“My fake plants died because I did not pretend to water them.” – Mitch Hedberg
In 2019, agents of the US Secret Service became aware of a widespread counterfeiting operation spanning several states that involved the use of relatively sophisticated forgeries of $100 bills. While modern US currency comes complete with various hard-to-reproduce anti-counterfeiting security measures, there still exist older, less secure variants in circulation. The faux Benjamins that caught the attention of the Secret Service resembled just such a vintage and passed the all-important tactility test: they felt like real money in the hands of the non-expert.
In their initial investigation, the agents identified a group of people passing the phony bills off to unsuspecting small business owners, collecting real change in return for their various micro-purchases. Two additional clues were uncovered in short order: the fake bills shared a short list of real serial numbers, and the mules working to convert the fake money were in constant communication with a phone number tied to Victor Cardona, a resident of Quincy, Massachusetts. The Feds executed a search warrant of Cardona’s residence and found convincing evidence (emphasis added throughout):
“During a search of Cardona’s residence in October 2019, a counterfeit currency manufacturing facility was discovered, including equipment and materials used to create counterfeit bills, specifically, inkjet printers, a paper shredder containing counterfeit bills that had been discarded, a “counterfeit buster” detection pen and counterfeit bills, including one fake $100 bill in Cardona’s wallet. Several authentic $100 bills with serial numbers which were tied to counterfeit currency recovered from across the country were also found. Burned remains of counterfeit currency were also located in Cardona’s backyard.”
Cardona’s operation involved bleaching real $1 bills and using off-the-shelf color printers to add valuable fresh paint onto the newly blank canvases, correctly betting that the hand matters more than the eye when vendors ascertain the authenticity of physical cash at the point of sale. All told, Cardona pled guilty to counterfeiting $467,000 in illegal tendies and was sentenced to 41 months in prison. In addition to the Secret Service, the Quincy and Salem Police Departments assisted with the investigation, and the case was brought by the US Attorney for the District of Massachusetts. We presume the total cost to investigate and prosecute Cardona far exceeded the value of the fake money he printed, but such is the admirable seriousness with which the Feds treat those who dare impersonate the world’s most important currency.
All of this makes the widespread proliferation of US dollar stablecoins positively baffling.
Stablecoins are digital currencies purportedly backed one-for-one with actual money, and in the grand online casino, they spend just as well as legal tender. In theory, stablecoins are only minted when real fiat is deposited with the issuer. They are removed from circulation (or “burned”) when a token holder redeems and receives real fiat in return. However, a big, gaping loophole opens by their primary use as a medium of exchange in cryptocurrency trading: stablecoins can be used to buy other digital assets – Bitcoin, for example – that can in turn be posted at various off-ramp payment rails in exchange for actual currency. Given the unregulated nature of the crypto universe, there is seemingly nothing to stop stablecoin issuers from printing phony versions of digital dollars (backed by nothing) and employing mules to make change at those points of exit.
The obvious temptation to counterfeit makes specific disclosure of the reserves backing each stablecoin of paramount importance. For scale, the top two stablecoins are USDT, issued by Tether Limited Inc., and USDC, issued by Circle Internet Financial, LLC. Combined, the two have a total of $110 billion US dollar-equivalent stablecoins outstanding at the time of writing, or roughly 235,000 times Cardona’s operation. In the past few years, one of these issuers has been working hard to demonstrate its reserves are money good and simultaneously integrate itself into the “regulated” financial system, while the other seems to be focused on staying one step ahead of the law. With the ongoing collapse of the crypto bubble, which of the two is likely to emerge from the rubble as the leading stablecoin player? Let’s dig in.