkong for no reason.
Then there’s the well-publicized fact that in the early days of Alameda, long lines of people holding bags of cash would form to buy crypto from an over-the-counter trading desk, Genesis Block, which is partially owned by and shared some personnel with Alameda/FTX. Genesis Block ran an informal network of crypto exchanges and banks across Asia. As in the original FT report, “the business traded in places where other investors would not be confident, such as Cambodian peer-to-peer markets” (direct boast). It was additionally quite transparent on the blockchain that Genesis Block was a cash intake for Alameda Research/FTX.
The Thing
To illustrate even more the shadiness of SBF’s early sources of money, during his trial, his ex-confidante, ex-lover, and ex-Alameda Research CEO Caroline Ellisons tantalizingly recounted a $1B in crypto that in early 2021 got caught up in a Chinese money laundering investigation and frozen in Chinese crypto exchanges Huobi and OKX. After trying in turn to hiring mainland Chinese lawyers and Thai prostitutes to try getting their $1B out, they resorted to bribes to Chinese officials amounting to $150M. This explained an expense she cutely annotated in their rudimentary bookkeeping as the infamous “the thing?”.
What was the thing about? SBF was indicted by the FBI for alleged bribery of Chinese officials in 2021. In that same year, the Chinese government was conducting a sweeping crackdown of telecom and online fraudsters in the country, cracking 220,000 cases, arresting 296,000 suspects (twice the previous year), busting 6,800 smuggling gangs on the border with Myanmar, and averting more than $40B in financial losses (Xinhua reporting).
Unfortunately, the public might never know more what the whole thing was about, since the US DOJ shelved plans to try SBF on those charges. It would also have been an excellent opportunity for US and Chinese law enforcement to compare notes on issues of mutual concern6.
MOOONNNEEEYYY TTTIIIIMMMMEEEE
Indeed, a huge bulk of SBF’s billions was from FTX victim-customers.
SBF was convicted in November 2023, after a highly public trial in New York, on seven charges of fraud and conspiracy, after embezzling FTX customer deposits and lying about it. He lied where FTX customer money went and was being used for, which is to plug losses from reckless trades of Alameda Research.
Now in February 2024, a civil class action lawsuit came out from FTX victims against Deltec Bank, the bank of both FTX and Tether. It referred to 7,000 pages of chat logs from a Telegram group chat including senior FTX/Alameda and Deltec executives.
It gets good. Whenever an FTX customer wired in money for their FTX account, the Deputy CEO of Deltec Bank and Trust Gregory Pepin would scream different variations of “MONEY TIME”. Someone would then manually reconcile and update through a Google spreadsheet their account balances.
See:
More juicy excerpts on https://x.com/ZekeFaux/status/1759253220751229101. It gets too gratuitous. You might just have to see the rest of the lawsuit.
Aside from showing the intimate relationship between Alameda, Deltec, and Tether, the lawsuit is revealing here in the banks it mentions that are feeding moneys into FTX/Alameda accounts.
They are Silvergate Bank, Signature Bank, and Prime Trust. These names weren’t specified above, but they were the bank reports analyzed by ChainArgos as those custodying and processing Chinese-affiliated ‘minor’ stablecoins that seem to feed into USDT on Tron.
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Shadow Central Bank
To think of it, USD achieved such high reach and liquidity in certain Southeast Asian countries thanks to Tether and Justin Sun’s Tron. And in an insight by ChainArgos, Sam Bankman-Fried and Tether, through Alameda’s dominance of the USDT mints and burns on Tron, became de facto a central bank / reserve currency manager of an Asian shadow payment network.
Let me rephrase:
Sam Bankman-Fried, through Alameda Research and Tether on Tron, became the de facto central bank of the Mekong scams and human trafficking industry.
SBF was by all accounts reckless, and all the “trading” he did with Alameda Research and FTX was unregulated. SBF actually ran a one-way USD to USDT exchange that supplied the almost $40B worth of USDT for a payment network largely used in the Southeast Asian scams and human trafficking industry. Much of the billions SBF used to supply USDT on Tron came from murky sources in East Asia, perhaps via other stablecoins, and certainly also from FTX customer deposits.
To think of it, there’s a high probability that any of the $52B in USDT coursing through the Tron blockchain today were originally FTX customer money. And the real dollars backing them could be in some Bahamian bank account (after all the layering). Given what we can tell of where USDT on Tron is being used, Sam Bankman-Fried could really qualify as the biggest pig butchering scammer.
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Up Next:
Charting the Shadow US Dollar Network in Asia, Tron, Part 3 - How to make money moving others’ money on Tron. If something goes wrong, can you sue someone?
Minor point: Tether says it has “authorized but not issued” USDT, and only authorized and issued USDT is backed 1-to-1 to USD and counts towards USDT’s total market cap. Otherwise, USDT that’s minted/authorized but not issued to anyone are just locked up in Tether treasury’s on-chain reserve. Burning also puts USDT back to the ‘authorized’ reserve pool for ready issuance. This is supposedly done to minimize accessing the USDT smart contract for token creation/minting for security reasons.
The stablecoin issuer may not even get paid in fiat US dollars, but in kind, like Chinese commercial paper / corporate bonds. As it happened. The fund manager above may be handling some portfolio of companies that does business with a stablecoin issuer’s bank.
Per Michel de Cryptadamus of The Cryptocalypse Chronicles: TUSD became extremely active again much more recently than 2021 when Binance made it the no fee stablecoin against BTC, ETH, and BNB (eventually it was replaced with FDUSD).
Namely, HUSD (Huobi USD), TUSD (True USD), and USDP (USD Paxos). See Jon’s original Medium post.
Unless that individual is Justin Sun.
(also you misspelled "Caribbean")
TUSD became extremely active again much more recently than 2021 when Binance made it the no fee stablecoin against BTC, ETH, and BNB (eventually it was replaced with FDUSD).