US Fed Official Calls Tether a ‘Challenge’ to Financial Stability(nasdaq.com)
nasdaq.com
US Fed Official Calls Tether a ‘Challenge’ to Financial Stability
https://www.nasdaq.com/articles/us-fed-official-calls-tether-a-challenge-to-financial-stability-2021-06-25
306 comments
Tether is bound to collapse soon and will likely take the whole crypto market with it.
There is no doubt in my mind that Tether is as scam, they blatantly lied that they had USD cash backing of 100% of Tethers, their recent amateurish pie chart reveal of assets was a farce, no doubt these bond assets were created out of thin air, just like the Billions of Tethers they regularly print whenever they feel like it.
I remember a lot of people (including myself) saying the same thing a few years ago, and selling a bunch of BTC at ~$8000.
"The market can remain irrational longer than you can remain solvent"
It's a good thing I was simply closing positions instead of taking a short position, cuz boy oh boy was I wrong.
That was before institutional money started going into BTC. Will be interesting to see if the 'little guy' individual investor will be enabled to take large amounts of early stage profits and saddling the 'big guy' institutional investor (which is in a lot of cases, essentially just lots of 'little guys' money pooled together while the managers skim the profits off the top) with the late stage losses.
(I am long BTC)
"The market can remain irrational longer than you can remain solvent"
It's a good thing I was simply closing positions instead of taking a short position, cuz boy oh boy was I wrong.
That was before institutional money started going into BTC. Will be interesting to see if the 'little guy' individual investor will be enabled to take large amounts of early stage profits and saddling the 'big guy' institutional investor (which is in a lot of cases, essentially just lots of 'little guys' money pooled together while the managers skim the profits off the top) with the late stage losses.
(I am long BTC)
The sad thing is, people (like yourself) who were critical of tether a few years ago have already been validated on multiple counts: the Bitfinex connection (which tether denied) was proven; the claim that it is 1:1 cash backed was walked back to “asset backed”.
So it isn’t a case of crying wolf, it’s more a case of pointing out a wolf and being dismissed as FUD.
So it isn’t a case of crying wolf, it’s more a case of pointing out a wolf and being dismissed as FUD.
That’s Cassandra syndrome: https://en.wikipedia.org/wiki/Cassandra_(metaphor)
Cassandra was gifted by Appollo to see the future, but then cursed to be not believed.
Cassandra was gifted by Appollo to see the future, but then cursed to be not believed.
How can you be “long BTC” - it’s a currency not a stock. You might say “I’m long USD” but then you are really saying you believe the US economy will grow, and the value of its currency will strengthen.
Given Bitcoin isn’t attached to anything… what does long mean?
Given Bitcoin isn’t attached to anything… what does long mean?
> How can you be “long BTC”
By owning BTC, or equivalent economic exposure to owning BTC, ie, you will profit if BTC becomes relatively more valuable, and lose if it becomes relatively less valuable.
> it’s a currency not a stock. You might say “I’m long USD”
People take long position in currencies all the time. That is just a perfectly normal thing that people do, all the time. I have no idea why you think a currency is somehow different than any other financial asset here; it is not (except, perhaps in some cases, taxes).
> but then you are really saying you believe the US economy will grow, and the value of its currency will strengthen.
No. That's not how exchange rates work. The US economy is growing all the time (...well, outside of recessions), but so is everyone's else. A thousand factors go into determining relative strength.
> Given Bitcoin isn’t attached to anything… what does long mean?
It means you have a positive exposure to an increase in it's price, probably by owning some, or something that closely approximates that. Same as being long anything else. Why would it be different? What did you think being long meant?
By owning BTC, or equivalent economic exposure to owning BTC, ie, you will profit if BTC becomes relatively more valuable, and lose if it becomes relatively less valuable.
> it’s a currency not a stock. You might say “I’m long USD”
People take long position in currencies all the time. That is just a perfectly normal thing that people do, all the time. I have no idea why you think a currency is somehow different than any other financial asset here; it is not (except, perhaps in some cases, taxes).
> but then you are really saying you believe the US economy will grow, and the value of its currency will strengthen.
No. That's not how exchange rates work. The US economy is growing all the time (...well, outside of recessions), but so is everyone's else. A thousand factors go into determining relative strength.
> Given Bitcoin isn’t attached to anything… what does long mean?
It means you have a positive exposure to an increase in it's price, probably by owning some, or something that closely approximates that. Same as being long anything else. Why would it be different? What did you think being long meant?
Exactly as I suggested in my examples. Being "Long" in the USD implies general stability of the currency (which as you say has a number of factors... all of which are non-existent in bitcoin). So my question still stands. What exactly are you thinking factors into the growth of the currency? Beyond say... hopes and dreams (aka gambling).
The fact that people go "long" in fiat currencies is not at all relevant, as there is a government and usually a central bank that controls production of that currency (responsibly or not).
100% exchange rates work based on the economy underlying them (and the governments control on it)... they are not just random numbers fluctuating randomly... There is almost no comparison to crypto here, is there a fiat currency that shows as much volatility for as long as bitcoin has?
The fact that people go "long" in fiat currencies is not at all relevant, as there is a government and usually a central bank that controls production of that currency (responsibly or not).
100% exchange rates work based on the economy underlying them (and the governments control on it)... they are not just random numbers fluctuating randomly... There is almost no comparison to crypto here, is there a fiat currency that shows as much volatility for as long as bitcoin has?
> Being "Long" in the USD implies general stability of the currency
It does not. Many currencies aren't stable at all; people still take long and short positions on them, either as part of an explicit investment thesis, or just by, you know, having some paper currency in their wallet. People have been buying gold for centuries as a way of reducing their exposure to unstable currencies.
I would assume it doesn't need to be explicitly said, but just for safety's sake, let's be clear: A long (or short) position is a bet, and you can bet on unpredictable things. Nobody uses the terminology, but technically you're "long red" if you bet on red coming up next on a roulette wheel at Vegas.
Currently equity markets have been consumed with discussions of the "meme stocks". People have been going long on, eg, Gamestop, but the stock has been incredibly volatile, and there are no underlying economic factors that even begin to support the highs it's reached. Again, being long in a super volatile stock because it's funny, or because you're bored, or because you're trying to make a statement, or because you believe it is bouncing around randomly and you're trying to profit from this is still being long on the stock.
Being long is not a moral judgement, it just means you've got an exposure to the asset becoming more valuable. If you own a share in Gamestock, or a USD, or few satoshis, or a house, you're long those assets. It doesn't matter why you own them.
> which as you say has a number of factors... all of which are non-existent in bitcoin
That is also untrue; many factors have exact equivalents, such as evaluating competing currencies for differences in projected inflation or deflation, projected interest rates, projected uptake in usage in new markets, projected change in regulations. If you think DeFi will continue to grow, or that Ethereum's migration to Proof Of Stake will finally happen and be successful, that suggests a relative strengthening of of Ethereum versus Bitcoin. If you think that a pure Bitcoin ETF will be approved by the SEC and will be good for Bitcoin prices, that suggests a strengthening of Bitcoin versus other currencies. And of course, you can evaluate the so-called "shitcoins" to decide if you think they'll ever get a fraction of the adoption Bitcoin and Ethereum have, etc.
> What exactly are you thinking factors into the growth of the currency? Beyond say... hopes and dreams (aka gambling).
As above. Although let's be clear: All currency speculation is gambling. Exchange rates are volatile, unpredictable, and for major pairs, impossible to manipulate. You can (and so very, very many people have) come up with some thesis about why the USD/EUR rate is going to move in a specific direction, go long (and/or short) in the appropriate currency, and get run over, because the market doesn't care about your thesis. Even if you're right about the thesis! :)
> as there is a government and usually a central bank that controls production of that currency
And...?
> they are not just random numbers fluctuating randomly...
They might as well be. Given the closing price of the USD/EUR pair today, there's no amount of information I can give you about relative economic performance of the US versus the EU that will let you predict the closing price of the USD/EUR pair tomorrow. Or next week. Or next year.
> is there a fiat currency that shows as much volatility for as long as bitcoin has?
There are - and have been - some very volatile currencies. Certainly bitcoin is at the far end of the volatility distribution. What of it? Again, you seem to have the model that you can only bet on sure things, and the more random something is, the less you can truly "gamble" on it. That is, if anything, the opposite of how it works.
It does not. Many currencies aren't stable at all; people still take long and short positions on them, either as part of an explicit investment thesis, or just by, you know, having some paper currency in their wallet. People have been buying gold for centuries as a way of reducing their exposure to unstable currencies.
I would assume it doesn't need to be explicitly said, but just for safety's sake, let's be clear: A long (or short) position is a bet, and you can bet on unpredictable things. Nobody uses the terminology, but technically you're "long red" if you bet on red coming up next on a roulette wheel at Vegas.
Currently equity markets have been consumed with discussions of the "meme stocks". People have been going long on, eg, Gamestop, but the stock has been incredibly volatile, and there are no underlying economic factors that even begin to support the highs it's reached. Again, being long in a super volatile stock because it's funny, or because you're bored, or because you're trying to make a statement, or because you believe it is bouncing around randomly and you're trying to profit from this is still being long on the stock.
Being long is not a moral judgement, it just means you've got an exposure to the asset becoming more valuable. If you own a share in Gamestock, or a USD, or few satoshis, or a house, you're long those assets. It doesn't matter why you own them.
> which as you say has a number of factors... all of which are non-existent in bitcoin
That is also untrue; many factors have exact equivalents, such as evaluating competing currencies for differences in projected inflation or deflation, projected interest rates, projected uptake in usage in new markets, projected change in regulations. If you think DeFi will continue to grow, or that Ethereum's migration to Proof Of Stake will finally happen and be successful, that suggests a relative strengthening of of Ethereum versus Bitcoin. If you think that a pure Bitcoin ETF will be approved by the SEC and will be good for Bitcoin prices, that suggests a strengthening of Bitcoin versus other currencies. And of course, you can evaluate the so-called "shitcoins" to decide if you think they'll ever get a fraction of the adoption Bitcoin and Ethereum have, etc.
> What exactly are you thinking factors into the growth of the currency? Beyond say... hopes and dreams (aka gambling).
As above. Although let's be clear: All currency speculation is gambling. Exchange rates are volatile, unpredictable, and for major pairs, impossible to manipulate. You can (and so very, very many people have) come up with some thesis about why the USD/EUR rate is going to move in a specific direction, go long (and/or short) in the appropriate currency, and get run over, because the market doesn't care about your thesis. Even if you're right about the thesis! :)
> as there is a government and usually a central bank that controls production of that currency
And...?
> they are not just random numbers fluctuating randomly...
They might as well be. Given the closing price of the USD/EUR pair today, there's no amount of information I can give you about relative economic performance of the US versus the EU that will let you predict the closing price of the USD/EUR pair tomorrow. Or next week. Or next year.
> is there a fiat currency that shows as much volatility for as long as bitcoin has?
There are - and have been - some very volatile currencies. Certainly bitcoin is at the far end of the volatility distribution. What of it? Again, you seem to have the model that you can only bet on sure things, and the more random something is, the less you can truly "gamble" on it. That is, if anything, the opposite of how it works.
My model is: Bitcoin investing is gambling. There are no underlying factors that could rationalise a “long” position.
You used euro/usd comparison… why not Argentina peso to usd… is there a chance it could close higher than the usd tomorrow? - no. Because the underlying economies do effect currencies and they are not random despite the three paragraphs of prose you wrote.
My question, perhaps poorly put, is why would you (rationally) go long on Bitcoin? It looks like pure gambling/speculation. I’m 100% wanting to know the value judgement being made. I’m quite okay if that answer is: gambling.
You used euro/usd comparison… why not Argentina peso to usd… is there a chance it could close higher than the usd tomorrow? - no. Because the underlying economies do effect currencies and they are not random despite the three paragraphs of prose you wrote.
My question, perhaps poorly put, is why would you (rationally) go long on Bitcoin? It looks like pure gambling/speculation. I’m 100% wanting to know the value judgement being made. I’m quite okay if that answer is: gambling.
The US dollar isn't really tied to the strength of the economy either, it's about the supply and demand for dollars on the international market. Generally, dollars are in high demand as a result of their status as a worldwide reserve currency, but otherwise the strength of the dollar should be tied to the trade deficit. Having a trade deficit, all else the same, exhibits downward pressure on the dollar because people buying foreign things in dollars give their money to people that need to then trade those dollars back to someone for their own currency.
This is REALLY common finance terminology and it is being used properly here.
You are long a thing if you hold a position which benefits from its price going up. You are short a thing by holding a position which benefits if the price goes down.
So not only could I be short gold by not holding it (because I now have more equivalent gold quantity if gold price goes down) I could also be short the market by being long puts on SPY
You are long a thing if you hold a position which benefits from its price going up. You are short a thing by holding a position which benefits if the price goes down.
So not only could I be short gold by not holding it (because I now have more equivalent gold quantity if gold price goes down) I could also be short the market by being long puts on SPY
Sorry my question wasn't about the term... but the meaning behind the term. In finance land, this terminology usually implies you believe it will go up based on ... factors.
I don't see any attached factors to bitcoin, i.e. it's purely speculative. So my question was more "Why are you long on bitcoin?" As - it seems quite random.
Apologises for not being clearer... The old "I knew what I meant" problem :\
I don't see any attached factors to bitcoin, i.e. it's purely speculative. So my question was more "Why are you long on bitcoin?" As - it seems quite random.
Apologises for not being clearer... The old "I knew what I meant" problem :\
It absolutely does not need to imply anything about the psychology behind the position. If I'm long BTC (or whatever) it simply means I'm holding a position that benefits from a positive price movement in that asset.
The more pop culture meaning of 'long' meaning "i support" is post facto the other pre existing meaning. And it's not unreasonable to correlate them. If your money is where your mouth is, they are the same thing.
It's totally possible though to be "long BTC" via a position while thinking bitcoin is a total scam, if let's say you believe you can exploit some short term irrationality.
The more pop culture meaning of 'long' meaning "i support" is post facto the other pre existing meaning. And it's not unreasonable to correlate them. If your money is where your mouth is, they are the same thing.
It's totally possible though to be "long BTC" via a position while thinking bitcoin is a total scam, if let's say you believe you can exploit some short term irrationality.
Thank you for articulating an answer that makes sense to me. I see how my initial assertion was incorrect.
You rock!
You rock!
When people say they are “long something” they mean they are invested in the price growth.
People can be “long USD” because they expect the price to increase. That's not expressing any belief beyond that. People are long on something for many reasons.
People can be “long USD” because they expect the price to increase. That's not expressing any belief beyond that. People are long on something for many reasons.
> it’s a currency not a stock.
It's a digital asset that you buy with dollars (or equivalent). If your position benefits from the price in dollars increasing, then you're long.
It's a digital asset that you buy with dollars (or equivalent). If your position benefits from the price in dollars increasing, then you're long.
It just means that you think people are willing to buy it from you at a higher price later in time.
[deleted]
Not sure why you’re being downvoted. I think it’s a fair question. Being “long” in a zero-sum game seems a bit odd to me, as well.
In a zero-sum game like Bitcoin, there is necessarily a timing component at play. Being “long” seems at odds with that.
In a zero-sum game like Bitcoin, there is necessarily a timing component at play. Being “long” seems at odds with that.
Long simply means taking a position that would benefit if the stock/currency/commodity/bond/etc goes up in value. Similarly, being short generally means the opposite (although in specific situations it can mean selling something you do not own, like a stock, with the intention of buying it back later for a lower price). The terminology isn't limited to stocks, investors talk about being long currencies all the time.
Hope this clears up some of the confusion.
Hope this clears up some of the confusion.
You’ve used the term zero-sum incorrectly. Zero-sum games result in gains equal to losses.
Let’s say we all invested in Bitcoin today and only bought from people who had purchased at $10000. Then, in two years, if we sell our Bitcoin for $100000, we all make money. That’s not a zero-sum game because no one lost money.
Let’s say we all invested in Bitcoin today and only bought from people who had purchased at $10000. Then, in two years, if we sell our Bitcoin for $100000, we all make money. That’s not a zero-sum game because no one lost money.
Whoever gave you the $100000 lost that money unless they can sell it later for a higher price. Eventually someone will be left holding an empty bag.
You’re not describing a zero-sum game. Someone “holding the bag” means nothing—from your understanding, investing in the $SPY would be a zero-sum game as well.
Well, it’s not. Unless you think the entire value of our entire world economy will become zero. Merely predicting that the value of something will become zero doesn’t automatically make it zero-sum.
In order for a game to be zero-sum, that requirement must be built into the rules of the game. That isn’t true in either of these cases (Bitcoin nor $SPY).
From https://en.wikipedia.org/wiki/Zero-sum_game (emphasis added):
> Zero-sum games are a specific example of constant sum games where the sum of each outcome is always zero. Such games are distributive, not integrative; the pie cannot be enlarged by good negotiation.
Well, it’s not. Unless you think the entire value of our entire world economy will become zero. Merely predicting that the value of something will become zero doesn’t automatically make it zero-sum.
In order for a game to be zero-sum, that requirement must be built into the rules of the game. That isn’t true in either of these cases (Bitcoin nor $SPY).
From https://en.wikipedia.org/wiki/Zero-sum_game (emphasis added):
> Zero-sum games are a specific example of constant sum games where the sum of each outcome is always zero. Such games are distributive, not integrative; the pie cannot be enlarged by good negotiation.
Investing in the $SPY would not at all be a zero sum, because the value invested would be converted ultimately into something of real experiential value (in the form of the goods and services produced by the underlying companies), rather than Bitcoin which by definition is only ever an exchange of value.
It is precisely that difference which (I think) makes it zero-sum
It is precisely that difference which (I think) makes it zero-sum
> … Bitcoin which by definition is only ever an exchange of value.
Even if this was true (it is not) this still does not make an exchange of Bitcoin a zero-sum game.
I’ll prove it.
Let’s first denominate value in BTC to simplify this. I then mine one Bitcoin with less than 1 BTC-worth of energy (I wouldn’t mine it, otherwise). I now have 1 - (cost of energy) BTC,
I then give my BTC to someone else in exchange for a Widget. I now have a Widget, and they have a non-zero amount of BTC.
At no point are the sum of our two assets equal to zero, and they never could be. This could never be a zero-sum game, either by definition or in practice. There is always a non-zero net value after adding up all assets and debts between all of the players.
My background: I studied Applied Math in college, with a focus in finance, game theory, and computer science. I studied games and game theory extensively.
Even if this was true (it is not) this still does not make an exchange of Bitcoin a zero-sum game.
I’ll prove it.
Let’s first denominate value in BTC to simplify this. I then mine one Bitcoin with less than 1 BTC-worth of energy (I wouldn’t mine it, otherwise). I now have 1 - (cost of energy) BTC,
I then give my BTC to someone else in exchange for a Widget. I now have a Widget, and they have a non-zero amount of BTC.
At no point are the sum of our two assets equal to zero, and they never could be. This could never be a zero-sum game, either by definition or in practice. There is always a non-zero net value after adding up all assets and debts between all of the players.
My background: I studied Applied Math in college, with a focus in finance, game theory, and computer science. I studied games and game theory extensively.
Just to be clear though, there is not a whole lot of places you can transact from Bitcoin to goods and services. Those that do accept it, pin it to the usd… so Bitcoin is only used as an exchange of value for USD. That is still zero sum. $1 in $1 out
You are correct mining is at least surface level not zero sum. If you apply the assumption that the energy, computing equipment and time were worth less than the resulting btc. But given the fact it has no intrinsic value… is only valuable in exchanging between fiats… I don’t think those assumptions hold.
You are correct mining is at least surface level not zero sum. If you apply the assumption that the energy, computing equipment and time were worth less than the resulting btc. But given the fact it has no intrinsic value… is only valuable in exchanging between fiats… I don’t think those assumptions hold.
Read about the credit creation process.
Money is created by loans by banks.
Money is created by loans by banks.
What you’re describing is precisely a Ponzi scheme. Run the game long enough, the net expected value is 0.
What you’re describing is a hand-wavy caricature of the actual definition of Ponzi scheme. Let’s be precise in our language here, please.
From Wikipedia [1]
> A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[1] The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds
Do you see a distinction between this and the system theli0nheart described?
[1] https://en.wikipedia.org/wiki/Ponzi_scheme
> A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[1] The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds
Do you see a distinction between this and the system theli0nheart described?
[1] https://en.wikipedia.org/wiki/Ponzi_scheme
> Let’s be precise in our language here, please.
It is pretty silly when people who are calling bitcoin a "currency" and autonomous blockchain agents "smart contracts" complain anytime the term "ponzi scheme" is used for a zero sum speculative asset that only pays out gains to existing holders by bringing in new "investors".
It is pretty silly when people who are calling bitcoin a "currency" and autonomous blockchain agents "smart contracts" complain anytime the term "ponzi scheme" is used for a zero sum speculative asset that only pays out gains to existing holders by bringing in new "investors".
If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/
So many people have been saying it's a scam for so long that I almost wonder if something else is going on. Like, if you polled anyone who knew what Tether is, I bet 80% or 90% would say it's a scam. It's pretty much consensus. I've never seen a single defense or counter-argument of it online. And the vague reserve disclosure didn't help.
(And, to be clear, I also think it's likely a scam.)
I'd perhaps think it's like the lead-up to 2008 where the people behind the scenes largely knew it was funny money but the general public didn't - but here it seems pretty unanimous from the lowest-level retail investor to the most sophisticated institutional investor that it's a scam.
So what's the deal? Is it gonna be the most predictable catastrophe ever? How have they existed from 2012 until today, seemingly without any issue, despite all of the universally extremely negative PR? What are the odds it's somehow not a scam?
(And, to be clear, I also think it's likely a scam.)
I'd perhaps think it's like the lead-up to 2008 where the people behind the scenes largely knew it was funny money but the general public didn't - but here it seems pretty unanimous from the lowest-level retail investor to the most sophisticated institutional investor that it's a scam.
So what's the deal? Is it gonna be the most predictable catastrophe ever? How have they existed from 2012 until today, seemingly without any issue, despite all of the universally extremely negative PR? What are the odds it's somehow not a scam?
The reality doesn't matter, what does is what people agree on. As long as people are willing to exchange them for $1 it can continue indefinitely. The incentive is clear: why would people invested in crypto actively nuke their investment? As long as their investment grow, reality and rationality really doesn't matter. I think it's a good lesson because that behavior is not unique to crypto.
As with all classic Ponzi schemes it will collapse when some external event causes a bunch of people to demand convertibility at once, and they can't meet their overvalued rate.
This is, after all, how Bernie Madoff got caught, how bank runs generally start, and how most currency crises occur.
This is, after all, how Bernie Madoff got caught, how bank runs generally start, and how most currency crises occur.
> As with all classic Ponzi schemes it will collapse when some external event causes a bunch of people to demand convertibility at once, and they can't meet their overvalued rate.
But why is everyone keeping their USD in USDT? For ponzis it makes sense because you're promised a rate of return, but for USDT you're essentially losing money every day due to inflation.
But why is everyone keeping their USD in USDT? For ponzis it makes sense because you're promised a rate of return, but for USDT you're essentially losing money every day due to inflation.
I mean, I don't think it's being used for this purpose, but something convertible to dollars is handy if the US specifically doesn't want you to trade in dollars. Although that then potentially makes Tether itself a target of the US government.
You can loan out USDT for absurd interest rates.
If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/
I see a key difference: we choose to participate in a Ponzi scheme, whereas the central bank fiat system is one we are forced to participate in, just by means of being born in a particular country. There’s no choice involved, being backed by the full force and legal monopoly of the state. That’s a key difference many tend to gloss over when pursuing this characterization.
[deleted]
The details may be different but the active ingredient is fraud.
>The incentive is clear: why would people invested in crypto actively nuke their investment?
That doesn't really make any sense. Holders of USDT are people who sold their crypto, ie. people who aren't invested. Moreover, it's unclear how switching to a more reputable stablecoin would nuke their investment. At best it's a prisoners dilemma and I'm skeptical that everyone chose the "cooperate" option rather than the "defect" option.
That doesn't really make any sense. Holders of USDT are people who sold their crypto, ie. people who aren't invested. Moreover, it's unclear how switching to a more reputable stablecoin would nuke their investment. At best it's a prisoners dilemma and I'm skeptical that everyone chose the "cooperate" option rather than the "defect" option.
If they are holders of USDT they have not sold their crypto. The risk is on the USDT/USD pair, and the game will continue while people (like you said) think they have exited to USD by holding USDT.
>If they are holders of USDT they have not sold their crypto
Technically USDT is a cryptocurrency but I can't think of a real reason why someone who cashed out of BTC would keep it in USDT rather than cashing out for real USD (the FDIC insured and in a licensed bank kind). If you're only cashing out for a short period of time and are planning to buy back, then you're not really "out", and I doubt that all the tether that's out there is coming from people who wants out for only a week or two.
Technically USDT is a cryptocurrency but I can't think of a real reason why someone who cashed out of BTC would keep it in USDT rather than cashing out for real USD (the FDIC insured and in a licensed bank kind). If you're only cashing out for a short period of time and are planning to buy back, then you're not really "out", and I doubt that all the tether that's out there is coming from people who wants out for only a week or two.
Because the ecosystem has been offerint 8-20% interest to hold USDT and put it in a savings account or defi contract.
It was seeing these rates that made me believe the market was a ponzi. Somehow the system has created a strong incentive to hold USDT rather than USD in the form of divergent interest rates. And 12% is crazy high: Madoff claimed returns of 10%.
There could be a benign explanation but my bet would be that various market actors are propping up the system short run with unsustainable interest payoffs to stave off withdrawal attempts to maintain the Tether peg. Huge house of cards.
It was seeing these rates that made me believe the market was a ponzi. Somehow the system has created a strong incentive to hold USDT rather than USD in the form of divergent interest rates. And 12% is crazy high: Madoff claimed returns of 10%.
There could be a benign explanation but my bet would be that various market actors are propping up the system short run with unsustainable interest payoffs to stave off withdrawal attempts to maintain the Tether peg. Huge house of cards.
> Because the ecosystem has been offerint 8-20% interest to hold USDT and put it in a savings account or defi contract.
1. do the defi contracts not accept other stablecoins? Does USDT have a disproportionately higher interest rate than more reputable stablecoins?
2. This situation (large amount of USD being parked in USDT, people warning that it's a fraud) has existed since the last run-up (2017-2018), before defi got popular. So while there might be people parking their money in USDT to earn absurdly high interest rates, I don't think that's the whole story. It'll also be interesting to see how much USDT is locked in defi contracts vs that's issued.
1. do the defi contracts not accept other stablecoins? Does USDT have a disproportionately higher interest rate than more reputable stablecoins?
2. This situation (large amount of USD being parked in USDT, people warning that it's a fraud) has existed since the last run-up (2017-2018), before defi got popular. So while there might be people parking their money in USDT to earn absurdly high interest rates, I don't think that's the whole story. It'll also be interesting to see how much USDT is locked in defi contracts vs that's issued.
The first is a solid point. I’m not sure USDT has a higher interest rate than, say, USDC.
The second actually isn’t compelling though. If you have a fraud with, say, 10% daily interest in will unwind in months. But a fraud with 10-20% annual interest will take years. Madoff kept his scheme going 20+ years.
The second actually isn’t compelling though. If you have a fraud with, say, 10% daily interest in will unwind in months. But a fraud with 10-20% annual interest will take years. Madoff kept his scheme going 20+ years.
You might want to keep it on-chain, which a stablecoin would allow you to do.
I can't think of a good reason to keep it in USDT that sits on a centralized exchange, but maybe someone has one.
I can't think of a good reason to keep it in USDT that sits on a centralized exchange, but maybe someone has one.
USDT isn't actually crypto, right?
It's just an asset that a lot of crypto exchanges use, because it's more convenient to do so than usual (regulated) financial alternatives.
Tether will probably just evaporate in the face of alternative stablecoin competition, before volume decreases to a point that a sudden devaluation kills it off.
It's just an asset that a lot of crypto exchanges use, because it's more convenient to do so than usual (regulated) financial alternatives.
Tether will probably just evaporate in the face of alternative stablecoin competition, before volume decreases to a point that a sudden devaluation kills it off.
It is an ERC-20 token on the Ethereum blockchain, so yes it is a cryptocurrency.
There is good stablecoin competition in USDC, or, my favourite, DAI. Unfortunately I think exchanges like Binance are somewhat in kahoots with USDT which is why they will not move off it.
There is good stablecoin competition in USDC, or, my favourite, DAI. Unfortunately I think exchanges like Binance are somewhat in kahoots with USDT which is why they will not move off it.
Thanks for the correction! :)
Re: kahoots, it feels like the answer to "What's the easiest way to generate returns?" has one obvious answer: increase leverage.
And what prevents leverage? Regulation.
So wouldn't it be great if you could create an unregulated instrument via which you could balloon the amount of funds you had to play with?
Re: kahoots, it feels like the answer to "What's the easiest way to generate returns?" has one obvious answer: increase leverage.
And what prevents leverage? Regulation.
So wouldn't it be great if you could create an unregulated instrument via which you could balloon the amount of funds you had to play with?
I think you're living in a media bubble.
There are a plenty of rebuttals to the Tether criticism, but on sites like Hacker News no one bothers anymore. It's not worth dealing with the vitriol and downvotes to even try.
That being said I also have concerns about Tether, but I think they are way overblown.
There are a plenty of rebuttals to the Tether criticism, but on sites like Hacker News no one bothers anymore. It's not worth dealing with the vitriol and downvotes to even try.
That being said I also have concerns about Tether, but I think they are way overblown.
This is the correct answer.
This post by Dan held really explains the “it’s not that big of a deal” with tether.
https://danheld.substack.com/p/dont-fear-tether
https://danheld.substack.com/p/dont-fear-tether
"I want to note that I feel weird defending Tether and Bitfinex. I don’t particularly like either company, as they’ve done a ton of shady things over the years. I am not vouching for the long term durability of either company."
"So we know that Tether is at least partially backed and has functioning wires in and out of the bank they use, Deltec."
Lol okay, nothing to see here, your money is definitely safe.
"So we know that Tether is at least partially backed and has functioning wires in and out of the bank they use, Deltec."
Lol okay, nothing to see here, your money is definitely safe.
[deleted]
The same way the Albanian government collapsed due to a Ponzi scheme: everyone knew it was a ponzi scheme, but everyone thought they were smarter than most and would get out on the right side of the trade.
I think it's an obvious scam but it's a very useful scam, so there are many people with a vested interest in maintaining the illusion.
From people who want to pump up the price of other cryptocurrencies, to offshore exchanges that want to avoid KYC requirements dealing with real banks, to ordinary users who like being able to transfer USDT... there's many people incentivized to look the other way and pretend that water isn't wet.
From people who want to pump up the price of other cryptocurrencies, to offshore exchanges that want to avoid KYC requirements dealing with real banks, to ordinary users who like being able to transfer USDT... there's many people incentivized to look the other way and pretend that water isn't wet.
It's anecdata, but none of the retail crypto speculators (five or six now) I've spoken to IRL have even heard of Tether.
Fair. Regarding my first paragraph, I just meant of the people who do know what it is, I think 80 - 90% would probably say it's likely a scam. (I'm sure a good percentage of investors know nothing at all besides the words Bitcoin, Ethereum, Dogecoin, and hodl.)
Is that because they're using non-tether exchanges (eg. robinhood or coinbase)? If you're using something like binance I find it hard to believe that they don't know about tether (or at least heard of the term) considering that "USDT" is plastered everywhere.
Coinbase added Tether in May: https://blog.coinbase.com/tether-usdt-is-now-available-on-co...
And then recently rolled out their own stablecoin in USDC: https://www.coinbase.com/usdc/
But by default (eg. someone buying BTC or DOGE) they're probably not touching USDT right?
There's a pretty rich history of exchanges suffering "hacks" or other losses and giving all of their customers a haircut on assets to make themselves whole. Coinbase is a little less sketchy than offshore, unregulated exchanges, but if they are holding a large amount of Tether when it goes bust, I wouldnt assume any balances held on Coinbase are necessarily safe.
>but if they are holding a large amount of Tether when it goes bust, I wouldnt assume any balances held on Coinbase are necessarily safe.
That's only an issue if they blend USDT and USD balances together, which to my knowledge they don't. If you sold a bunch of your bitcoins for USDT rather than USD (which seems unlikely, seeing that BTC-USD has 28x the volume of BTC-USDT), and USDT goes bankrupt, that's on you.
That's only an issue if they blend USDT and USD balances together, which to my knowledge they don't. If you sold a bunch of your bitcoins for USDT rather than USD (which seems unlikely, seeing that BTC-USD has 28x the volume of BTC-USDT), and USDT goes bankrupt, that's on you.
It’s hard to imagine someone invested in the crypto market who isn’t aware of stablecoins.
I'd be shocked if more than 10% of the people investing in crypto on Robinhood know what a stable coin is. I bet a fairly high percentage of total crypto investors (not by amount of crypto, but count of individuals investing) are on Robinhood. I'd expect that other casual-friendly trading platforms with crypto support are similarly skewed toward people who don't know much about the space, though probably not quite as much as Robinhood is.
You'd be very, very surprised, then. I would wager probably at least 60% wouldn't even be able to make heads or tails of the term "stablecoin", and possibly up to 80% or 90%, even.
Sometimes crypto investors do their investing through means that can be several times detached from the nitty and gritty (e.g. would buying COIN or MSTR stock be considered crypto investing? Some say it would) so it doesn't surprise me that much. I don't think it's too healthy, but hey.
There is a rumor going around the meme stock circles that financial institutions were using crypto to manage their liquidity/collateral issues. I'm in no way well-versed in this, but I'll try to convey my understanding. Essentially, banks are carrying too much cash from QE and the emergency infusion due to the COVID crash last year. They don't want to pay the interest on it, but they still need it for their other operations (the conspiracy theory is "manipulating meme stocks and preparing to cover should they fail a margin call"), so they'd been buying up crypto assets, hiding that cash in something that they could pump and dump almost at will. A month-ish ago, some regulation changed where they could no longer hold crypto as an interest-free asset, and coincidentally, we saw the bottom fall out of Bitcoin and the Fed's overnight reverse repo program (where the Fed does a short term swap of US treasuries for cash) begin to expand around the same time.
Suffice it to say that everyone figures that SOMEONE big is manipulating the crypto market to their own ends. With Tether serving as the lubricant greasing the wheels of the rest of the market, it has finance's prized "too big to fail" distinction.
Edit: I found one of the posts that explained the theory. I probably misunderstood it. https://www.reddit.com/r/Superstonk/comments/nz0fsz/i_found_...
I know, I know... I present it mostly for you to consider as you may.
Suffice it to say that everyone figures that SOMEONE big is manipulating the crypto market to their own ends. With Tether serving as the lubricant greasing the wheels of the rest of the market, it has finance's prized "too big to fail" distinction.
Edit: I found one of the posts that explained the theory. I probably misunderstood it. https://www.reddit.com/r/Superstonk/comments/nz0fsz/i_found_...
I know, I know... I present it mostly for you to consider as you may.
Crypto isn't nearly a sufficient alternative to the money market, in traditional finance its use is highly regulated, the whole reason for the current situation is that since 2008 banks are extremely limited in holding any kind of risk assets. The theory is obviously nonsense, because there are much lower risk instruments a bank could invest in to receive an interest-like return, were it permitted. The issue is not that banks are secretly conspiring to destroy your favourite shitcoin, it's that by law they're extremely restricted in investing excess capital in anything remotely resembling a shitcoin, never mind a stock index.
Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.
Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.
Hm. Well, I don't disagree that the crypto market is probably something of a giant Ponzi scheme. I don't have a favorite shitcoin, and I hold a minimal amount of the largest coins, mostly to try out dApps freely. (I can't resist asking you how the market cap of the crypto market has reached some multiple trillions, if not without the assistance of traditional finance.)
I think that's a wholly separate issue from that of the specter of bank malfeasance. Which is to say that you're completely off the mark in that regard; it's clear that finance is abusing its position and running right up to the line - if not over it - in spite of the lessons it should have learned after 2008. And the argument here isn't that banks are conspiring to destroy crypto; it's that they are (were?) using crypto as a tool to avoid insolvency due to the fallout from inadvisable activity over the past year or so. Even those not swept up in the cultish thrall of crypto and meme stocks are looking at that behavior with a wary eye; Archegos et al., after all.
That said.
>Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.
No. :) Someone asked a question and I answered with what I thought was a likely explanation. You can disagree, or even be offended by my stupidity, but I presented it respectfully and in good faith, so here it will be. Silliness aside, I do find the core holding of the GME crowd compelling, and likewise, occasionally, their analysis of what is an unfortunately murky subject. If you disagree, the spirit of HN's standard of discourse is to explain the manner in which "obvious nonsense" is such, and not just to simply state so in an offensive and patronizing manner.
I think that's a wholly separate issue from that of the specter of bank malfeasance. Which is to say that you're completely off the mark in that regard; it's clear that finance is abusing its position and running right up to the line - if not over it - in spite of the lessons it should have learned after 2008. And the argument here isn't that banks are conspiring to destroy crypto; it's that they are (were?) using crypto as a tool to avoid insolvency due to the fallout from inadvisable activity over the past year or so. Even those not swept up in the cultish thrall of crypto and meme stocks are looking at that behavior with a wary eye; Archegos et al., after all.
That said.
>Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.
No. :) Someone asked a question and I answered with what I thought was a likely explanation. You can disagree, or even be offended by my stupidity, but I presented it respectfully and in good faith, so here it will be. Silliness aside, I do find the core holding of the GME crowd compelling, and likewise, occasionally, their analysis of what is an unfortunately murky subject. If you disagree, the spirit of HN's standard of discourse is to explain the manner in which "obvious nonsense" is such, and not just to simply state so in an offensive and patronizing manner.
> A month-ish ago, some regulation changed where they could no longer hold crypto as an interest-free asset
What does it mean to be an interest-free asset?
What does it mean to be an interest-free asset?
[deleted]
[deleted]
It's just a Ponzi scheme where everyone is invested in the scheme because they hold crypto of some kind.
Then one day someone will wake up, decide they don't want that kind of exposure, and the whole thing collapses.
Then one day someone will wake up, decide they don't want that kind of exposure, and the whole thing collapses.
You're correct, except that the waking up with be those holding dollars loosing confidence, not bitcoiners.
If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/
If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/
I think they are partially backed, and kicking themselves back billions of dollars. It's trivial to do this for them, and their whole board is filled with crooks, ponzi schemers and "Criminal" lawyers. They hide behind anonymity and shady shell corporations. Their ceo hasn't been seen for years. Etc etc etc.
By their own numbers, it is at most 2.9% backed by cash.
The rest of it is supposed to mostly be commercial paper.
The problem with that is, in one month, they would've needed to buy more commercial paper than was even sold.
So that part is likely false, too.
The rest of it is supposed to mostly be commercial paper.
The problem with that is, in one month, they would've needed to buy more commercial paper than was even sold.
So that part is likely false, too.
> will likely take the whole crypto market with it.
I often see this repeated on HN, but this is never explained. Why will the collapse of Thether impact the whole crypto market?
I often see this repeated on HN, but this is never explained. Why will the collapse of Thether impact the whole crypto market?
My theory is, that they are mostly not backed by real USD nor assets - it's virtually impossible that they have so much commercial paper without nobody in the business even knowing them. They are most probably lying.
If this is true, and everything points to it, then there is simply much less real USD on the exchanges than people think. People often quote the crypto market cap and that Tether only represents 5-10% of it - but most BTC were never really available anyway - they were never bought or traded on any exchange. So the total inflow of USD (or any other real money) is much less than crypto market cap - and a lot of it was eaten by miners, arbitrageurs and exchange fees.
When the music stops - and enough people try to get their real money from the exchanges, it simply won't be there.
If this is true, and everything points to it, then there is simply much less real USD on the exchanges than people think. People often quote the crypto market cap and that Tether only represents 5-10% of it - but most BTC were never really available anyway - they were never bought or traded on any exchange. So the total inflow of USD (or any other real money) is much less than crypto market cap - and a lot of it was eaten by miners, arbitrageurs and exchange fees.
When the music stops - and enough people try to get their real money from the exchanges, it simply won't be there.
Real money = bitcoin, so yes, if people leave their bitcoin keys on the exchanges, they'll loose real money. Not your keys, not your coins.
No. By real money I mean fait currencies
People love using Tether to purchare BTC (and other cryptovalues).
> over two-thirds of all Bitcoin — $10 billion worth of it — that was bought in the previous 24 hours, was being purchased with Tethers. [0]
Thus, it is not unreasonable to say the 1 Tether = 1 USD change indirectly affects (read: inflates) the valuation of BTC, and that a depreciation of Tether may have an impact on BTC.
[0] https://crypto-anonymous-2021.medium.com/the-bit-short-insid...
> over two-thirds of all Bitcoin — $10 billion worth of it — that was bought in the previous 24 hours, was being purchased with Tethers. [0]
Thus, it is not unreasonable to say the 1 Tether = 1 USD change indirectly affects (read: inflates) the valuation of BTC, and that a depreciation of Tether may have an impact on BTC.
[0] https://crypto-anonymous-2021.medium.com/the-bit-short-insid...
If anything, it would most likely create substantial buying pressure in BTC or ETH in the short term. The whole reason people hold Tether is because they’re in an ecosystem where they can’t easily access dollars directly.
Say you’re on a crypto only exchange, like BitMEX, or on blockchain. What are your exit options? You can’t buy USD on Uniswap, only stablecoins. In this case “panic-selling” Tether means a massive rush into Bitcoin and Ethereum.
Say you’re on a crypto only exchange, like BitMEX, or on blockchain. What are your exit options? You can’t buy USD on Uniswap, only stablecoins. In this case “panic-selling” Tether means a massive rush into Bitcoin and Ethereum.
> In this case “panic-selling” Tether means a massive rush into Bitcoin and Ethereum.
I’m sure there would be a lot of people who would like to trade their Tethers for Bitcoin in the event of a collapse, but who is going to sell it to them?
I’m sure there would be a lot of people who would like to trade their Tethers for Bitcoin in the event of a collapse, but who is going to sell it to them?
Someone who thinks that they can recover 10% of the nominal value may be willing to sell BTC for Tether, at a price 10x as high as the actual-USD Bitcoin price.
[deleted]
[deleted]
Yup, flight to safety in crypto means buying BTC. Nobody needs Tether—you can get into and out of nearly any fiat currency from BTC directly.
One problem: nobody with BTC will want to trade it for tether if tether collapses, I bet even the market makers would stop exchanging BTC a for tether.
Right. But problems with Tether don't affect bitcoin. People who want dollar-pegged digital currencies can hold other USDx tokens, including DAI, which is all provably based on over-collateralized (minimum 150%) debt obligations in a decentralized system.
Absurd. It is like saying the collapse of Lehman Brothers would be good for other bank stocks.
When Tether implodes the entire space will deleverage.
When Tether implodes the entire space will deleverage.
No, it's more like saying that a downgrade in America's AAA debt rating would lead to a rally in price of the US dollar and Treasury Bonds. (Which is exactly what happened in 2011.)
It doesn't make any sense from a fundamentals standpoint, but when somebody "sells" something they have to "buy" something else. In 2011, the flight to quality led people to hold bonds and dollars, even though those were the exact assets being downgraded.
If/when Tether ever falls apart, it's a question of what will the average user "buy" when they "sell" their Tether. The answer to that is almost certainly not fiat dollars in the normal banking system, because the whole reason people use Tether is because they can't easily access the banking system. So the only real asset they can trade Tether into is other major crypto. Like BTC or ETH.
It doesn't make any sense from a fundamentals standpoint, but when somebody "sells" something they have to "buy" something else. In 2011, the flight to quality led people to hold bonds and dollars, even though those were the exact assets being downgraded.
If/when Tether ever falls apart, it's a question of what will the average user "buy" when they "sell" their Tether. The answer to that is almost certainly not fiat dollars in the normal banking system, because the whole reason people use Tether is because they can't easily access the banking system. So the only real asset they can trade Tether into is other major crypto. Like BTC or ETH.
No, Tether can simply become worthless. Take the extreme case where Tether's backing organization does an exit scam and there are no assets at all behind it. Anyone who has Tether has simply lost that money; they don't get to sell it and buy something else.
Have you looked at market-wide charts when I
Bitcoin is having a bad day? All the others are red too.
Bitcoin's price is currently artificially inflafed by all the tether printing. It'll go down with it, and so will the rest of cryptko.
Bitcoin's price is currently artificially inflafed by all the tether printing. It'll go down with it, and so will the rest of cryptko.
Have you looked at market-wide charts when I
Bitcoin is having a bad day? All the others are red too.
Bitcoin's price is currently artificially inflafed by all the tether printing. It'll go down with it, and so will the rest of crypto.
Bitcoin's price is currently artificially inflafed by all the tether printing. It'll go down with it, and so will the rest of crypto.
In case someone is interested in shorting Tether, thanks to DeFi this can now be done without explicit exposure to a crypto exchange or dangerous BTC shorts. For the uninitiated, I think this is also a good example for the kind of craziness that is possible now:
Deposit a "good" stable coin (for what counts as good in this space, which is USDC) on Aave or Compound and borrow Tether against it (75% and 80% loan-to-value respectively). You can now either send it to an exchange (e.g. Kraken) and swap USDT to real USD, or go to curve.fi and swap USDT for more USDC and deposit back to Aave or Compound. Repeat until either 4x/5x leverage (theoretical max) or your personal risk tolerance is reached. Remember to service the position by depositing more USDC occasionally (otherwise will be liquidated with penalty). As of this writing, variable interest rate is ~3.5%, fixed interest rate is 11%.
Scenarios:
- USDT goes to zero, buy as many as needed for scrap, pay back the loan, free the original stablecoins, sell for real USD and make between 1.75x to 4x/5x, depending on which route you chose above.
- Both USDT and USDC go to zero, you lose between 25 to 100%, depending on the route you chose above.
- There's a USDT shortage (real or somehow engineered) and it goes way above $1 causing your position to be force-liquidated, causing you lose between 25 to 100%, depending on the route you chose above.
- Only USDC falls below peg (temporarily or permanently) and you get force-liquidated (25 to 100% loss)
- You forget to service the debt or a spike in the variable interest rate causes you to get force-liquidated (5% penalty)
- Tether never goes to zero and you keep paying 3.5% interest (variable)
- Smart contract hack / Ethereum shuts down, you lose up to 100%
- Unkown scenarios
While there's no explicit exposure to a crypto exchange, there's still the implicit exposure to Coinbase/Circle via USDC. DAI offers no escape here, since its 50% collateralised by USDC (the other 50% crypto would likely be in serious turmoil in case USDT collapses potentially losing its peg as well).
In spite of this, I think this is a considerably better way to profit from a Tether collapse then the much more dangerous route of shorting BTC futures, or shorting via an unregulated crypto exchange where there's no guarantee that they'll pay or even be operational in such an event.
Deposit a "good" stable coin (for what counts as good in this space, which is USDC) on Aave or Compound and borrow Tether against it (75% and 80% loan-to-value respectively). You can now either send it to an exchange (e.g. Kraken) and swap USDT to real USD, or go to curve.fi and swap USDT for more USDC and deposit back to Aave or Compound. Repeat until either 4x/5x leverage (theoretical max) or your personal risk tolerance is reached. Remember to service the position by depositing more USDC occasionally (otherwise will be liquidated with penalty). As of this writing, variable interest rate is ~3.5%, fixed interest rate is 11%.
Scenarios:
- USDT goes to zero, buy as many as needed for scrap, pay back the loan, free the original stablecoins, sell for real USD and make between 1.75x to 4x/5x, depending on which route you chose above.
- Both USDT and USDC go to zero, you lose between 25 to 100%, depending on the route you chose above.
- There's a USDT shortage (real or somehow engineered) and it goes way above $1 causing your position to be force-liquidated, causing you lose between 25 to 100%, depending on the route you chose above.
- Only USDC falls below peg (temporarily or permanently) and you get force-liquidated (25 to 100% loss)
- You forget to service the debt or a spike in the variable interest rate causes you to get force-liquidated (5% penalty)
- Tether never goes to zero and you keep paying 3.5% interest (variable)
- Smart contract hack / Ethereum shuts down, you lose up to 100%
- Unkown scenarios
While there's no explicit exposure to a crypto exchange, there's still the implicit exposure to Coinbase/Circle via USDC. DAI offers no escape here, since its 50% collateralised by USDC (the other 50% crypto would likely be in serious turmoil in case USDT collapses potentially losing its peg as well).
In spite of this, I think this is a considerably better way to profit from a Tether collapse then the much more dangerous route of shorting BTC futures, or shorting via an unregulated crypto exchange where there's no guarantee that they'll pay or even be operational in such an event.
I like this strategy, but would seriously not recommend it to anyone that isn’t willing to lose everything they put in. This isn’t a spot play where you still have the underlying crypto asset.
I know apes will ape, but seriously, don’t.
I know apes will ape, but seriously, don’t.
I have no doubt Tether has something wrong going on in the background but:
> Tether is bound to collapse soon
I've literally been hearing soon™ for years on this one. I think I was sent from a post here in 2018 to http://www.untether.space/ because it was going to collapse any day at the time.
> Tether is bound to collapse soon
I've literally been hearing soon™ for years on this one. I think I was sent from a post here in 2018 to http://www.untether.space/ because it was going to collapse any day at the time.
print tether, deposit it into an exchange, buy btc, tether is now back by an asset (btc), btc now higher in price, repeat
It's as much of a scam as any bank is sans the fdic insurance. As long as most tether holders don't redeem at once then the shell game can go on forever, just like Bank of America. Tether should convert to a bank and get fdic insured.
“It's not what you don't know that kills you, it's what you know for sure that ain't true." (Mark Twain)
I read this comment about 5 years ago on HN.
[deleted]
I fail to see the problem.
If USDT is worth $1 because everyone agrees it is, everything works fine. It's been that way for a long time and will likely continue.
If there's a run on the bank because people believe it's not worth $1, everyone tries to sell their USDT, then it is no longer worth a dollar. That's the risk of holding USDT. Everyone who takes 5 minutes to research it understands that USDT is kind of shady but has a long record of maintaining peg anyway.
This is true of every partially-backed stablecoin, of which there are many.
We have a recent example of one failing: https://news.ycombinator.com/item?id=27539368
In that case, IRON was only 75% backed, and now the price is $0.75.
There are other products, like DAI, which keeps reserves of ETH equal to 150% of the value of DAI. Occasionally liquidity becomes thin and DAI loses peg by a few cents, but it quickly returns as liquidations happen and the ETH is sold off to return DAI to peg. Synthetix does something similar with sUSD.
Gemini has GUSD, Coinbase has USDC, Binance has BUSD, all of which claim to be fully backed by USD and have audits to bolster that claim.
Here's a whole list of them, each offering various models of trust, decentralization, audits, etc: https://www.coingecko.com/en/categories/usd-stablecoin
If USDT implodes, it could cause a liquidity crisis, but it will lead to investors demanding more proof of funds before using a stablecoin, and long-term strengthen the crypto economy. If USDT fails and creates a liquidity crisis that tanks the rest of the crypto market, I'll be shopping for bargains.
If USDT is worth $1 because everyone agrees it is, everything works fine. It's been that way for a long time and will likely continue.
If there's a run on the bank because people believe it's not worth $1, everyone tries to sell their USDT, then it is no longer worth a dollar. That's the risk of holding USDT. Everyone who takes 5 minutes to research it understands that USDT is kind of shady but has a long record of maintaining peg anyway.
This is true of every partially-backed stablecoin, of which there are many.
We have a recent example of one failing: https://news.ycombinator.com/item?id=27539368
In that case, IRON was only 75% backed, and now the price is $0.75.
There are other products, like DAI, which keeps reserves of ETH equal to 150% of the value of DAI. Occasionally liquidity becomes thin and DAI loses peg by a few cents, but it quickly returns as liquidations happen and the ETH is sold off to return DAI to peg. Synthetix does something similar with sUSD.
Gemini has GUSD, Coinbase has USDC, Binance has BUSD, all of which claim to be fully backed by USD and have audits to bolster that claim.
Here's a whole list of them, each offering various models of trust, decentralization, audits, etc: https://www.coingecko.com/en/categories/usd-stablecoin
If USDT implodes, it could cause a liquidity crisis, but it will lead to investors demanding more proof of funds before using a stablecoin, and long-term strengthen the crypto economy. If USDT fails and creates a liquidity crisis that tanks the rest of the crypto market, I'll be shopping for bargains.
> Gemini has GUSD, Coinbase has USDC, Binance has BUSD, all of which claim to be fully backed by USD and have audits to bolster that claim.
Congratulations! You’ve just fallen into the rabbit hole of trying to find actual auditors’ reports that back up your statement.
Please note that “attestations” don’t count, and that cash held in bank accounts aren’t proof of reserves that are specifically used for 1-to-1 parity unless backed by certified auditors’ statements that this pool is not also being used for, say, I don’t know, a merchant bank operating on top of crypto, or something..
Congratulations! You’ve just fallen into the rabbit hole of trying to find actual auditors’ reports that back up your statement.
Please note that “attestations” don’t count, and that cash held in bank accounts aren’t proof of reserves that are specifically used for 1-to-1 parity unless backed by certified auditors’ statements that this pool is not also being used for, say, I don’t know, a merchant bank operating on top of crypto, or something..
Can't you also pull tricks like moving a bunch of cash into one account, getting the balance printed out, moving that cash into another account, getting that balance printed out, rinse, repeat?
Where a full-on legit audit would take a snapshot of all the finances including debts, AR and AP.
Where a full-on legit audit would take a snapshot of all the finances including debts, AR and AP.
[deleted]
Here are the actual monthly auditors reports for USDC https://www.centre.io/usdc-transparency
Here we go again.
1. Attestations are not audited financials.
2. Do not cite attestations when asked to produce audited statements, which carry specific legal and regulatory burden.
3. When others provide you with attestations when you ask for audited statements, ask them what they’re so afraid of. Especially when they’ve raised hundreds of millions of dollars and could easily pay to have some of the mid-level kids at their accounting firm on retainer to have them produce a daily audited financial report if they really wanted.
4. Following on 3, attestations are the stablecoin equivalent of what “non-GAAP earnings” were for late 1990s dotcom stocks before they blew up.
Please, please, PLEASE stop scamming people who ask for audited financials with lousy attestations! You are not helping to make stablecoins look stable and trustworthy, at the very moment when everyone’s looking for a reason to shut them down!
(Disclosure: I think stablecoin technology is SUPER important and I would like to make sure it isn’t killed like the Concorde by a bunch of casino owners hiding under the guise of “fintech”)
1. Attestations are not audited financials.
2. Do not cite attestations when asked to produce audited statements, which carry specific legal and regulatory burden.
3. When others provide you with attestations when you ask for audited statements, ask them what they’re so afraid of. Especially when they’ve raised hundreds of millions of dollars and could easily pay to have some of the mid-level kids at their accounting firm on retainer to have them produce a daily audited financial report if they really wanted.
4. Following on 3, attestations are the stablecoin equivalent of what “non-GAAP earnings” were for late 1990s dotcom stocks before they blew up.
Please, please, PLEASE stop scamming people who ask for audited financials with lousy attestations! You are not helping to make stablecoins look stable and trustworthy, at the very moment when everyone’s looking for a reason to shut them down!
(Disclosure: I think stablecoin technology is SUPER important and I would like to make sure it isn’t killed like the Concorde by a bunch of casino owners hiding under the guise of “fintech”)
Thank you for helping fight the spread of disinformation! People make incorrect statements with such great confidence that others reading it take their word for it. As you said, attestations and audits are very different and people should demand greater transparency and accountability and be skeptical of those who don't provide you the information you request.
> which carry specific legal and regulatory burden.
but the whole point of crypto is that we don't believe in legal or regulatory burden.
but the whole point of crypto is that we don't believe in legal or regulatory burden.
Audited financials are for operating companies. I don't think the concept makes sense for a cash backed stablecoin.
If you wish to redefine these terms, then ideally do so at the start of the thread and not after providing a potentially misleading link for users who may not be familiar with which terms you're using.
And GUSD https://www.gemini.com/dollar
I don't know how you can say attestations by CPAs and LLPs don't count.
These offerings are pretty transparent. If you choose to use a stablecoin that's not backed by on-chain collateral, you're accepting the attestations are true and putting trust in the reputation of the companies.
Personally, I'd rather be able to verify the collateral on-chain, which is why I think fully collateral-backed on-chain stablecoins like DAI make a lot of sense.
These offerings are pretty transparent. If you choose to use a stablecoin that's not backed by on-chain collateral, you're accepting the attestations are true and putting trust in the reputation of the companies.
Personally, I'd rather be able to verify the collateral on-chain, which is why I think fully collateral-backed on-chain stablecoins like DAI make a lot of sense.
Do you know what an attestation actually is? Are you aware of the complete lack of accountability, liability, anything from these reports? They literally just mean “I saw some money in an account and it matched the figure they said they were supposed to have.” That’s it. As of 12:00pm on a Friday you could have your friend wire you $1B and get someone to attest that they saw $1B in your bank account, which is then wired back out; does that make you a billionaire?
The willingness of these operators to target poor, unsuspecting muppets who aren’t aware that attestation ≠ audit, without any disclaimer or explanation of this fact, is a HUGE red flag that their claims of “transparency” are anything but.
The willingness of these operators to target poor, unsuspecting muppets who aren’t aware that attestation ≠ audit, without any disclaimer or explanation of this fact, is a HUGE red flag that their claims of “transparency” are anything but.
> As of 12:00pm on a Friday you could have your friend wire you $1B and get someone to attest that they saw $1B in your bank account, which is then wired back out; does that make you a billionaire?
This is literally what happened.
https://davidgerard.co.uk/blockchain/2021/03/30/tether-produ...
This is literally what happened.
https://davidgerard.co.uk/blockchain/2021/03/30/tether-produ...
Yes, I understand, but the businesses involved in this also have a strong desire to not become insolvent.
I think it's very reasonable to accept that you're mostly betting on Gemini (or whoever) being an honest broker, and the attestation reports give some reason to believe that they can produce the dollars on demand. The attestation reports do show that they're able to come up with that available balance, even if only for a minute, which does add credibility.
If you're concerned about the solvency of the institutions offering these products, that's fine, but I think everyone (including Tether) is incentivized to do everything possible to never become insolvent.
Aligned interests do count for something.
I think it's very reasonable to accept that you're mostly betting on Gemini (or whoever) being an honest broker, and the attestation reports give some reason to believe that they can produce the dollars on demand. The attestation reports do show that they're able to come up with that available balance, even if only for a minute, which does add credibility.
If you're concerned about the solvency of the institutions offering these products, that's fine, but I think everyone (including Tether) is incentivized to do everything possible to never become insolvent.
Aligned interests do count for something.
Please choose between one of these options:
1) You retract your claim that the stablecoins you listed have audited reserves.
2) You’ve found the auditors’ reports and we all get some excellent reading material for the weekend.
Your theories of crypto monetary policy are completely irrelevant within the context of a regulatory conversation. Which, by the way, is the problem the entire crypto community will have — if the hammer ever drops (which may never happen due to intense lobbying pressure by VCs and Big Crypto), the regulator won’t have any patience for any of the various theories about “the future of money” etc.
Answer basic questions about audits or admit you’ve got a problem.
1) You retract your claim that the stablecoins you listed have audited reserves.
2) You’ve found the auditors’ reports and we all get some excellent reading material for the weekend.
Your theories of crypto monetary policy are completely irrelevant within the context of a regulatory conversation. Which, by the way, is the problem the entire crypto community will have — if the hammer ever drops (which may never happen due to intense lobbying pressure by VCs and Big Crypto), the regulator won’t have any patience for any of the various theories about “the future of money” etc.
Answer basic questions about audits or admit you’ve got a problem.
I suppose I'll take option #1, if we're saying that "attestations" are not a form of auditing. It seems pedantic to me, but maybe your usage is correct in the regulatory/accounting world.
To use GUSD as an example, this is the document in question: https://assets.ctfassets.net/jg6lo9a2ukvr/4HRkKKmHejTvQ32jfv...
It is not a full audit of the entire history of the movement of the funds.
I agree that having a full trace of every penny publicly available would increase trust in GUSD.
I suspect that if you're an exchange partner with Gemini, you could ask for more visibility into how the funds are actually being allocated when they're not being summoned for attestation.
Keep in mind that the risk here is insolvency, and the firms best suited to evaluate that risk are also the ones holding large amount of GUSD.
I don't know if regulation would be helpful here or not. I think exchanges considering holding GUSD should accept the risk of possible insolvency, and adjust their business to account for that risk, perhaps by buying insurance.
To use GUSD as an example, this is the document in question: https://assets.ctfassets.net/jg6lo9a2ukvr/4HRkKKmHejTvQ32jfv...
It is not a full audit of the entire history of the movement of the funds.
I agree that having a full trace of every penny publicly available would increase trust in GUSD.
I suspect that if you're an exchange partner with Gemini, you could ask for more visibility into how the funds are actually being allocated when they're not being summoned for attestation.
Keep in mind that the risk here is insolvency, and the firms best suited to evaluate that risk are also the ones holding large amount of GUSD.
I don't know if regulation would be helpful here or not. I think exchanges considering holding GUSD should accept the risk of possible insolvency, and adjust their business to account for that risk, perhaps by buying insurance.
> option #1
Great! So you agree that your claim that these stablecoins have audited reserves was false, and you retract it. Pleasure doing business.
Since you were a good sport about this, I’ll say that I agree that Gemini is one of the better participants in that market. That being said, I’ll leave you with the notice on page 4 of your linked document, which is the only relevant passage for legal/regulatory purposes:
This Information Has Not Been Examined by the Company’s Independent Accountant
Great! So you agree that your claim that these stablecoins have audited reserves was false, and you retract it. Pleasure doing business.
Since you were a good sport about this, I’ll say that I agree that Gemini is one of the better participants in that market. That being said, I’ll leave you with the notice on page 4 of your linked document, which is the only relevant passage for legal/regulatory purposes:
This Information Has Not Been Examined by the Company’s Independent Accountant
Differentiating between and audit and attestation is not pedantic but I can understand why you might think it is. I explained there difference here: https://news.ycombinator.com/item?id=27532670
TL;DR attestations do not provide a strong level of assurance and there are no standards for conducting them - they are ad hoc engagements. Audits are standardised engagements and must conform to a particular methodology to determine sufficient and appropriate evidence that financial statements are true and fair - basically you need third party info like custodian reports.
To back up numair, and help you understand a bit better, an audit in the financial regulatory sense is a highly pedantic endeavor. Accounting can be as much artform as anything else, and even amongst all the accountant's in the world, exactly how you track money and classify things is open to interpretation, and it is very easy to report some cherry picked numbers and tell a completely different story than what is going on.
Independent audits do two things. They examine process, and create an environment where you have to operate in a sane manner, because your auditor can drop in at any time, pick out any particular starting point, and will expect to be able to have delivered to them where that transaction came from, and ultimately will go to based on GAAP and in house supporting process documents. This basically draws a complexity boundary around how exotic you can get within the context of one organization, because if one of the big independent auditors can't make heads or tails of you in a reasonable amount of time, it is a gigantic red flag w.r.t your operational processes.
An audit also results in a snapshot of your entire cash/value flow through an organization. This is verified and cross checked for valuation by someone who doesn't know you from Adam to ensure objectivity. This is just a guarantee that the numbers add up, and over time continue to make sense. Massive discontinuities that can't be ascribed to something in the real/business world measurable by someone else are also red flags that there may be something going on there that may be valid, but you need more info to get to the bottom of it to ensure it is sound.
t. Quality Assurance person who has spent entirely too much of his life digging into how finance works even though they allegedly hate it, but a statistical analysis of how much of my mind I devote to financial analysis, modeling and prediction tells another story.
Ironically, if you mentally audited my thoughts you'd easily come to the conclusion I love finance. I don't. I like measuring things. Measuring finances effectively is a pain in the ass, and a perennial issue, that there are more than a few groups constantly working to frustrate people like me who try to distill truth out of account ledgers.
That's why numair is absolutely right. An attestation is one slice. You know money was there. You don't know where it went afterward, which subtransactions it spawned (fees, taxes, interest accrual, etc...). That's what auditor's look at and collate. It's why it's a big deal. At the end of the day it's all arithmetic, and an audit is just having someone else run the numbers and vouching they get the same result. It's actually a little more than that, because regulation wise, the auditor's number is more reliable than yours, because they have all the incentives in place to keep their processes and interpretive liberty taking to a minimum. You want to match the auditor's numbers if you can coax your process into doing so... Of course again, there's arms race there as well. Note, auditor's don't find or investigate fraud. They just check your process is being followed, and that when someone else does it, everything works out. It just so happens that this is also a great way to shake out anything that might be used to as a basis to make fraud effectively doable.
It is a rabbit hole. One that I've explored many branches of, but after a while doing it, you can pretty quickly measure how uncomfortable a group is by their level of nervousness around letting an auditor drive.
Independent audits do two things. They examine process, and create an environment where you have to operate in a sane manner, because your auditor can drop in at any time, pick out any particular starting point, and will expect to be able to have delivered to them where that transaction came from, and ultimately will go to based on GAAP and in house supporting process documents. This basically draws a complexity boundary around how exotic you can get within the context of one organization, because if one of the big independent auditors can't make heads or tails of you in a reasonable amount of time, it is a gigantic red flag w.r.t your operational processes.
An audit also results in a snapshot of your entire cash/value flow through an organization. This is verified and cross checked for valuation by someone who doesn't know you from Adam to ensure objectivity. This is just a guarantee that the numbers add up, and over time continue to make sense. Massive discontinuities that can't be ascribed to something in the real/business world measurable by someone else are also red flags that there may be something going on there that may be valid, but you need more info to get to the bottom of it to ensure it is sound.
t. Quality Assurance person who has spent entirely too much of his life digging into how finance works even though they allegedly hate it, but a statistical analysis of how much of my mind I devote to financial analysis, modeling and prediction tells another story.
Ironically, if you mentally audited my thoughts you'd easily come to the conclusion I love finance. I don't. I like measuring things. Measuring finances effectively is a pain in the ass, and a perennial issue, that there are more than a few groups constantly working to frustrate people like me who try to distill truth out of account ledgers.
That's why numair is absolutely right. An attestation is one slice. You know money was there. You don't know where it went afterward, which subtransactions it spawned (fees, taxes, interest accrual, etc...). That's what auditor's look at and collate. It's why it's a big deal. At the end of the day it's all arithmetic, and an audit is just having someone else run the numbers and vouching they get the same result. It's actually a little more than that, because regulation wise, the auditor's number is more reliable than yours, because they have all the incentives in place to keep their processes and interpretive liberty taking to a minimum. You want to match the auditor's numbers if you can coax your process into doing so... Of course again, there's arms race there as well. Note, auditor's don't find or investigate fraud. They just check your process is being followed, and that when someone else does it, everything works out. It just so happens that this is also a great way to shake out anything that might be used to as a basis to make fraud effectively doable.
It is a rabbit hole. One that I've explored many branches of, but after a while doing it, you can pretty quickly measure how uncomfortable a group is by their level of nervousness around letting an auditor drive.
Very interesting and I agree that a blog post would be great on this topic.
I think intuition is what I'm lacking here. It's unclear to me just how dangerous the situation is likely to be.
Before this discussion, my understanding was that only attestations are available, and that the company wouldn't become insolvent because the company would incur huge losses if that happened.
That's still my understanding, though now I know the difference be attestation and audits, that a complexity boundary exists due to audit resources, and that auditors don't even look for fraud (you'd think they would without knowing how this works). Thank you for the color around it, it helps me understand how people in this business think about finance.
However, I'm still of the (apparently wrong?) opinion that Gemini/Circle/Binance/Paxos at least, are staking their real businesses, with things like executive pay and employee payroll and all that, on these products. "We lost the money and our stablecoin is now worthless" should sink any of these companies.
I think we're in agreement that failure to maintain peg would sink these companies, but my conclusion was that it's very unlikely. You and numair seem to conclude that it's more than just likely, it's almost inevitable.
This tells me that my intuition is probably wrong, but it's still difficult for me to understand why a company like Gemini would decide to risk insolvency.
And even if they did release a full audit, if it can't detect fraud, then why would you trust it? I know it's better than just attestations, but I'm not sure how great the risk of fraud is relative to the risk of other routes to insolvency.
I think intuition is what I'm lacking here. It's unclear to me just how dangerous the situation is likely to be.
Before this discussion, my understanding was that only attestations are available, and that the company wouldn't become insolvent because the company would incur huge losses if that happened.
That's still my understanding, though now I know the difference be attestation and audits, that a complexity boundary exists due to audit resources, and that auditors don't even look for fraud (you'd think they would without knowing how this works). Thank you for the color around it, it helps me understand how people in this business think about finance.
However, I'm still of the (apparently wrong?) opinion that Gemini/Circle/Binance/Paxos at least, are staking their real businesses, with things like executive pay and employee payroll and all that, on these products. "We lost the money and our stablecoin is now worthless" should sink any of these companies.
I think we're in agreement that failure to maintain peg would sink these companies, but my conclusion was that it's very unlikely. You and numair seem to conclude that it's more than just likely, it's almost inevitable.
This tells me that my intuition is probably wrong, but it's still difficult for me to understand why a company like Gemini would decide to risk insolvency.
And even if they did release a full audit, if it can't detect fraud, then why would you trust it? I know it's better than just attestations, but I'm not sure how great the risk of fraud is relative to the risk of other routes to insolvency.
I'm not necessarily saying that there is something unsound going on, just that lack of auditor engagement is likely indicative there is a non-trivial amount of process-risk there that no one except them is privy to, and incentive-wise, they aren't going to just come out and say "it's all a house of cards, guys!"
>and that the company wouldn't become insolvent because the company would incur huge losses if that happened
Something there is parsing off to me, but I'm not going to try to pretend I have a mastery of insolvency vs. losses, but generally speaking, insolvency doesn't cause losses. Insolvency happens as the result of losses, which may be caused by any number of factors. The state of becoming insolvent itself is actually a bit of an information propagation problem, because once that state is reached, in many jurisdictions, all transactions must cease, but no one has a master "stop all business processes this instant" button.
>However, I'm still of the (apparently wrong?) opinion that Gemini/Circle/Binance/Paxos at least, are staking their real businesses, with things like executive pay and employee payroll and all that, on these products. "We lost the money and our stablecoin is now worthless" should sink any of these companies.
You are correct. They are. What you're missing there, though, is that the company != the people. Incentive problem again. If things do go belly up, the only things "lost" are company assets (equipment, patents, licensing, the brand, etc...) and "potential income" (exec pay) in the form of Stocks and equity that would need to be sold off first to realize that income, which they probably have been doing all along. No skin off their nose if they have to restart a new chain. In fact, the old one going under would make doing so easier due to the chunk of assets about to be sold off on the cheap.
The danger, at least from my understanding, is exactly tied to the holding of assets to back the stablecoin. Say everything goes up in smoke. The company gets liquidated through bankruptcy or restructured, but all of that paper they hold is not cash value. It has to be sold at market rate, and large volume paper moving can move prices in unintuitive ways. Under bankruptcy, particularly the liquidation form, most of that will sell for way below value since there will be quite literally no other choice than to sell. In fact, these stablecoins, if their USD peg is ever called to be accounted for as collateral, being in the form of held paper they state they can liquidate to cover their cash liabilities: may at any time become insolvent if something big happens in a particular sector of the market to which they have exaggerated exposure. Then again, that could pass with nary a whimper because nothing happened that required them to actually pay out that USD denomination. The risk is still there though. I've developed a waryness of anything that passes itself off as stable, but is, in fact, subject to normal market volatility. Given that it's taken me years of intentional effort just to kinda grok things to the point I semi-reliably seem to be able to explain things without a professional coming out of the wings and enlightening me to my dead wrongness 100% of the time, and the fact most everyone else doesn't bash their head bloody doing so, I tend to personally look at these as extremely likely sources of unexpected second and higher order effects.
It's a threat to market stability, because that much paper getting dumped on the market at once creates a supply glut. These stablecoins are operating like banks in a sense, without any of the controls. We now have two kinds of bank runs to worry about, one isn't audited at all, and if something were to happen, would potentially leave a rather large blast crater.
So I won't go so far as to say your opinion or outlook on these companies is wrong per se. I will say there is enough lack of information on my part I wouldn't put my money into it, and it makes me nervous what'll happen if the seeming risk check being written ever comes due. This may turn into another mess of a recession or other market shaking calamity. Like, just me thinking about it right now took me through every bit of research I've done over the last 5 years in spare time, and I'm still not even confident I've got a solid grasp of the second and higher order consequences.
What I do know, is that someone betting their business on something is never in isolation a good enough reason to put your hard earned capital into it; and I implore you to do your own research and really try to wrestle with it. It's hard, but that's capitalism. We're all capital allocators, and if we don't make the decision of how we want our hard earned capital allocated, then we're never really factoring into the invisible hand, someone else is.
>and that the company wouldn't become insolvent because the company would incur huge losses if that happened
Something there is parsing off to me, but I'm not going to try to pretend I have a mastery of insolvency vs. losses, but generally speaking, insolvency doesn't cause losses. Insolvency happens as the result of losses, which may be caused by any number of factors. The state of becoming insolvent itself is actually a bit of an information propagation problem, because once that state is reached, in many jurisdictions, all transactions must cease, but no one has a master "stop all business processes this instant" button.
>However, I'm still of the (apparently wrong?) opinion that Gemini/Circle/Binance/Paxos at least, are staking their real businesses, with things like executive pay and employee payroll and all that, on these products. "We lost the money and our stablecoin is now worthless" should sink any of these companies.
You are correct. They are. What you're missing there, though, is that the company != the people. Incentive problem again. If things do go belly up, the only things "lost" are company assets (equipment, patents, licensing, the brand, etc...) and "potential income" (exec pay) in the form of Stocks and equity that would need to be sold off first to realize that income, which they probably have been doing all along. No skin off their nose if they have to restart a new chain. In fact, the old one going under would make doing so easier due to the chunk of assets about to be sold off on the cheap.
The danger, at least from my understanding, is exactly tied to the holding of assets to back the stablecoin. Say everything goes up in smoke. The company gets liquidated through bankruptcy or restructured, but all of that paper they hold is not cash value. It has to be sold at market rate, and large volume paper moving can move prices in unintuitive ways. Under bankruptcy, particularly the liquidation form, most of that will sell for way below value since there will be quite literally no other choice than to sell. In fact, these stablecoins, if their USD peg is ever called to be accounted for as collateral, being in the form of held paper they state they can liquidate to cover their cash liabilities: may at any time become insolvent if something big happens in a particular sector of the market to which they have exaggerated exposure. Then again, that could pass with nary a whimper because nothing happened that required them to actually pay out that USD denomination. The risk is still there though. I've developed a waryness of anything that passes itself off as stable, but is, in fact, subject to normal market volatility. Given that it's taken me years of intentional effort just to kinda grok things to the point I semi-reliably seem to be able to explain things without a professional coming out of the wings and enlightening me to my dead wrongness 100% of the time, and the fact most everyone else doesn't bash their head bloody doing so, I tend to personally look at these as extremely likely sources of unexpected second and higher order effects.
It's a threat to market stability, because that much paper getting dumped on the market at once creates a supply glut. These stablecoins are operating like banks in a sense, without any of the controls. We now have two kinds of bank runs to worry about, one isn't audited at all, and if something were to happen, would potentially leave a rather large blast crater.
So I won't go so far as to say your opinion or outlook on these companies is wrong per se. I will say there is enough lack of information on my part I wouldn't put my money into it, and it makes me nervous what'll happen if the seeming risk check being written ever comes due. This may turn into another mess of a recession or other market shaking calamity. Like, just me thinking about it right now took me through every bit of research I've done over the last 5 years in spare time, and I'm still not even confident I've got a solid grasp of the second and higher order consequences.
What I do know, is that someone betting their business on something is never in isolation a good enough reason to put your hard earned capital into it; and I implore you to do your own research and really try to wrestle with it. It's hard, but that's capitalism. We're all capital allocators, and if we don't make the decision of how we want our hard earned capital allocated, then we're never really factoring into the invisible hand, someone else is.
Please turn this comment into a blog post or whitepaper or something, because it’s excellent and deserves way more visibility than it’s going to get 4-deep in a weekend comment thread on HN. I think we will all have to take on the task of educating a lot of kids — literally, kids — about the boring-seeming world of financial auditing. They’ll be wondering where their money went, and how to avoid such situations the next time around...
Oh God... All the bibliography building that'd go into a white paper... Ugh.
I might try spinning up a Blog one of these days when work slows down a bit. It's funny the insight you pick up having to dissect these types of things on a semi-regular basis. Financial Auditing, Risk Management, Quality Assurance, we're all doing the same schtick in different ways.
Also, I'd add that one needs to keep in mind that what I posted only covers audits of singular organizations. If you're actually up to skulduggery, as I understand it, it's almost always distributing things between multiple corporate entities, audited by different groups so that no one auditor gets a complete view of what's going on. Once you start looking at groups of entities, especially jurisdictionally distributed, the complexity balloons, and you're now firmly in financial engineering and forensic accountancy territory.
Financial engineering and forensic accountancy is a rabbit hole that I'm pretty sure encyclopedias could be written on, and would outdate themselves as quickly as you could propagate the info, as there is always an arms race going on between those wishing to move large amounts of money gained in less scrupulous ways, and those wishing to make those enterprises an impossibility.
I might try spinning up a Blog one of these days when work slows down a bit. It's funny the insight you pick up having to dissect these types of things on a semi-regular basis. Financial Auditing, Risk Management, Quality Assurance, we're all doing the same schtick in different ways.
Also, I'd add that one needs to keep in mind that what I posted only covers audits of singular organizations. If you're actually up to skulduggery, as I understand it, it's almost always distributing things between multiple corporate entities, audited by different groups so that no one auditor gets a complete view of what's going on. Once you start looking at groups of entities, especially jurisdictionally distributed, the complexity balloons, and you're now firmly in financial engineering and forensic accountancy territory.
Financial engineering and forensic accountancy is a rabbit hole that I'm pretty sure encyclopedias could be written on, and would outdate themselves as quickly as you could propagate the info, as there is always an arms race going on between those wishing to move large amounts of money gained in less scrupulous ways, and those wishing to make those enterprises an impossibility.
Send me an email — [email protected] — I’d like to know more about what led you to do a deep-dive into these worlds, as I am sure it’s a long and interesting story!
Even breaking this down into a simple analogy, buying a house. Your mortgage broker (or lender, rather) doesn't just want a screenshot of your "Available balance", they want to see the account history and transactions, to substantiate income statements, known debts, and sources of funding.
> Personally, I'd rather be able to verify the collateral on-chain, which is why I think fully collateral-backed on-chain stablecoins like DAI make a lot of sense.
The problem with DAI is that it is backed in large part by other stablecoins such as USDC and BUSD that are not transparent in their holdings. For example, USDC has an unknown amount of their backing in unspecified "approved investments" (language copied from the latest attestation).
These investments could be boring, stable, liquid assets like US treasury bills, or they could be risky, unstable, illiquid assets, like loans to cryptocurrency exchanges. Without knowing what they are, its hard to determine how backed USDC truly is.
The problem with DAI is that it is backed in large part by other stablecoins such as USDC and BUSD that are not transparent in their holdings. For example, USDC has an unknown amount of their backing in unspecified "approved investments" (language copied from the latest attestation).
These investments could be boring, stable, liquid assets like US treasury bills, or they could be risky, unstable, illiquid assets, like loans to cryptocurrency exchanges. Without knowing what they are, its hard to determine how backed USDC truly is.
>> I fail to see the problem...
Financialisation problems. Rosengren seems to be worried, for example, that a liquidation of backing assets triggers something ugly. IE, USDT drops in value>> Reserves liquidated defending USDT price>> Assets in reserve plummet in price, perhaps triggering more stuff elsewhere.
..Meanwhile to that, crypto markets are disrupted.
I think it makes sense for a financial regulator to start raising a brow. Also, how fast is USDT growing? At some scale does stablecone presents a different flavour of risk.
Financialisation problems. Rosengren seems to be worried, for example, that a liquidation of backing assets triggers something ugly. IE, USDT drops in value>> Reserves liquidated defending USDT price>> Assets in reserve plummet in price, perhaps triggering more stuff elsewhere.
..Meanwhile to that, crypto markets are disrupted.
I think it makes sense for a financial regulator to start raising a brow. Also, how fast is USDT growing? At some scale does stablecone presents a different flavour of risk.
Out of all stablecoins, I've found DAI the most interesting one, it's a beautiful engineer solution to tackle a problem. Backed by volatile assets, profits and interests (%). Every participant has a clear incentive/risk, trustless and transparent.
I totally agree and I don't think it's crazy to consider it more safe than centralized stablecoins run by companies.
If there's a bank account, it's possible the entity managing that account could become insolvent or that someone could run off with the funds.
If your collateral is locked in a smart contract that's properly secured, it's possible to create a situation where it's technically impossible for anyone unauthorized to lose the collateral, either by embezzlement or by losing it with poor managmeent.
I'm honestly not sure whether it's more likely that DAI has a contract bug or USDT/USDC/GUSD/BUSD/TUSD/etc becomes insolvent due to some external factors.
If we had a global credit crisis and banking institutions were failing, I'd feel a lot more comfortable holding DAI than one of the stablecoins that relies on the traditional system.
If there's a bank account, it's possible the entity managing that account could become insolvent or that someone could run off with the funds.
If your collateral is locked in a smart contract that's properly secured, it's possible to create a situation where it's technically impossible for anyone unauthorized to lose the collateral, either by embezzlement or by losing it with poor managmeent.
I'm honestly not sure whether it's more likely that DAI has a contract bug or USDT/USDC/GUSD/BUSD/TUSD/etc becomes insolvent due to some external factors.
If we had a global credit crisis and banking institutions were failing, I'd feel a lot more comfortable holding DAI than one of the stablecoins that relies on the traditional system.
Yeah I agree, I think DAI represents the true ethos of crypto pretty well: risk is everywhere (and anyone who suggest otherwise is lying) so let’s just make it perfectly transparent and let the individual decide if they want to play or not.
But DAI is currently about 50% backed by USDC, which means it's effectively turning into an asset-backed stablecoin.
The issue is if Tether continues to grow, as it has been, it may become too big to fail.
That is, Tether loses its peg, $X dollars go missing, and firms start to fail like dominos, even outside the crypto sphere.
Tether is far from that level but theres nothing stopping its growth.
The solution isnt to ban tether, but rather launch central bank stablecoins. Put the official USD as a ERC20 token.
That is, Tether loses its peg, $X dollars go missing, and firms start to fail like dominos, even outside the crypto sphere.
Tether is far from that level but theres nothing stopping its growth.
The solution isnt to ban tether, but rather launch central bank stablecoins. Put the official USD as a ERC20 token.
> The issue is if Tether continues to grow, as it has been, it may become too big to fail.
If this happens, we need to let it fail. I'd be furious to see the fed bail out USDT to make sure the crypto market stays "stable".
> That is, Tether loses its peg, $X dollars go missing, and firms start to fail like dominos, even outside the crypto sphere.
If firms fall because they bet too hard on USDT, they deserve to fall. Tether has not offered sufficient evidence that they are fully backed, so that risk needs to be accounted for by the firms that use USDT.
> Tether is far from that level but theres nothing stopping its growth.
Hopefully what's stopping that growth are better stablecoins with alternative risk profiles that are more favorable to investors.
> The solution isnt to ban tether, but rather launch central bank stablecoins. Put the official USD as a ERC20 token.
That's still just trading one set of risks for another, which is fine. Having multiple stablecoin options is good.
If this happens, we need to let it fail. I'd be furious to see the fed bail out USDT to make sure the crypto market stays "stable".
> That is, Tether loses its peg, $X dollars go missing, and firms start to fail like dominos, even outside the crypto sphere.
If firms fall because they bet too hard on USDT, they deserve to fall. Tether has not offered sufficient evidence that they are fully backed, so that risk needs to be accounted for by the firms that use USDT.
> Tether is far from that level but theres nothing stopping its growth.
Hopefully what's stopping that growth are better stablecoins with alternative risk profiles that are more favorable to investors.
> The solution isnt to ban tether, but rather launch central bank stablecoins. Put the official USD as a ERC20 token.
That's still just trading one set of risks for another, which is fine. Having multiple stablecoin options is good.
> If this happens, we need to let it fail. I'd be furious to see the fed bail out USDT to make sure the crypto market stays "stable".
We already know its going to happen: some "blessed" TBTF tradfi bank is going to have some massive tail risk exposure on chain and will go insolvent unless FRBNY steps in so that they can get more tethers minted for them on chain.
What they wont be able to do is halt trading for all the derivatives on all the dex's on chain to help minimize the cost of that bailout.
We already know its going to happen: some "blessed" TBTF tradfi bank is going to have some massive tail risk exposure on chain and will go insolvent unless FRBNY steps in so that they can get more tethers minted for them on chain.
What they wont be able to do is halt trading for all the derivatives on all the dex's on chain to help minimize the cost of that bailout.
[deleted]
At current prices, Tethers market cap is only about 10% of Bitcoins and about 5% of the whole crypto market cap.
Market cap is the wrong metric to use. Tether is debt. Its entire market cap is redeemable in USD. It’s not possible to redeem the market cap of e.g. Bitcoin.
Not really, Tether’s terms don’t provide much in the way of redeemability. It’s quite probable that most of the Tethers already minted never had an actual dollar behind them anyway.
A Tether is redeemable. The terms say you may experience a delay, due to liquidity issues. But it’s still redeemable.
Issuing a token, and claiming it will always be worth $1, simply by hoping that someone, somewhere will buy them for $1 is fraud.
Issuing a token, and claiming it will always be worth $1, simply by hoping that someone, somewhere will buy them for $1 is fraud.
[deleted]
Aren’t banks only required to hold 2% in cash of their clients’ balance? It seems like this scam is not new.
It is presently 0% as of March 2020
https://www.investopedia.com/terms/r/requiredreserves.asp
https://www.investopedia.com/terms/r/requiredreserves.asp
Banks hold repayable loans which earn them profit instead of printing what they want and lying about backing...
You know the 2008 crisis is still fresh in a lot of people’s memory right?
The 2008 crisis was the banks losing their assets, not the banks lying about their assets.
Though yes, it amuses me to see crypto advocates' reaction to 2008 was to enthusiastically defend the right of crypto companies to do worse whilst pretending not to.
Though yes, it amuses me to see crypto advocates' reaction to 2008 was to enthusiastically defend the right of crypto companies to do worse whilst pretending not to.
Didn't the banks lose their assets because of (among other things) the repackaging of mortgages with fraudulent ratings into mislabeled securities, resold as a higher value note?
Yes but how does crypto solve this problem? Letting people borrow money isn't a flaw in our banking system. The lack of due diligence is.
That's true, but at least programmatic securities for all its pitfalls and possibly bugs, is likely to do what it says on the tin.
Not to mention there are quite a few people seeing the same signs of a crash now as in 2008.
This is a mangled version of Basel 3 requirements: https://voxeu.org/article/how-much-equity-capital-should-uk-...
Very little of this is "cash" in the physical sense, it's more about how much the bank can absorb losses through selling various tiers of asset as well as through its own share capital.
Very little of this is "cash" in the physical sense, it's more about how much the bank can absorb losses through selling various tiers of asset as well as through its own share capital.
In a word, no.
Banks are required to more in assets than they have in client liability, and to write down the value of those assets based on risk. So they have >100% coverage.
Banks are required to more in assets than they have in client liability, and to write down the value of those assets based on risk. So they have >100% coverage.
I think he means capital coverage, which is roughly 5% under the current regulatory scheme. That is, every dollar in liabilities must be covered by at least 5 cents of bank capital.
[deleted]
They have government backing to issue new money (in the form of debt). That’s quite different when you remove the government backing.
One of the weird parts of fiat banking is that a public institution is almost 100% privatized. This is fine during normal times but during crisis it doesn't work because we want to keep the public institution part alive, which involves saving the private companies that caused the problem.
Banking has never been a public institution. Even now the Federal Reserve System is not, in fact, a public entity. It is chartered by the federal government but does whatever it wants within that charter. There are no elected officials at the Fed.
Having elected officials is not what constitutes a public institution.
CFR 417.201 defines a public institution as “an institution that is operated by or controlled by the Federal government, a State, or a political subdivision of a State such as a city or county.”
For example, as you stated the government sets the Fed charter and thus enumerates their powers and duties. Congress also pays their salaries, so (to a very limited extent) the Fed receives government funding to operate and reports to Congress for accountability.
Most federal “public institutions” do not have elected officials, but rather are led by appointees, just like the Fed.
CFR 417.201 defines a public institution as “an institution that is operated by or controlled by the Federal government, a State, or a political subdivision of a State such as a city or county.”
For example, as you stated the government sets the Fed charter and thus enumerates their powers and duties. Congress also pays their salaries, so (to a very limited extent) the Fed receives government funding to operate and reports to Congress for accountability.
Most federal “public institutions” do not have elected officials, but rather are led by appointees, just like the Fed.
It took a few bank runs to get there though. The government backing is also 50/50.
Are you talking about a specific country? My point was only to point out the very material difference in having a producer of a currency back the production.
In Crypto the miners cannot suddenly issue more currency, meaning there is an inherent risk of capital grid-lock. I get this is a trade off for the other benefits of crypto but it's one people should be aware of, and why you can't treat it the same way... or rely on it the same way.
In Crypto the miners cannot suddenly issue more currency, meaning there is an inherent risk of capital grid-lock. I get this is a trade off for the other benefits of crypto but it's one people should be aware of, and why you can't treat it the same way... or rely on it the same way.
It could cause shockwaves beyond crypto. You’d see Coinbase, Tesla and MSTR stocks hit and maybe the meme stocks because they are kind of like speculative cryptos. Then maybe anything else crypto related like Twitter, PayPal, NVidia, etc. Then as we are in an everything bubble other stocks and sectors fall and confidence is in a negative spiral.
TWTR because Jack likes Bitcoin, or is there another connection? They don’t have Bitcoin on their books, right?
Yes it’s not because it’s on the books. It’s people thinking that other people thinking that other people thinking the price will go down.
>If USDT is worth $1 because everyone agrees it is, everything works fine.
Until that agreement starts to wobble
Until that agreement starts to wobble
> Everyone who takes 5 minutes to research it understands that USDT is kind of shady but has a long record of maintaining peg anyway.
The problem arises when large numbers of people do not research it and jump on the meme blindly. Depending on the number of people involved, this could have knock-on effects (see also people flipping houses in the US with reseting mortgages pre-2008).
The problem arises when large numbers of people do not research it and jump on the meme blindly. Depending on the number of people involved, this could have knock-on effects (see also people flipping houses in the US with reseting mortgages pre-2008).
How creators of fully backed stablecoins earn money?
They're all wildly different. You have to investigate each one specifically.
I'd guess most of the centrally managed ones make their money investing the deposited USD to earn a safe rate of return as profit.
The defi ones that take colleteral, like DAI, make money by charging a borrow rate on the DAI that's minted and another fee if your account is liquidated.
I'd guess most of the centrally managed ones make their money investing the deposited USD to earn a safe rate of return as profit.
The defi ones that take colleteral, like DAI, make money by charging a borrow rate on the DAI that's minted and another fee if your account is liquidated.
> I'd guess most of the centrally managed ones make their money investing the deposited USD to earn a safe rate of return as profit.
Yeah and liquidating these might tank something else, which might tank something else, which might piss people off enough to get serious regulation through. That is the problem.
Yeah and liquidating these might tank something else, which might tank something else, which might piss people off enough to get serious regulation through. That is the problem.
That's a problem, sure, but not one that you're going to solve by regulating stablecoins.
Contagions are all over the credit markets. The whole thing is a house of cards and always has been.
We have all kinds of regulations for just how much collateral a bank must have, for example, but 2008 still happened.
I'd rather have firms fail if they make bad decisions.
Risk-taking is incentivized when banks can say "oh no, we followed all the rules but somehow still went insolvent, must be someone else's fault... definitely not ours for not researching our investments... so how about a giant free loan?"
Contagions are all over the credit markets. The whole thing is a house of cards and always has been.
We have all kinds of regulations for just how much collateral a bank must have, for example, but 2008 still happened.
I'd rather have firms fail if they make bad decisions.
Risk-taking is incentivized when banks can say "oh no, we followed all the rules but somehow still went insolvent, must be someone else's fault... definitely not ours for not researching our investments... so how about a giant free loan?"
I thought the banks paid back all the loans from the government with interest.
Another possibility: Sell a coin for $1.01, promise to buy back at $0.99.
Exchange fees, I guess.
Yes, and people ought to consider what it means for there to be a “liquidity crisis” in crypto—in traditional markets, it means everyone calls in their short-term financing and hoards cash. What is the crypto equivalent of cash? Bitcoin.
Quoth Wikipedia [0]:
"Nevertheless, Tether Limited states that owners of tethers have no contractual right, other legal claims, or guarantee that tethers will be redeemed or exchanged for dollars. On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents."
It seems that it is unlikely that Tether poses any risks, on the basis that anyone who cares can find out the whole thing is shady with even the flimsiest investigation. A risk that large and obvious can't in itself be systemic, because the system will insulate itself from the risk. Everyone knows.
The systemic part is when people start being able to buy Tethers without realising it. Eg, if the banks start selling them to retirement funds or something.
[0] https://en.wikipedia.org/wiki/Tether_(cryptocurrency)
"Nevertheless, Tether Limited states that owners of tethers have no contractual right, other legal claims, or guarantee that tethers will be redeemed or exchanged for dollars. On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents."
It seems that it is unlikely that Tether poses any risks, on the basis that anyone who cares can find out the whole thing is shady with even the flimsiest investigation. A risk that large and obvious can't in itself be systemic, because the system will insulate itself from the risk. Everyone knows.
The systemic part is when people start being able to buy Tethers without realising it. Eg, if the banks start selling them to retirement funds or something.
[0] https://en.wikipedia.org/wiki/Tether_(cryptocurrency)
This is tautological. You’re essentially arguing that market participants can’t be stupid or wrong or credulous, ever.
In the South Sea Bubble people speculated on the value of a company that basically never even started business in its market and had no hope of a profit. Ponzi’s scheme was mail reply coupons, which could never have worked even in theory. The Mississipi company in France flourished despite the abject failure of the underlying Mississipi company to establish itself or a colony.
People can be very wrong. And indeed in crypto you regularly hear such stupid beliefs as “Tether is only $60 billion and crypto has a market cap or $1 trillion, so it’s just a tiny risk”*
The fact that this is a common belief suggests that you’re wrong. People may correctly think Tether is a fraud but have an extremely incorrect belief about the consequences of Tether being a fraud. Just as people understood people with no incomes couldn’t afford mortgages once teaser rates expired but did not understand how that would richochet through the system.
*The error is that unlike a company, no one would ever buy all the crypto outright, and market cap is a meaningless term. An injection of $1.5 billion from Tesla was enough to send crypto markets skyrocking. What would a subtraction of fiat 40x as large do to markets?
In the South Sea Bubble people speculated on the value of a company that basically never even started business in its market and had no hope of a profit. Ponzi’s scheme was mail reply coupons, which could never have worked even in theory. The Mississipi company in France flourished despite the abject failure of the underlying Mississipi company to establish itself or a colony.
People can be very wrong. And indeed in crypto you regularly hear such stupid beliefs as “Tether is only $60 billion and crypto has a market cap or $1 trillion, so it’s just a tiny risk”*
The fact that this is a common belief suggests that you’re wrong. People may correctly think Tether is a fraud but have an extremely incorrect belief about the consequences of Tether being a fraud. Just as people understood people with no incomes couldn’t afford mortgages once teaser rates expired but did not understand how that would richochet through the system.
*The error is that unlike a company, no one would ever buy all the crypto outright, and market cap is a meaningless term. An injection of $1.5 billion from Tesla was enough to send crypto markets skyrocking. What would a subtraction of fiat 40x as large do to markets?
So if it's a scam but everyone knows that it is, you think there is no risk?
Everyone with two braincells knew something didn't check out with housing in the US by 2006.
But nobody cares if they think there's still time to get in and make money.
This is true of most bubbles.
But nobody cares if they think there's still time to get in and make money.
This is true of most bubbles.
The difference is that lots of people who had no interest in playing that game were unwittingly dragged into it by the CLO/CDO scam. That’s why the risk became systemic—bankers tricked everyone into spinning the wheel.
I think there is a risk if people are buying tethers and they don't realise that is what they are doing.
You have a very good point; systems blow up from hidden or mislabeled risk, not from obvious risk that everyone is well aware of.
[deleted]
The very polarization of opinion as seen in the comments here is an indication of the intrinsic instability of the crypto construct (at least as it now stands). This polarization is only possible in a "I say, you say" type competition that has no reference to any independent reality that can anchor things
Groups of people can hype themselves into anything. with the advent of digital networks we are literally hit by recurrent storms on digital teacups. unless things get tied back to physical reality those metastable collective mental states can flip back as inexplicably as they have formed.
While a good part of the existing financial system is also based on little else than belief there are some critical parts that aren't: the use of its tools (cash, bank money, credit systems etc) to support real economic interactions. you can't simply switch that system off at will because it is a way for society to keep account of its function. think also of the enforcement of contracts and obligations (eg taxation) - ultimately with the use of physical power.
In other words, for the bitcoin nation its a case of: get real or go to zero.
Groups of people can hype themselves into anything. with the advent of digital networks we are literally hit by recurrent storms on digital teacups. unless things get tied back to physical reality those metastable collective mental states can flip back as inexplicably as they have formed.
While a good part of the existing financial system is also based on little else than belief there are some critical parts that aren't: the use of its tools (cash, bank money, credit systems etc) to support real economic interactions. you can't simply switch that system off at will because it is a way for society to keep account of its function. think also of the enforcement of contracts and obligations (eg taxation) - ultimately with the use of physical power.
In other words, for the bitcoin nation its a case of: get real or go to zero.
I've read some of the cryptocurrency subreddits recently and it has been absolutely fascinating. The degree of group cognitive dissonance is something else.
US officials should investigate them for fraud.
Their collateral is clearly worth much less than the total value of Tethers created by the company, and at this point we'are talking about tens of billions of dollars.
,, stablecoin market that is currently, pretty much unregulated'' -- This is not true for all stablecoins though, for example Circle is a regulated company, and USDC is regulated by US law.
Their collateral is clearly worth much less than the total value of Tethers created by the company, and at this point we'are talking about tens of billions of dollars.
,, stablecoin market that is currently, pretty much unregulated'' -- This is not true for all stablecoins though, for example Circle is a regulated company, and USDC is regulated by US law.
They did.
https://ag.ny.gov/press-release/2021/attorney-general-james-...
Also: https://www.singlelunch.com/2021/05/19/the-tether-ponzi-sche...
That’s NY state, not the US.
Things will get real when SDNY get involved.
Things will get real when SDNY get involved.
I don’t know think people are really engaging with the substance of what is being said here. What he’s saying is that stable coins are backed by funds in money markets. If there is a run on them it’s likely to crash the markets where the backing is because the tethers will have to liquidate fast. This is distinct from the fraud that’s alleged.
Unlike a money market, Tether has no obligation to redeem (per their own TOS) and to date nobody has ever provided proof that Tethers have been redeemed.
Imho, it’s far more likely that Tether has very few assets backing their issuance and that a crypto implosion could spark contagion in other markets.
Imho, it’s far more likely that Tether has very few assets backing their issuance and that a crypto implosion could spark contagion in other markets.
This is the point that is so hard to grasp for me. The exchanges offer tether, maybe they do not even pay tether for this.
Is this correct? Nobody is buying tether from tether, but via third party exchanges? They "redeem" on exchanges?
USDT has to be minted through the Tether Treasury. Exchanges cannot create USDT themselves.
As I understand it, exchanges wire Tether large amounts of USD, and then Tether mints and equal amount of USDT and sends it back to exchanges.
As I understand it, exchanges wire Tether large amounts of USD, and then Tether mints and equal amount of USDT and sends it back to exchanges.
That's the story, what probably happens is Tether just prints larger amounts of USDT and sends that to the exchanges in exchange for 'commercial paper' or some other nonsense. Exchanges keep quiet because the whole ecosystem is rife with fraud and it's in their interest for crypto to constantly go to the moon.
Then one day it all blows up, the fraud is exposed, and everything goes to zero.
Then one day it all blows up, the fraud is exposed, and everything goes to zero.
If you're an exchange - why on earth would you give up your USD for USDT - which has never been redeemed for USD - and you can't use for anything except to BUY crypto - when your business is to SELL crypto??
It doesn't make any sense.
What does make sense is the exchange wants to do business. No one wants to give the exchange USD. So they accept USDT.
1. Tether prints USDT then offers above market price on the exchange.
2. People put their crypto in the exchange to arbitrage the high/fake price.
3. Tether buys real bitcoins for fake printed money.
4. The exchange is happy with taking a small cut, even if it's just fake USDT money.
5. Now Tether is backed by Bitcoin - an asset they can guarantee appreciates.
6. The exchanges can use their USDT cut to buy crypto on their exchanges, too.
This is risk free for Tether as long as they can keep the scheme going.
It also makes complete sense to me why when Tether is printing vast sums - meme coins explode.
It's easier for the exchanges to convert their USDT into meme coins. No one wants to hand over their bitcoins to a shady exchange for fake money. But they'll fork over their Shiba Inu coins for 1000x the price. Why not?
Just look at the volumes on the exchanges that trade Tether and meme coins while Tether is printing money.
It doesn't make any sense.
What does make sense is the exchange wants to do business. No one wants to give the exchange USD. So they accept USDT.
1. Tether prints USDT then offers above market price on the exchange.
2. People put their crypto in the exchange to arbitrage the high/fake price.
3. Tether buys real bitcoins for fake printed money.
4. The exchange is happy with taking a small cut, even if it's just fake USDT money.
5. Now Tether is backed by Bitcoin - an asset they can guarantee appreciates.
6. The exchanges can use their USDT cut to buy crypto on their exchanges, too.
This is risk free for Tether as long as they can keep the scheme going.
It also makes complete sense to me why when Tether is printing vast sums - meme coins explode.
It's easier for the exchanges to convert their USDT into meme coins. No one wants to hand over their bitcoins to a shady exchange for fake money. But they'll fork over their Shiba Inu coins for 1000x the price. Why not?
Just look at the volumes on the exchanges that trade Tether and meme coins while Tether is printing money.
I don't understand. Why would Tether send USDT if they didn't receive a true deposit of an equal amount of USD? That doesn't seem like it would help Tether at all.
What if the USDT was loaned to the exchanges with interest not purchased outright?
That way Tether prints USDT out of thin air and makes an income from a sum of money they largely don’t hold while the exchanges get to hold the bulk of fiat that gets deposited. The “commercial paper” could just be these loans owed by exchanges via a seperate shell company.
That way Tether prints USDT out of thin air and makes an income from a sum of money they largely don’t hold while the exchanges get to hold the bulk of fiat that gets deposited. The “commercial paper” could just be these loans owed by exchanges via a seperate shell company.
> What if the USD was loaned to the _x_ counterparty who has _y_ cashflows with interest not purchased outright?
How existing eurodollar system works… yet people constantly whine about USDT… lol
How existing eurodollar system works… yet people constantly whine about USDT… lol
Maybe thats because a government that issues a currency also provides goods and services to its citizens and guarantees to those holding the currency in its banks.
Tether is essentially crypto with all the properties of fiat except the good ones. A tool that allows people to trade and avoid triggering tax events in certain jurisdictions because it is still technically a cryptocurrency.
Tether is essentially crypto with all the properties of fiat except the good ones. A tool that allows people to trade and avoid triggering tax events in certain jurisdictions because it is still technically a cryptocurrency.
> Maybe thats because a government that issues a currency also provides goods and services to its citizens and guarantees to those holding the currency in its banks.
Sure, _maybe_ for a US bank with another US bank within the US (you have to ignore collateral rehypothication, which in practice you really can't ignore…).
But this is not how it works with an Indonesian bank dealing with a Chinese bank when they denominate their OTC bilateral transactions in USD…
Unless you think that their respective governments are issuing USD and not just those banks swapping USD liabilities with one another, as well as unless you also think that those respective governments are guaranteeing USD deposits in those banks are fully backed by USD in a bank account somewhere and not just mostly USD denominated "assets" (future USD cashflow on those swapped liabilities)…
> A tool that allows people to trade and avoid triggering tax events in certain jurisdictions
Which is not even unique to Tether… who operates just like any other bank in eurodollar markets (and withdrawls from blockchains to tradfi fiat will trigger easily taxable events, $100k min with USDT).
Like i said in another comment, i fully expect peoples minds to be blown (if they are currently clutching their pearls with USDT) with an on chain entity does exactly what tether does but has no physical offices nor employees because its a DAO…
Sure, _maybe_ for a US bank with another US bank within the US (you have to ignore collateral rehypothication, which in practice you really can't ignore…).
But this is not how it works with an Indonesian bank dealing with a Chinese bank when they denominate their OTC bilateral transactions in USD…
Unless you think that their respective governments are issuing USD and not just those banks swapping USD liabilities with one another, as well as unless you also think that those respective governments are guaranteeing USD deposits in those banks are fully backed by USD in a bank account somewhere and not just mostly USD denominated "assets" (future USD cashflow on those swapped liabilities)…
> A tool that allows people to trade and avoid triggering tax events in certain jurisdictions
Which is not even unique to Tether… who operates just like any other bank in eurodollar markets (and withdrawls from blockchains to tradfi fiat will trigger easily taxable events, $100k min with USDT).
Like i said in another comment, i fully expect peoples minds to be blown (if they are currently clutching their pearls with USDT) with an on chain entity does exactly what tether does but has no physical offices nor employees because its a DAO…
The issue is the promise Tether is making. It is “backed” by debt which potentially can never be payed back.
How does Tether prop up the value of USDT if there is a mass sell off into fiat? Is this the duty of the exchanges? Does Tether buy USDT off exchanges in order to push up price when there is a sell off? How big a sell off can they contain?
How would a DAO offer the same promises of “backing” that made USDT possible without government issued stable-coins?
How does Tether prop up the value of USDT if there is a mass sell off into fiat? Is this the duty of the exchanges? Does Tether buy USDT off exchanges in order to push up price when there is a sell off? How big a sell off can they contain?
How would a DAO offer the same promises of “backing” that made USDT possible without government issued stable-coins?
> The issue is the promise Tether is making. It is “backed” by debt which potentially can never be payed back.
SSDD with pretty much every bank/branch not domiciled in the US that has accounts denominated in USD… they make the same promises
> How does Tether prop up the value of USDT if there is a mass sell off into fiat? Is this the duty of the exchanges? Does Tether buy USDT off exchanges in order to push up price when there is a sell off? How big a sell off can they contain?
As long as Tether continues to have higher cash flows than many tradfi banks operating in eurodollar markets now (esp in smaller countries), you'd be better off asking these questions about those other banks now…
> How would a DAO offer the same promises of “backing” that made USDT possible without government issued stable-coins?
On chain liabilities between DAOs and centralized orgs on chain denominated in decentralized uncollateralized stablecoins, and the desire for people to purchase such liabilities at discounts with fluctuation price of the stablecoins that freely float against things like USDT/USDC/DAI/TUSD/etc (not too different from the incentives involved in eurodollar futures markets).
SSDD with pretty much every bank/branch not domiciled in the US that has accounts denominated in USD… they make the same promises
> How does Tether prop up the value of USDT if there is a mass sell off into fiat? Is this the duty of the exchanges? Does Tether buy USDT off exchanges in order to push up price when there is a sell off? How big a sell off can they contain?
As long as Tether continues to have higher cash flows than many tradfi banks operating in eurodollar markets now (esp in smaller countries), you'd be better off asking these questions about those other banks now…
> How would a DAO offer the same promises of “backing” that made USDT possible without government issued stable-coins?
On chain liabilities between DAOs and centralized orgs on chain denominated in decentralized uncollateralized stablecoins, and the desire for people to purchase such liabilities at discounts with fluctuation price of the stablecoins that freely float against things like USDT/USDC/DAI/TUSD/etc (not too different from the incentives involved in eurodollar futures markets).
This is almost certainly what is happening. Tether is just a central bank for shady crypto exchanges.
Oh, that does make sense.
Yeah, the scam would be if they aren't holding the deposits in reserve.
Tether receives “commercial paper” i.e. an IOU from the exchange. Nobody in their right mind would give Tether real cash.
Yes, this is the most likely scenario: exchanges issue IOUs to Tether, who prints tokens in return. Nothing in exchange for nothing. If Tether blows up then some exchanges will go down with them, but exchanges are replaceable so who cares.
Except if you believe Tether, exchanges are sending billions of dollars a week to Tether.
In 2019, Tether's lifetime holdings were $2.1B and even that was not fully backed, and they're now printing nearly $4B a week.
At this rate, and recognizing that comparing to revenue is not a strict apples-to-apples, this would put them on track by the end of 2021 within the top 20 largest companies in the world, eclipsing Alphabet, AT&T, even Samsung and Saudi Aramco.
How anyone can say that with a straight face beggars belief.
In 2019, Tether's lifetime holdings were $2.1B and even that was not fully backed, and they're now printing nearly $4B a week.
At this rate, and recognizing that comparing to revenue is not a strict apples-to-apples, this would put them on track by the end of 2021 within the top 20 largest companies in the world, eclipsing Alphabet, AT&T, even Samsung and Saudi Aramco.
How anyone can say that with a straight face beggars belief.
Is it possible to regulate a stablecoin to a zero-risk point?
Many central banks themselves failed to perpetuate fixed exchange systems. How is it different at a smaller scale?
That a stablecoin could blow up is, IMO, unavoidable. The important question is what's at risk. What happens if USDT fails to maintain parity? Is USD affected? Seems far fetched, in this sense, considering current scale.
Regulation might make it more likely that these will be "attacked" with a Soros/GBP strategy. Explicit rules mean more certainty about what Tether's "central bank" will do in extreme circumstances, and how much liquidity that have to target.
I wish regulators had more of a "fail gracefully" approach than a "never fail" one.
Many central banks themselves failed to perpetuate fixed exchange systems. How is it different at a smaller scale?
That a stablecoin could blow up is, IMO, unavoidable. The important question is what's at risk. What happens if USDT fails to maintain parity? Is USD affected? Seems far fetched, in this sense, considering current scale.
Regulation might make it more likely that these will be "attacked" with a Soros/GBP strategy. Explicit rules mean more certainty about what Tether's "central bank" will do in extreme circumstances, and how much liquidity that have to target.
I wish regulators had more of a "fail gracefully" approach than a "never fail" one.
If you look back at the LTCM collapse it should be obvious that it is impossible to make anything risk free, no matter how clever you are.
Your other question is a good one. Nobody knew that the collapse of LTCM would cause a market wide collapse at the time, so the question is how big are the hedging risks that financial firms dabbling in Bitcoin will be multiplied by the collapse of tether.
That is, if it is being used as a hedge, what kinds of financial instruments have the quants cooked up based on tether, then how much worst case exposure are we talking about? It might be nothing, but who knows until the tide goes out.
Your other question is a good one. Nobody knew that the collapse of LTCM would cause a market wide collapse at the time, so the question is how big are the hedging risks that financial firms dabbling in Bitcoin will be multiplied by the collapse of tether.
That is, if it is being used as a hedge, what kinds of financial instruments have the quants cooked up based on tether, then how much worst case exposure are we talking about? It might be nothing, but who knows until the tide goes out.
In this case though, people own tether... not an investment in a hedge fund. Hedge funds returns a supposed to have risk. With a stablecoin, someone is promising to buy an unlimited number of coins for a set price.
If the market says USDT = $0.95, and that someone's market activities fail to achieve USDT = $1... something gives fast.
If the market says USDT = $0.95, and that someone's market activities fail to achieve USDT = $1... something gives fast.
The scenario that scares me is somebody dabbling in an instrument like a CDO where the bitcoin hedge is tether rather than bitcoins. I don't know whether anybody has been stupid enough to confect something like that with these dodgy products but it seems almost inevitable somebody will try.
Your post doesn’t make any sense.
How on earth would you hedge a Bitcoin position with tether? This is like saying you’re going to hedge your SPY position with dollars.
Also, a CDO is a variety of debt packaged into a single instrument that pays out cash flows to tranches, some of which are paid before others.
How on earth would you hedge a Bitcoin position with tether? This is like saying you’re going to hedge your SPY position with dollars.
Also, a CDO is a variety of debt packaged into a single instrument that pays out cash flows to tranches, some of which are paid before others.
Tether has been suspected of being used to manipulate the price of bitcoin, so its fair to assume you could make a financial instrument that mirrored that activity and use it as a hedge.
I don't know if its possible to short bitcoin via a reputable dealer, but its possible to construct a CDO out of anything that can be borrowed.
Edit: holy mother of meltdowns you can short bitcoin.
I don't know if its possible to short bitcoin via a reputable dealer, but its possible to construct a CDO out of anything that can be borrowed.
Edit: holy mother of meltdowns you can short bitcoin.
Do you understand what hedging is or how to hedge a position? Please explain to me how you would hedge a 50 BTC position with tether...
I’ll save you some trouble and point out that it’s impossible. You can hedge bitcoins with Bitcoin options or perpetual swaps/futures, it’s impossible to hedge Bitcoin with tether, full stop.
I’ll save you some trouble and point out that it’s impossible. You can hedge bitcoins with Bitcoin options or perpetual swaps/futures, it’s impossible to hedge Bitcoin with tether, full stop.
You can hedge anything with anything where you perceive a relationship. It doesn't have to be formally linked or related in any way.
Please explain how you hedge BTC against tether, which is supposed to maintain a $1 peg. There is no correlation between BTC and tether, how can you not see that?? Bitcoin goes up and down, tether stays at a buck, plus or minus a tiny fraction at times. You cannot hedge Bitcoin with tether!!
At this point, I’m going to assume you have a fundamental misunderstanding somewhere, I won’t be responding any more. If you want to believe you can hedge a volatile crypto coin with a pegged stable coin, I could care less, just don’t spread that nonsense here.
At this point, I’m going to assume you have a fundamental misunderstanding somewhere, I won’t be responding any more. If you want to believe you can hedge a volatile crypto coin with a pegged stable coin, I could care less, just don’t spread that nonsense here.
Sounds it is more like a money market fund and not an exchange rate regime. Yes, the latter are difficult to maintain but central banks have a large arsenal to act and some are in fact pretty stable and uncontested (those policy tools are not available to Tether).
In the end,money market funds are highly regulated.
In the end,money market funds are highly regulated.
I meant fixed exchange regimes, which are less common now among major currencies. With a floating exchange rate, there are lots of tools central banks have. Stablecoins can't do this, agreed. In a fixed exchange, there's only buying and selling the currency you are maintaining... the stablecoin, so to speak.
Zero risk likely doesn't exist, especially not without the backing of a lender of last resort.
In practice many stable coins are similar to money market funds or eurodollar banking, so mechanisms and risks are somewhat well known.
In practice many stable coins are similar to money market funds or eurodollar banking, so mechanisms and risks are somewhat well known.
My point was the even with such a backing (central banking), currencies have failed to maintain a fixed exchange rate. That's why more currencies free float today.
I guess i'm basically asking how stablecoins could be immune to something the GBP isn't/wasn't imune to.
..Could be some part I'm missing. Don't know much about stablecoins.
I guess i'm basically asking how stablecoins could be immune to something the GBP isn't/wasn't imune to.
..Could be some part I'm missing. Don't know much about stablecoins.
Stablecoins (over collateralized, 1:1 collateralized, etc) on chain do float. They rely on arb or other incentives to keep them near a peg.
They are only immune to the degree that the market mechanics in place surrounding each of them in particular to incentivize people to keep them pegged.
Can't wait for people to start complaining about uncollateralized decentralized stable coins that will eventually be even more leveraged against other stablecoins that are backed fully by USD deposits (or over collateralized by crypto assets, or even USDT [can hear the screams and pearl clutching now lol]) where there is no specific entity to go after like Tether Ltd…
Im glad for this all, because I think we are quickly approaching the point where we will no longer be trapped in bailoutistan… where risk will need to get priced in and over capacity/ team save-zombie-companies/ bad trades at tradfi bank desks and overall malfeasance (and failure to hedge against such) will be punished severely.
They are only immune to the degree that the market mechanics in place surrounding each of them in particular to incentivize people to keep them pegged.
Can't wait for people to start complaining about uncollateralized decentralized stable coins that will eventually be even more leveraged against other stablecoins that are backed fully by USD deposits (or over collateralized by crypto assets, or even USDT [can hear the screams and pearl clutching now lol]) where there is no specific entity to go after like Tether Ltd…
Im glad for this all, because I think we are quickly approaching the point where we will no longer be trapped in bailoutistan… where risk will need to get priced in and over capacity/ team save-zombie-companies/ bad trades at tradfi bank desks and overall malfeasance (and failure to hedge against such) will be punished severely.
You’ve got a great point here; decentralized finance has no villain (except perhaps the contract creators, but they don’t have your money) so when things go south there’s no one to blame except yourself. The only solution is to stop participating an unsustainable system, and when enough people choose to do so we might get back to an economy based on reality rather than derivatives.
As much as I agree with what you are saying, wrt
> rather than derivatives.
I don't think this will go away, just that we'll find ourselves in a new steady state where those who can enable better management of the derivatives through decentralized protocol's will become more in charge (to the degree anyone can be in charge if a after deployment of contracts, operation is mainly done through incentivized contract function for management of the protocols that any one can call, and the core logic of the contracts cannot be modified without redeployment of new contracts) of resource allocation.
> rather than derivatives.
I don't think this will go away, just that we'll find ourselves in a new steady state where those who can enable better management of the derivatives through decentralized protocol's will become more in charge (to the degree anyone can be in charge if a after deployment of contracts, operation is mainly done through incentivized contract function for management of the protocols that any one can call, and the core logic of the contracts cannot be modified without redeployment of new contracts) of resource allocation.
"The Markets Can Remain Irrational Longer Than You Can Remain Solvent"
https://twitter.com/BennettTomlin/status/1375900452798234634
https://bennettftomlin.com/2021/03/27/before-bitfinex-and-te...
https://twitter.com/BennettTomlin/status/1375900452798234634
https://bennettftomlin.com/2021/03/27/before-bitfinex-and-te...
I never understood, can you cash out your tether at any time to fiat?
I still do not understand why it even exist? Is it a tool to get around trading in USD?
Why is it so popular? This speaks massively against cryptocurrencies itself, seems like they need an artificial crutch.
Sounds like people use them knowing it's a dodgy tool, but they all hope to not be the bag holders once it collapses. This never ends well.
And finally, how does tether profit from it? Directly via fees or some other constellation?
But hey, people have invested in shit coins, ICOs which were held by even more intransparent companies.
Makes me wonder how the marketing for such things is propagated.
And finally, how does tether profit from it? Directly via fees or some other constellation?
But hey, people have invested in shit coins, ICOs which were held by even more intransparent companies.
Makes me wonder how the marketing for such things is propagated.
> I still do not understand why it even exist?
Imagine you're a restaurant (or any other business) and you want to allow your customers to pay with digital transactions on a blockchain. If your customers pay you in Bitcoin, you are taking on a huge amount of risk due to Bitcoin's price fluctuations. I just looked up the price of Bitcoin and it has dropped 6% in the last 24 hours. If you sell a $100 steak dinner for Bitcoin in the morning and it drops 6% by the time you're converting it to dollars at the end of the day, you've just lost 6%. You have to pay your expenses (labor, food, etc) in USD no matter what but you're holding a currency that is now worth 6% fewer dollars than what the customer paid. The reason I picked the restaurant business for my example is because restaurants have really thin margins. A 6% loss due to currency fluctuation is a huge problem for a restaurant.
That is why people have created stablecoins that are constructed in a way such that their value is pegged to some kind of external asset (like the USD). This allows business to accept payment via a blockchain without being exposed to the price risk of volatile cryptocurrencies.
Imagine you're a restaurant (or any other business) and you want to allow your customers to pay with digital transactions on a blockchain. If your customers pay you in Bitcoin, you are taking on a huge amount of risk due to Bitcoin's price fluctuations. I just looked up the price of Bitcoin and it has dropped 6% in the last 24 hours. If you sell a $100 steak dinner for Bitcoin in the morning and it drops 6% by the time you're converting it to dollars at the end of the day, you've just lost 6%. You have to pay your expenses (labor, food, etc) in USD no matter what but you're holding a currency that is now worth 6% fewer dollars than what the customer paid. The reason I picked the restaurant business for my example is because restaurants have really thin margins. A 6% loss due to currency fluctuation is a huge problem for a restaurant.
That is why people have created stablecoins that are constructed in a way such that their value is pegged to some kind of external asset (like the USD). This allows business to accept payment via a blockchain without being exposed to the price risk of volatile cryptocurrencies.
I get it now, but someone, somewhere has to take a loss, right?
If tether is sold for dollars, and someone traded 10btc today, but btc loses 10percent of value overnight, that someone can cash out for the price of yesterday, that's great.
But who takes the 10percent hit?
Someone doesn't have to take a loss. There's a distinction to be made between "realized" and "unrealized" capital gains. Realized gains are those that exist because you have now sold your assets and converted it back into money; unrealized gains exist only on paper and are premised on people continuing to value the asset the same.
So it can be the case that no one takes the 10 percent loss. Everyone who is selling may have bought at a lower cost basis (and thus will realize a gain). The price is lower because it had to go down to entice new buyers to bet it will go back up again.
There is a funky situation where you try to sell your assets and you find nobody willing to take it at any price. At that point, you can turn around and say "I don't want to own this worthless piece of paper anymore," strike it from your assets list (i.e., "write-off"), and now you realize a 100% loss.
So it can be the case that no one takes the 10 percent loss. Everyone who is selling may have bought at a lower cost basis (and thus will realize a gain). The price is lower because it had to go down to entice new buyers to bet it will go back up again.
There is a funky situation where you try to sell your assets and you find nobody willing to take it at any price. At that point, you can turn around and say "I don't want to own this worthless piece of paper anymore," strike it from your assets list (i.e., "write-off"), and now you realize a 100% loss.
If the restaurant uses the stablecoin, nobody takes the loss because the transaction is happening with a different currency. The restaurant isn't holding BTC, it's holding a USD-equivalent.
If BTC loses 10 percent of its value overnight, the people who lose are the people who sold at the lower prices. When we say "the price of BTC is X", what we really mean is that a trade happened at that price. That means that someone thought selling at that price was the right thing for them to do and someone else thought that buying at that price was the right thing to do.
If BTC loses 10 percent of its value overnight, the people who lose are the people who sold at the lower prices. When we say "the price of BTC is X", what we really mean is that a trade happened at that price. That means that someone thought selling at that price was the right thing for them to do and someone else thought that buying at that price was the right thing to do.
> can you cash out your tether at any time to fiat?
Yes, if you kyc on a proper exchange, or live in a country with nice banking rules you can. It takes about 12 hours usually for me. Faster than most international bank transfers, usually also way less fees.
I can only speak for myself, but tether is a kinda safe way to store value short time in a fluctuating market. Usd is suboptimal for me as it looses value compared to my local currency, however on big crashes crypto loses value faster, while USDT stays at USD value. Hope that makes sense :)
I have no trust or knowledge about tether, it's just a tool for me.
Yes, if you kyc on a proper exchange, or live in a country with nice banking rules you can. It takes about 12 hours usually for me. Faster than most international bank transfers, usually also way less fees.
I can only speak for myself, but tether is a kinda safe way to store value short time in a fluctuating market. Usd is suboptimal for me as it looses value compared to my local currency, however on big crashes crypto loses value faster, while USDT stays at USD value. Hope that makes sense :)
I have no trust or knowledge about tether, it's just a tool for me.
If USD is suboptimal how is USDT better? You said yourself that it’s value is tied to USD. Wouldn’t it suffer from the same fluctuations?
[deleted]
It isn't. But it's not crashing when crypto is, so a simple way to secure value in falling markets. As said I just use it as a tool as I guess many, if not most are.
> I still do not understand why it even exist? Is it a tool to get around trading in USD? Why is it so popular?
You can’t keep USD in a crypto wallet, only tokens that operate under various protocols, ERC20 being the most popular. ~Most people don’t keep their tokens or USD on an exchange on a long term basis (probably not a bad idea given past events), so they need a way to keep USD in a crypto wallet they manage themselves. So you get tokenized forms of USD, so-called stablecoins, to fill this need.
You can’t keep USD in a crypto wallet, only tokens that operate under various protocols, ERC20 being the most popular. ~Most people don’t keep their tokens or USD on an exchange on a long term basis (probably not a bad idea given past events), so they need a way to keep USD in a crypto wallet they manage themselves. So you get tokenized forms of USD, so-called stablecoins, to fill this need.
tether and other "stablecoins" exist so exchanges can exchange without doing the individual cryptos, basically. If i want to trade dogecoin for btc, there's probably some stablecoin in the mix somewhere.
This is how it was explained to me, and it doesn't make much sense - except that "moving" a lot of BTC between exchanges might affect the price, and depending on which exchange is on tthe receiving end they could take a loss on the "conversion" - whereas the dollar is much slower moving, and moving a hundred million "dollar" valued things is unlikely to devalue the dollar to any significant amount.
I've never paid in or cashed out actual currency into crypto and i've never used an exchange, so i may be 100% off base and i hope i am corrected.
This is how it was explained to me, and it doesn't make much sense - except that "moving" a lot of BTC between exchanges might affect the price, and depending on which exchange is on tthe receiving end they could take a loss on the "conversion" - whereas the dollar is much slower moving, and moving a hundred million "dollar" valued things is unlikely to devalue the dollar to any significant amount.
I've never paid in or cashed out actual currency into crypto and i've never used an exchange, so i may be 100% off base and i hope i am corrected.
[deleted]
Anyone invested in crypto should read Bennett Tomlins blog about tether https://bennettftomlin.com/2021/06/21/a-non-exhaustive-list-...
I think there's a 90 percent chance that this will blow up and a movie like the Big Short will be made about the story behind it.
Tl;Dr Tether is ran by very dubious people, don't trust anything they do or say
I think there's a 90 percent chance that this will blow up and a movie like the Big Short will be made about the story behind it.
Tl;Dr Tether is ran by very dubious people, don't trust anything they do or say
Wow, what a motley crew of miscreants they appear to be.
Exactly, and with the press of a button they can create BILLIONS and noone bats an eye.
[deleted]
So regulate it then, Tether is shady and isnt backed by USD at all and yet it is used all over the US.
Tether does its best to live outside of US regulation. It has no US bank accounts, nor do any directors live in extradictable countries.
If they’re holding USDs they are bound to US regulations.
What is this statement based on?
Plenty of sovereign nations (and individuals in those countries) hold reserves of USD and the US has no authority over them.
Plenty of sovereign nations (and individuals in those countries) hold reserves of USD and the US has no authority over them.
You’re right. I thought these would apply internationally but it seems like it’s only if one of the party is a US citizen: https://www.jdsupra.com/post/contentViewerEmbed.aspx?fid=f66...
At least for ofac
At least for ofac
I have more confidence that USDC (a stablecoin created by Coinbase and Circle) is fully backed.
However, I'm not sure "fully backed" means what most people think it means. If for every 1 USDC there is 1 USD on a bank account, that doesn't mean there are stacks of USD sitting in a vault somewhere. It only means that the bank has a liability towards the account holder on their books, and hopefully that same bank has a reasonable balance of their assets and liabilities.
However, I'm not sure "fully backed" means what most people think it means. If for every 1 USDC there is 1 USD on a bank account, that doesn't mean there are stacks of USD sitting in a vault somewhere. It only means that the bank has a liability towards the account holder on their books, and hopefully that same bank has a reasonable balance of their assets and liabilities.
Reasonable balance of capital to assets, you mean. Bank capital is what makes account holders whole when the value of the bank’s assets takes an unexpected hit.
Am I missing something about how much crypto is out there? I get that bitcoin is worth 50k each etc and so on, but the net amount of actual real world money that has gone from IRL into crypto I have assumed to be quite small (ie it's either money laundering going in and out just leaving fees behind, or it was coin bought for a dollar each and now the owner thinks it is worth a Tesla, but the amount of actual value transferred so far is one dollar)
So, forgive me, if there is not much actual wealth been put in, if it collapses why is it a risk?
So, forgive me, if there is not much actual wealth been put in, if it collapses why is it a risk?
>So, forgive me, if there is not much actual wealth been put in, if it collapses why is it a risk?
There is zero wealth put into Bitcoin. When you buy Bitcoin, someone else sells their Bitcoin and gets your money. The money enters and leaves instantly.
The USD works a little bit different. New USD are created when you borrow. Loans create future buyers, therefore USD has value in the sense that people need it to repay their debts. People will willingly exchange real goods for USD to pay the loan. The wealth used to pay the loans doesn't exist in the banking system. It exists in the real world. So loans encourage real wealth generation to some degree and the presence of real wealth makes USD a very convenient medium of payment as people willingly exchange real wealth for USD.
There is zero wealth put into Bitcoin. When you buy Bitcoin, someone else sells their Bitcoin and gets your money. The money enters and leaves instantly.
The USD works a little bit different. New USD are created when you borrow. Loans create future buyers, therefore USD has value in the sense that people need it to repay their debts. People will willingly exchange real goods for USD to pay the loan. The wealth used to pay the loans doesn't exist in the banking system. It exists in the real world. So loans encourage real wealth generation to some degree and the presence of real wealth makes USD a very convenient medium of payment as people willingly exchange real wealth for USD.
At first I thought that quoting the total market cap of all cryptocurrency markets (or the big ones at least) would answer your question. But after reading again I think that you're asking a different question and I'm not sure if total market cap explains it, or whether it's even possible to calculate.
For a toy example, suppose there's only 200 coins of XCoin. Person A buys 100 coins for $1 each ($100 total). Person B buys the remaining 100 coins for $100 each ($10000 total). The total amount of USD put into the system is $10100 but the market cap is $20000.
To get the value you're looking for I think you would need to get the cost basis of the last transaction for every coin in existence.
For a toy example, suppose there's only 200 coins of XCoin. Person A buys 100 coins for $1 each ($100 total). Person B buys the remaining 100 coins for $100 each ($10000 total). The total amount of USD put into the system is $10100 but the market cap is $20000.
To get the value you're looking for I think you would need to get the cost basis of the last transaction for every coin in existence.
Coinbase had $1.8B in revenue, and $800M in expenses during Q1 of this year according to their most recent 10-Q. That is certainly not a small amount of real world money.
[deleted]
The title is:
> US Fed Official Calls Tether a ‘Challenge’ to Financial Stability
The URL is the same. So...why did you change it?
> US Fed Official Calls Tether a ‘Challenge’ to Financial Stability
The URL is the same. So...why did you change it?
There is no direct need for Tether to have that money in stock, as long as the exchanges don't try to (all at once) exchange USDT for US Dollars.
And why would they? People keep giving them real hard cash in exchange for the exchanges USDT's.
And why would they? People keep giving them real hard cash in exchange for the exchanges USDT's.
Why would the people running Tether not just park the money in a US Treasury ladder and collect the millions in interest each year? No hassle, no loss of sleep. Why play games? Why risk blowing up your cash cow and going to jail?
Their product largely revolves around not following US banking KYC and AML laws. They are locked out of US treasuries.
The reason why Tether exists in the first place is that crypto businesses were cut off from traditional banking for a very long time and even today it's very hard for them to get bank accounts and operate easily.
Tether isn't backed by dollars? Dollars aren't backed by anything anymore, not even the US military.
The secret to this is to kick the can down the road far enough that you don't have to deal with the consequences. The US can print money long enough for the beneficiaries of cantillon effect to enjoy a rich lifestyle then let future generations deal with the consequences.
They'll tell you it's going to drive growth, and that inflation will be transitory but it won't be enough to stave of the decimation of the working class. To hell with them
The secret to this is to kick the can down the road far enough that you don't have to deal with the consequences. The US can print money long enough for the beneficiaries of cantillon effect to enjoy a rich lifestyle then let future generations deal with the consequences.
They'll tell you it's going to drive growth, and that inflation will be transitory but it won't be enough to stave of the decimation of the working class. To hell with them
The article isn't saying what people think it's saying, but tether fud makes good clickbait I guess. Tether has indeed misrepresented its balance sheet at times, but the reality is it's a highly over-capitalized bank -- whereas most banks have liquidity ratios of ~10% (less than that pre-2008) no one is questioning tether is >50%.
A common misconception is that banks use "fractional reserve" lending, in reality private banks create money out of thin air when making loans, constrained only by regulated capitalization requirements (and the obligation to take the write-off on their own balance sheet should the loan default) [1].
Another common misconception is that unregulated banks lead to financial instability and panic. The theoretical and historical evidence for this is pretty weak [2] -- people are much more vigilant with their money when banks are unregulated, and much more aware of the inherent risks of financial systems.
(If all of our regulations worked so well, why are our financial crises worse than ever? cf 2008)
[1] https://www.bankofengland.co.uk/knowledgebank/how-is-money-c... [2] https://www.jstor.org/stable/1814673
A common misconception is that banks use "fractional reserve" lending, in reality private banks create money out of thin air when making loans, constrained only by regulated capitalization requirements (and the obligation to take the write-off on their own balance sheet should the loan default) [1].
Another common misconception is that unregulated banks lead to financial instability and panic. The theoretical and historical evidence for this is pretty weak [2] -- people are much more vigilant with their money when banks are unregulated, and much more aware of the inherent risks of financial systems.
(If all of our regulations worked so well, why are our financial crises worse than ever? cf 2008)
[1] https://www.bankofengland.co.uk/knowledgebank/how-is-money-c... [2] https://www.jstor.org/stable/1814673
> Tether has indeed misrepresented its balance sheet at times, but the reality is it's a highly over-capitalized bank -- whereas most banks have liquidity ratios of ~10% (less than that pre-2008) no one is questioning tether is >50%.
Tether has an capital ratio of about 0.36%. Banks have a minimum capital ratio of about 3% (both of these are looking only at cash/cash-equivalent, not full risk-adjusted capital ratio).
(Cite: https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-...).
Tether has an capital ratio of about 0.36%. Banks have a minimum capital ratio of about 3% (both of these are looking only at cash/cash-equivalent, not full risk-adjusted capital ratio).
(Cite: https://www.bloomberg.com/opinion/articles/2021-06-16/don-t-...).
I like Matt, but that's a misleading comparison. You can't compare banks with non-banks, since, again, banks have the special regulated right to _create money out of thin air_ and put it on their balance sheet (or if you prefer the fractional reserve metaphor, they can double count your deposit -- lending it out while pretending they still have it for you).
Here's a way to reality check the difference: if 90% of Tether holders redeem their deposits tomorrow, 100% of them will get their money back and Tether Ltd will remain 100% solvent and liquid. If 90% of JPMC depositors redeem tomorrow only 10% of them will get their money back and JPMC will be insolvent.
Where would you rather have your money?
Here's a way to reality check the difference: if 90% of Tether holders redeem their deposits tomorrow, 100% of them will get their money back and Tether Ltd will remain 100% solvent and liquid. If 90% of JPMC depositors redeem tomorrow only 10% of them will get their money back and JPMC will be insolvent.
Where would you rather have your money?
> Here's a way to reality check the difference: if 90% of Tether holders redeem their deposits tomorrow, 100% of them will get their money back and Tether Ltd will remain 100% solvent and liquid.
That's not true. If you read Tether's own description of its reserves, most of it is not in cash. The largest single component is commercial paper; if Tether needed to redeem every single depositor, it would have to fire-sale something like $20 billion of commercial paper. It's also not clear how good quality that commercial paper actually is, and whether its value is what Tether claims it to be--given the shenanigans they've done in the past, and the lack of anyone else in the financial system apparently transacting commercial paper with Tether, I would speculate that a good portion of that is basically Tether loans to cryptocurrency companies that are hand-waved to be commercial paper because Tether is unregulated and isn't required to follow regulated accounting rules to break down its reserves.
It's rather specious to claim that we can't analyze Tether under the spectrum of bank regulation because banks can create money out of thin air when creating tether out of thin air is precisely what Tether is accused of doing.
> Where would you rather have your money?
I'd rather have my money in the institution that is required to spend reams of paper proving that it's solvent than the one whose attestation amounts to "we're solvent, we pinky swear" and has refused to provide any more details on the basis of "crypto is too complicated for anybody to audit."
That's not true. If you read Tether's own description of its reserves, most of it is not in cash. The largest single component is commercial paper; if Tether needed to redeem every single depositor, it would have to fire-sale something like $20 billion of commercial paper. It's also not clear how good quality that commercial paper actually is, and whether its value is what Tether claims it to be--given the shenanigans they've done in the past, and the lack of anyone else in the financial system apparently transacting commercial paper with Tether, I would speculate that a good portion of that is basically Tether loans to cryptocurrency companies that are hand-waved to be commercial paper because Tether is unregulated and isn't required to follow regulated accounting rules to break down its reserves.
It's rather specious to claim that we can't analyze Tether under the spectrum of bank regulation because banks can create money out of thin air when creating tether out of thin air is precisely what Tether is accused of doing.
> Where would you rather have your money?
I'd rather have my money in the institution that is required to spend reams of paper proving that it's solvent than the one whose attestation amounts to "we're solvent, we pinky swear" and has refused to provide any more details on the basis of "crypto is too complicated for anybody to audit."
[deleted]
> If all of our regulations worked so well, why are our financial crises worse than ever? cf 2008
2008 did not compare to the Great Depression. I think we’re still (as a species) learning how to regulate banking well, but it does feel like we’ve learned some things.
2008 did not compare to the Great Depression. I think we’re still (as a species) learning how to regulate banking well, but it does feel like we’ve learned some things.
Ow that there are more trustworthy alternatives, people ought to get their money out of USDT. The writing has been on the wall for too long.
Bitcoin transcations are 1/600th slow at best and super expensive compared to the system that banks offer where i live.
Tether is 60B in a crypto market of $1-2+T, and there's plenty of other stablecoins to replace it.
So Tether's founders are shady? Bitcoin was founded by a shadowy figure and nobody knows if his early tokens will reappear on the market someday, making him a bazillionaire and the rest of us take a 20% haircut (vs the float, not the total).
So Tether's founders are shady? Bitcoin was founded by a shadowy figure and nobody knows if his early tokens will reappear on the market someday, making him a bazillionaire and the rest of us take a 20% haircut (vs the float, not the total).
> Tether is 60B in a crypto market of $1-2+T, and there's plenty of other stablecoins to replace it.
That’s not how this works. Tether represents the vast majority of trading volume. If it turns out that it’s worthless, it will be catastrophic.
Also you’re conflating market cap with hard assets. Apple is a $2T company but if you tried to sell $60B of AAPL in a short period of time, it would collapse.
That’s not how this works. Tether represents the vast majority of trading volume. If it turns out that it’s worthless, it will be catastrophic.
Also you’re conflating market cap with hard assets. Apple is a $2T company but if you tried to sell $60B of AAPL in a short period of time, it would collapse.
Case in point, Archegos was a $10B hedge fund but $194B of market cap loss was attributed to their collapse https://www.bloomberg.com/news/articles/2021-04-09/rattled-a...
Stand corrected:
https://coinmarketcap.com/
"The total crypto market volume over the last 24 hours is $85.97B, which makes a 6.53% decrease. The total volume in DeFi is currently $5.78B, 6.73% of the total crypto market 24-hour volume. The volume of all stable coins is now $69.59B, which is 80.95% of the total crypto market 24-hour volume."
The other large stablecoins are trading <$2B/day vs tether, so indeed you're correct.
As for Apple, sure it would slam the market temporarily, but why wouldn't it quickly recover?
"The total crypto market volume over the last 24 hours is $85.97B, which makes a 6.53% decrease. The total volume in DeFi is currently $5.78B, 6.73% of the total crypto market 24-hour volume. The volume of all stable coins is now $69.59B, which is 80.95% of the total crypto market 24-hour volume."
The other large stablecoins are trading <$2B/day vs tether, so indeed you're correct.
As for Apple, sure it would slam the market temporarily, but why wouldn't it quickly recover?
The issue is that Tether makes up not just a significant portion of but almost all of the trading volume of the entire cryptocurrency market. If something happens and Tether goes tits up the entire market goes with it since effectively all of the volume on nearly every exchange (excluding a few US exchanges) is done in USDT trading pairs.
Eventually the market will sort itself out but that initial bloodbath could cause serious financial issues and the recovery could take years.
https://crypto-anonymous-2021.medium.com/the-bit-short-insid...
Eventually the market will sort itself out but that initial bloodbath could cause serious financial issues and the recovery could take years.
https://crypto-anonymous-2021.medium.com/the-bit-short-insid...
Being that the fed buys twice the entire tether market cap in bonds ($120B) every month, their "systemic risk" talk does seem a bit overblown.
I fully recognize the tether collateral situation is shady and could blow up. It also could remain shady and not blow up for a very very long time. It'd be a big deal for crypto but I'm not convinced it would be for the wider world.
I hate sounding like the maximalist who calls everything FUD, but it's really hard not to here
I fully recognize the tether collateral situation is shady and could blow up. It also could remain shady and not blow up for a very very long time. It'd be a big deal for crypto but I'm not convinced it would be for the wider world.
I hate sounding like the maximalist who calls everything FUD, but it's really hard not to here
The bigger concern is trading volume. I made another comment in chain about this but the short of it is that while Tether only makes up a 20th of the entire market cap, it makes up almost all of the trading volume on exchanges nowadays. If Tether catastrophically fails it'll pull the entire market with it and that'll have serious consequences now that there is institutional involvement in the cryptocurrency market.
The broader goal here whenever this is brought up is to push people away from Tether towards other less problematic stablecoins.
This isn't FUD, it's a call to action for communities and exchanges to start minimising their exposure to the risks that the current Tether situation poses.
The broader goal here whenever this is brought up is to push people away from Tether towards other less problematic stablecoins.
This isn't FUD, it's a call to action for communities and exchanges to start minimising their exposure to the risks that the current Tether situation poses.
I guess my point is: Not that they'd ever do this, but if the Fed were really concerned they could easily bail out tether without doing anything outside of the "norm".
> This isn't FUD, it's a call to action for communities and exchanges to start minimising their exposure to the risks that the current Tether situation poses.
This seems a fair description of your posts. It does not seem to describe the Fed governor's statement
> This isn't FUD, it's a call to action for communities and exchanges to start minimising their exposure to the risks that the current Tether situation poses.
This seems a fair description of your posts. It does not seem to describe the Fed governor's statement
This Fed speak for we need to regulate Tether IMO. Of course they don't really believe Tether is a systemic risk.
As I see it, the federal reserve official's statement really boils down to the fact that if Tether (or any other widely adopted stablecoin) is conventionally accepted to have the value of $1 USD, and the people running Tether can print them, then those people can effectively print USD. And THAT, from the Fed's perspective, is a risk to financial stability.
If I was the Fed I would seriously consider creating my own TheRealUSD stablecoin. Create a token that you have mint/burn control over, and create a portal that allows people to exchange USD for the stablecoin and the stablecoin for USD. No doubt a number of the crypto-libertarians out there will not trust that thing and might object to using it. But from the other perspective which would you trust more? A USD stablecoin run by some random collection of tech people? Or a USD stablecoin run by the Fed?
If I was the Fed I would seriously consider creating my own TheRealUSD stablecoin. Create a token that you have mint/burn control over, and create a portal that allows people to exchange USD for the stablecoin and the stablecoin for USD. No doubt a number of the crypto-libertarians out there will not trust that thing and might object to using it. But from the other perspective which would you trust more? A USD stablecoin run by some random collection of tech people? Or a USD stablecoin run by the Fed?
What would the point of a FED created USD stablecoin be over USD?
People act like you have to take gold bars to the grocery store to make exchanges as opposed to just using your bank card and electronically settling up in USD.
People act like you have to take gold bars to the grocery store to make exchanges as opposed to just using your bank card and electronically settling up in USD.
The point would be to provide a more legitimate USD stablecoin in a space that seems to be attracting a growing user base (blockchains). I imagine a significant share of the market would choose the Fed-provided stablecoin over any of the non-Fed competitors. If you're using US Dollars in the first place you're already inherently trusting the Fed, so it shouldn't be a much bigger leap to also use their blockchain-based version. This would reduce the degree to which Tether and others are "a challenge to financial stability" because it puts mint/burn powers of the dominant USD stablecoin squarely back in the control of the Fed.
If the existence of a cryptocurrency/stablecoin can be a realistic threat to the stability of the financial system, that's a huge admission that the financial system is pretty much already an unstable mess.
How many of the people closely involved in these market-moving Fed statements are trading crypto futures with insider information? It's probably virtually impossible to know, and it's almost certainly occurring.
Because of this conflict of interest, plus natural human/animal greed, I always wonder if the message is really important or if it was just to create a wealth opportunity for the insiders. Most statements by any influential financial source create a temporary change in markets which tend to return to their previous state, so one could assume that these messages could serve a little hit and run opportunities without lasting (negative) impacts.
But there is also the fear of loss of control. Governments and dictators like to have (or appear to have) control over money. So inevitably, third party, non-governmental competitors such as stablecoins are a threat to the powers that be. Thus, they have a potential bias which could color or even form their public statements and actions.
Because of this conflict of interest, plus natural human/animal greed, I always wonder if the message is really important or if it was just to create a wealth opportunity for the insiders. Most statements by any influential financial source create a temporary change in markets which tend to return to their previous state, so one could assume that these messages could serve a little hit and run opportunities without lasting (negative) impacts.
But there is also the fear of loss of control. Governments and dictators like to have (or appear to have) control over money. So inevitably, third party, non-governmental competitors such as stablecoins are a threat to the powers that be. Thus, they have a potential bias which could color or even form their public statements and actions.