[HN Gopher] US Fed Official Calls Tether a 'Challenge' to Financ...
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US Fed Official Calls Tether a 'Challenge' to Financial Stability
Author : matheusmoreira
Score : 192 points
Date : 2021-06-26 07:50 UTC (15 hours ago)
(HTM) web link (www.nasdaq.com)
(TXT) w3m dump (www.nasdaq.com)
| yawaworht1978 wrote:
| 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.
| herbst wrote:
| > 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.
| uptown wrote:
| 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?
| herbst wrote:
| 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.
| [deleted]
| mightybyte wrote:
| > 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.
| yawaworht1978 wrote:
| 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?
| mightybyte wrote:
| 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.
| jcranmer wrote:
| 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.
| xienze wrote:
| > 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.
| [deleted]
| genewitch wrote:
| 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.
| adflux wrote:
| 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
| smackeyacky wrote:
| Wow, what a motley crew of miscreants they appear to be.
| adflux wrote:
| Exactly, and with the press of a button they can create
| BILLIONS and noone bats an eye.
| [deleted]
| xf1cf wrote:
| I am not a fan of Tether. I'm an open critic of it in my circles
| and I get a lot of flak for it.
|
| But this...
|
| > A discussion paper outlining the Fed's thinking on digital
| payments, including the risks and benefits of central bank
| digital currencies (CBDCs), will come out this summer, Powell
| said last month in the same speech where he referred briefly to
| stablecoins without mentioning any by name.
|
| This sounds more to me like the fed is prepping the onslaught of
| hit pieces by mass media on crypto, and then solves this by
| introducing their own stablecoin. They've been vying control of
| the crypto markets for a long time because decentralized currency
| is the bane of every central bank. A stable FedCoin would give
| them the necessary foot in the door to control crypto at large. I
| don't think they are as concerned about USDT as they say, and
| rather they are jealous of it's control over the crypto market.
| They _want_ that control.
| roenxi wrote:
| 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)
| [deleted]
| bronzeage wrote:
| Then you look at volume charts and your mind is blown when you
| realize the vast majority of Bitcoin trading happens against
| tether, safe not only that, but the main functionality of
| tether is to get into a leveraged Bitcoin long position.
|
| You'll realize not only is the whole market built on this
| fraud, it is leveraged like a powder keg on this fraud. The
| blow up will be legendary.
| beforeolives wrote:
| So if it's a scam but everyone knows that it is, you think
| there is no risk?
| onlyrealcuzzo wrote:
| 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.
| jkhdigital wrote:
| 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.
| jkhdigital wrote:
| You have a very good point; systems blow up from hidden or
| mislabeled risk, not from obvious risk that everyone is well
| aware of.
| joelbondurant wrote:
| LOL at the clowns arguing Tether is a scam because it's backed by
| clownshow magic. Tether is a scam because it's based on the
| communist US ponzi dollar.
| garyclarke27 wrote:
| 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.
| cdstyh wrote:
| print tether, deposit it into an exchange, buy btc, tether is
| now back by an asset (btc), btc now higher in price, repeat
| parsimoniousplb wrote:
| 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.
| HorizonXP wrote:
| 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.
| adflux wrote:
| 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.
| onlyrealcuzzo wrote:
| 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.
| meowface wrote:
| 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?
| Daishiman wrote:
| 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.
| tarsinge wrote:
| 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.
| bobthepanda wrote:
| 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.
| gruez wrote:
| > 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.
| bobthepanda wrote:
| 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.
| jkepler wrote:
| 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/
| mbroncano wrote:
| 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]
| raziel2701 wrote:
| The details may be different but the active ingredient is
| fraud.
| gruez wrote:
| >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.
| tarsinge wrote:
| 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.
| ethbr0 wrote:
| 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.
| x4e wrote:
| 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.
| ethbr0 wrote:
| 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?
| gruez wrote:
| >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.
| TigeriusKirk wrote:
| 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.
| [deleted]
| ForHackernews wrote:
| 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.
| jasoncartwright wrote:
| It's anecdata, but none of the retail crypto speculators
| (five or six now) I've spoken to IRL have even heard of
| Tether.
| jiofih wrote:
| It's hard to imagine someone invested in the crypto market
| who isn't aware of stablecoins.
| kemonocode wrote:
| 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.
| meowface wrote:
| 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.
| handrous wrote:
| 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.
| jiofih wrote:
| Oh, the OP said "crypto speculators" which in my mind is
| a bit more involved than random dudes buying Doge on RH.
| lupire wrote:
| buying doge on RH is the most obvious accessible kind of
| speculation.
| gruez wrote:
| 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.
| ac29 wrote:
| Coinbase added Tether in May:
| https://blog.coinbase.com/tether-usdt-is-now-available-
| on-co...
| gruez wrote:
| But by default (eg. someone buying BTC or DOGE) they're
| probably not touching USDT right?
| ac29 wrote:
| 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.
| gruez wrote:
| >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.
| ethbr0 wrote:
| And then recently rolled out their own stablecoin in
| USDC: https://www.coinbase.com/usdc/
| meowface wrote:
| 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.)
| wavepruner wrote:
| 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.
| rattlesnakedave wrote:
| 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
| foobarbazetc wrote:
| 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.
| jkepler wrote:
| 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/
| bsanr2 wrote:
| 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/Superston
| k/comments/nz0fsz/i_found_...
|
| I know, I know... I present it mostly for you to consider as
| you may.
| throwanem wrote:
| This is Time Cube but for money.
| meowface wrote:
| A high percentage of finance in general is kind of Time
| Cube for money.
| throwanem wrote:
| Well yeah, but even by that standard, I mean.
| xur17 wrote:
| > 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?
| [deleted]
| dmw_ng wrote:
| 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.
| [deleted]
| BelenusMordred wrote:
| I read this comment about 5 years ago on HN.
| varajelle wrote:
| > 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?
| fbernier wrote:
| 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.
| fbernier wrote:
| 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.
| lou1306 wrote:
| 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...
| TheAlchemist wrote:
| 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.
| jkepler wrote:
| 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.
| TheAlchemist wrote:
| No. By real money I mean fait currencies
| dcolkitt wrote:
| 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.
| paulgb wrote:
| > 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?
| [deleted]
| tgsovlerkhgsel wrote:
| 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.
| jkhdigital wrote:
| 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.
| quickthrowman wrote:
| 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.
| jkepler wrote:
| 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.
| LarryEt wrote:
| 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.
| dcolkitt wrote:
| 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.
| ProjectArcturis wrote:
| 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.
| [deleted]
| zamadatix wrote:
| 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(tm) 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.
| oarsinsync wrote:
| 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)
| onethought wrote:
| 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?
| Lazare wrote:
| > 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?
| kristofferc wrote:
| It just means that you think people are willing to buy it
| from you at a higher price later in time.
| beforeolives wrote:
| > 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.
| foota wrote:
| 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.
| nl wrote:
| 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.
| the_gastropod wrote:
| 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.
| dtwest wrote:
| 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.
| theli0nheart wrote:
| 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.
| the_gastropod wrote:
| What you're describing is precisely a Ponzi scheme. Run
| the game long enough, the net expected value is 0.
| jkhdigital wrote:
| 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.
| the_gastropod wrote:
| From Wikipedia [1]
|
| > A Ponzi scheme (/'panzi/, Italian: ['pontsi]) 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
| shkkmo wrote:
| > 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".
| jkepler wrote:
| 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/
| ac29 wrote:
| 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.
| theli0nheart wrote:
| 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).
|
| > 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.
|
| (Emphasis added)
|
| https://en.wikipedia.org/wiki/Zero-sum_game
| anm89 wrote:
| 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
| [deleted]
| paulgb wrote:
| 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.
| coolspot wrote:
| 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.
| economusty wrote:
| 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.
| dalbasal wrote:
| 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.
| smackeyacky wrote:
| 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.
| dalbasal wrote:
| 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.
| smackeyacky wrote:
| 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.
| quickthrowman wrote:
| 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.
| tonfa wrote:
| 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.
| dalbasal wrote:
| 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.
| cinquemb wrote:
| 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.
| jkhdigital wrote:
| 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.
| RandomLensman wrote:
| 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.
| dalbasal wrote:
| 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.
| lifeisstillgood wrote:
| 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?
| imtringued wrote:
| >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.
| [deleted]
| ac29 wrote:
| 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.
| kaycebasques wrote:
| 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.
| kvh wrote:
| 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
| LarryEt wrote:
| Completely absurd. You obviously haven't read much of financial
| history or the history of banking. No one would ever want to
| trade banking now for the late 19th century.
|
| You can't know what you are talking about and say that. It is
| just so ridiculous.
| jcranmer wrote:
| > 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/do
| n-t-...).
| paulgb wrote:
| > 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.
| kneel wrote:
| 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
| theknocker wrote:
| Wow cool, another thread for people on a political campaign to
| obviously lie about their economic concerns. I would mock you all
| for being so obvious but then dan g, creator of camelcamelcamel,
| will just find something else to shadowban me from.
| anon9001 wrote:
| 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.
| Havoc wrote:
| >If USDT is worth $1 because everyone agrees it is, everything
| works fine.
|
| Until that agreement starts to wobble
| throw0101a wrote:
| > _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).
| jkhdigital wrote:
| 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.
| dannyw wrote:
| 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.
| augstein wrote:
| At current prices, Tethers market cap is only about 10% of
| Bitcoins and about 5% of the whole crypto market cap.
| [deleted]
| runeks wrote:
| 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.
| jkhdigital wrote:
| 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.
| anon9001 wrote:
| > 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.
| cinquemb wrote:
| > 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.
| [deleted]
| chovybizzass wrote:
| I'm moving all my tanks to the border waiting to buy the dip
| quickthrower2 wrote:
| 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.
| paulgb wrote:
| TWTR because Jack likes Bitcoin, or is there another
| connection? They don't have Bitcoin on their books, right?
| numair wrote:
| > 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..
| [deleted]
| fallingknife wrote:
| Here are the actual monthly auditors reports for USDC
| https://www.centre.io/usdc-transparency
| xur17 wrote:
| And GUSD https://www.gemini.com/dollar
| numair wrote:
| 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")
| raziel2701 wrote:
| 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.
| fallingknife wrote:
| Audited financials are for operating companies. I don't
| think the concept makes sense for a cash backed
| stablecoin.
| yifanl wrote:
| 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.
| lupire wrote:
| > which carry specific legal and regulatory burden.
|
| but the whole point of crypto is that we don't believe in
| legal or regulatory burden.
| ansible wrote:
| 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.
| anon9001 wrote:
| 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.
| ac29 wrote:
| > 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.
| numair wrote:
| 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.
| EMM_386 wrote:
| > 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...
| anon9001 wrote:
| 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.
| numair wrote:
| 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.
| anon9001 wrote:
| 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/4HRkK
| KmHejTvQ32jfv...
|
| 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.
| salawat wrote:
| 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.
| numair wrote:
| 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...
| salawat wrote:
| 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.
| anon9001 wrote:
| 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.
| salawat wrote:
| 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.
| FireBeyond wrote:
| 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.
| numair wrote:
| > 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_
| rojeee wrote:
| 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.
| rossmohax wrote:
| How creators of fully backed stablecoins earn money?
| bonzini wrote:
| Exchange fees, I guess.
| anon9001 wrote:
| 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.
| peytn wrote:
| > 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.
| anon9001 wrote:
| 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?"
| mkr-hn wrote:
| I thought the banks paid back all the loans from the
| government with interest.
| meowster wrote:
| Another possibility: Sell a coin for $1.01, promise to buy
| back at $0.99.
| dalbasal wrote:
| >> 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.
| meirelles wrote:
| 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.
| anon9001 wrote:
| 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.
| jkhdigital wrote:
| 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.
| matthewdgreen wrote:
| But DAI is currently about 50% backed by USDC, which means
| it's effectively turning into an asset-backed stablecoin.
| baby wrote:
| Aren't banks only required to hold 2% in cash of their clients'
| balance? It seems like this scam is not new.
| notahacker wrote:
| Banks hold repayable loans which earn them profit instead of
| printing what they want and lying about backing...
| baby wrote:
| You know the 2008 crisis is still fresh in a lot of
| people's memory right?
| notahacker wrote:
| 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.
| cartoonworld wrote:
| 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?
| imtringued wrote:
| 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.
| cartoonworld wrote:
| 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.
| peakaboo wrote:
| Not to mention there are quite a few people seeing the
| same signs of a crash now as in 2008.
| plebianRube wrote:
| It is presently 0% as of March 2020
|
| https://www.investopedia.com/terms/r/requiredreserves.asp
| LatteLazy wrote:
| 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.
| jkhdigital wrote:
| 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.
| runeks wrote:
| Good point. However, OP specifically said "cash", not
| assets in general.
| LatteLazy wrote:
| Thats fair, though I don't think anyone is holding cash
| exactly equal to their liabilities. Tether certainly
| aren't, they make money by investing the revenue they
| receive if I understand the "claims" correctly...
| pjc50 wrote:
| 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.
| [deleted]
| onethought wrote:
| They have government backing to issue new money (in the form
| of debt). That's quite different when you remove the
| government backing.
| baby wrote:
| It took a few bank runs to get there though. The government
| backing is also 50/50.
| imtringued wrote:
| 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.
| jkhdigital wrote:
| 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.
| unabridged wrote:
| 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?
| loeg wrote:
| Their product largely revolves around not following US banking
| KYC and AML laws. They are locked out of US treasuries.
| rawtxapp wrote:
| 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.
| jstgord wrote:
| Perhaps it should be backed by equivalent reserves of Gold ..
| like the actual USD was, once upon a time ?
| anon9001 wrote:
| There are a few tokenized gold options, if you'd like to be
| able to send/receive gold on-chain while having it physically
| stored in a vault.
| mightybyte wrote:
| 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?
| LarryEt wrote:
| 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.
| Krasnol wrote:
| The title is:
|
| > US Fed Official Calls Tether a 'Challenge' to Financial
| Stability
|
| The URL is the same. So...why did you change it?
| wcoenen wrote:
| 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.
| jkhdigital wrote:
| 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.
| throwaway69123 wrote:
| So regulate it then, Tether is shady and isnt backed by USD at
| all and yet it is used all over the US.
| dannyw wrote:
| Tether does its best to live outside of US regulation. It has
| no US bank accounts, nor do any directors live in extradictable
| countries.
| baby wrote:
| If they're holding USDs they are bound to US regulations.
| nl wrote:
| 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.
| baby wrote:
| 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
| streamofdigits wrote:
| 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.
| mattwilsonn888 wrote:
| > Differing opinions mean that this opinion is valid! Oh okay
| let me try: The distinctly heated nature of the Earth shape
| debate goes to show how shaky evidence is either way. Given
| that one group of people facilitate the use of billions of
| dollars of value based on their belief, it is clear that we
| should be halting the funding of space programs until this
| instability in opinion is resolved.
|
| What's your other argument? Something vague about solar winds
| or the impermanence of data? You do realize there are mediums
| which hedge the cliche scenarios, and that by being
| decentralized Bitcoin's ledger is actually more robustly
| protected that other centralized credit ledgers?
|
| Hacker News has the smartest anti-cryoto idiots you can find.
| beforeolives wrote:
| I've read some of the cryptocurrency subreddits recently and it
| has been absolutely fascinating. The degree of group cognitive
| dissonance is something else.
| danaos wrote:
| "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...
| xiphias2 wrote:
| 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.
| dosenbrot wrote:
| They did. https://ag.ny.gov/press-release/2021/attorney-
| general-james-... Also:
| https://www.singlelunch.com/2021/05/19/the-tether-ponzi-sche...
| qeternity wrote:
| That's NY state, not the US.
|
| Things will get real when SDNY get involved.
| tiku wrote:
| 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.
| Traster wrote:
| 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.
| qeternity wrote:
| 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.
| yawaworht1978 wrote:
| 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?
| anon9001 wrote:
| 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.
| grey-area wrote:
| 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.
| onlyrealcuzzo wrote:
| 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.
| anon9001 wrote:
| 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.
| jkhdigital wrote:
| Tether receives "commercial paper" i.e. an IOU from the
| exchange. Nobody in their right mind would give Tether
| real cash.
| CTDOCodebases wrote:
| 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.
| jkhdigital wrote:
| This is almost certainly what is happening. Tether is
| just a central bank for shady crypto exchanges.
| anon9001 wrote:
| Oh, that does make sense.
| maxerickson wrote:
| Yeah, the scam would be if they aren't holding the
| deposits in reserve.
| jkhdigital wrote:
| 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.
| FireBeyond wrote:
| 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 $4B a week.
|
| At this rate, and recognizing that comparing to revenue
| is not a strict apples-to-apples, this would put them on
| track by the end of 2021 within the top 20 largest
| companies in the world, eclipsing Alphabet, AT&T, even
| Samsung and Saudi Aramco.
|
| How anyone can say that with a straight face beggars
| belief.
| rdtwo wrote:
| So common thought is that a tether collapse will tank Bitcoin but
| won't it also cause a sudden flood to safety (BTC/ETH) if the
| money is hot or at least somewhat so it seems like the owner
| couldn't just Cash out
| coolspot wrote:
| "Safety" is USDC (by Coinbase) or DAI, not BTC/ETH
| Tepix wrote:
| Ow that there are more trustworthy alternatives, people ought to
| get their money out of USDT. The writing has been on the wall for
| too long.
| fit2rule wrote:
| The US$ is a risk to financial stability, too. So this is
| equilibrium, really.
| Mountain_Skies wrote:
| 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.
| asah wrote:
| 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).
| qeternity wrote:
| > 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.
| paulgb wrote:
| 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...
| asah wrote:
| 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?
| jacoblambda wrote:
| 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...
| np_tedious wrote:
| 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
| LarryEt wrote:
| This Fed speak for we need to regulate Tether IMO. Of course
| they don't really believe Tether is a systemic risk.
| jacoblambda wrote:
| 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.
| np_tedious wrote:
| 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
| blunte wrote:
| 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.
| RhysU wrote:
| If a transparently run Tether competitor has such clear value why
| do I never hear of competitors?
| joncrane wrote:
| Perhaps because it's not as profitable as many other business
| models?
| xur17 wrote:
| Like USDC or GUSD?
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