[HN Gopher] Tether Required Recapitalization in May 2022
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Tether Required Recapitalization in May 2022
Author : jlhonora
Score : 294 points
Date : 2022-05-20 15:31 UTC (7 hours ago)
(HTM) web link (www.kalzumeus.com)
(TXT) w3m dump (www.kalzumeus.com)
| jjallen wrote:
| Shouldn't the title be "likely required recapitalization"?
| glerk wrote:
| So Tether is doing something akin to fractional reserve banking?
| From what I understand, this shouldn't cause a problem unless
| there is a massive run (everyone trying to convert their USDT
| into dollars at the same time).
|
| Since most of the USDT is owned by big exchanges who need it to
| provide liquidity and have no interest in crashing the crypto
| market, I don't think this is likely to happen.
| winslett wrote:
| Cryptocurrency has recreated the wild-cat banking crises of the
| late-1800s / early-1900s. Go read about the Knickerbocker Trust
| Company:
| https://en.wikipedia.org/wiki/Knickerbocker_Trust_Company
|
| These events ultimately lead to the creation of the Federal
| Reserve for banks to participate in a semi-cooperative system
| that didn't devolve into save-yourself during times of crises.
|
| The story here is that "unless there is a massive run" is
| actually a fairly common event.
| glerk wrote:
| The big crypto exchanges are currently acting as a sort of
| unofficial federal reserve. None of the big players has an
| interest in seeing USDT collapse and will step in to bail it
| out at the first signs of trouble.
|
| I'm not saying that Tether the company is not shady. They
| should definitely be more transparent about what assets they
| are holding and their collateralization, but I think the
| risks of total collapse are largely overblown.
| rurp wrote:
| A big issue with this type of support is that the risks are
| correlated. Sure there are multiple big supporters of
| Tether right now, but if the sky starts falling and one of
| them decides to rush for the exit the others will likely
| make the same decision around the same time.
| hiq wrote:
| > None of the big players has an interest in seeing USDT
| collapse and will step in to bail it out at the first signs
| of trouble.
|
| As an exchange, if you keep some reserves in USDT and you
| think it might collapse soon, you might have an interest in
| dumping your positions before it completely loses value.
| Maybe exchanges would benefit from responding to such a
| situation collectively as you suggest, but I think it's
| likelier that they will just protect their own interests as
| individual entities.
| winslett wrote:
| Totally agree that it's "unofficial", which makes it a
| when-not-if scenario.
|
| At some point, total collapse of Tether's pseudo-dollar
| will happen when the revenue generating exchanges feel they
| are support bad-money with good. All it takes is one player
| signaling a lack of support, and others stop supporting as
| well.
|
| It's a human psychological problem that's a old as time.
| Think crypto can win over human rational to preserve self-
| interest? (side note: manipulation of self-interest is the
| goal of "weak hands" / "diamond hands")
| vzcx wrote:
| Tether has the veneer of bank equity from the balance sheet
| "attestations" it publishes, but I think a better analogy would
| be that tether issues casino chips for the decentralized casino
| that encompasses the tether-based offshore exchanges and defi
| universe.
|
| There isn't any real visibility into the balance sheet, but I'd
| guess most of the "collateral" boils down to margin loans
| issued at the exchanges, and since the house has the edge on
| those platforms, their ship stays afloat.
| vkou wrote:
| They claim to be doing FRB, but it looks like what they
| actually are is insolvent.
|
| A FRB is a bank where deposits exceed liquid liabilities
| (cash), but do not exceed liquid plus illiquid liabilities
| (cash + investments).
|
| When deposits exceed liquid and illiquid liabilities you can't
| operate as an FRB. Because you are insolvent.
|
| But this is all irrelevant, because Tether isn't a bank. Your
| bank promises that you can withdraw your deposit. Tether does
| no such thing - it provides withdrawals as a _courtesy_. If
| Tether doesn 't feel like letting you withdraw, it's not going
| to let you withdraw.
| hansonkd13 wrote:
| No they are not. That rationale is a coping strategy at best
| and deliberately misleading at worst.
|
| Tether is NOT a bank. They are not regulated and have no
| guarantee that depositors will be paid back. They promise a 1-1
| backing and instead of people holding them to their promise
| their supporters desperately try to compare it to moderns
| banks.
|
| No. Tether is not a bank. It is not doing fractional reserve
| banking. It is committing fraud. It's that simple.
| rglullis wrote:
| This, a million times this. Speaking as HN's resident web3
| apologist, it's amazing how people keep trying to defend
| cryptocurrencies based on some anti-finance-system ideology,
| but throw it all out of the window when it comes to Tether.
|
| Tether is not a bank. Not in the US, not in the Cayman
| Islands, not _anywhere_. Everyone holding or trading Tether
| could be using a test network, and the monetary value of the
| token should be the same.
| blihp wrote:
| The problem is that 'unless there is a massive run' is nearly
| assured over a long enough time horizon. The fact that the
| major players know that they are reasonably safe unless there's
| a run is the thing that will cause a run in a panic. Also, if
| some well-capitalized hedge fund figures out how to attack it,
| they might also light the match on a run if there's money to be
| made in killing it.
| rowls66 wrote:
| I assume that the USDT holding of the big exchanges are on
| behalf of their customers. I those customer begin asking to
| convert their USDT to USD, that could be a massive run.
| runesofdoom wrote:
| I'm not a crypto participant, but my understanding is that
| technically Tether doesn't promise _redemption_ in USD, just
| _backing_ by USD. That still seems like it could precipitate
| a crash, but IDK if such a crash would be best described as a
| run or not.
| jandrese wrote:
| What is the point of being backed by USD if you can't
| redeem it?
|
| "So you have this Monopoly money backed with a real
| dollar?"
|
| "Yes"
|
| "Can I see the dollar?"
|
| "No"
| mbrubeck wrote:
| Tether does offer redemption, but the minimum amount you
| can redeem is 100,000 USDT, and there is a fee that ranges
| from 0.1% to 1% depending on the size of the redemption:
|
| https://tether.to/en/fees
|
| So if a well-capitalized arbitrageur can buy a million USDT
| at a price less than 0.999, they can redeem them for a
| profit, as long as Tether keeps honoring redemptions.
| theknocker wrote:
| gringoDan wrote:
| The problem here is that everyone in the crypto industry is
| taking George Soros's approach to bubbles: _"When I see a bubble,
| I rush in to buy it."_
|
| There is more money to be made on the gravy train of providing
| liquidity for trades, yield farming, etc. than in trying to short
| Tether and potentially bleeding out before it goes bust.
| billions wrote:
| Bitcoin is the real stable coin. Everything else is fluctuating
| in price discovery until hyperbitcoinization completes.
| candiddevmike wrote:
| 1 BTC = 1 BTC, just like 1 Monopoly dollar = 1 Monopoly dollar.
| Too bad I can't trade either for most goods/services/taxes.
| Aaronstotle wrote:
| There is a decent circular economy growing around bitcoin, at
| the very least you can purchase gift cards with them which
| hold dollar amounts to get whichever services you'd like!
| a2800276 wrote:
| Is there though? Where can I use Bitcoin to buy gift cards
| redeemable for: milk, underwear, dentist, train tickets, a
| visit to the barber? ( These being the five everyday
| purchases I last made.)
| kayamon wrote:
| bitrefill.com
| SemanticStrengh wrote:
| It's only stable at gowing downward
| Centmo wrote:
| Was just going to say that about the purchasing power of USD.
| stickfigure wrote:
| The dollar lately is way up against EUR and GBP. It's a
| good time to buy things from Europe.
| microtherion wrote:
| The Dollar is the real stable coin, thanks to its unbreakable
| peg to the dollar.
| russellbeattie wrote:
| Awesome. You we're just making a joke, but for some reason
| that one simple statement had my brain looking at the dollar
| from a whole different perspective for a few seconds. "What
| is money, anyway????" Nice. It's like when you start to
| grapple with relativity... "What is time???"
| EVa5I7bHFq9mnYK wrote:
| It's losing its peg to real world things at a rate of 8.5% a
| year.
| [deleted]
| astrange wrote:
| Sometimes collectible coins trade for more than face value.
| bogomipz wrote:
| The post states:
|
| >"It is well-understood in the cryptocurrency community that
| Tether's reserves are a polite fiction. If pushed on this,
| clueful members of the community, such as their co-conspirators,
| will (quietly) admit that Tether depends on a de facto guarantee
| of support from members of its consolidated group, such as
| Bitfinex, which can inject more equity at will.?
|
| Can someone say what is meant but "its consolidated group"? Is
| this a loose alliance or something more formal?
| patio11 wrote:
| While they were extremely cagey about it prior to suing Wells
| Fargo and then needing to come clean in court, they share
| ownership, executives, employees, IT/marketing/etc functions,
| etc. Bitfinex is Tether and Tether is Bitfinex.
| Animats wrote:
| Are there verifiable numbers available on whether Tether has a
| net outflow of fiat? That's the real question. If they're under-
| reserved, and there's an ongoing net outflow, they will at some
| point run out of money.
|
| There's definitely outflow. Tether's reported market cap peaked
| at $83 billion in early May, and now it's down to $74 billion. So
| at least 10% of Tether has already been redeemed. There are other
| major stablecoins now, so nobody has to use Tether.
|
| This is one of those things that will look fine, until it
| doesn't. As has now been demonstrated several times, stablecoins
| have only two stable points: 1 and 0.
| wyxuan wrote:
| Patrick is overindexing on the investments portion of the report
| - which is a little under 5% of backing. There are investment
| deals and crypto, but it's unknown if this represents the
| entirety of the amount fwiw.
|
| If we take a step back and look at the key takeaway from the
| audit report is that amount of commercial paper was reduced and
| amount of T-bills (essentially cash) was increased by 5 bil. Good
| news if you think solvency is an issue, but of course they're all
| scoundrels eh?/s
|
| Tether might have done shady things in the past as the article,
| but the scale to which Tether operates now (10s of bllns), in
| addition to scrutiny from SDNY, external audit, etc mean that
| Tether from before is much different from the Tether now, and it
| has pulled off the made it portion of "fake it till you make it".
| hiq wrote:
| There is still no audit, only attestations.
| cuteboy19 wrote:
| The question is, why would you hold tether if there is even a
| 1% chance of collapse?
|
| Remember, there is literally no upside, it's not as if USDT
| will go to the moon.
|
| So why not dump it for the time being in either Bitcoin or USD?
| anm89 wrote:
| I have nothing but respect for Patrick, and he has done great
| investigative Journalism (or at least curation of other peoples
| journalism) but I still feel like he is cherry picking facts
| (that there certainly is some shady stuff going on around Tether)
| here to support a predetermined conclusion(Tether is bad because
| crypto is bad because crypto's primary use case is money
| laundering) which seems to be an undercurrent of all of his
| writing on the topic.
|
| If we held the industry that Patrick works in to the standards
| that Patrick wants to hold the crypto world to we would call all
| of them "scams". Basically every international bank has a long
| history of money laundering. Every single large bank is doing
| much more complicated and riskier things with their balance sheet
| than Tether.
|
| I don't think they are scams but I don't think Tether is either.
|
| In many ways this is just the crypto world leveling down to the
| level of sketchiness that the average large bank exists at. Which
| is really not a defense, I dislike those banks and I dislike and
| distrust Tether.
|
| But I don't think the risks of some kind crypto solvency
| contagion event are even as high as what's going on in the
| traditional banking world right now and that is given that
| traditional banks balance sheets at least on the surface are in
| the best shape they've been in in a decade.
|
| Any way tldr: I think Patrick is technically correct but framing
| the large picture according to a big double standard.
| thedstrat wrote:
| Its pretty frustrating that people are using these shady
| stablecoins where you can't see the code or assets backing them
| (eg USDT), when there are stablecoins that are fully open source
| and you can see the backing in real time (eg DAI)
| fshbbdssbbgdd wrote:
| DAI is to Ether as Terra was to Luna?
| meowkit wrote:
| Not quite.
|
| Dai is an ERC20 token on top of Ethereum. It might be more
| accurate to say Dai is a stablecoin coupled to MKR
| (MakerDAO), a governance token. Dai is over-collaterlized.
|
| https://makerdao.com/en/
| https://developer.makerdao.com/dai/1/
|
| Terra is a coin with ticker LUNA, and is coupled to a
| stablecoin UST. As I understand, LUNA/UST was under-
| collateralized and could not handle what was essentially a
| virtual bank run.
|
| Tether is a centralized stablecoin that is also reported to
| be under-collateralized, but it has bridges and industry
| connections to the wider crypto market which has kept it from
| crashing and burning so far.
| cycrutchfield wrote:
| Ask yourself why that might be, I think you might find the
| answer rather illuminating
| mathgenius wrote:
| It recently occurred to me, with the whole LUNA fiasco, that
| _any_ "stablecoin" that is 1-1 backed by fiat can come under
| attack from leveraged traders, and get de-pegged. So it really
| doesn't matter what backing tether has, although more is
| obviously better. When the music stops it's anyone's guess what
| will happen.
| zmgsabst wrote:
| No, 1-1 backing prevents this.
|
| Let's imagine that I have 1000 cans of beer in my warehouse and
| I give out 1000 tickets to exchange for a beer.
|
| Let's further imagine you have infinity dollars to "break the
| peg". So you buy tickets, trade tickets, give them away for
| free after re-buying them... doesn't matter. As many times as
| you want.
|
| Everyone who has a ticket at the end can still visit my
| warehouse to claim a beer -- no matter the financial
| manipulations you engaged in.
| danachow wrote:
| For a USD backed stablecoin what are "tickets" vs what are
| dollars in your analogy?
| zmgsabst wrote:
| Tickets are crypto tokens; beers are USD.
|
| If I start with 1000 tokens I distribute and 1000 dollars
| in my vault, no matter what you do with the tokens, I can
| exchange a token for a dollar -- because your manipulation
| of the tokens doesn't remove dollars from the vault. Those
| only change when: 1. I receive a new dollar, so issue a
| token; or 2. I destroy a token and release a dollar.
|
| "Shorting" doesn't impact that: if you borrow someone's
| ticket, then sell it for $0.85, that doesn't create a new
| ticket -- there is still one ticket and one beer... and one
| IOU. What happens to the original owner is either the
| borrower buys a ticket back and returns that (canceling out
| the IOU) or else that original owner no longer has a ticket
| -- they're owed the _value_ of a ticket by the borrower.
|
| In the case of tokens/dollars, that value is easy to
| assess: the person borrowing your stable coin token who
| fails to return it owes you $1... but that doesn't come out
| of my vault, because you don't own a token. You'll have to
| get that $1 by suing the borrower over failure to deliver.
| [deleted]
| hathym wrote:
| you can't make a profit like that. banks (and tether) make
| profit by miniting news tickets out of thin air, lending the
| newly minted tickets at a certain rate, once the credit is
| reimbursed they usually destroy the minted tickets and keep
| the profit.
| zmgsabst wrote:
| That's one approach to profit, called "fractional reserve".
|
| Typically, people who want a 1-1 backed coin are
| uncomfortable with that model... so you instead take profit
| on the issuance: you charge $1.05 to issue $1 in tokens
| (while keeping $1 in the vault) -- a process called
| seigniorage.
|
| https://en.wikipedia.org/wiki/Seigniorage
| im3w1l wrote:
| $1 buys one tether. One tether redeems for $0.999. Then
| there's also interest on T-bills and stuff.
| gringoDan wrote:
| Any stablecoin that is NOT backed 1-1 by fiat, correct? I.e.,
| algorithmic stables. If you're 100% collateralized by USD in
| your bank account, how can it get de-pegged?
| mathgenius wrote:
| With leverage you can long or short more than the available
| supply of tethers. You are effectively creating fake tether
| with leverage, and then selling it (or buying it). This stuff
| also happens with equities, commodities, etc.
|
| If there was no leverage, then yes, a 1:1 backed stablecoin
| would hold it's value.
|
| EDIT: I mean the story here is far from clear, you also need
| to consider arbitrage bots that act between exchanges, etc.
| etc.
| qeternity wrote:
| This isn't even remotely true. You're conflating 3 or 4
| things with this mistaken understanding.
| UncleEntity wrote:
| Even with leverage one would assume that a 1:1 backed asset
| would survive intact with the people loaning out their
| coins taking the losses in the case of a run.
|
| If they engage in fractional reserve issuance (which it
| appears they do) then all holders of the coin will be
| subject to losses if they can't cash out before the
| reserves run out. Pretty much guaranteed run by that point.
| jandrese wrote:
| Are there any 1-1 fiat stablecoins that aren't just flat out
| lies? Like every new crypto coin minted requires a matching
| real dollar to be stashed away. My impression is that nobody
| does this because it would mean massive waits to buy the
| crypto coins when the real dollars run low and because the
| way to make real money is with leverage.
| dereg wrote:
| USDC.
| gringoDan wrote:
| USDC is legit: https://www.centre.io/usdc-transparency
| rapsey wrote:
| Current market cap is 52 billion. Just where is that
| money?
| koolba wrote:
| With treasuries paying 1.6% x $50B, that's $66M per
| _month_ of interest.
| thebean11 wrote:
| Held by Circle and Coinbase in T bills I believe.
|
| edit: more likely held by some holding company controlled
| by those two companies.
| scrlk wrote:
| Apparently with BlackRock and BNY Mellon:
| https://decrypt.co/97795/blackrock-handle-circle-usdc-
| cash-r...
| ceejayoz wrote:
| Tether has attestations, too. They're not audits; Tether
| got caught moving money in right before an attestation
| check, and moving it out right after.
|
| https://ag.ny.gov/press-release/2021/attorney-general-
| james-...
|
| > In the face of persistent questions about whether the
| company actually held sufficient funds, Tether published
| a self-proclaimed 'verification' of its cash reserves, in
| 2017, that it characterized as "a good faith effort on
| our behalf to provide an interim analysis of our cash
| position." In reality, however, the cash ostensibly
| backing tethers had only been placed in Tether's account
| as of the very morning of the company's 'verification.'
|
| > On November 1, 2018, Tether publicized another self-
| proclaimed 'verification' of its cash reserve; this time
| at Deltec Bank & Trust Ltd. of the Bahamas. The
| announcement linked to a letter dated November 1, 2018,
| which stated that tethers were fully backed by cash, at
| one dollar for every one tether. However, the very next
| day, on November 2, 2018, Tether began to transfer funds
| out of its account, ultimately moving hundreds of
| millions of dollars from Tether's bank accounts to
| Bitfinex's accounts. And so, as of November 2, 2018 --
| one day after their latest 'verification' -- tethers were
| again no longer backed one-to-one by U.S. dollars in a
| Tether bank account.
|
| An attestation tells you what the bank balance is. An
| audit tells you where it comes from, who has claim on it,
| etc.
| stickfigure wrote:
| The difference is that USDC is run by a US-based public
| corporation and its managers are US citizens that live in
| the US. If USDC is a fraud (or even just materially
| misrepresented), they go to jail.
|
| Is that a guarantee? No, but I don't understand why
| anyone would use USDT instead of USDC.
|
| [edit: s/UST/USDT]
| ceejayoz wrote:
| Maybe! First, they have to get caught; Bernie Madoff
| managed to run his ponzi for decades, running the value
| up to $65B. Jail for misrepresentation is pretty rare;
| IIRC only one person in the entire 2009 financial crisis
| wound up with jail time.
|
| > No, but I don't understand why anyone would use UST
| instead of USDC.
|
| That's fair, I just don't understand using _either_.
| jandrese wrote:
| Only one person in the US. He was sentenced for two and
| half years, about half a year less than the average US
| jail sentence for selling pot. Other countries,
| especially Iceland, actually did crack down on their
| bankers.
| onlyrealcuzzo wrote:
| Since Gemini is actually compliant - I _imagine_ GUSD is
| close.
|
| It's only ~$0.2B of a ~$160B market, though.
| Anderkent wrote:
| You mean any stable coin that is _not_ 1-1 backed?
| mathgenius wrote:
| No, once you have leverage the ratio doesn't matter anymore.
| It's just whoever has deeper pockets wins.
| NovemberWhiskey wrote:
| If Tether is fully collateralized, then if you sell Tether
| below 1, the buyer can redeem it for $1 and make an
| arbitrage profit.
|
| The usual expectation is that arbitrage opportunities
| vanish as the rush of risk-free profit takers closes the
| price gap. As such, it doesn't matter what other
| participants are in the market; the arbitrage buyer is
| always going to be the best bid below 1.
|
| You might see temporary breaks from the arbitrage-free
| price due to liquidity (e.g. in a thin market, there might
| not be enough buyers initially).
|
| If you keep selling, you'll eventually get to a situation
| where no Tether are in circulation, but every last Tether
| will sell for ~1.
|
| How do you get the idea that leverage matters here?
| lxgr wrote:
| That's not how leverage works.
|
| If you're long on an asset and are not lending it out,
| neither short selling nor leverage can hurt you with a
| fully backed stablecoin - you can always just go to its
| issuer and redeem it.
|
| As an analogy, consider owning shares of some publicly
| traded corporation. No matter what happens on the stock
| market, this doesn't impact your ownership of the actual,
| physicaly corporation, which entitles you to dividend
| payments, a proportional share of its assets when
| liquidated etc.
| axg11 wrote:
| The most important point in this article is that whether Tether
| is fully collateralized ultimately doesn't matter. As long as
| there are well-capitalized parties (Bitfinex, other exchanges)
| that want to prop up Tether, it will be fine. Nobody should be
| under the illusion that Tether is decentralized or anything other
| than a bet on Bitfinex.
| nradov wrote:
| As long as there are well-capitalized parties that want to prop
| up the UK Pound, it will be fine. Whoops.
|
| https://www.investopedia.com/ask/answers/08/george-soros-ban...
| parkingrift wrote:
| It matters deeply. Neither Bitfinex nor any other exchanges are
| required to rescue Tether. Additionally, these other exchanges
| may not have the collateral to rescue Tether in a simultaneous
| market and crypto downturn.
|
| This is a ticking bomb.
| anotheracctfo wrote:
| Yeah that's the whole point behind fractional banking. The
| government regulates how much money you need to hold to satisfy
| demand.
|
| Oh wait, I'm just getting word that Tether isn't a bank. I
| wonder what ratio you can have if you aren't a bank?
|
| Weird to think about because I thought that it was very illegal
| to have an unregulated bank. Oh well, I'm sure nothing bad ever
| happened before bank regulation.
| astoor wrote:
| So Tether has become something like an international reserve
| cryptocurrency, which gives them an "exorbitant privilege"[0],
| meaning they can do pretty much whatever they want safe in the
| knowledge that everyone else will do everything they can to
| prevent them from failing because everyone else would have too
| much to lose if they did fail. That has kept it going for a
| long time, and might (or might not) keep it going for a lot
| longer, but ultimately a replacement reserve cryptocurrency
| will come.
|
| [0] https://en.wikipedia.org/wiki/Exorbitant_privilege
| giaour wrote:
| You could save some time and keystrokes by just typing out
| "too big to fail."
| lkrubner wrote:
| The "exorbitant privilege" usually belongs to a government
| with a vast military, and/or substantial colonial possessions
| -- something that allows force to be used in an emergency.
| There is a reason why the US dollar, but not the Swiss franc,
| is an international reserve currency.
| nradov wrote:
| The UK Pound is still considered an international reserve
| currency by virtue of being incorporated into IMF special
| drawing rights, even though the UK no longer really has a
| vast military or substantial colonial possessions.
| JumpCrisscross wrote:
| > _the UK no longer really has a vast military_
|
| Beyond the nukes another comment mentioned, the UK is
| also a permanent UN Security Council member, a founding
| NATO member and a productive member of the Five Eyes and
| AUKUS [1]. And it still has the world's fifth most
| powerful navy [2].
|
| > _substantial colonial possessions_
|
| No, but they have overseas military installations in
| Gibraltar and on Cyprus, the Falkland Islands and Diego
| Garcia. Smaller installations at Ascension Island, in
| Singapore and Brunei "provide important staging posts and
| logistical support facilities for British and allied
| forces passing nearby" [3]. In terms of practical force
| projection radius, they're in a very small club of
| nations.
|
| [1] https://en.wikipedia.org/wiki/British_Armed_Forces#ci
| te_note...
|
| [2] https://worldpopulationreview.com/country-
| rankings/largest-n...
|
| [3] https://www.europarl.europa.eu/meetdocs/2004_2009/doc
| uments/...
| jeffdn wrote:
| They still have the ability to put nuclear warheads
| anywhere on the globe, by virtue of their ballistic
| missile submarines and the nuclear warheads those
| ballistic missiles carry. The Trident D5 missiles have a
| range of more than 7,500 miles, and the submarines move.
|
| That, in and of itself, is worth a lot -- potentially
| even more than having a large military.
| dr_dshiv wrote:
| I saw a trident missile launch once in 2017. Didn't know
| it at the time. Everyone should know about those missiles
| --they are the reason we don't have "real" war.
|
| They are so unbelievably powerful it blows my mind.
| ClumsyPilot wrote:
| 'They still have the ability to put nuclear warheads
| anywhere on the globe'
|
| I think most of UK public would consider that a prime
| minister that plans using nukes in offensive capacity
| belong in a padded cell.
| jeffdn wrote:
| I completely agree, I was just responding to the parent
| commenter's assertion that the UK didn't have the
| offensive power to have "exorbitant privilege"
| davidgay wrote:
| > ... even though the UK no longer really has a vast
| military
|
| https://worldpopulationreview.com/country-
| rankings/military-...
|
| At #5 world-wide by expenditure this may be a bit over-
| stated. Or else "vast military" is just a standin for "US
| or China".
| nradov wrote:
| Expenditures don't mean much. Look at purchasing power
| parity, and actual capabilities. The UK military lost the
| ability to conduct large-scale independent operations
| without US support decades ago. Capabilities are minimal
| in many crucial areas including logistics, aerial
| refueling, strategic bombing, amphibious lift, ballistic
| missile defense, and space dominance. Even their nuclear
| deterrent is completely dependent on the US military-
| industrial complex.
| puranjay wrote:
| By most measures, it appears that Tether is slowly going to
| die out and replaced by USDC. Among retail users, Tether has
| increasingly lost sway and is largely used only on exchanges
| (which is still massive, but not the only game in town
| anymore).
|
| Roughly half of USDT is circulating on Tron, which is a dead
| chain. This TRC20 Tether is almost exclusively used for
| inter-exchange transfers (since fee is capped at
| $1/transaction)
|
| On Ethereum, USDC is now bigger than Tether. Over a month,
| Tether on-chain supply has dropped nearly 12% [0]
|
| [0] https://defillama.com/peggedassets/stablecoins
| jandrese wrote:
| As an outsider this reads like someone in 2006 saying that
| these risky looking mortgage based products are fine because
| they'll be propped up by Fannie Mae and Freddie Mac.
| dboreham wrote:
| And they were pretty much correct. So probably not the same
| as that.
| ceejayoz wrote:
| We had an international financial crisis over it. That
| seems less than fine.
| jandrese wrote:
| They certainly weren't correct for the people who bought
| those Mortgage Backed Securities. Unless you were a huge
| institutional investor with the inside track you got
| skinned alive. Even the big boys got burned pretty badly.
| Lehman Brothers was the fourth largest investment bank at
| the start of 2008.
| DebtDeflation wrote:
| >whether Tether is fully collateralized ultimately doesn't
| matter
|
| There's a nuance here.
|
| If Tether IS full collateralized, then it does not matter since
| a run on Tether is by definition impossible.
|
| If Tether IS NOT fully collateralized then it may or may not
| matter depending on the size of the run and the ability of
| Bitfinex etc. to contribute capital.
| lottin wrote:
| Full collateralisation isn't enough to rule out a run on
| USDT, since the value of the collateral can vary depending on
| market conditions. We can be certain that one USDT will
| always be redeemable for one USD, as long as USDT is fully
| backed with USD, but we already know from the attestations
| this is not the case.
| DebtDeflation wrote:
| Right, I'm assuming collateralization by bank accounts,
| money market accounts, and short term Treasuries. Not
| commercial paper issued by Binance and Bitfinex.
| JumpCrisscross wrote:
| > _whether Tether is fully collateralized ultimately doesn 't
| matter. As long as there are well-capitalized parties
| (Bitfinex, other exchanges) that want to prop up Tether, it
| will be fine_
|
| This is true for every pile of toxic crap that's ever been
| financially engineered.
|
| The problem is the entangled financial health of the backer (in
| this case, Bitfinex and other crypto exchanges) with the backee
| (Tether). If creditors to the system (in this case, lenders to
| and customers of the exchanges together with holders of Tether)
| don't have transparency into the health of the nodes, a small
| crisis of confidence can prompt a run. (How do you know the
| parties are "well capitalized"?)
|
| Critically, this can occur even if the original impetus was
| survivable. The opacity causes people to doubt the system's
| survivability, which avalanches into a run that _no_ system can
| survive. Perversely, everyone knows this pattern, which
| increases the chances of small perturbations careening out of
| control. Add in that a crisis in any part of this system
| creates a systemic risk and the outcome becomes, as it 's been
| across history, inevitable.
|
| Holding Tether is putting money into a 19th century free bank,
| except instead of interest you get to stick a finger to the
| Man.
| zionic wrote:
| >This is true for every pile of toxic crap that's ever been
| financially engineered.
|
| I have a radical idea that I'm fairly sure would get me
| killed if I ever stood a chance of implementing it: A
| complete ban on all non-productive financial schemes. We have
| an entire parasite class that grown unfathomably wealthy
| while providing no real value to the rest of society.
|
| The "futures trader" extracting value from the system
| buying/selling futures has done no "real" work, their profit
| comes exclusively from making others pay more. The financial
| world is full of middle-men parasites like this.
|
| They love to use the "making the market more efficient" and
| "price discovery" BS, but I believe they know what they're
| doing is solely about enriching themselves.
| caffeine wrote:
| The problem is this:
|
| One day, people who think like you will come to power and
| decide that under their administration, [activity your
| livelihood is based on] constitutes "extracting value from
| the system" and is no longer permitted.
|
| Maybe you are a golfer, or a restaurateur. But "what you're
| doing is solely about enriching yourself." Your fine
| cuisine is not feeding the poor. It is immoral to play golf
| while children go hungry. You have clearly become wealthy
| while doing nothing for the greater good.
|
| They will come to you holding guns and demand that you
| cease your activity, and hand over your "wealth" - maybe
| your house, your savings, the food in your pantry, the
| clothes on your bank, maybe your wife or your daughter.
|
| "We will take back for the People what is theirs" they will
| say. If you refuse, you will starve in prison, and they
| will take your life anyway. If you accept, you will starve
| in the street.
| steveBK123 wrote:
| I propose a ban on all non-productive trips by car. Only
| good people should be allowed to emit carbon unless for
| productive reasons that pass the carbon threshhold for the
| amount of carbon the trips will emit.
|
| Good people as defined by a social credit system. I will
| decide what is a productive reason & what is the carbon
| threshhold!
|
| People totally have the option of living under this type of
| government - it exists in top down centralized places like
| China.
| kristjansson wrote:
| This is a great idea! We could break ones social credit
| down into units. What to call them ... Rallods, maybe?
| Everyone could earn Rallods for doing productive, pro-
| social things. People could even send some of the Rallods
| to each other, in exchange for taking on productive, pro-
| social task they'd prefer not to do. Rallods could even
| be exchanged for goods!
|
| Oh wait ...
| tonguez wrote:
| "People totally have the option of living under this type
| of government - it exists in top down centralized places
| like China."
|
| you're right, i much prefer to live under a decentralized
| government like the United States.
| steveBK123 wrote:
| This is one of the benefits of the federal / state divide
| in the US too. If you are worried about the other side
| being crazy, you can live in a state that solidly on your
| side of the aisle, and be insulated from when the other
| side is in power at the federal level.
| MrMan wrote:
| what do you do sell us ads?
| tick_tock_tick wrote:
| Dude go look up why futures were even created. They fix a
| real problem.
| JumpCrisscross wrote:
| > _complete ban on all non-productive financial schemes_
|
| I surprised myself by how sympathetic I am to this
| proposal, given I've made a career in finance. The problem,
| however, is separating productive from unproductive schemes
| _ex ante_.
|
| > _" futures trader" extracting value from the system
| buying/selling futures has done no "real" work, their
| profit comes exclusively from making others pay more_
|
| Great example. In 1958, the Congress banned "the trading of
| futures contracts on onions" [1]. By the 2000s, increased
| price volatility--which had to be borne solely by farmers
| and distributors--prompted "the son of a farmer who
| initially lobbied for the ban to advocate a return to onion
| futures trading" [2].
|
| There is a middle ground between banning and a free for
| all. In the former, useful financial products and
| innovation is suppressed. Finance is about allocating real
| resources in our economy. Bad finance is bad. But on the
| other end, everyone steals everything, and investor self-
| interest gives way to the animal spirits we saw leading up
| to the Panic of 1907, the Great Depression, the S&L crisis,
| the Financial Crisis and whatever we'll call crypto.
|
| [1]
| https://en.wikipedia.org/wiki/Onion_Futures_Act#cite_note-
| fo...
|
| [2] https://archive.fortune.com/2008/06/27/news/economy/The
| _onio...
| api wrote:
| > I surprised myself by how sympathetic I am to this
| proposal, given I've made a career in finance. The
| problem, however, is separating productive from
| unproductive schemes ex ante.
|
| This is just the finance sector subset of the larger
| problem of bullshit jobs. We know a substantial fraction
| of jobs are bullshit (non-value-creating), but which
| ones? I have a strong suspicion this is unsolvable
| because any metric you start using to decide which jobs
| are bullshit will instantly be gamed. The system will
| work as hard as it can to prevent you from figuring it
| out, and since it's made of people it is at least as
| intelligent as you are.
|
| The only foolproof way we know of to reduce the number of
| bullshit jobs is brutal recession, but unfortunately that
| also takes a ton of fragile but very innovative and
| promising things down with it. Recession is a bit like
| extreme chemotherapy. It might kill some cancer cells but
| it also kills a shitload of healthy ones and sometimes
| the treatment ultimately fails because it doesn't kill
| enough of the former to justify the latter.
|
| Similar principles exist in other areas like advertising.
| There's a saying in the ad business: "I know I'm wasting
| 80% of my ad spend. I just don't know which 80%."
| NovemberWhiskey wrote:
| Right. I used to sit on a trading floor next to a
| commodities sales desk. If the GP's mental model is that
| people who are involved in futures are, by definition,
| involved in speculation, then that is a wrong model: a
| lot of "real economy" manufacturers hedge their exposure
| to price changes for their inputs or outputs through the
| futures market.
| jtbayly wrote:
| Precisely. A friend of mine trades futures for a non-
| profit made up of growers as members. It is more
| efficient insurance than the federal government offers
| them and saves them millions.
| randbox wrote:
| > There is a middle ground between banning and a free for
| all.
|
| Providing basic banking as a public utility so most
| deposits by individuals, local governments, and small
| businesses are not stored with investment banks engaged
| in speculation. Public banks can be limited to
| originating loans on 100% security of material personal
| property such as crops, livestock, cheese, gold, lumber,
| steel and prohibited from originating loans on security
| of state property such as money (which might be obtained
| via leveraged loan from another lender) or on security of
| common property such as excess real estate values
| attributable to land scarcity.
| JumpCrisscross wrote:
| > _banks can be limited to originating loans on 100%
| security of material personal property such as crops,
| livestock, cheese, gold, lumber, steel_
|
| The problem isn't getting loans on one's crops. It's
| transferring the price risk to someone better able to
| bear it.
|
| Farmers want a guaranteed profit when they plant. Loans
| don't address that. Futures do. (It's why they were
| invented, in the 17th century, by the Dutch and
| Japanese.) The only real alternative is government
| guarantees. Those bring their own host of problems.
| clairity wrote:
| futures don't guarantee a profit, only a price. it's up
| to the farmer to decide whether the price is worth the
| planting (regardless of profit). and the pricing function
| only works well in an uncorrupt market.
|
| the problem isn't the existence of the futures markets,
| but the same kind of over-consolidation that corrupts
| every laissez faire market, making them inefficient and
| brittle in the long-run. if regulation encouraged
| primarily mid-sized firms, rather than a few large ones,
| we'd have better informed and more efficient markets,
| albeit less lucrative since the firms wouldn't have undue
| (read: corrupting) influence.
|
| note that insurance is another alternative to futures or
| gov guarantees, though i'd question the need to
| externalize risk, which manifests a critical market-
| shaping signal.
| randbox wrote:
| > The problem isn't getting loans on one's crops. It's
| transferring the price risk to someone else. When a
| farmer plants, they want a guaranteed profit. Loans don't
| address that problem. Futures do. (It's why they were
| invented, in the 17th century, by the Dutch and
| Japanese.)
|
| The problem is excess credit available to financial firms
| engaging in leveraged speculation and financial services
| investment, resulting in financial sector employment and
| compensation that is super-proportionate to any real
| savings generated for non-financial producers. This
| leverage is enhanced by the lack of free (zero-fee)
| public alternative for basic banking services. It is not
| necessary for public banks providing basic banking
| services to guarantee profits for farmers. Provide
| savings, transfers, and liquidity loans at present values
| at what an option to sell existing previously planted
| crops would be worth might be sufficient to reduce
| deposits held by banks engaging in leveraged speculation.
| Providing basic banking as a public utility is the middle
| way the parent commenter advocated because it does not
| require banning anything.
| steveBK123 wrote:
| Exactly. The problem is that "good/useful" is in the eye
| of the beholder.
|
| For example, bank prop trading bans went into effect but
| really how does one differentiate prop from "customer
| facilitation" or heding. Its a sliding scale of grays.
|
| So instead of Citi having a trader going "I think I'll
| buy some S&P calls today and bet on the index" he instead
| can only do that if 1) a client wants to sell some & he
| takes the other side, or 2) there is some other exposures
| accumulated do to customer facilitation such that he can
| justify buying S&P as a hedge.
|
| The same risk is being put on, but for different reasons.
| Or you could say the only thing that is changed is who
| has initiated the risk - customer, instead of bank.
|
| Futures of course exist for very good, historical
| reasons. How do people think their home heating oil
| company offers you fixed price contracts for the season,
| etc?
|
| Reducing the number of players in a market usually only
| increases volatility, transaction costs and illiquidity.
| rsync wrote:
| "The "futures trader" extracting value from the system
| buying/selling futures has done no "real" work"
|
| Small farmers hedging next years crop would like a word
| with you ...
|
| ... and there are one hundred examples just like that.
|
| Did you ever convert foreign currencies in advance of an
| international trip when you saw the currency pair move
| favorably ? Have you ever bought an ETF ? _Do you have a
| mortgage in the United States ?_
|
| All of these things are possible because of a highly
| liquid, regulated market with diverse participants ...
|
| ... which brings us to the obligatory Margin Call[1] quote:
|
| "Jesus, Seth. Listen, if you really wanna do this with your
| life you have to believe you're necessary and you are.
| People wanna live like this in their cars and big fuckin'
| houses they can't even pay for, then you're necessary. The
| only reason that they all get to continue living like kings
| is cause we got our fingers on the scales in their favor. I
| take my hand off and then the whole world gets really
| fuckin' fair really fuckin' quickly and nobody actually
| wants that. They say they do but they don't. They want what
| we have to give them but they also wanna, you know, play
| innocent and pretend they have no idea where it came from."
|
| [1] https://en.wikipedia.org/wiki/Margin_Call
| ceeplusplus wrote:
| Comparing sophisticated market makers trading using their
| own money to "hedge funds" run by some rich guy's son
| charging 2 and 20 are hardly the same.
|
| The bank in Margin Call was packaging MBS out of
| mortgages, not speculating on the price of commodities
| using derivatives to gain leverage.
| rsync wrote:
| "The bank in Margin Call was packaging MBS out of
| mortgages, not speculating on the price of commodities
| using derivatives to gain leverage."
|
| Correct. That's my point.
|
| It's not merely that you can't have one without the other
| ... it's that you very likely wouldn't want to eliminate
| the (margin call guys) _even if you could_.
| robertlagrant wrote:
| The person you're replying to was talking about futures
| traders. Where did you get a rich guy's son from?
| ceeplusplus wrote:
| Speculating on futures and other derivatives is basically
| what those rich guy's sons are doing in their hedge
| funds. Most hedge funds get worse returns than the S&P
| 500.
| scatters wrote:
| Getting worse returns than the S&P 500 is still valuable,
| if those returns are uncorrelated.
| jtbayly wrote:
| So... then let them? If they're losing money compared to
| what they could by doing nothing, I don't see the
| problem.
| steveBK123 wrote:
| As a non sarcastic response I would note that financial
| intermediation exists for the purposes of transforming
| types and durations of risks between people/firms trying to
| offload from / take on that risk.
|
| This is how things like 30 year fixed rate mortgages, low
| fee index ETFs, target date retirement funds, fixed price
| home heating oil contracts, every form of insurance, etc
| can exist in the consumer space.
|
| In the B2B space you have all the companies with needs to
| lock in prices for future inputs in order to control costs
| & plan their own output pricing, etc.
|
| All of this has greatly reduced the boom-bust cycle of the
| pre-Fed economy. As bad as 2000 or 2008 may have felt, they
| were nothing like the great depression of numerous 19th
| century recessions & depressions.
| jonahbenton wrote:
| Eye of the beholder, as others have said.
|
| I would point you to Stuart Banner's Speculation: A History
| of the Fine Line between Gambling and Investing
|
| https://www.amazon.com/dp/0190623047/
|
| Excellent coverage of the history of the attempt to make a
| distinction.
| alasdair_ wrote:
| >The "futures trader" extracting value from the system
| buying/selling futures has done no "real" work, their
| profit comes exclusively from making others pay more. The
| financial world is full of middle-men parasites like this.
|
| If I am a farmer and I want to lock in a price for my crops
| right now, who am I supposed to sell that future to?
|
| Sure, a small percentage of the time, I can sell to someone
| who knows that they need my crops on exactly that date of
| delivery, but a lot of the time there simply won't be
| anyone who knows at that exact moment that they need
| exactly what I am selling.
|
| Having traders in the system means that I always have a
| buyer when I want to sell (and similarly when a user of the
| item wants to buy).
|
| >They love to use the "making the market more efficient"
| and "price discovery" BS, but I believe they know what
| they're doing is solely about enriching themselves.
|
| So what? If, through the trader solely enriching
| themselves, we get something useful from it, why does their
| motivation matter?
|
| A baker bakes solely to enrich themselves as well - this is
| the nature of capitalism. The end result is what I care
| about.
| throwaway0x7E6 wrote:
| why stop there? lets ban _all_ activity that doesn 't
| produce tangible goods. the number of parasites, i.e.
| people who consume tangible goods but don't produce them,
| is probably higher than the number of people who do
|
| fields, mines and factories. we don't _need_ anything else
| randbox wrote:
| Material production still requires accounting,
| installation, transportation, delivery, disposition,
| optimization. Financial parasitism more clearly occurs
| when someone pledges something to lenders which they do
| not actually own. For example in the 19th century when JP
| Morgan lent to planters on security of chattel slaves,
| the planters pledged the bodies of other people as
| collateral. Arguably loans should only be issued on
| security of personal property which does not deny the
| personal property rights of others. This might exclude
| leveraged lending of money on security of money (arguably
| lending on security of state property) and excess real
| values due to land scarcity (arguably lending on security
| of common property).
| runarberg wrote:
| I would really like to know what would happen if--in a wave
| of international solidarity between all the workers in the
| world--workers would take their profits in their own hands
| and away from any shareholder and overpaid non-contributing
| CEOs. What would happen to all these markets.
|
| Would a company controlled by their own workers choice to
| funnel parts of their profits to wall street traders?
| Probably not. Would there be any money to be gained on the
| stock market in such an environment? Probably not.
|
| So a natural question to ask then is. What value is there
| in the stock market which does not rely on money being
| siphoned away from workers?
| dasudasu wrote:
| There is a counterparty to every financial transaction.
| Presumably, both sides are happy if they agree to trade
| with each other. All of what you call "unproductive
| financial schemes" are mostly about exchanging risks, just
| like insurance.
| jandrese wrote:
| Casino gambling is a form of "exchanging risk".
| ClumsyPilot wrote:
| For example when people themselves into slavery
|
| Any conman worth his salt can sell a lemon, a toxic
| financial product or snake oil.
|
| In UK naive homebuyers bought leaseholds where service
| charge and ground rent increased EXPONENTIALLY every 10
| years. They even had lawyers, and those greenlit the
| deal.
|
| Or when banks handed loans to strippers and then sold the
| loan to 'investors' causing subprime mortgage loan crisis
| of 2008. S&P were meant to do due dilligence, the
| 'sophisticated investors' were meant to do due
| dilligence, but here we are
| secondcoming wrote:
| > We have an entire parasite class that grown unfathomably
| wealthy while providing no real value to the rest of
| society.
|
| Measuring people by how much 'value' they bring to society
| is a real slippery slope, my friend
| steveBK123 wrote:
| Yeah. Big "social credit system is good, actually" brain
| there..
| ClumsyPilot wrote:
| > Holding Tether is putting money into a 19th century free
| bank, except instead of interest you get to stick a finger to
| the Man.
|
| But tether only works if backed by well-capitalised entities,
| i.e. the Man, so you are sticking what?
| yxhuvud wrote:
| Or potentially like putting money into British Pounds or
| Swedish Crowns in early nineties - just waiting for someone
| with a bigger wallet to come around and break the
| capitalization by shorting.
| not2b wrote:
| Not the same at all: those currencies went down a little,
| they didn't completely collapse.
| steveBK123 wrote:
| "Holding Tether is putting money into a 19th century free
| bank, except instead of interest you get to stick a finger to
| the Man."
|
| LOL yes I am assuming some sarcasm here. Sticking ones finger
| up to the man by.. holding cash equivalents in forms not
| eligible for FDIC insurance, yes!!
| civilized wrote:
| Me sowing the wind: wow, this is so easy. I am going to
| reap so much. Can't believe everyone isn't already doing
| this.
|
| Me reaping the whirlwind: this is not what I was told to
| expect! It's just what I put in, but more whirly! Huge
| disappointment.
| CyanBird wrote:
| Want to stick it to the man for real?
|
| Buy Iranian government bonds, Venezuelan government bonds,
| Bolivian government bonds, etc
|
| Will you get a return? Not all that likely (not unlikely
| either) , but you would indeed be sticking it to "the man"
|
| Buying tether? Ha heck no
| giaour wrote:
| I'm pretty sure the man will stick it back to you if you
| follow this advice.
| chinathrow wrote:
| They want to prop up Tether until they don't want any longer.
|
| Nothing lasts forever, especially in cryptoland.
| kirse wrote:
| _As long as there are well-capitalized parties that want to
| prop up Tether_
|
| That's been my personal conclusion as well but it led me to the
| next question of what # is the breaking point for these well-
| capitalized parties?
|
| I tried looking at the size of other well-known collapses like
| Enron, LTCM, Lehman Bros, etc. LB reportedly had $700B in
| assets and liabilities before the underlying asset devaluation
| precipitated their cave in. Tether survived the recent de-peg
| due to trading shops like Alameda absorbing the free 1-5% with
| their cash flow, which I believe is also responsible for the
| recent 11% drawdown in Market Cap (I assume due to
| redemptions). That said I'm not really experienced enough to
| know how these backroom overnight liquidity issues get
| resolved.
|
| My hunch is given the true global reach of the crypto market
| Tether could easily get to $nnnB or $nT before we experience a
| black swan event that results in a liquidity crisis. Assuming
| they survive these short-term recessionary pressures, my long-
| term prediction is we're just setting ourselves up for another
| roaring '20s again, with crypto eventually learning all the
| same fundamental financial lessons we did back then.
| overtonwhy wrote:
| The majority of this scam is happening on unlicensed
| unregulated off shore exchanges. They don't keep client funds
| segregated either. When the bubble pops they all go down. The
| bag holders won't even realize it until the website domains
| stop resolving. It's musical chairs and the music stopped
| playing earlier this year when the audits of Tether's
| reserves came out. Now people that were listening are getting
| as much out as possible before the seats are all gone.
| dwater wrote:
| I don't have the time, but I'd love to see someone rewrite
| "Reminiscences of a Stock Operator" as "Reminiscences of a
| Crypto Operator". I don't think you'd have to change any of
| the scams, only the context. Partner with a good illustrator
| and it would make a lovely coffee table book.
|
| https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Opera.
| ..
| [deleted]
| lacker wrote:
| It's such a weird "bet", though. Pay $1, get back $1 if you
| win, get back $0 if you lose.
| tlb wrote:
| You can make 30% interest on deposits. It's better than
| picking up pennies in front of the proverbial steamroller.
| More like quarters.
| lottin wrote:
| When you hold Tether, you're taking a risk that your
| Tethers might not be redeemable in USD. As far as I know,
| this risk isn't compensated in any way, shape or form.
|
| When you deposit your Tethers somewhere, you're taking an
| additional risk, namely the risk that you might not get the
| deposit back. The interest that you get on deposits is
| compensation for taking that risk, but not for the other
| risk.
| tlb wrote:
| For sure, holding tether (or any stablecoin) without
| investing it is pointless. It can't go up, but might go
| down. The only reason to hold it (longer than to do a
| transaction) is if you're making a return.
| PKop wrote:
| If you just sit in Tether sure, but the ecosystem of
| stablecoins gives you access to DeFi yield opportunities with
| much better "passive" interest than bank deposits or
| treasuries, so the bet is a little more sophisticated than
| dollar for dollar.
| ironlake wrote:
| Terra Luna offered some great DeFi yield opportunities.
|
| Unrealistic yield is one of the hallmarks of a ponzi
| scheme. The DeFi yield opportunities require more money to
| flow in than to flow out.
|
| Apple stock, for example, pays a dividend that is not
| dependent on more people buying Apple stock but on the
| company profits for the next quarter.
| chinathrow wrote:
| Have you ever thought where that yield comes from?
| runarberg wrote:
| I'm confused. Banks and credit unions pay interest on
| savings because they can loan or invest that money with
| higher yields then the interest they pay to the
| customer/member.
|
| How exactly do cryptocurrencies finance their DeFi yields
| to their investors? The only way I can think of is with the
| money of future investors, but that is a pretty blatant
| Ponzi scheme.
| tyrfing wrote:
| Loans.
| lottin wrote:
| Why would anyone pay 30% interest on a loan, in an
| environment of negative interest rates?
| tyrfing wrote:
| Can you explain where the 30% number comes from?
| runarberg wrote:
| Yeah, that still doesn't make sense. If that were to be
| sustainable you would have charge higher interest on the
| loans then you give to savings. That means a customer has
| the potential of getting a loan in an alien currency
| which they'd have to sell to USD, and then buy some more
| of that alien currency to pay it back with much higher
| interest then if they would have just gone to a
| bank/credit union/loan agency.
|
| These DeFi yields must be funded in other ways than just
| loans.
| tyrfing wrote:
| > If that were to be sustainable you would have charge
| higher interest on the loans then you give to savings.
|
| Which is exactly how protocols like Compound work,
| although 'governance tokens' are also issued simply for
| using the system.
|
| > These DeFi yields must be funded in other ways than
| just loans.
|
| Which? DeFi stands for Decentralized Finance, which
| pretty much means the rules are easily available - as
| long as you talk about a specific example, not spherical
| cows.
| runarberg wrote:
| I'm sorry but I'm still confused. Who are the people
| taking these inconvenient, unoptimal and expensive loans,
| when they can get better and cheaper loans through
| traditional means? Something doesn't smell right.
|
| Also 'governance tokens'? This smells like another term
| for "money from new users entering the system". Which is
| precisely how Ponzi schemes work.
|
| EDIT: I went on a little scouting mission on google (well
| DDG actually) to find out if I could borrow some USDT on
| the Compound and how much it would cost me. But I mostly
| came across articles explaining how you could make money
| by doing the opposite (buying Tether and lending it), and
| numerous dashboards with all sorts of hard to understand
| data with the prices of various cryptocurrencies and some
| rates I couldn't understand. I suspect that the only
| people borrowing USDT are actually also speculators that
| are invested in the cryptocurrency market (perhaps they
| are trying to short it).
| nradov wrote:
| Actually the DeFi yield opportunities are not any better
| than Treasuries on a risk-adjusted basis. You might not be
| familiar with the actual risk level, including counterparty
| risk. Some of the cryptocurrency grifters have
| intentionally obscured that issue.
| muttantt wrote:
| The "DeFi yield opportunities" of today were the HYIP
| ponzis of years past.
| jazzyjackson wrote:
| > sophisticated
|
| aka obfuscated
|
| does the yield come from anywhere other than funds
| deposited by new users?
| tigershark wrote:
| No
| jfk13 wrote:
| > ecosystem of stablecoins
|
| "stable" coins... yes, that's been an interesting ecosystem
| lately.
|
| > access to DeFi yield opportunities with much better
| "passive" interest than bank deposits or treasuries
|
| Not to mention much greater risk of losing everything.
| tlb wrote:
| You have to predict what those well-capitalized parties will do
| during a market panic. Decision making seems to change quickly
| when half the money has just disappeared, to focus on salvaging
| as much as possible.
| Salgat wrote:
| Exactly. It's not whether Bitfinex is able to prop it up,
| it's whether Bitfinex thinks Tether can be propped up without
| too much expense. At a certain point it no longer becomes
| worth propping up, and that number is very far from the
| current $74B market cap it's currently at.
| bendtheblock wrote:
| For anything to work efficiently in crypto it always needs to
| be centralised e.g. OpenSea, Coinbase. Both of which
| hilariously are backed by a16z. As Scott G says... "meet the
| new boss... it's your old boss"
|
| More examples: Metamask, Moralis, Blockchain.com, Kraken,
| Binance
| tootie wrote:
| Backed by the full faith and credit of Bitfinex
| dpierce9 wrote:
| "that want to prop up Tether" AND are able to do so.
|
| Crypto risks are highly correlated. The ability to bail out
| Tether is not a given.
| giaour wrote:
| > As long as there are well-capitalized parties (Bitfinex,
| other exchanges) that want to prop up Tether, it will be fine.
|
| Doesn't that make Tether a fiat currency?
| rickreynoldssf wrote:
| I think Tether is the ultimate "Fake it till you make it"
| organization in crypto. Its kind of a joke now but everyone is in
| on the joke but it will probably end up being the defacto crypto
| parking place once things get real in crypto (e.g. you can buy a
| house with it) and the adults come in and shake out the current
| management.
| TameAntelope wrote:
| Why wouldn't something like USDC be a better "crypto parking
| place"?
| mh- wrote:
| > once things get real in crypto (e.g. you can buy a house with
| it)
|
| it feels odd to speak about this scenario like it's a foregone
| conclusion.
| jandrese wrote:
| It doesn't even make sense in many cases. Bitcoin for example
| will never be useful as a medium of general exchange, the
| transaction volume is way too low to support it. Plus its
| deflationary nature makes it at odds with a healthy economy,
| where you want gradual inflation to at least exceed the
| birthrate so there is a hope of lifting people out of
| poverty.
|
| The workaround is to put everything on exchanges, but then
| you've lost the decentralized nature of Bitcoin and you are
| back to just a central database owned by a company, AKA a
| bank.
| legulere wrote:
| More centralized digital currencies with regulations backed
| by central banks have a pretty big potential to disrupt basic
| banking services. Most problems of cryptocurrencies can be
| solved with a trusted third party. The question is only how
| long banks can lobby against that.
| mh- wrote:
| That is _far_ from the only question.
| JackFr wrote:
| Literally never gonna happen
| AlexandrB wrote:
| No kidding. Crypto is _deeply_ unpopular with a significant
| portion of the public - myself included. This is not the same
| as the early era of smartphones where you either had one or
| didn 't really know much about them (i.e. were neutral). Many
| people have made up their minds on the utility (or lack
| thereof) of crypto and want _nothing_ to do with it. Some of
| the recent incidents of backlash around NFTs in games come to
| mind.
| peyton wrote:
| It's just money. It's a commodity. If I can get a better
| deal on a house if I pay with crypto, I'll do it--don't
| need your approval, really.
| greiskul wrote:
| If you want to buy my house, you kind of do. Everybody
| accepts money as payment. Most people don't accept crypto
| as payment.
| JackFr wrote:
| > It's just money.
|
| Not really.
|
| > I'll do it--don't need your approval, really
|
| Mine? No. You want a title to go with that house ? Well
| then, yeah, there are some third parties whose opinions
| matter.
| rglullis wrote:
| It's not a matter of being a joke. It's a matter of being
| _criminals_.
|
| Besides, Coinbase/Circle is already miles ahead in this race
| for institutional credibility.
| lupire wrote:
| Coinbase, the company that freezes accounts whenever the
| market gets more volatile?
| rglullis wrote:
| Almost. Circle is more than just Coinbase.
|
| And anyway, your cheap jab at Coinbase has no comparison
| with Tether. Circuit breakers are not an invention from
| crypto exchanges. Besides, they also are one of the
| investors in Uniswap, which lets you trade without any
| middlemen.
| nradov wrote:
| You can buy a house with cryptocurrency. Not sure if that's a
| good idea, but it's happening.
|
| https://www.cnbc.com/2022/05/02/greenwich-mansion-for-sale-w...
|
| Legally though, the transaction still has to be recorded and
| taxed in USD.
| vmception wrote:
| > As of this writing, on May 20th, it has yet to regain the peg.
|
| Its trading at $0.99974 and has gone over $1 several times just
| today and over the last week. Which definition of peg matters
| here? Its not causing mass liquidations in Defi platforms because
| it trades so close to peg, it is still redeemable for $1.00 if
| you are non-US and have over 100,000 units.
|
| This article has percentages for _everything_ except when they
| don 't reinforce the universally negative view of tether.
|
| Is there another source that is less invested to corroborate
| everything more accurately?
|
| Its kind of stupid to observe something different and be seen as
| "pro tether", but lets just stick to accuracy.
| chinathrow wrote:
| I cannot wait seeing it going down soon enough.
| SemanticStrengh wrote:
| I'd wish too but honestly I believe there are powerful enough
| whales behind it to back it with a superior to dollar peg,
| there's no possible price crash mechanism like there was for
| UST if I understand correctly and it is backed at more than 70%
| [deleted]
| TameAntelope wrote:
| Is this what the earlier "hash drop" tweet [0] was about?
|
| [0] https://twitter.com/patio11/status/1527616238586716160
| dogecoinbase wrote:
| Hah, good catch. Kind of can't believe he's still doing that
| after the last time [0]
|
| 0: The tweet:
| https://twitter.com/patio11/status/1241551327743770624
|
| The, ah, assertion:
| https://twitter.com/patio11/status/1241553311024603140
|
| > I am materially wrong about the most consequential thing I've
| had to have a view on in 15 years. You should probably degrade
| your estimate of my ability to think through complex problems.
|
| The prediction:
| https://twitter.com/patio11/status/1252584289486565377
|
| which is a link to https://www.kalzumeus.com/2020/04/21/japan-
| coronavirus/ , which states, on April 4 2020:
|
| > Japan will face a national health crisis within a month.
|
| Of course, he then edited it with a framing in which he claims:
|
| > The core result was correct.
|
| > ...
|
| > This prediction was correct.
|
| So not only was he wrong, he refuses to acknowledge or
| understand how and why he was wrong. And continues to tweet
| hashes as though we should give anything he says any merit
| whatsoever.
| TameAntelope wrote:
| How was he wrong? I remember this dust up but only now having
| actually read the whitepaper I see he was extremely alarmed
| by covid-19, which was entirely correct.
|
| Further, it's apparently a very common thing in cybersecurity
| circles (though I've worked in cybersecurity for a decade and
| don't recognize the idiom, but my experience is more in
| software dev than research), so I don't really get why he'd
| stop even if he got a prediction wrong.
| DebtDeflation wrote:
| Wait, so on March 25, 2020 he predicted that there was going
| to be a coronavirus pandemic (and that Japan would be
| impacted)? The WHO had already declared a global pandemic on
| March 12, 2020 and there was no reason to believe that Japan
| or any other country would be spared.
| dogecoinbase wrote:
| > Japan will face a national health crisis within a month.
|
| (spoiler: they didn't)
| TameAntelope wrote:
| ...yes they did.
| ianferrel wrote:
| Yes.
| lupire wrote:
| https://nitter.net/patio11/status/1527616238586716160
| meirelles wrote:
| silly question, being USDT "only" 80B, why does it matter if it
| collapses? considering cryptos market cap is more than 1T, and
| 100B's wipeouts routine, sometimes during crypto winters (where
| we observe -80% across the board) or collapses such as Luna
| recently (>50B? no idea)
|
| Of course, panic would happen, but still. I think people would
| move on, forget, and continue believing whatever they want to
|
| just curious to read counterarguments
| lupire wrote:
| People need tether to avoid going all the way off chain when
| they sell.
| Tao332 wrote:
| Genuinely curious: why do people need that?
| HideousKojima wrote:
| Taxes
| ceejayoz wrote:
| Going off-chain means transferring actual money, which
| means large transactions get reported, which means
| authorities get wind of unpaid taxes.
| throwaway92394 wrote:
| De-fi doesn't _technically_ need it but it's highly
| preferable.
|
| Let's say you want to actively trade ETH against the USD.
| If you think ETH will go down the you want to sell it. Now
| if it's in a non-custodial wallet that you control, you
| would need to send it to an exchange, sell it, then hold
| USD on the exchange (were you have no control of it and
| they can seize it for fraud investigations, etc. -
| basically your money is held by a 3rd party).
|
| Instead you can "sell" your ETH by trading it for a
| stablecoin pegged to the dollar. This way the only risk is
| the contract for the trade (which can be publically
| audited) and your money stays in your control.
|
| Or if you wanted to accept cryptocurrency as payment but
| still only wanted the USD because of it's stability - you
| could accept that (this isn't very common as gas fees are
| rather high).
|
| tl;dr - With exchanges a 3rd party has your money and a
| IOU. Coinbase has already said user crypto could be at risk
| in the case of bankrupcy. De-Fi removes this risk while
| still allowing you to trade against the USD.
|
| disclaimer - Whether you want to do this might be a
| different question, just giving the reason for wanting a
| stablecoin.
|
| edit: For those saying taxes - the US IRS still counts this
| as a sale and it's still taxed the same as an exchange
| trade - other countries might differ. Given the KYC/AML
| requirements and lack of general public knowledge about
| anonymity of crypto - I think sooner then later we'll see a
| crackdown.
| phphphphp wrote:
| Market cap is not the sum of all injected capital, it's the
| total supply multiplied by the most recent value of a unit. For
| example, if you paint 2 paintings and sell them to me for $100
| each, and then I sell 1 of them for $1000 to a third-party, the
| market cap of your paintings is $2000 ($1000 x 2 paintings)
| despite there only being $1100 dollars spent.
|
| It's plausible that there's less than $80bn of USD in the
| crypto market and so tether could well represent every single
| dollar available. I don't know if I'd argue that is the case,
| but it's certainly plausible -- and so it's easy to see how a
| collapsing tether could take down the entire market, or at
| least, represent a far greater threat than the ~5% it
| represents in market cap numbers.
| [deleted]
| tomatowurst wrote:
| so what happens to the bitfinex gang? giancarlo, ardoino, "frog",
| CZ, Justin Sun and Marc Andreesen?
| onesafari wrote:
| What happens if Tether fails, realistically?
|
| There's a lot of doomsaying around it, but after seeing the
| crypto market shrug off the loss of Terra Luna without contagion
| or bailout ala GFC crisis, the fear may be overblown. Terra was
| backed entirely by hot air, whereas Tether is mostly backed.
| Wouldn't the net loss be similar or even less?
| jeremyjh wrote:
| When a market panics and people "sell" their crypto on most
| exchanges, what they are actually doing is trading them for
| tethers. If the tether then collapses they are entirely wiped
| out.
| rvz wrote:
| > What happens if Tether fails, realistically?
|
| Well that would not be good for Bitcoin and the entire
| cryptocurrency market would it?
| redisman wrote:
| Tether is the de facto dollar. Hopefully most exchanges move
| off of it or at least have alternatives. I'm also wondering if
| it wouldn't be the kind of catastrophe people were saying
| before
| gringoDan wrote:
| So assume Tether loses its peg. Worst-case:
|
| 1. Anyone holding Tether tries to cash out. Whales and
| important customers are allowed to redeem USDT for USD at a 1:1
| ratio. Tether sells its crypto and other assets to cover
| redemptions, driving down the price of those assets.
|
| 2. Eventually Tether limits the withdrawals.
|
| 3. You're stuck with Tether you can't withdraw. What do you do?
| Try to exchange it for BTC or ETH ("blue-chip" crypto), which
| you can then hold or cash out on an exchange that is USD- or
| USDC-denominated.
|
| 4. Any exchange with Tether-denominated crypto prices are going
| to see those prices EXPLODE as there will be no sellers of the
| crypto. So you'll see some sort of weird market where BTC on
| Bitfinex costs $500k but BTC on Coinbase costs $10k.
|
| 5. If you're still stuck with Tether, you lose all your money
| or everything gets tied up in court a la Mt. Gox.
|
| EDIT:
|
| Fun potential #6 - if you're holding crypto on an exchange with
| Tether exposure, they may not allow withdrawals. The holder of
| the private keys may seize your assets to cover their debts.
|
| Not sure how likely this scenario is, but even Coinbase (about
| as regulated as it gets in crypto) recently admitted that its
| bankruptcy could wipe out user funds:
| https://fortune.com/2022/05/11/coinbase-bankruptcy-crypto-as...
| postalrat wrote:
| You say the price will explode. But is that explosion just
| the relative price of bitcoin and tether? Tether is dropping
| to 0 and so bitcoin price "explodes" because you are still
| comparing it to tether.
| gringoDan wrote:
| Correct. Price of BTC denominated in Tether goes up, price
| of BTC denominated in USD likely goes down, as a) Tether
| liquidates crypto assets to cover redemptions and b) people
| sell off their crypto assets due to uncertainty/fear in the
| market.
| ARandumGuy wrote:
| It's almost impossible to say for sure. It could be anything
| from "the crypto market is shaken a bit, but quickly recovers"
| to "it leads to the downfall of the entire crypto ecosystem".
| Any more specific estimations are ultimately just a guess.
|
| That being said, from an outside observer, the crypto market
| does not look healthy right now, and Tether is part of that.
| The safe guess is that the crypto market hasn't reached its low
| point yet, and its impossible to say if it will ever get back
| to November 2021 levels again.
| Finnucane wrote:
| In real engineering, you try to figure out what might happen if
| your system fails. In 'financial engineering' you assume
| failure won't happen, and get caught with your pants down when
| it does.
| ajb wrote:
| " A sound banker, alas, is not one who foresees danger and
| avoids it, but one who, when he is ruined, is ruined in a
| conventional way along with his fellows, so that no one can
| really blame him." John Maynard Keynes
| dralley wrote:
| Nobody ever got fired for buying IBM / AWS / Microsoft
| winslett wrote:
| It is one step closer to shutting the doors on Bitcoin as an
| isolated financial ecosystem. Bitcoin-to-actual-USD is a
| trackable / taxable event. Whales avoid it like the plague.
|
| By moving to a pseudo-dollar like Tether, market makers can
| hang out while they wait for a suspect better buy-in price in
| the future. Should pseudo-dollars go way, they actual-Dollar
| transactions get a taxable haircut. Additionally, the friction
| of going from actual-Dollar to Bitcoin increases.
|
| Tether is effectively behaving as a crypto-clearing house with
| their pseudo-dollar.
| avalys wrote:
| Aren't sales of Bitcoin for Tether taxable anyway?
| wbl wrote:
| You are assuming traders are being makpid about IRS
| compliance and reporting.
| imhoguy wrote:
| In Germany selling crypto for fiat after year should be tax
| free. https://www.coindesk.com/policy/2022/05/11/germany-
| publishes...
| mateuszf wrote:
| > Aren't sales of Bitcoin for Tether taxable anyway?
|
| Maybe in US, but not everywhere. For example in Poland
| where I live crypto to crypto transactions are not taxable.
| Grimburger wrote:
| Can't speak for other countries but for Australians, yes,
| it's a taxable capital gains event.
| astrange wrote:
| Decentralized exchanges probably don't give you the reports
| you need to do taxes even if you wanted to do them.
| alasdair_ wrote:
| >whereas Tether is mostly backed
|
| I've not seem credible proof that Tether has even 50% backing,
| especially 50% backing in uncorrelated assets (since if the
| holdings are in other crypto, those holdings will likely all
| take a dive when Tether does).
| georgeecollins wrote:
| Isn't tether a way to redeem crypto that evades KYC (know your
| customer)? So if I am shady person getting paid in bitcoin, I
| can essentially bank in crypto and avoid the volatility of
| crypto assets without the institution I work with needing to
| check me out. It tether goes away (and presumably all other
| stable coins with them) wouldn't the utility of crypto be
| reduced for anyone avoiding the traditional banking system?
|
| I don't pretend to know. I am asking if that might be the case.
| labrador wrote:
| Your casino chips are fine until the casino blows up
|
| https://en.wikipedia.org/wiki/Harvey%27s_Resort_Hotel_bombin...
| syspec wrote:
| Wow that's a great story!
| nootropicat wrote:
| Tether fud in 2022 is truly embarassing and slanderous. The only
| time they had real problems was when part of their money was
| stolen and confiscated with connection to Crypto Capital - which
| only happened because they were refused normal banking. The only
| way tether fails is if the situation repeats in some way - but it
| appears American government finally gave up on trying to destroy
| usdt.
|
| As long as the US government itself doesn't try to destroy them
| again - in few years tether is going into hundreds of billions.
| jcranmer wrote:
| If Tether is telling the truth in their attestation, they held
| $5 billion in cryptocurrency a month and a half ago, and had
| only about $160 million in extra assets to cover their
| liabilities. Given the extent of the collapse of the
| cryptocurrency market (and markets in general, do note), _by
| Tether 's own words_, Tether is either insolvent or required
| someone decently steep infusions of cash. As far as I'm aware
| Tether has not announced either, so either Tether is lying
| about its own solvency or... Tether is covering up its own
| insolvency.
|
| Actually, come to think of it, Tether does claim to publish
| asset and liability totals (if not breakdowns) in near real
| time, so let's see how it's doing. And, surprise, Tether
| somehow _still_ has just $160 million in extra assets over
| liabilities. In fact, between the attestation date of March 31,
| 2022 and the latest update as of last night, this buffer has
| changed by just $186. That kind of performance is... well, not
| credible.
| ceejayoz wrote:
| > which only happened because they were refused normal banking
|
| They gave nearly a billion dollars to someone _without a
| contract_. That 's a higher level of stupidity than just "we
| used a shady banking partner because we had no alternative".
| hiq wrote:
| Can somebody explain why the NYAG required that they publish
| quarterly attestations given how little reliable information they
| actually provide? What was the point?
| deweller wrote:
| > As of this writing, on May 20th, it has yet to regain the peg
|
| This is misleading. Tether has consistently traded between $0.998
| and $0.999 between May 13th and May 20th. See
| https://coinmarketcap.com/currencies/tether/
|
| Is it trading at 0.1% lower than it was before the Terra USD
| collapse? Yes. Has it "lost its peg"? No.
| downrightmike wrote:
| Anything less than 1.00 might as well be 0.
| patio11 wrote:
| It's remarkable that a stablecoin which was able to mostly
| maintain the peg for years at a time now needs to redefine what
| being pegged means, and that this state of affairs has
| continued for more than a week. That's why I mentioned it.
| zionic wrote:
| On the other hand DAI fluctuates between 0.999 and 1.001 all
| the time. Is it not "stable".
|
| I am no fan of tether, but small fluctuations like this have
| always been normal for "stable coins".
| retcon wrote:
| This is why in regulated markets you can inspect the
| ticker: to provide a audit record for proof that nobody is
| funding themselves or the asset by arbitrage.
| rglullis wrote:
| DAI has been designed to be _soft-pegged_. It is meant to
| fluctuate around the $1 mark, but it never guarantees any
| kind of parity.
| SilasX wrote:
| That's the point. Dai goes below _and above_ $1. Tether has
| stuck below $1. That's an important difference.
|
| Longer comment:
| https://news.ycombinator.com/item?id=31449400
| retcon wrote:
| This might be fine in a open regulated market. See my
| above comment.
| ntoskrnl wrote:
| Peeking at the long term chart[1], I don't think 0.1% is
| notable. In Oct 2018, it bounced around ~1% under the peg for
| most of 2 months. Then in Dec 2018, it bounced around 1-2%
| _over_ the peg for 2 months. A similar swing happened in Apr-
| Jun 2017. I 'm actually surprised, I've never looked at this
| chart before and I didn't expect to see swings of several
| percentage points. But at any rate the current 0.1% is pretty
| tame in comparison and I'm sure it's just the cost of moving
| money to arbitrage.
|
| [1]: https://coinmarketcap.com/currencies/tether/
| 77fourtyfive wrote:
| hiq wrote:
| On https://coinmarketcap.com/currencies/tether/historical-
| data/ you can see that all the highs for the past 7 days
| have been strictly under $1, has this ever happened before?
| ntoskrnl wrote:
| If you zoom in to the first time period I mention (Oct
| 2018), and inspect visually, it was strictly under $1 for
| nearly two months. Right after that it was strictly over
| $1 for nearly two months. That's if you trust that site's
| data of course.
|
| Remember this is the price on the secondary market, and
| these are just random people who see the price and then
| shuffle money around so they can buy a dollar for 99.9
| cents. Anyone can do it (if you can stomach exposure to
| USDT of course). So if the system is working properly the
| price should generally hover within $1 plus or minus the
| cost to move money, but there's nothing keeping it at
| exactly $1.000000.
| JumpCrisscross wrote:
| > _now needs to redefine what being pegged means_
|
| Completely. For context, "the Reserve Primary Fund broke the
| buck when its net asset value (NAV) fell to $0.97 cents per
| share" [1].
|
| [1] https://www.investopedia.com/articles/economics/09/money-
| mar...
| makomk wrote:
| That's something different, though. Money market funds are
| meant to be safe interest bearing investments: they're
| expected to give a small positive return on investment in
| normal times, and to be safe enough that people will at
| least get their original investment back in bad times.
| That's why it's a big deal when something happens which
| causes them to return less than was invested by any amount:
| a safe investment, which gave lower returns in exchange for
| that supposed safety, wasn't.
|
| The goal of Tether is a little different. One USDT is meant
| to be worth one USD. It's just as much a problem for the
| purposes people use it for if USDT is trading above one
| dollar as below, because they're paying more than its
| value. That is, the Tether peg is meant to be two-sided,
| both above and below, and all that's happened is that it's
| gone from trading at slightly above the nominal value to
| trading slightly below it. That's not really "breaking the
| peg" in any meaningful sense.
| JumpCrisscross wrote:
| > _money market funds are meant to be safe interest
| bearing investments_
|
| Tether is supposed to be a safe non-interest bearing
| instrument. (Its promoters just keep the interest.)
| Grimburger wrote:
| You keep digging this hole year after year.
|
| I will bet you $5,000 that Tether holds its price above a
| $0.98 average USD for the next year based on the midnight GMT
| daily print using the Kraken pair of USDT/USD[1]. We take the
| 00:00Z price each day for 365 days and then average it. Would
| you take that wager?
|
| [1] https://trade.kraken.com/charts/KRAKEN:USDT-USD
| houston_Euler wrote:
| I'll take that bet. But you need to put up the $5,000
| first.
|
| So you don't think you're just losing money, I'll issue you
| $5,000 worth of my personal stablecoin that you can redeem
| 1:1.
|
| If you win, I'll give you another $5,000 of my personal
| stablecoin to pay the bet.
|
| You can redeem them whenever you want, I'll be good for it.
| /s
| Grimburger wrote:
| Really can't tell what you are trying to say with all
| those words and a sarcasm tag at the end.
|
| Patrick clearly doesn't want to take the bet. Will you?
| We can put it into USD and some sort of account with a
| third party intermediary. This is very easy to do, winner
| pays the tiny fees involved with that.
|
| I am happy to bet this much against what people are
| saying here regarding Tether being about to crumble. If
| you want a smaller amount that is fine too. This should
| be a simple decision for those who are so certain of what
| they write.
|
| Are any of you willing to back up any of these bold
| sentiments with actual money? Or are you just like the
| rest? All words, no soul?
| thorncorona wrote:
| > Are any of you willing to back up any of these bold
| sentiments with actual money? Or are you just like the
| rest? All words, no soul?
|
| If you are so sure of this then let us make a Real bet.
| 50 million sounds good yes? And if you don't have 50
| million we can simply bet your entire net worth.
| [deleted]
| Grimburger wrote:
| It's a real offer and am willing to part with it if I'm
| wrong. Please don't make a mockery of it
|
| I am happy enough with what was proposed and am not being
| facetious, was wagered directly to the person who wrote
| the article a few others after that.
|
| Don't see anyone daring to take up the challenge, just
| low effort and frankly low-tier commentary that doesn't
| belong on this website in response. I will offer it to
| you as well since you seem keen. Any amount up to $5000
| USD.
|
| It's not much in the scheme of things to prove oneself
| right yes? I'm happy to have it all donated to charity
| which you can claim as tax deductible if that so pleases.
| Or are we not even talking about Tether anymore and just
| something else, something deeper that lurks within the
| unsettled anger of all these comments?
| retcon wrote:
| > I will bet you $5,000 that [...]
|
| Sure, buddy...
|
| Course in a good market you'd lay that risk on the order
| book not come fishing for suckers here...
| Grimburger wrote:
| I'm happy to discuss terms. Over one year I don't see any
| risk to this bet at all. And it seems the people I'm
| offering to feel the same way, as they are running away
| terrified from it.
|
| I offer you the same deal, $5000 USD 1:1 that Tether
| maintains the peg above $0.98 for the next year averaged
| at the UTC 00:00 USDT/USD price on Kraken everyday.
|
| We both keep it with an intermediary who invests in
| something that attempts to maintain a semblance of
| keeping up with inflation.
|
| One year from now we tally up the score and the correct
| person wins. You only need a few days of tether
| collapsing to win this bet.
|
| It's a simple wager that surely makes sense for those
| with all these strong words and bravado in here.
| alasdair_ wrote:
| I'd be interested in that bet for $1000 if it were simply a
| binary "USDT will be below $0.98 at midnight GMT one year
| from today", without the averaging part.
| JumpCrisscross wrote:
| > _We take the 00:00Z price each day for 365 days and then
| average it_
|
| Take the average price at close of Lehman Brother's stock
| in 2008 and you get a positive number. That doesn't make it
| less broke.
|
| > _holds its price above a $0.98 average_
|
| When we say money market funds "broke the buck" in 2008, we
| are talking about one fund going to 97C/ [1]. Moving the
| goalpost to on average outperforming what counts as badly
| bust in real markets concedes a lost peg.
|
| [1]
| https://www.investopedia.com/articles/economics/09/money-
| mar...
| Grimburger wrote:
| Suggest a better methodology crisscross, I'm happy to
| listen. The problem with $1 flat is that anyone can sign
| up and manipulate it over time, holding it a fraction of
| a cent under isn't hard for a moment each day. Constantly
| maintaining a few cents under each day is much, much
| harder, feel free to go look through historic charts of
| what it costs to sell tether for USD over the last few
| years.
|
| All it takes is a few days of near zero in the next year
| to win the wager. Isn't that what patio11 has said would
| happen for what 4 years now?
|
| I'm offering a chance to capitalise on such _deep
| knowledge_ , surely that's a no-brainer choice for
| someone so convinced that Tether is done for?
| JumpCrisscross wrote:
| > _holding it a fraction of a cent under isn 't hard for
| a moment each day_
|
| It shouldn't be. Not for a dollar-pegged asset. Fractions
| of a cent on billions of dollars, dollars easily lent and
| borrowed every day, every minute, is millions of dollars
| a year for an arbitrageur [1].
|
| Hundreds of billions of dollars are deployed into funds
| exploiting smaller differentials on rates and futures
| curves.
|
| > _what patio11 has said would happen for what 4 years
| now?_
|
| Four years isn't long. At the first sign of tight
| markets, the damn thing fell apart to the tune of 5%.
|
| > _that 's a no-brainer choice for someone so convinced
| that Tether is done for?_
|
| People are shorting Tether [2].
|
| The problem is counterparty risk. When Tether busts, you
| want someone on the other side who isn't all in on
| crypto. That's not easy.
|
| [1] _Coinmarketcap shows $0.9989 for 1 Tether, an 11 bp
| spread. Call money is 2.75% [1], or around 75 bps per
| day; too expensive. But the repo rate is 80 bps [2]; less
| than a basis point a day. Borrow a billion against
| collateral, buy one billion Tether, redeem it for one
| dollar each and pay back the loan. You 'll make, round
| trip, a $1mm profit [c]. In one day. Unless we're arguing
| there would be $1mm transaction costs for this trade, one
| must ask why nobody is doing it._
|
| [a] https://www.bankrate.com/rates/interest-rates/call-
| money/
|
| [b] https://www.newyorkfed.org/markets/reference-
| rates/tgcr
|
| [c] _[$1bn - $1bn * 0.9989] - [$1bn * (0.8% / 365)]_
|
| [2] https://www.wsj.com/articles/short-sellers-bet-
| tether-crypto...
| cinquemb wrote:
| > Hundreds of billions of dollars are deployed into funds
| exploiting smaller differentials on rates and futures
| curves.
|
| Legally, IRDs and futures trade/settle on a few
| centralized exchanges with maybe one CCP (at least going
| by clarusft numbers on monthly dv01 volumes [some
| products way trade more on different venues compared to
| others], esp compared to all the places USDT trades) with
| many times rehypothicated US treasuries or other gov
| bonds behind it all, scheme blows up occasionally (was
| fun watching 30 year UST's trade ~30 bps under 75% of
| SOFR txs for a month before sept 2019 'surprise'
| fireworks happened).
|
| > ... buy one billion Tether
|
| With no slippage/spreads on dex's or cex's to be able to
| do this with any stablecoin? Pipe dream. Maybe you can
| market make over the course [unknown amount] of time and
| pick it up on cex/dex's at/under $0.9989, but good luck
| trying that everyday (esp on chain where you will need to
| split that over many address all the time or addr
| tracking algos will front run if the MEV bots dont get
| you on every tx).
|
| Shit show all around, ones just more concealed from the
| public and "regulators" than the other...
| NovemberWhiskey wrote:
| > _The problem is counterparty risk. When Tether busts,
| you want someone on the other side who isn 't all in on
| crypto._
|
| Or indeed shitty Chinese commercial paper. Whatever
| Tether calls its treasury desk must be approximately the
| most stressful seat in the universe.
| retcon wrote:
| Is it not well known that the Lehman International
| (London) book turned the all history record yield when
| finally unwound by the liquidators, and made LB
| fundamentally solvent at the death?
|
| Edit: solvent at crisis time. LBI wasn't linked to
| onshore information systems.
| JumpCrisscross wrote:
| > _made LB fundamentally solvent at the death?_
|
| The problem wasn't solvency. It was liquidity. The point
| of bank regulation is to ensure that banks can survive
| small bouts of illiquidity and remain solvent through
| major ones.
| kasey_junk wrote:
| Thats breaking the peg though! Tether says its 1 to 1 with
| the pegged fiat currency. It doesn't say its .98-1.01.
| There are pegs that do this sort of range based pegging but
| Tether is not claiming that.
| ntoskrnl wrote:
| Tether's claim is that verified users can redeem USDT for
| USD 1:1 at https://tether.to/. Exchanges like Kraken are
| secondary markets and Tether does not claim anything
| about them.
| jfk13 wrote:
| > verified users can redeem USDT for USD 1:1
|
| Or maybe not, who knows:
|
| "Tether reserves the right to delay the redemption or
| withdrawal of Tether Tokens if such delay is necessitated
| by the illiquidity or unavailability or loss of any
| Reserves held by Tether to back the Tether Tokens, and
| Tether reserves the right to redeem Tether Tokens by in-
| kind redemptions of securities and other assets held in
| the Reserves. Tether makes no representations or
| warranties about whether Tether Tokens that may be traded
| on the Site may be traded on the Site at any point in the
| future, if at all."
|
| Oh, and don't forget the fees:
|
| "Fee per fiat withdrawal: The greater of $1,000 or 0.1%"
| hiq wrote:
| > verified users can redeem USDT for USD 1:1 at
| https://tether.to
|
| This has been debunked for a while already, nobody
| believes that anymore.
| patio11 wrote:
| ... At what odds?
| Grimburger wrote:
| 1:1
| patio11 wrote:
| Given that the other crypto people offering "keep me
| honest" bets are offering 5:1, 10:1, and 25:1, on better
| terms, no, that's not interesting, but I'll write you a
| free option to laugh about me over the Internet if it
| turns you you're right.
| Grimburger wrote:
| It's not the money, it's the principle. I'm over
| listening to Tether stuff after all these years on this
| website, personally don't think much of the people behind
| finex but am more than certain the peg will hold up just
| fine this decade.
|
| You're American, I'm Australian, there really shouldn't
| be any problem here with finding a 3rd party
| intermediary, though I'm not sure about US laws on these
| sorts of p2p wagers.
|
| You truly want to get $125,000 in return for my $5000 bet
| on tether maintaining the peg? Surely that says something
| about your faith in them asking 25:1 that they go under
| in the next year? I'm sort of tempted at the offer of
| 1/5th of that, as unfair as it seems.
|
| Happy to do it if we each donate to the charity of the
| other's choice? 1:1? You can keep the tax benefit.
| rglullis wrote:
| If it's about the principle, shouldn't you be rallying
| against a company that has not been able to _prove_ that
| has the reserves that it claims to have?
|
| Keeping the peg is the least of the problems. If they
| somehow showed up tomorrow and said "Listen, we finally
| ran an audit and we found out that we really have only
| $0.90 for every minted USDT. But given that the small
| print says that we are allowed to return whatever we
| want, whenever you want, we decided that everyone will
| get a 10% haircut, ok?", you would bet that the market
| would shake for a week or two, but most of them would
| just scream _Finally!_ and continue gambling what was
| left on the next project.
|
| The real problem is that all that comes with that lack of
| transparency: the market manipulation, the cop-out to
| become a _unregulated central bank_ , the inability for
| others to make a true assessment of the health of the
| market.
|
| Tether basically took all the work from the cypherpunks
| and turned into a Casino that can't even be properly
| audited. They can manage to keep the peg for 20 more
| years for all I care, but each day they are still around
| is another day wasted that could be used for more
| meaningful things.
| Tenoke wrote:
| So how confident you are that you are right? Sounds like
| less than 4%. Is it less than 1%?
| eis wrote:
| Asking for 5, 10 or 25 to 1 odds in your favor means you
| are expecting at least 20%, 10% or 4% chance that you are
| right.
|
| The fact that you don't want to engage in 1:1 odds means
| you are less sure of your own position than he is. Just
| sayin' :)
| ZephyrBlu wrote:
| Why does it mean that? If I'm 50% sure an event will
| occur, but someone will offer me worse odds than that
| (I.e. better payout) why would I take 1:1 odds?
| eis wrote:
| Because that is not what happened. Grimburger did not
| offer (from his point of view) worse odds than 1:1. And
| patio11 refused 1:1 because it was apparently not
| interesting to him.
|
| Now one could take that as a salesmans tactic to try and
| extract better odds from Grimburger but at that point the
| monetary aspect would become the focus and not the wager
| itself. A wager between two people who are in it for the
| sport and both sure of their positions should carry 1:1
| odds. One could ask for a lower amount or refuse
| completely on monetary grounds but not request odds in
| ones favor.
| [deleted]
| SilasX wrote:
| Eh, that just comes down to the arbitrary definition of how
| much of a discount you consider "losing the peg".
|
| Sidestepping the definitional issue, I certainly _worry_ when a
| pegged asset trades at a _persistent_ discount, even a small
| one, when it didn 't before. A stablecoin should generally
| trade at a premium just as often as it trades at a discount.
| When one goes long periods without ever being above, that is a
| strong signal. And when everyone panics, that's exactly when
| it's too late to get out. You have to beat the rush.
|
| Remember, even up until the morning of May 9th, the day of the
| real TerraUSD depeg, people made that exact objection. "Oh
| come, on being 0.1% off is normal for stablecoin." Indeed it is
| -- but not in a persistent fashion!
|
| Disclaimer: I closed out my Tether longs last week.
| shuckles wrote:
| Before you thought Tether was unable to hold a peg why would
| you be long Tether? Isn't it better to just be long the USD?
| SilasX wrote:
| I had invested in liquidity pools (which collect fees for
| you for facilitating trades between tokens that you
| contribute), and some such pools had Tether. One downside
| of such pools is that, if any one of the assets in it goes
| to zero, all your invested capital goes to zero (though you
| keep the fees). It was therefore a Tether long.
|
| I had also held a small amount for online purchases.
|
| More generally, the reason to hold a stablecoin rather than
| a "real" dollar is because you need the former in order to
| interface with smartcontracts on blockchains. Also, to buy
| from merchants who sell goods for stablecoins because
| they're in a grey market that banks don't want to touch.
|
| Side note: I don't know why people keep asking that
| question -- it gets asked and answered each time this topic
| comes up e.g.
|
| https://news.ycombinator.com/item?id=31352262
| rglullis wrote:
| USDC has the exact same properties as USDT, but has no
| legal issue and is backed by an entity that is a
| infinitely more trustworthy.
|
| There is Gemini USD - similar story.
|
| There is DAI if you are long on ETH/BTC and still
| want/need liquidity.
|
| Curve has a pool without USDT (cDAI/cUSDC).
|
| Uniswap lets you make any type of pair. On its heyday
| (before v3), I was providing to DAI/USDC and I was
| getting 2% returns _per month_.
|
| So _my_ question is: why USDT, when there is a handful of
| better stabletokens that can be used for the exact same
| purpose? If it is common knowledge that Tether is not to
| be trusted, _why would any honest person still use it?_
| SilasX wrote:
| I'm familiar with the others and use them as well.
|
| https://news.ycombinator.com/item?id=31422545
|
| https://news.ycombinator.com/item?id=31417134
|
| https://news.ycombinator.com/item?id=31412835
|
| My comment was answering a question about "why
| stablecoins at all".
|
| To answer your question, because some uniswap v3 pools
| with USDT offered competitive returns, like the 0.05%
| WETH/USDT one. That was one of many I used, which
| included those that paired DAI or USDC with ETH.
|
| I considered the concerns overblown at the time and so
| was okay with making some the USDT pools a part of my LP
| portfolio.
|
| I'm honest.
| rglullis wrote:
| It's not about the "concerns" that we should be worried
| about. We should also be worried about not perpetuating a
| gigantic scam.
|
| Honesty is not just about "I wasn't the one profiting
| from the bad thing". It's also "I'm willing to call
| evil/immoral for what it is".
| SilasX wrote:
| I don't consider being slightly undercollateralized a
| "gigantic evil scam" and the rhetoric around Tether is
| still definitely overblown, and if that were your primary
| concern (or am I not supposed to say that anymore?), you
| should have led with it rather than comparing it to
| similar defi returns.
| rglullis wrote:
| No. USDT undercollaterization is not my primary concern:
| https://news.ycombinator.com/item?id=31451820
|
| And I wasn't comparing in terms of returns. I just
| pointed out that there is no real use-case for USDT that
| can't be served by the other tokens, _including yield-
| farming in liquidity pools_.
| graeme wrote:
| It's not just 0.1% off the peg. It's 0.1% off _and_ facing
| large redemptions.
|
| That makes the peg loss seem significant
| grapehut wrote:
| The large redemptions are what is causing them to be 0.1% off
| the peg...
| thebean11 wrote:
| Or is being 0.1% below peg causing large redemptions?
| People buying USDT at a discount and redeeming at face
| value.
| kasey_junk wrote:
| Thats why breaking the peg is so bad. Its a visious cycle
| so both are correct.
| thebean11 wrote:
| No it's not..people buying in order to redeem brings the
| price closer to the peg, not further away.
| onlyrealcuzzo wrote:
| Why hasn't anyone pegged a stable coin to $0.99 before?
|
| The $0.99 Only Store could do stable coin. You could even
| redeem your coins for items in the store!
| mnaei wrote:
| Keep in mind that the relationship here is non-linear. A small
| de-peg signals a large imbalance of funds.
|
| This non-linear relationship is literally programmatically hard
| coded in the case of money markets such as curve.fi
|
| Currently the largest money market pool
| (https://curve.fi/3pool) it has a 5:1 USDT:USDC imbalance. In
| dollar amounts, the pool contains $1b USDT and $0.2b USDC.
|
| This 5:1 imbalance only gives way to a 0.1% de-pegg.
|
| In the past the balance used to be perfectly 1:1 USDT:USDC. The
| fact that a multi-million dollar arbitrage opportunity still
| exist is worrisome.
| TameAntelope wrote:
| I'm not an expert by any means on this topic, but for non-
| crypto assets that are pegged, going even 0.1% below the peg is
| a _huge_ deal.
|
| A peg is a peg, it's supposed to be more or less certain.
| drexlspivey wrote:
| No it's not, if you think pegs are supposed to stay forever
| at the same price you don't understand how markets and order
| books work.
| TameAntelope wrote:
| I very much don't understand how markets and order books
| work, but people who _do_ understand those things tell me
| pretty consistently how big of a deal it is when a money
| market fund loses its peg, even by a tiny amount.
| 77fourtyfive wrote:
| Proven wrote:
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