[HN Gopher] Tether Withdrawals Top $10B
___________________________________________________________________
Tether Withdrawals Top $10B
Author : prostoalex
Score : 241 points
Date : 2022-05-24 03:21 UTC (19 hours ago)
(HTM) web link (www.cnbc.com)
(TXT) w3m dump (www.cnbc.com)
| [deleted]
| thkim wrote:
| OK so Tether went from 83bn to 73bn... what's the big deal? It's
| not like LUNA.
| logifail wrote:
| > what's the big deal? It's not like LUNA
|
| It's not _yet_ like Luna.
|
| Just yesterday the Financial Times ran this story: "Binance
| promoted terraUSD as a 'safe' investment just weeks before the
| stablecoin and its counterpart luna collapsed in a $40bn
| wipeout that shook the crypto industry"[0]
|
| [0]
| https://www.ft.com/content/d459f435-edff-412c-85a5-0961d50ab...
| / https://archive.ph/OQmjW
| thematrixturtle wrote:
| The big deal is that it's highly likely that Tether is backed
| up by _way_ less than 83 billion in actual dollars. Let 's say,
| for argument's sake, that they were 50% backed a week ago and
| had $40B in actual dollars.
|
| If $10B was pulled out, that was into actual US dollars or
| equivalent, meaning they now have $70B backed up by $30B. If
| another $10B drains in the next week, it'll be $60B vs $20B.
| This incentivizes other holders of Tether to also pull out so
| they're not left holding the bag (= Tether's stash of dodgy
| loans etc), basically kicking off a slow-motion version of the
| same death spiral that we saw for UST/LUNA, until Tether runs
| out of assets and the whole crypto economy goes poof.
| cowtools wrote:
| I don't know if it will necessarily cause crypto prices to
| crash
| wing-_-nuts wrote:
| I'm a complete layperson when it comes to crypto, but from
| what I have heard a good bit of the recent bitcoin volume
| has been done via tether. if tether crashes, I don't know
| how this doesn't cause a crash when volume dries up?
| boc wrote:
| Crypto is priced on the exchanges in terms of USDT, USDC,
| etc.
|
| If USDT dies then BTC goes to like $500 on Binance. The
| cascade effects will cause runs on other exchanges, and
| then you're betting that they have enough reserves to cover
| a run. I'd want to be far away from the scene when that
| happens.
|
| The fiat banking system is backstopped against this
| behavior by the FDIC, which guarantees your funds are safe
| even if the bank holding the funds goes under. This
| prevents customers from mass withdrawals in times of
| crisis. Crypto doesn't have anything like that, therefore
| it's going to look like the bad ol' days of 19th Century
| financial panics when a run occurs.
| woeirua wrote:
| Yep. A good old 19th century bank run, happening at the
| speed of light around the world simultaneously. It truly
| will be breathtaking how fast the entire crypto ecosystem
| will implode. I fully expect that when the dust settles
| multiple banks will be bankrupt and have to be bailed out
| too.
| hiq wrote:
| > If USDT dies then BTC goes to like $500 on Binance.
|
| Do you just mean that confidence will be so low that
| people will try to shun cryptocurrencies and dump their
| positions, or are you talking about another mechanism?
| Spivak wrote:
| No, literally. The price of lots of coins is specified in
| USDT on lots of exchanges so if USDT crashes then the
| price of coins relative to USD also crashes.
|
| Now, would there be lots of manual intervention by
| exchanges to fix this as fast as possible, absolutely but
| that's the parents point.
| boc wrote:
| When people say that BTC is worth $30,000 on Binance
| right now, what they are really saying is that BTC is
| worth 30,000 Tether dollars (USDT) on Binance, because
| there's no mechanism on Binance to exchange BTC for US
| Dollars in a direct swap. You have to buy USDT and then
| use that USDT to buy BTC.* Basically USD -> USDT -> BTC.
| Today the ratio is 1 -> 0.998 -> 30,000, so in theory BTC
| priced at 30,000 USDT is currently worth 29,940 USD.
|
| If the USD -> USDT relationship breaks and "USDT dies",
| then what happens is the prices goes 1 USD = 0.05 USDT,
| which means that 30,000 USDT worth of BTC on Binance [1]
| is now worth just $1,500 USD.
|
| [1] https://www.binance.com/en/trade/btc_USDT
|
| * You can buy directly with a credit card, but that's
| likely settled off-chain with a banking relationship. If
| you want to use a direct bank transfer, you have to buy a
| stablecoin first on Binance.
| suyula wrote:
| Wasn't Tether the one that was revealed to have only had enough
| backing for like 3% of its coins a few months ago? Surely that
| must be drying up now.
| bhouston wrote:
| They likely have backing of more than 50% probably more than
| 80%. Although how much is liquid is unknown.
| alangibson wrote:
| They only had $4.2B in cash during their last attestation.
| The rest was unknown treasuries and commercial paper.
| rglullis wrote:
| Who cares about their attestation? It is not a proper
| audit. They could just borrow money from Bitfinex, take a
| screenshot of them holding the money, saying "see, we have
| money" and then return to Bitfinex on the same day.
|
| Their attestation is as worthless as their word.
| alangibson wrote:
| Totally true. That's just the closest thing to actual
| information we have.
| cormacrelf wrote:
| This exodus doesn't really prove anything about the
| composition of the assets, same way the money coming onto the
| books originally proved nothing.
|
| Tether admits that most of their assets are made up of
| commercial paper (aka bonds issued by companies). Suppose the
| minted USDT was given to the companies issuing those bonds
| themselves, then to reverse this, you don't need USD. You can
| simply cancel the debt and burn the USDT without a single
| dollar changing hands in the entire process. But dollars do
| change hands -- as payment for Tether's service of continuing
| to keep USDT going so those corporates can exit
| cryptocurrency at some point, in the form of interest on the
| commercial paper.
|
| If a major counterpart was Binance, for instance, Binance
| could offer no cash upfront, issue a bond for a billion
| dollars to Tether, accept USDT1bn in exchange, use USDT to
| buy bitcoin, sell the bitcoin as USDT1bn + profit (and
| convert that profit to e.g. USD), and hand back the USDT1bn +
| interest, & cancel the bond. That's essentially the running
| theory of Tether's operation. Money flows overall from
| whoever bought Binance's cryptocurrency, to Binance, and to
| Tether. And Tether maintains very little cash whatsoever, as
| there is no need unless everyone wants to redeem at once. And
| in this situation their plan is just to throw up their hands
| and say "we prioritise our customers" which is basically
| Binance and whoever their actual customers are, i.e. the
| issuers of commercial paper, not you.
| charcircuit wrote:
| >Tether admits that most of their assets are made up of
| commercial paper (aka bonds issued by companies)
|
| No, at their attestation 2 months ago, "Commercial Paper
| and Certificates of Deposit" was 24.38% of their assets.
| This is much less than the "U.S. Treasury Bills" which was
| 47.56% of their assets.
| cormacrelf wrote:
| Sure, maybe now it isn't, but in June 2021 that figure
| for commercial paper was 49%. Their most recent claim is
| a few days ago, during this big exodus of money off their
| books, and it involved a reduction of at least $4bn worth
| of commercial paper. So I think it's a very relevant
| thing to point out that this $10bn didn't necessarily
| mean they allowed for $10bn of cash withdrawals but
| rather some cash and some cancelling of debt denominated
| in USDT. Overall remember their reporting is not
| particularly trustworthy given how little (non-existent)
| outside scrutiny they allow it to receive. These are all
| just numbers they could be making up to explain the
| things we can see.
| TimJRobinson wrote:
| No, that's UST - TerraUSD, which collapsed 2 weeks ago.
| ryanSrich wrote:
| What's the concern here? Seems like Tether actually did have the
| money to fulfill the withdrawals, so this seems like a
| nothingburger.
| red_phone wrote:
| The bigger concern is whether there will be funds to process
| the _next_ $10B of withdrawals.
| boc wrote:
| Well they had the first $10B, but Lehman also probably had the
| first $10B when things moved south.
|
| It's the final $10B that really matters here. They may have
| burned their real currency reserves first to avoid really
| sparking a panic, and are just standing naked hoping the crypto
| meltdown subsides before they have to start selling their less
| liquid/valuable reserves.
| leokennis wrote:
| I know it's probably too simplistic, but this interview really
| resonated with me:
|
| https://www.currentaffairs.org/2022/05/why-this-computer-sci...
|
| In all honesty I can see people being enthusiastic about crypto
| as a "get rich quick" scheme (at the expense of less fortunate
| people but soit) - but how people can see crypto as the future of
| money with a worldwide ~10 TPS throughput and every transaction
| on a public blockchain is beyond me.
| oh_sigh wrote:
| The transaction limit and public-ness of transactions are
| implementation details of certain blockchains. There are
| blockchains with much better TPS, and blockchains where
| transactions are not public.
| leokennis wrote:
| Okay so how can you have a payment system where:
|
| - Transactions are on a decentralized blockchain
|
| - That blockchain is however not public
|
| - That blockchain allows for high(er) TPS
|
| - That blockchain isn't vulnerable to easy fraud
|
| Am I missing a trade-off here?
| s-xyz wrote:
| Still hoping on a rebound
| puranjay wrote:
| This is either a good thing in that "wow, they _atleast_ have
| $10B to redeem instantly "
|
| Or its a bad thing in that "welp, there's all the insiders
| exiting the boat first"
| dsl wrote:
| Redemptions are also done when exchanges need to offload Tether
| to buy other crypto currencies to fulfill orders.
|
| For what it is worth I have been getting a lot of emails from
| OTC brokers trying to fill BTC and ETH orders over the last few
| days.
| CTDOCodebases wrote:
| Note there no mention of redemptions, just a reduction in the
| circulating supply.
|
| My guess is the USDT was borrowed and Tether is holding less
| commercial paper now.
| charcircuit wrote:
| >Note there no mention of redemptions
|
| They have mentioned paying out billions in redemptions on
| twitter.
| CTDOCodebases wrote:
| From the horse's mouth:
|
| "Tether has over $70 billion dollars of collateral which
| it can redeem USDT against. No exchange's order book has
| anything remotely resembling that amount of
| liquidity."[0]
|
| When you look up the attestation that they provide each
| quarter 24% of this collateral is commercial paper.[1]
|
| Companies could be redeeming USDT for their own
| commercial paper.
|
| If you trust these attestations they have a lot of
| treasury bills and have increased their cash holdings by
| a couple percent so fingers crossed for those holding
| USDT.
|
| [0] - https://tether.to/en/understanding-tethers-peg-and-
| reserves/
|
| [1] - https://tether.to/en/transparency/#reports
| piva00 wrote:
| > If you trust these attestations they have a lot of
| treasury bills and have increased their cash holdings by
| a couple percent so fingers crossed for those holding
| USDT.
|
| This is the _big if_. They only do attestations, they don
| 't allow proper audits and fired their auditors once when
| they got too nosy. It might have changed since then and
| they hold more cash or "cash-equivalent securities"
| (another iffy point), they still have never been properly
| audited so everything boils down to a very big "trust
| me"... US$80b of value is under that trust premise.
|
| I wouldn't trust these people but I'm just a lowly drone
| in the bigger scheme of things.
| stephen_g wrote:
| It could be those, but nobody outside knows whether any Tether
| was actually redeemed though. They are alleged to have insider
| connections with a bunch of different parties so they could
| just have burned Tether that had been created from nothing and
| lent out to an insider.
| askmike wrote:
| This really dips into conspiracy levels: Tether has many
| customers who can redeem USDT for real dollars. Many
| companies do this and are very open/vocal about this. Our
| company has done this as recent as late last week.
| phphphphp wrote:
| Something I've been wondering is how Tether, which has a
| very difficult history of banking, has been able to pay out
| billions of dollars in USD in a few days (regardless of
| having it -- even if they had it, I assumed it would be
| very difficult).
|
| Can you share how your USDT was redeemed -- was it to USD
| from a US banking institution (a wire?) or some other
| mechanism?
|
| Thank you!
| jules-jules wrote:
| Their are principally using San Diego-based Silvergate
| Bank
|
| https://www.silvergate.com/
| phphphphp wrote:
| thank you! Very interesting. According to their latest
| financial reports, their volume of deposits doesn't marry
| up with the claims made by Tether. Will be very
| interesting to see what Silvergate report as
| inflows/outflows at the end of the next quarter.
| puranjay wrote:
| Tether is pretty much another arm of Bitfinex, and Bitfinex
| is where all the whales trade. Its a huge insider game.
|
| I wouldn't hold Tether long term even if I was being paid for
| it
| tablespoon wrote:
| Don't listen to the haters, Tether is going to the moon! Now is a
| great to invest, so you can get in on the ground floor. /s
| Ekaros wrote:
| No, no, it's stable coin. You see 1 USDT will always be 1 USDT.
| That is what stable coin means and is doesn't it? That is you
| can always redeem one USDT for one USDT(terms and conditions
| might apply)...
| cycrutchfield wrote:
| Nah you can also redeem 1 USDT for some Evergrande debt as
| well
| fshbbdssbbgdd wrote:
| Whoever got to offload their Evergrande debt for USDT sure
| was lucky! That trade have made Tether some friends in high
| places.
| steve_mcdougall wrote:
| They said 1 USDT is tethered to 1 USD. They didn't tell you
| if it was positive 1 USD or negative 1 USD.
| Ygg2 wrote:
| Holdl the dip.
| swarnie wrote:
| You have an extremely lucrative career as a youtube finance
| guru in your future.
|
| Remember to only lease the Lambo for a few hours just to get
| the b roll you need. If you adjust the lighting you can keep
| using that footage for months.
| jokoon wrote:
| The Blockchain created a new generation of capitalists, and this
| is their third or second baptism.
|
| Their first was mtgox, I think?
| pcj-github wrote:
| Every article I read about this says something like "Unlike
| tether, UST wasn't backed by fiat currency held in a reserve".
|
| Which assumes tether is actually backed by enough real value to
| cover its calls in the case of a selloff, which it absolutely is
| not.
|
| If I had any money in crypto (I don't), I would get the hell out
| of tether ASAP.
| wmf wrote:
| I think it's worth distinguishing between "they say it's not
| backed and it's definitely not backed" vs. "they say it's
| backed but it's probably not". These are different problems.
| stingraycharles wrote:
| Am I correct that it's not necessarily $10B in withdrawals, as it
| is that the total market cap (valuation * total coins) dropped by
| $10B?
|
| Seems like an important distinction?
| kolinko wrote:
| In tether's case this is the same - withdrawals through it's
| operator for fiat cash take tether off the market and lower
| it's market cap.
|
| A more accurate description would be ,,withdrawals minus
| deposits", but it's quite obvious that this is what is meant.
| arcticbull wrote:
| It depends. Tether lies constantly, and has lied many times.
| We have NYAG and CFTC settlements to that effect.
|
| The point parent is making, AFAIK, is that without actual
| audits (that they have promised for years were only months
| away) we have no idea if they actually processed $10B of
| withdrawals. Or whether they simply nuked $10B of unbacked
| Tethers from orbit. Maybe they printed $10B, used it to buy
| Bitcoin, then sold the Bitcoin back for USDT and nuked the
| USDT? We have no way to know without a formal audit.
| jules-jules wrote:
| Important to note that they can only nuke that is under
| their control right now, and presumably Bitfinex' (and
| perhaps some other entities). Everything that is in wider
| circulation can only be removed through actual withdrawals.
| arcticbull wrote:
| That's assuming they were paid dollars for those USDT by
| exchanges.
|
| An exchange could borrow the USDT, and when returned,
| they could be burned - with no dollars changing hands.
| jules-jules wrote:
| Yeah absolutely. Wouldn't surprise me in the least if the
| likes of Binance, Tron, and FTX issued Commercial Paper
| in exchange for USDT.
| spullara wrote:
| Isn't the point of a stable coin is that it is always worth $1
| each? So market cap is a valuation of $1 * total coins has gone
| down by $10B. So that means 10B coins were redeemed.
| __turbobrew__ wrote:
| Only if the stablecoin operator isn't lying about the
| backing.
| WJW wrote:
| Since the valuation is steady at $1, that means the total
| amount of coins must have decreased by 10 billion. Since the
| only way to remove coins is to convert them back out to USD
| (ie, 'withdrawing') there is not much of a distinction there.
| cormacrelf wrote:
| It's tether. It did briefly detach from its peg at USD $1 but
| the "valuation" of a coin has been roughly constant. It's $10bn
| out of originally $83bn, and it's still trading at $0.998 or
| so. So yeah, people have taken a big chunk of money out. That's
| called a withdrawal. We do not know that it is a cash
| withdrawal.
| piva00 wrote:
| It's still detached, and it's been the longest period it's
| been unpegged from US$1 since it started to have high volume.
| Look at any graph (coinmarketcap.com is an easy one), since
| early 2019 when volume picked up it was never more than 6-7
| days below US$1. It's been for 14 days and counting this
| time.
| manquer wrote:
| Tether is stable coin. Number of coins is valuation. Each coin
| is always 1USD (unless they loose the peg).
|
| So if 84 billion coins are there in circulation . 84 billion of
| dollars had been exchanged for coins . If the coins reduces to
| 73 billion then 11 billion coins have been redeemed back to
| dollars
| xiphias2 wrote:
| It's a stable coin, so valuation is expected to be close to $1
| as long as it works.
| londons_explore wrote:
| Tether is pegged to the US dollar, so it's valuation (rarely)
| differs much from $1.
|
| Therefore it's the number of total coins which is falling.
| [deleted]
| ShaneMcGowan wrote:
| Since Tether is a stable coin(tm) allegedly backed by and
| pegged to the price of 1 USD.
|
| So if the price is still $1 but the circulation has gone down
| by 10 billion, that means $10B worth of it has been cached out
| lamontcg wrote:
| I still think that Bitfinex is operating as a central bank
| and primarily loaning out Tether against bitcoin (and eth)
| cold wallets.
|
| Instead of $10B of tether being converted to USD and taken
| out of the crypto ecosystem, what I suspect has happened is
| that $10B of loans have been paid back in tether and the
| collateral has lost value so the borrower cannot re-borrow
| the tether. Bitfinex doesn't ever redeem tether for USD and
| that isn't how tether is burned.
|
| This means that it is predominantly crypto backed, which will
| at some point collapse if crypto collapses, but it is much
| more intrinsically stable than Terra/Luna up until crypto
| fails.
|
| Maybe I'm wrong and we're about to see Tether bolt for the
| exits and crash and take out all of crypto with it. But
| crypto has been through a worse crypto bear market before,
| and Tether has been burned before without a systemic panic.
| JumpCrisscross wrote:
| > _if the price is still $1 but the circulation has gone down
| by 10 billion, that means $10B worth of it has been cached
| out_
|
| Tether being caught lying is practically perennial. Unless we
| have records showing someone receiving $10bn from Tether,
| it's safe to be sceptical of the claim.
| ShaneMcGowan wrote:
| Exactly why I used the word "allegedly", lol
| Ekaros wrote:
| Yes, it just means tokens were removed from circulation.
| Doesn't mean someone has redeemed them. It might have been
| action by Tether itself also.
|
| That is before they printed tokens without backing, used them
| to prop up market prices. And now they are pulling those out
| after likely making some gains when prices were high.
| po wrote:
| All the people responding to you are missing the distinction
| too... They can create/destroy coins at will. They _say_ that
| they only do this when customers receive /withdraw fiat but we
| all know that's not the case and they aren't truthful about it.
| onlyrealcuzzo wrote:
| Did anyone do an analysis on which wallets had the most coins
| destroyed?
| tamrix wrote:
| stormbrew wrote:
| No one's being told otherwise with banks though. The
| current backup plan for 19th-century-style fiat bank runs
| is central bank insurance and money printing, not a rather
| bold claim that the banks are holding on to tens of billion
| of dollars in cash and not doing anything with it.
| arcticbull wrote:
| > The current backup plan for 19th-century-style fiat
| bank runs is central bank insurance and money printing...
|
| It's the FDIC. The FDIC was created in the wake of the
| Great Depression to make sure bank runs stopped. And in
| the last ~100 years since it was created they've
| succeeded. [1]
|
| Banks pay into the fund, which is used to make depositors
| whole in the event of insolvency. If the fund is
| exhausted, the FDIC also has a line of credit with the
| Fed. They have $125B of assets give or take, and a $100B
| line of credit.
|
| That said, we haven't drawn on the fund yet, AFAIK. Even
| in 2008, when WaMu collapsed, the OTS took ownership of
| WaMu Bank and sold it to JPMorgan. [2]
|
| [1] https://en.wikipedia.org/wiki/Federal_Deposit_Insuran
| ce_Corp...
|
| [2] https://en.wikipedia.org/wiki/Washington_Mutual
| stormbrew wrote:
| I was being general because there are more countries in
| the world than the US, but this mechanism is the norm in
| most of the (US-aligned at least) world.
| danielrpa wrote:
| There's more than the FDIC. The government has shown over
| and over that it will bailout and/or nationalize
| financial institutions that could bring the entire system
| down (such as AIG). I'm not saying this system is
| perfect, but it's a LOT more robust and time tested than
| any cryptocurrency we have today.
| arcticbull wrote:
| This is honestly the most asinine remark.
|
| Tethers are supposed to be backed by $1 in assets. You're
| complaining that dollars are created out of nothing -
| they're not, of course, but even if they were: When Tether
| holds less than $1 of backing assets for each $1 of USDT in
| circulation it's worth strictly less than the $1 you're
| deriding. It is _this_ gap we 're talking about. So your
| comment isn't just wrong, it's completely irrelevant and a
| distraction from a real problem.
|
| Dollars enter circulation when they're borrowed. They leave
| circulation when the loan is repaid. The value of a dollar
| is derived from the obligation to repay the debt that
| created that dollar, and the legal system which enforces
| these contracts. Banks undergo rigorous audits so we know
| for a fact how this works and _that_ this works.
|
| Banks are backed by the FDIC which in turn is backed by the
| Fed, you cannot have a bank run anymore. It's not possible.
| As such fractional reserve isn't a meaningful risk to
| depositors.
|
| Tether has no lender of last resort. $.80 of backing
| reserves for $1 of USDT doesn't mean each person gets
| $0.80. It means the first 80 people get $1, the last 20
| people get $0. Tether has also never been audited.
| TomSwirly wrote:
| > This is honestly the most asinine remark.
|
| Openings like this are not a precursor for anything good,
| and indeed:
|
| > You're complaining that dollars are created out of
| nothing - they're not, of course,
|
| No, not "of course". (These conversations would be so
| much more interesting if people had even a basic
| knowledge of finance, or a little less ego.)
|
| In fact, Tether increases the US dollar money supply in
| exactly the same way that Eurodollars do:
| https://www.investopedia.com/terms/e/eurodollar.asp
|
| (Fractional reserve banking also "creates" dollars.)
|
| Source: spent years writing mathematical models for
| options and other derivatives on Wall Street before I
| decided it was evil.
| MichaelBurge wrote:
| > you cannot have a bank run anymore. It's not possible.
| As such fractional reserve isn't a meaningful risk to
| depositors.
|
| It's not possible for the "average person" to lose bank
| deposits. But if a cryptocurrency company is storing much
| more than FDIC limits in a single bank(because few banks
| are willing to deal with them), you could easily have a
| run on that bank.
|
| So even having $1 of USD backing reserves for $1 of USDT,
| there could still be withdrawal limits, halts, etc.
| because the underlying bank lent the deposits out.
|
| It needs to be paper cash in a safe to really protect
| against mass-withdrawals, and even then getting it "into
| the system" when people want it back could take a few
| days and lead to temporary halts.
| hermitdev wrote:
| > Banks are backed by the FDIC which in turn is backed by
| the Fed, you cannot have a bank run anymore. It's not
| possible.
|
| Yes, it is possible. FDIC doesn't insure all deposits.
| Typically you're capped at X thousands _across all your
| accounts_. I 'm not sure what the current value of X is,
| 250?
|
| That said, a bank run is improbable. Also, be careful
| with cash holdings at investment institutions. Those are
| typically not FDIC ensured, especially if your cash is
| held in a money market account.
| arcticbull wrote:
| You are right. That's fair and an important distinction.
|
| FDIC insurance is, standard, $250,000 per depositor, per
| insured bank, for each account ownership category. [1]
|
| Brokerage balances are SIPC insured against brokerage
| defaults, but not a money market fund imploding. [2]
|
| [1] https://www.fdic.gov/resources/deposit-
| insurance/brochures/d...
|
| [2] https://www.sipc.org/for-investors/what-sipc-protects
| kodah wrote:
| > Yes, it is possible. FDIC doesn't insure all deposits.
| Typically you're capped at X thousands across all your
| accounts. I'm not sure what the current value of X is,
| 250?
|
| This is not correct. The FDIC is very concise with their
| commitments.
|
| > A: Yes. The FDIC insures deposits according to the
| ownership category in which the funds are insured and how
| the accounts are titled. The standard deposit insurance
| coverage limit is $250,000 per depositor, per FDIC-
| insured bank, per ownership category.
|
| Source: https://www.fdic.gov/resources/deposit-
| insurance/faq/
| pmyteh wrote:
| Yeah, the UK had a bank run (Northern Rock) during the
| financial crisis in 2007. Once confidence was lost, some
| of the run was people with more money than our insurance
| limit in there, the rest ordinary small depositors who
| didn't feel like trusting an untested insurance mechanism
| when they could have banknotes.
|
| That run was stopped by the government guaranteeing all
| assets and nationalising the Rock. That's not likely to
| happen with crypto.
| dougmsmith wrote:
| dougmsmith wrote:
| rglullis wrote:
| Are you really trying to defend Tether by saying they are
| no different than the banks and that they are applying
| the same tactics from the fiat-system?
|
| By your own standard, if the existing system is so broken
| and morally corrupt, why do you think it is right to
| defend Tether?
|
| Tether started with the promise they were fully 1:1
| backed with USD. They broke this promise. Later they came
| up with "collaterized with a basket of assets", which was
| also a lie and they required re-capitalization [0]
|
| How long are you going to keep lying to yourself and
| trying to defend a company that is run by criminals?
|
| [0]: https://www.kalzumeus.com/2022/05/20/tether-
| required-recapit...
| dougmsmith wrote:
| rglullis wrote:
| dougmsmith wrote:
| danaris wrote:
| No, this is not a Taco Bell. This is HackerNews, and
| while it may not be exactly a graduate-level economics
| classroom, we _do_ try to have serious discussions here.
| You are not adding to that in any way.
|
| If you think that something someone says is wrong, then
| address it (and/or downvote). If you think that something
| someone says is breaking the rules, flag it.
|
| Don't mock the very idea of meaningful discussion just
| because you don't like what someone trying to be sincere
| says.
| dougmsmith wrote:
| dougmsmith wrote:
| User23 wrote:
| > You're complaining that dollars are created out of
| nothing - they're not, of course
|
| They're not?
|
| > you cannot have a bank run anymore. It's not possible.
|
| Right, because the banking system can always create
| dollars out of nothing to satisfy any outstanding
| liabilities.
|
| > Banks are backed by the FDIC which in turn is backed by
| the Fed
|
| The Fed is a creature of Congress. It's all sovereign
| currency issuance.
| kravvall wrote:
| > Right, because the banking system can always create
| dollars out of nothing to satisfy any outstanding
| liabilities.
|
| Can they though? Don't they create new liablities with
| this? Effectively ending in "finance debt with more debt"
| scheme that has eventually got to collapse?
| User23 wrote:
| It's a category error to confuse household liabilities
| with sovereign liabilities. So long as a sovereign
| currency issuer retains sovereignty it can expand its
| balance sheet freely. And yes through gross mismanagement
| it could provoke a revolution and thus lose sovereignty.
| carrja99 wrote:
| EXACTLY. What people miss the point about tether is that they
| can claim anything, at the end of the day there's no
| transparency to what is really going on behind the curtain.
| And keep in mind US citizens cannot legally redeem tethers
| for USD either.
| compsciphd wrote:
| if tether is backed 1:1 with dollars, how is it not
| withdrawals?
|
| I.e. either the number of total coins in circulation has
| dropped (unsure how that is different than withdrawing) or its
| valuation has dropped (i.e. it lost its peg).
|
| If they are just destroying coins, then they weren't 1:1
| (possibly more than 1:1 before, but also possibly less).
| kravvall wrote:
| Nobody, not even tether claims that tether is backed 1:1 by
| dollars.
| carrja99 wrote:
| They did once, but changed their tune.
|
| People then get all hand wavy and point at the fact banks
| have fractional reserves too.
| retube wrote:
| well it's not due to price changes, 1 USDT = 1$, so yes there
| are less coins in circulation.
|
| Poster below says Tether can create and destroy coins at will.
| They can certainly create them, not sure they can destroy them
| if in others wallets (and doing so would be a huge adverse news
| event). If they have destroyed coins can only be their own (in
| their own wallets) but I suspect that would also be
| transparent. My feeling is that yes there have been $10bn of
| redemptions.
| jules-jules wrote:
| They most certainly can't destroy USDT sitting in other
| people's wallets.
| randomhodler84 wrote:
| Actually they most certainly can and have. The ERC20
| contract for USDT has a blacklist function and the
| administrator can block transfers for arbitrary addresses,
| rendering it worthless. Same with USDC.
| adhesive_wombat wrote:
| They can mint a quadrillion Tether today and that would do
| the job pretty well. The Tether would still be in the
| wallets, but at that point it would be quicker to just read
| from /dev/urandom if you wanted some random-ish bits.
| astrange wrote:
| 1 USDT has been less than $1 ($.998) for the last two weeks
| on coinmarketcap.
| retube wrote:
| sure. but that's immaterial to the discussion here.
| kravvall wrote:
| No, it's not. Because that could be a possible motivation
| for tether to remove supply, to artificially increase the
| price again, to get close to peg. And as far as I
| understand, nothing in Tether is transparent, so I'm not
| sure if they can't just destroy their own tokens without
| someone being sure that this is happening.
| sub7 wrote:
| My guess is these were exchange IOUs or "commercial paper" and no
| USD was involved in this burn.
|
| I can't really see a scenario where they aren't fucked, and it's
| going to make Terra look like a blip whenever it plays out.
| Unsure whether it'll be regulation or a rush to redemption but it
| really can't be that far out.
| sgammon wrote:
| glad to see hn isn't buying it but retail investors may not be so
| lucky.
| oblio wrote:
| Crashes are ultimately almost always sad.
|
| Reality just is, it isn't fun or nice. It just exists.
| VGltZUNvbnN1 wrote:
| Reality is that which, when you stop believing in it, doesn't
| go away. - Philip K. Dick
| ProfXponent wrote:
| HN's track record on stuff like this is really bad.
|
| This is a place to get interesting news on startup valuations,
| Rust, and what the current FE framework of choice is.
|
| For everything else it might as well be Reddit.
| dougmsmith wrote:
| thematrixturtle wrote:
| > _"Whenever there's a failure or a catastrophe in crypto, the
| fear is always that someone will misread the situation and
| overcorrect in a position that's not helpful for the entire
| community writ large,"_
|
| This statement is all kinds of amazing:
|
| * Casual use of the phrase "whenever there's a catastrophe in
| crypto", since there really is one every few days
|
| * "Misread the situation and overcorrect" --> read: taking their
| money out of the casino and turning it back into filthy fiat
|
| * "Not helpful for the entire community" --> read: taking money
| out of shitcoin X damages the valuations of all other shitcoins,
| so the owner of one random blockchain would very much prefer that
| you didn't do that
| [deleted]
| medo-bear wrote:
| > This statement is all kinds of amazing:
|
| > Casual use of the phrase "whenever there's a catastrophe in
| crypto", since there really is one every few days
|
| in some sense crypto's resiliance against so many catastrophies
| is amazing. if this was USD we would be at WW10 and two October
| revolutions by now
| Tao332 wrote:
| It's not resilient. It's worthless. The same grift keeps
| working on bigger fools and it hasn't been outlawed yet.
| Ergo, it stays and cycles from one catastrophe to the next.
|
| > if this was USD we would be at WW10 and two October
| revolutions by now
|
| This is the farthest reach I've ever seen someone make to
| state a positive about crypto.
| sgt101 wrote:
| Yeah, but notice, it isn't.
| medo-bear wrote:
| there is a crisis in the usd though. it is fast losing its
| status as world reserve currency and coincidentally today
| we are at a footstep of ww3 ;)
| sgt101 wrote:
| Well - define fast. It's amazing to me that USD has been
| the world reserve currency for so long. Historically only
| silver has done better.
| medo-bear wrote:
| > define fast
|
| as in the order of things in the world is changing so
| fast we have little time to analyze root causes. some
| examples
|
| we went from being too scared to visit family because of
| a flu virus to pumping our chests against a super power
| in a blink of an eye
|
| the us just approved a massive military package to
| ukraine that dwarfs anything given to israel and at a
| time us has trouble getting baby formula
|
| forget crypto ... the world economy is on the verge of
| total collapse
|
| and this all is tied to the is dollar because ... well
| ... of its current status as world reserve currency
| Axsuul wrote:
| None of these things matter at all. Thanks to the US
| military, USD as the reserve currency remains.
| sgt101 wrote:
| Agree - the power to open markets, guarentee acccess and
| obtain resources is what underpins it. As the Russians
| are showing us, no one else has a fraction of that
| capability.
| medo-bear wrote:
| whether we like it or not the us ability to carry on
| unchallanged has noticably diminished in comparison to
| the period from 1990 to 2010
|
| also ... if ukraine-russia conflict is showing us
| anything it is that the natural resources question is far
| from certain. if we are to learn from history we would
| hastily take note that it is the question of resources
| that brought about the first world war
| medo-bear wrote:
| of course it matters. it devalues the us dollar as a
| stable reserve
| Axsuul wrote:
| How does Ukraine aid devalue USD? If anything, it helps
| keep it in power by weakening Russia and furthering the
| US hegemony.
| medo-bear wrote:
| its a massive investment and if you look at it this way
| you have to ask, is ukraine such a sure bet and what are
| the consequences of that investment going south. and the
| failure to ask these questions is indicative that too
| many people see the usd as being in unlimited supply,
| which by itself devalues the usd
| Axsuul wrote:
| Nothing is a sure bet but leaving Russian aggression
| unchecked destabilizes the region. The world counts on
| the US to maintain the peace and status quo. As long as
| there's still confidence in that, the US currency will
| continue being the world's reserve currency along with
| all the benefits that come with that.
| medo-bear wrote:
| > The world counts on the US to maintain the peace and
| status quo
|
| ok
| spiralx wrote:
| Reducing the use of the USD as a reserve currency has
| been US policy for a while now. It only accounts for 60%
| of global reserves right now and has been trending down
| for a long time.
| mb7733 wrote:
| > in some sense crypto's resiliance against so many
| catastrophies is amazing. if this was USD we would be at WW10
| by now
|
| Because USD is actually used as a currency...?
| oblio wrote:
| I think the kids call this "copium".
|
| The only reasons crypto is so "resilient" is that there are
| so many of them to fail and most of the money invested is
| from speculation and crime and both sources kind of expect to
| lose it.
| ragebol wrote:
| * "Someone will ... overcorrect" would mean that someone has a
| lot of power to set outcomes. Does not sounds very
| decentralized.
| X6S1x6Okd1st wrote:
| Important context if you want to start spinning what might happen
| if X:
|
| > 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.
|
| https://tether.to/en/legal/
| 0xy wrote:
| The most concerning thing to me about Tether is they appear to
| own Chinese corporate debt for some unknown reason. Isn't that an
| insane amount of risk?
|
| In what universe is Chinese corporate debt even remotely liquid?
| It could be invested in Evergrande-adjacent companies for all we
| know. And you know when push comes to shove the Chinese
| government will throw foreign investors under the bus first.
| dsl wrote:
| The "too big to fail" businesses ended up being the best
| investments in the US. Commercial debt in China is guaranteed
| by proxy of the whole Chinese economy, because the government
| has direct ownership. The Chinese economy is in turn stabilized
| by the fact everything from your toothbrush to your car tires
| are made in China or using raw materials they control.
| pharmakom wrote:
| China has the factories but they are hugely dependent on
| imports of materials and energy; technology from overseas
| companies; and overseas markets to export to. Throw in their
| demographics - which are less suited to manufacturing every
| year - and there could be serious problems for China on the
| horizon. I hope it leads to a more humane CCP.
| JumpCrisscross wrote:
| > _Commercial debt in China is guaranteed by proxy of the
| whole Chinese economy_
|
| There is zero chance China prioritises offshore creditors in
| a crisis, a cryptocurrency exchange no less. This has
| precedent [1].
|
| [1] https://www.wsj.com/articles/evergrande-is-leaving-
| foreign-b...
| jimmydorry wrote:
| Who's saying it's Chinese debt? It's more likely to be loans to
| crypto ventures. Until it's disclosed, it's anyone's guess, but
| anyone claiming anything with certaintity, is full of it.
| CTDOCodebases wrote:
| It was a rumour but seeing as the biggest holders of USDT are
| incorporated in Hong Kong it is very believable.
|
| https://protos.com/tether-papers-crypto-stablecoin-usdt-
| inve...
| ATsch wrote:
| I have absolutely no way to substantiate this, but I feel like
| if you needed to be able to say that you technically had a few
| billion in reserves as cheaply as possible but didn't actually
| think you'd ever need to liquidate it, buying the riskiest debt
| you could might be a great way to do that.
| charcircuit wrote:
| I'm not following your logic. $1 worth of debt is worth $1 no
| matter how risky it is. The risk is built into how much it is
| worth. Risky debt is high risk high reward. Since these funds
| are backing a stablecoin it doesn't make sense to go for high
| risk plays with that much money.
| kravvall wrote:
| Risky debt asks way fewer questions where the money is from
| you lend them.
| ATsch wrote:
| I'm not very well versed in how selling debt works, but the
| way I assume it works is the following: Say someone still
| owes me $1M over the next 10 years, but I think that
| there's now only a 50% chance of the debt being repaid. It
| would make sense for me to try and sell that debt for at
| least $500k to get a guaranteed immediate return, right?
| And then that person could say that they hold $1M dollars,
| even though it's only worth half that much if they priced
| the risk into it. I may be misunderstanding things though.
| charcircuit wrote:
| >And then that person could say that they hold $1M
| dollars
|
| You don't own $1M dollars, you own debt which is an
| asset. Considering you just bought it for $500k it sounds
| like the market price for that debt is $500k.
| nradov wrote:
| Yes that's basically how it works. When a corporation
| holds a loan as an asset on their balance sheet, they're
| supposed to mark that asset to market reflecting the risk
| of default. But if marking to market isn't actually
| enforced by auditors or regulators then the company can
| pretend that the asset value is the same as face value.
| This can appear to work for years until there's a
| recession and a bunch of borrowers default.
| ATsch wrote:
| Ah, that makes sense. I'm curious though, how would
| auditors ensure the asset is marked to reflect the risk?
| If one organization thinks the risk is substantually
| lower than another, what do they mark? Or is there
| generally enough arbitrage that this doesn't happen.
| nradov wrote:
| Well it depends on the asset. If it's regular corporate
| bonds that are being actively traded on an open market
| (liquid) then just use a recent market price. If there's
| no market then valuation becomes highly subjective. If
| the borrower has some kind of credit rating from a
| trusted rating agency then that can be used as proxy for
| default risk. Or if the borrower is publicly traded and
| releases audited financial statements then you can
| estimate based on those. But if you don't have any of
| that then pick a number and try to get the auditors to
| swallow it.
| CTDOCodebases wrote:
| Most likely the commercial paper was issued by crypto companies
| who all simultaneously seem to be incorporated in Hong Kong and
| the biggest borrowers of USDT.
| elango wrote:
| what kind of interest income that this 70billion generate ?
| [deleted]
| uptownfunk wrote:
| How can I short this
| Havoc wrote:
| More importantly how is 70B still in it...
|
| Not opposed to crypto in general but tether always struck me as
| rather questionable even pre Luna Tera collapse
| jazzyjackson wrote:
| perhaps the 70B only exists denominated in USDT - ie, the only
| people not pulling money out are people who never put money in
|
| and by people i mean exchanges who benefit from the printing of
| counterfeit dollars
| Havoc wrote:
| They could easily pull it out against real USD though. So if
| some of it is ahem fake that person knows for sure it isn't
| backed by real assets and should be running for the exits
| first.
|
| On that basis I'm inclined to believe the majority of the 70B
| is real. And really do t get what that gang is thinking to
| stay in
| pg_bot wrote:
| If you look at the timeline for tether it seems even more
| suspect. In late august of 2020 there are 10 billion tethers in
| circulation. They supposedly grew 8x in less than 2 years while
| being under investigation for bank fraud and a litany of other
| problems. They've never had an audit of their reserves, and the
| public behavior of their executives does not inspire
| confidence.
|
| Here's how this plays out in the next few months. Tether had a
| first mover advantage, but now there are other competitors that
| are functionally equivalent but have better guarantees of their
| asset backing. So now anyone who holds tethers should prefer
| holding a purely superior product. Why would anyone take any
| additional risk without upside? So they now enter a death
| spiral, since there is no reason for them to exist. The best
| possible outcome is that all of their assets are liquidated and
| somehow everyone is paid in full. The more likely outcome is
| that we find out the extent of the fraud when they halt
| redemption of tethers to their customers.
| eldenwrong wrote:
| How much liquidity entered the financial markets since
| 2020....?
| pg_bot wrote:
| About 265 billion USD entered circulation during that same
| time period.
|
| https://fred.stlouisfed.org/series/CURRCIR
| ericpauley wrote:
| This is just the total paper/coin in physical
| circulation. Actual money supply (M1) grew far more:
| https://fred.stlouisfed.org/series/M1SL
| louloulou wrote:
| I don't get all the concern trolls in this thread - if you
| actually believe what you're saying, why not put your money where
| your mouth is and short tether? It's not like it has any upside
| potential.
| divs1210 wrote:
| Agreed!
| alasdair_ wrote:
| How, exactly?
|
| I know it _seems_ simple to short Tether, but in practice there
| doesn 't seem to be a safe way to do it such that if the value
| plummets to almost zero (and takes much of the crypto ecosystem
| with it, including some exchanges) you could actually guarantee
| you'd get paid in US dollars at the end of it all without a
| long lockup period.
|
| You could do something like buy Coinbase puts or something, but
| there is so much volatility baked in already, and there is no
| guarantee that (say) Coinbase actually falls if Tether does.
|
| If you can think of a pure Tether short that still will work if
| trading is halted and exchanges fail, I'd love to hear about
| it.
| xwolfi wrote:
| In a short play you're paid immediately in USD. You sold the
| minute you acquired tether and now all you have is a Tether-
| denominated liability to pay back, which you assume will cost
| you 0 since you ll be able to get all those tether back at
| much less than you sold the initial loan.
|
| Ofc, for servicing this liability in tether, you have to pay
| interests in USD, as long as the market stays irrational.
|
| You need to find a large sleepy holder of Tether, fully
| bullish, who wants to make some easy premium money on your
| back while you make riskier short term downward bets on their
| back. A lawyer, a contract, a repayment schedule and hop, the
| matter is settled. We do that everyday in my investment bank
| in Hong Kong, with pension fund partners holding large
| inventories of stocks for their own clients and who dont know
| what to do with all that sleeping inventory.
|
| You can contact us or our competitors if you have above 200k
| in cash to invest in the short and we'll find you
| counterparties for a fee. If you plan to short regularly a
| few millions a day, DM me.
|
| Ofc, we d never touch a Tether short, we re not as insane as
| the crypto market. I d advise you to only short on short term
| bets, with full transparency with your counterparty so you
| avoid any sort of surprise. You should also pay a bit to
| hedge a catastrophic reversal, we have entire desks of people
| for that, so you can pay a bank for that service.
| hiq wrote:
| So from the large Tether holder's perspective, it's like a
| big deposit with USD interests and a very long time
| horizon, with the caveat that they'll get their principal
| back in USDT (with a rate 1:1) (eventually) instead of USD.
| And you do that through some legal contract, right?
| danaris wrote:
| Is a financial market the only place you can imagine someone
| expressing themselves "sincerely"?
|
| Can you not imagine that someone could feel that Tether is
| likely to fall to zero, and, oh, say, not want to legitimize
| the cryptocurrency ecosystem by putting any money into it?
|
| Or even ( _gasp_ ) not have thousands or tens of thousands of
| dollars to throw around on legalized gambling?
| User23 wrote:
| How do you structure that trade such that it pays out when
| tether collapses?
| sickmate wrote:
| I've never shorted or taken out crypto loans, but you could
| theoretically:
|
| - Take out a loan of USDT, using a stablecoin you trust as
| collateral
|
| - Immediately trade all USDT into your stablecoin
|
| - If the USDT price crashes, buy it up to repay the loan.
|
| e.g. Binance lets you borrow 800k USDT with 1.23m collateral.
| Over 180 days, interest paid would be 36k.
|
| Say USDT crashes and you repay your loan at 10c/USDT - you
| would pay at most 84k to settle the loan. You then end up
| with 1.94m, a 58% return on investment.
|
| It's probably not that simple however.
| alasdair_ wrote:
| >- If the USDT price crashes, buy it up to repay the loan.
|
| What happens if trading is effectively halted, so it's
| simply no possible to buy the USDT back later?
| SilasX wrote:
| You can do it on a decentralized finance app like
| compound: deposit a stablecoin you trust (which could be
| USDC) and borrow Tether, then immediately sell it and put
| it into something else that earns interest, incl outside
| crypto. You continue to earn interest on the deposited
| USDC (currently .86%, Tether borrowing cost is 3.62%, all
| ignoring Compound rewards). You can borrow against 82% of
| the deposited USDC, but 70% would be better to cover the
| interest accumulating and possible temporary spikes in
| Tether value.
|
| https://compound.finance/markets
| alisiddiq wrote:
| What happens if Binance goes under because of this tether
| crash?
| E2EEd wrote:
| Issuers of tether that is unbacked are defacto short. They thus
| embody your theory by design.
|
| Is there any derivatives market in tether to allow an outsider
| to open/create a futures contract as a seller (thus, short)
| that gives them the obligation to deliver tether upon expiry?
|
| I suspect that such matters don't work as you believe they do.
|
| Shorting generally is done by professionals in regulated
| assets. Tether doesn't seem to meet that requirement. No
| professional will want to take on short risk in any size in an
| unregulated asset. Shorting, in theory, has unlimited downside
| risk (to negative infinity). This would actually be a factor in
| an unregulated market controlled by scammers, depending (in
| large part) on the net positions of underlying and derivatives
| by opposing parties.
| tomthe wrote:
| Is there an easy way to do this? Are you telling me that I
| could have shorted UST?
| divs1210 wrote:
| Yes, many people made money shorting LUNA and UST.
| haasted wrote:
| Anchor protocol[0], which was most likely a large contributor
| to the collapse, was a lending application. Would have been
| easy to get a large chunk of UST from that. Not sure how your
| collateral would fare in the current situation, though.
|
| [0] https://www.anchorprotocol.com/
| dudus wrote:
| If you are so sure about Tether why not fulfill the other end
| of the bargain?
|
| I will borrow your Tether for a 20% premium for 3 years. Are
| you in?
| xwolfi wrote:
| Because shorting cost as much money as the duration for which
| the market stays irrational.
|
| I think Tether will collapse, I m not gonna pay you a premium
| for 5 years barely sleeping before finally the entire crypto
| space become insolvent. I d rather just tell you to help me
| convince our representatives to regulate.
| Ekaros wrote:
| Because there is no safe platform to short it... Also what is
| the premium on such action? Probably should be extremely cheap
| as it is unlikely to go much over 1$...
| parkingrift wrote:
| There is no way to short Tether from outside the crypto
| ecosystem. Shorting Tether with another stable coin is a fools
| errand.
| everfree wrote:
| > Shorting Tether with another stable coin is a fools errand.
|
| Why? There are plenty of US-based, regulated and audited
| stablecoins out there. You could use them as collateral to
| short Tether.
| parkingrift wrote:
| Ha. This would be the equivalent of betting against the US
| dollar by buying treasury bonds. I doubt the solvency of
| any single exchange or crypto institution if there is a
| true run on Tether. No one who believes that Tether is a
| scam would risk making that bit by leveraging another
| loosely regulated stable coin.
| everfree wrote:
| Many other popular asset-backed stables aren't loosely
| regulated like Tether. They are often regulated by
| NYSDFS.
| MisterBastahrd wrote:
| I'm sure this is all just fine and we just aren't sophisticated
| enough to understand the big brains behind the upcoming
| blockchain revolution that's going to decentralize all the things
| and grant freedom to everybody while also making us all rich.
| Hell, just today I read about a new coin that was going to behave
| as a stand-in for gold so that we could invest in that instead of
| destroying the environment to pull the actual stuff out of the
| ground. Maybe our hopes and dreams are the conductors of the
| future.
| gomijacogeo wrote:
| Reeve Collins interviewed Monday morning on CNBC. I won't
| editorialize and just leave it as a data point for others to
| interpret. https://www.youtube.com/watch?v=3GsMPMXGzAg
| cpach wrote:
| Related thread: https://news.ycombinator.com/item?id=31448819
| anonporridge wrote:
| And in the past 2 weeks, USDC has added $5B.
|
| The much more trustworthy USDC looks like its soon going to
| surpass the shady OG stablecoin Tether.
| reducesuffering wrote:
| 1 month chart on Tether price pretty clearly shows that Tether is
| struggling to hold it's peg:
| https://coinmarketcap.com/currencies/tether/
|
| Terra / Luna had $3b in reserves, either used to defend the peg,
| and/or laundered elsewhere (Do Kwon claims they only have $9m
| left, rest went to defend peg, with no verification. "we're
| checking if we can show we made these trades with a market
| maker." I'll let you be the judge if you think $3b got blasted
| into upward support of UST). The result was the same; a worthless
| stablecoin. Tether is no different here, just larger reserves.
| They will be depleted trying to hold the peg until they can't
| and/or they will be ran off with.
| Barrera wrote:
| > Tether, the world's largest stablecoin, has seen its
| circulating supply plunge from a record $84.2 billion on May 11
| to around $73.3 billion as of Monday, according to data from
| CoinGecko. About $1 billion was withdrawn late Friday evening.
|
| At first blush this looks bad. That's about 12% of Tether's
| market cap.
|
| On the other hand, the exchange rate is at this moment is
| 0.999:1. So the drawdown did not "break the bank." This means
| that Tether had at least that much capital that it could cough up
| in the space of less than 30 days.
|
| This may seem like a good thing for bulls because Tether is
| demonstrating resilience under stress.
|
| Or it can be viewed as a bad thing for bulls because it means
| that Tether is getter closer to the limit of its (widely-
| ridiculed) reserve claims.
|
| Given that Tether has every incentive to cheat and has
| demonstrated sleazy behavior, it's safe to assume they're
| cheating.
|
| The question is not whether or not they're cheating, it's _how
| much_.
|
| It will be very interesting indeed if Tether manages to keep its
| peg given another 10, 20, or 50% drawdown.
|
| This essay [1], discussed on HN a few days ago, claims to have
| made some predictions about Tether worth preserving for
| posterity. Conspicuously absent from those predictions was the
| market capitalization at which Tether falls days-on-end below 90%
| of its 1:1 dollar peg.
|
| For those who claim to know exactly what's happening behind the
| scenes at Tether, I think that's a prediction worth making.
|
| [1] https://www.kalzumeus.com/2022/05/20/tether-required-
| recapit...
| ineptech wrote:
| Someone help me understand this.
|
| All you need for a stable stablecoin is to save every dollar put
| in to it. The people behind Tether sell tethers for $1, they save
| all of those dollars, and whenever the price of Tethers drops to
| $0.99, they buy tethers until the price is back up to $1. As long
| as they never spend anything from the reserve, this can't fail no
| matter how unpopular the currency is - they can back the currency
| right up until they buy back the last outstanding tether with
| their last dollar.
|
| Of course, they didn't save every dollar; they spent some and
| invested some, presumably in things that have lost money
| recently. But they should be solid as long as they have made more
| money on those investments than they've spent in salaries and
| yachts and what-not, and Tether was already huge back when BTC
| was below $2k.
|
| I know I'm leaving out a lot of detail here, but it seems like
| the only way Tether is not stable is if the people behind it have
| been _wildly_ profligate. Is this about right, or am I off base?
| TameAntelope wrote:
| My understanding is that while USDT isn't this $1:$1 ratio you
| describe, other stablecoins are, specifically USDC.
|
| So what you're describing _does_ exist, but isn 't what USDT
| is. IMO the infatuation with USDT has always confused me a bit;
| why would anyone use USDT over USDC in the first place?
| optimalsolver wrote:
| USDC hasn't been audited either, so how would we know that?
| TameAntelope wrote:
| Because they've claimed it and we have no reason not to
| believe them, unlike USDT which we have many reasons not to
| believe them.
| datalopers wrote:
| They don't have the dollars. That's the catch.
| yuvadam wrote:
| [citation needed]
| TrackerFF wrote:
| Oh they have dollars, but the question is: How much of their
| non-USD assets are very liquid, and not too sensitive to
| market conditions?
|
| Say they have 50% in cash, 30% in other easily convertible
| assets, and the last 20% in more speculative instruments.
|
| What if they figured - hey, let's put those 20% on the
| market. Any returns, we keep, no-one needs to know. The rest
| we can use as reserve to keep the 1:1 ratio. Hell, investing
| 20% of xx billions on any fund or security that beats
| inflation is going to make you filthy rich - especially when
| there's only a handful of employees.
|
| The disaster, of course, happens if/when any of the markets
| they're exposed to takes a nosedive, and they either can't
| prop it up fast enough, or get problems with paying.
|
| Probably just the cynic in me, but I wouldn't be surprised if
| that's how things play out internally. Without any solid
| audits, it's hard to say. For all I know they have a very
| high % of USD reserves, or they could be Bernie Madoff
| reincarnated.
| ohgodplsno wrote:
| Now imagine that Tether, instead of waiting for someone to give
| them a dollar to print one USDT, printed billions of them and
| said "yeah don't worry they were paid for they're backed. Trust
| us" and then never opened any of their books to anyone but a
| single unknown audit company that is basically owned by one of
| their friends.
|
| Also imagine that they took the actual money that was given to
| them and, instead of keeping them in a bank account, said they
| were going to invest them. (Or did not say it, and did it
| anyways). Imagine they invested it in amazingly profitable
| sectors like the housing market in China which is definitely
| not crashing right now.
|
| Tether isn't backed.
| droopyEyelids wrote:
| Someone buys $10 tethers for $10 worth of bitcoin, then bitcoin
| loses value, then the original buyer wants to redeem 10 tether
| for $10 USD.
| lupire wrote:
| That's no problem at all. The person who bought the Bitcoin /
| sold the Tether loses , but that doesn't affect USDT.
| Majromax wrote:
| Unless Tether itself is the entity on the other end of that
| transaction. From Tether's reserves report, it has $82.42bn
| of reserves against $82.26bn in liabilities ($82.19bn of
| which are the tokens), for a net equity position of about
| $160m. However, its reserves include $4.9bn of "other
| investments (including digital tokens)".
|
| Suppose that's all bitcoin, which is valued at "cost less
| impairment" (i.e. the lowest price bitcoin reaches since
| the purchase), and bitcoin drops by 10%. That would wipe
| out about $490mn of equity, putting Tether underwater. The
| same could happen with a similar drawdown on $3.7bn in
| "corporate bonds, funds and precious metals," which are
| marked to market.
| jakelazaroff wrote:
| The person who bought the Bitcoin and sold the USDT is the
| Tether organization itself.
|
| Here's the same example, stated more explicitly:
|
| 1. I buy 10 USDT from Tether in exchange for $10 worth of
| Bitcoin. Tether now has 1:1 reserves of Bitcoin backing
| USDT.
|
| 2. The price of Bitcoin decreases by 50%. Tether no longer
| has enough reserves to cover all the USDT in circulation.
|
| 3. I want to sell my 10 USDT back to Tether and get my $10
| worth of Bitcoin. But Tether only has $5 worth of Bitcoin
| in its reserves! USDT will lose its peg.
| function_seven wrote:
| Why not have a step between #1 and #2? "Tether
| immediately sells the BTC for $10"
|
| There's still some risk if the price is rapidly moving
| and they can only get $9.99 for the BTC you sent them,
| but that could be mitigated by ordering the transactions
| to keep the peg: you send $10 of BTC, they sell it (and
| "only" get $9.99), they give you 9.99 USDT and say,
| "tough, what you thought was $10/BTC was really
| $9.99/BTC"
| aeternum wrote:
| This is a common misconception and is not at all how
| Tether works.
|
| Tether acts more like a central bank, they allow people
| to trade USD for USDT for exactly $1. Trading USD
| directly can be difficult because there are extensive KYC
| rules and not everyone has access to a USD bank account.
|
| On some exchanges, there is still a demand to trade in
| USD and it commands a premium due to the difficulty in
| trading it. This generates demand for USDT and slightly
| increase the price, suppose to $1.02 on this exchange.
|
| Arbitrage traders can now buy USDT for $1.00 and sell it
| on this other exchange for $1.02. The tether corporation
| simply holds the original $1 (of actual USD). They should
| have $1 USD for each USDT in circulation, and that's a
| lot of 'float' that they can invest in safe things like
| short-term US treasuries to make money off simply holding
| the cash. No need to speculate on Bitcoin or other risky
| investments, they are making plenty off just holding
| cash-equivalents.
| Bud wrote:
| The best rebuttal to this is the following quote from the
| article in question, which shows that not only is Tether NOT
| fully backed by cash, a lot of their supposed collateral sounds
| quite shady and they are also not letting anyone else audit
| what they are doing:
|
| "Regulators and economists have long questioned whether Tether
| has enough assets in its reserves to justify its stablecoin's
| purported peg to the dollar.
|
| "USDT is, quite simply, fully backed by collateral," Tether
| said in a statement Monday.
|
| "It has maintained its peg because every USDT is redeemable for
| dollars via Tether, and as such any time the price goes below
| $1 investors can earn a profit by buying USDT for a discount
| and redeeming it with Tether."
|
| The company previously claimed tether was backed one-to-one by
| dollars in a bank account, but subsequently revealed it was
| using other assets including commercial paper -- short-term
| corporate debt -- and even digital tokens as collateral after a
| settlement with the New York attorney general.
|
| Last week, Tether said it reduced the amount of commercial
| paper it owns and increased its holdings of U.S. Treasury
| bills. For the first time, the British Virgin Islands-based
| firm said it also holds some foreign government debt. Tether
| declined to comment further on the source of its funds, but
| said it is pursuing a more thorough audit of its reserves."
| MockObject wrote:
| > whenever the price of Tethers drops to $0.99
|
| If the Tether is pegged to the USD, who would ever sell one for
| $0.99?
| oneoff786 wrote:
| Because $0.99 is better than $0.
|
| Pegged is a meaningless term if nobody is supporting the peg.
| flerchin wrote:
| Folks who want their fiat.
| MockObject wrote:
| What does "pegged" even mean unless Tether is always
| willing to pay 1 USD for one? Then who would sell their
| tether for $0.99, at a loss?
| oneoff786 wrote:
| Tether is not willing to do this
| MockObject wrote:
| So their idea of pegging is just a forcefully worded
| request?
| oneoff786 wrote:
| More of a vague promise to buy. They have a lot of
| dollars. If tether skips to 99 cents will they buy it
| from people to push the price up? Maybe.
|
| It's been sitting at 99.9 for several days now.
| ohgodplsno wrote:
| Those who bought it at 0.9999954 and resell it at
| 0.9999978, making less than pennies on the dollar, but
| still profit. Then you make a chain of suckers until it
| goes back to 1USD
| jallen_dot_dev wrote:
| Tether will only redeem amounts of $100k or more. The
| vast majority of people get out of USDT by selling it on
| the market.
|
| Depending on how many people want to sell, how quickly
| they want to, and how many market makers are willing/able
| to arb it back up to $1.00, you might just take $0.99
| instead.
| ineptech wrote:
| It's my understanding that the people behind Tether buy at
| some price slightly below a dollar, to allow some "play"
| (slight volatility) in the Tether market and to incentivize
| others to hold Tethers and provide liquidity in exchange for
| arbitrage. But since you bring it up, I don't know if that's
| true, I could be misremembering that.
|
| I don't think it's super important to my question though.
| jermaustin1 wrote:
| Anyone unable to sell for $1.00 because no one is buying at
| $1.00.
| balefrost wrote:
| The NY Attorney General successfully prosecuted the parent
| company of Tether and Bitfinex. They found that the two were
| sharing funds, transferring them back and forth to make it
| appear that Tether was fully backed while using the same funds
| to prop up Bitfinex (after they lost coins, maybe in a hack?)
|
| https://ag.ny.gov/press-release/2021/attorney-general-james-...
|
| That doesn't necessarily mean that Tether's assets are less
| than its debts. I don't know the details. I just know that the
| NY Attorney General finds their activities to be shady.
| bko wrote:
| Its not entirely obvious what they "should" do with the fiat
| they make selling their token. They could invest it something
| safe like treasuries and keep the interest for themselves. But
| even treasuries could go down in value and if there are enough
| withdrawls they'll have to sell it at a loss.
|
| Or they can invest in money market funds, or similar short term
| investments. Or commercial paper (unsecured short term debt).
| From what I read, they invested a lot in commercial paper to
| Chinese companies. It's all a game to eek out a slightly higher
| yield.
|
| They face the same problem as any bank. Except banks have a
| regulatory framework that tells them exactly how much they can
| invest and in what, and every decade or so the bank gets bailed
| out.
| [deleted]
| 015a wrote:
| Here's what you're missing:
|
| The USD:USDT exchange rate should always be 1:1. If 1 USDT is,
| due to market pressure, suddenly worth $0.98 USD, Tether's
| responsibility involves some analysis of either waiting for the
| market to resolve itself (maybe its a transient thing, and its
| an arbitrage opportunity, so The People may step in), or act as
| the source of market liquidity; they buy USDT up, with their
| dollar reserves. Now they, as they always do, have a reserve of
| USDT they can re-sell for $1 USD without minting new currency,
| which is convenient (though ultimately a liability on their
| balance sheets).
|
| But there's a second situation: the exchange rate hits 1 USDT
| == 1.02 USD. This would happen if demand for Tether were very
| high; people want safety and stability, so they demand USDT.
| But: they aren't interested in "leaving crypto"; they don't
| want to convert USD to USDT, they want to convert crypto assets
| to USDT. The open market doesn't have enough liquidity to
| support the 1:1 exchange rate, so the price of USDT starts
| rising.
|
| This absolutely happens in exchanges which price crypto assets
| in USDT, which is many. One exchange says 1 BTC = X USD,
| another says 1 BTC = X*1.01 USDT, and there's now an inter-
| exchange arbitrage opportunity based on the promise that 1 USD
| should be 1 USDT. That arbitrage, in some market conditions,
| can act as an upward force on the price of USDT.
|
| It is ALSO Tether's responsibility to cool off the market. What
| do they do in this situation? There's only one solution: they
| need to increase the liquidity pool of USDT. In other words,
| there are sources of demand for USDT outside the scope of the
| purist viewpoint of "give me one USD and you get one USDT"
| rooted in their responsibility not just to act as a reserve
| bank for USD/T, but also a market maker. Markets misbehave;
| Tether promises stability.
|
| What's the source of these USDT? They probably have some USDT
| in their reserves. But beyond that, they need to be minted!
| Their promise is that every minted token is backed with USD.
| Assume they're keeping their promise, then follow the line of
| questioning into where the USD comes from. Return on USD
| investments for sure. Bank loans? External investor capital?
| CEO working nights at McDonalds? Regardless, it gets minted and
| then sold (probably at $1 USD); they make the money back.
|
| And, of course, there's the situation if that assumption is
| wrong. They have no external source of capital; they just mint
| tokens to meet demand, hoping that they get sold at $1 USD to
| refill the reserves. And that's damn convenient, wouldn't it
| be? USD-backed investments are pretty risky; we could be in a
| down market and their AAPL shares are in the red; and its
| USUALLY the case that demand for USDT, for stability, would be
| high when other markets are in the red; when it rains it pours.
| They need to pay taxes on the ROI of those investments. Things
| like bank loans or external investor funding usually also have
| expectations of ROI. Those are all costs; and it would be
| REALLY convenient if they could just ignore those and mint the
| tokens, who cares, the money will flow back in.
|
| This actually works most of the time; it's literally called
| Fractional Reserve Banking, and everyone does it. But during
| black swan events, it can break down; especially when you mix
| in typical finance bro greed, but that isn't even necessary for
| something like USDT to break down.
|
| There's no perfectly safe way to create a reserve-backed stable
| asset. The best hope in a deflationary context is that if the
| price of USD:USDT goes to something like 1:1.01, people
| preemptively come to Tether, give them USD for USDT, then
| arbitrage it back to 1:1. But because the logistics of doing
| that are different than just exchanging crypto-to-crypto
| (latency, KYC, etc), there could be a demand mis-match. Tether
| can't let the price stay above 1:1 for long, because it
| actually _devalues_ the USD basis of anyones ' investments
| denominated in USDT, which is a loss-of-faith event that can
| spiral to be even worse. So Tether steps in.
| chinchilla2020 wrote:
| There is another, more legitimate way to create a stablecoin.
| DAI is the dramaless version of a USD stablecoin and is
| decentralized, secured by 150% reserve automatically, run
| entirely by smart contracts.
|
| https://makerdao.com/whitepaper/Dai-Whitepaper-Dec17-en.pdf
|
| It does not perfectly track USD but stays within a couple
| percentage points. Arbitrage traders automatically stabilize
| the coin thanks to the way the smart contracts are arranged.
| hbosch wrote:
| In theory, you're correct. If 1B USDT is backed up, 1 to 1,
| with exactly 1B USD and no one every moves, sells, invests, or
| otherwise trades the underlying USD then the coin is actually
| stable... but it's already been established that Tether is
| backed by assets _other_ than USD[0]. So... how much are you
| willing to trust them?
|
| 0. https://www.cnbc.com/2021/02/23/tether-bitfinex-reach-
| settle...
| jerf wrote:
| And look at the incentives of all the individual parties in
| such a scenario.
|
| I think this is the only way a "stablecoin" can function as
| designed... but it is not possible to construct an entity
| that has any scalable incentive to provide the backing that
| would create such a coin. For that entity, it is nothing but
| downside.
|
| Therefore, stable coins are a fiction on par with perpetual
| motion machines. In the short term there's all sorts of
| perpetual motion and over unity machines... in the long term,
| not so much.
| sudosysgen wrote:
| Why couldn't you use short-term fed paper? Even a 0.5%
| yearly yield would be more than enough.
| rsync wrote:
| What about the scenario your parent describes, but free
| redemption is 30 days and faster redemption costs (some
| basis points) ?
| SilasX wrote:
| Even backing by other assets isn't a big deal as long as
| they're liquid assets or the interest they've been earning is
| enough of a buffer for the difference.
|
| It's like panicking because you're because your bank only has
| $30k cash onsite, or your money market fund is only 3% cash.
|
| Disclaimer: I'm still slightly short Tether, just think this
| a bad reason to be. Search my history for the details.
| candiddevmike wrote:
| Think the concern is the folks behind tether have printed
| tethers to buy/prop up Bitcoin over the years. You can see the
| issuance of new tethers align closely with Bitcoin rallies or
| sell offs.
| blihp wrote:
| The 'all you need' part is the part you can't hand-wave away.
| One typically can't both satisfy the requirements of generating
| a rate of return needed to remain viable[1] with low risk _and_
| keep the funds liquid. In the event of a run on their currency,
| they would need to have most of those funds available on short
| notice without a significant loss of principal to avoid an
| implosion. Even liquid, safe government bonds will often need
| to be sold below the price paid during extreme market
| conditions (the exact kind of situation that runs on the coin
| are likely to occur during)
|
| [1] Especially in a near-zero interest rate environment.
| idiotsecant wrote:
| >the only way Tether is not stable is if the people behind it
| have been wildly profligate
|
| This is _exactly_ the case and exactly what most people believe
| has happened. It 's a minor miracle that usdt hasn't evaporated
| already, it's a matter of time.
| shadedtriangle wrote:
| > All you need for a stable stablecoin is to save every dollar
| put in to it.
|
| That's the issue right there. How does Tether save its dollars?
| We can see it in their transparency report[1]. Whether you
| believe them or not it's not just cash in a bank account.
|
| * 0.41% Non-U.S. Treasury Bills
|
| * 55.53% U.S. Treasury Bills
|
| * 0.15% Reverse Repurchase Agreements
|
| * 5.81% Cash & Bank Deposits
|
| * 9.63% Money Market Funds
|
| * 28.47% Commercial Paper and Certificates of Deposit
|
| How much of that is liquid and directly convertible to dollars
| 1:1 in he next 24 hours? Not 100%.
|
| What happens when they start selling billions in Treasury Bills
| and Commercial Paper to fund redemptions? The market price of
| those assets will drop.
|
| What if the value of those assets is _already_ below 1:1
| because of recent market events?
|
| What if they're not being as transparent as they say they are?
|
| > As long as they never spend anything from the reserve, this
| can't fail no matter how unpopular the currency is.
|
| This can easily fail many different ways.
|
| [1]: https://tether.to/en/transparency/#reports
| dragontamer wrote:
| > What if the value of those assets is already below 1:1
| because of recent market events?
|
| My long-term treasuries are down well over 10% this YTD, in
| case anyone wants to know. So if Tether had say, $50-billion
| in 10-to-30Y treasuries at the start of the year, they only
| have $45-billion of that now.
|
| There are serious market risks when you buy/sell Treasuries.
| Yes, they're among the safest instruments on the market, but
| rising interest rates and inflation are huge issues and
| absolutely wreck the value of long-term treasuries.
| TuringNYC wrote:
| >> So if Tether had say, $50-billion in 10-to-30Y
| treasuries at the start of the year, they only have
| $45-billion of that now.
|
| This is nuts - they dont and it wouldnt make any sense. You
| cant have a short term cash-equivalent backed with long-
| duration bonds. It would be a total asset-liability
| mismatch.
|
| For reference:
|
| T-bonds mature in 20 or 30 years and offer the highest
| interest payments bi-annually.
|
| T-notes mature anywhere between two and 10 years, with bi-
| annual interest payments, but lower yields.
|
| T-bills have the shortest maturity terms--from four weeks
| to one year.
| tyrfing wrote:
| > So if Tether had say, $50-billion in 10-to-30Y treasuries
| at the start of the year, they only have $45-billion of
| that now.
|
| They don't. As stated at the link:
|
| > U.S. treasury bills comprises U.S. treasury bills with a
| maturity of less than 120 days.
| kolbe wrote:
| Billions is a small number in the US Treasury market. They do
| not move the market with that kind of size.
| GreaterFool wrote:
| True. The US Treasury market is backed by war. That's solid
| business that you can rely on :-)
| SilasX wrote:
| Everything you've just said would apply equally well to money
| market mutual funds (which hold the same kinds of assets),
| and yet they very rarely have problems honoring redemptions
| or keeping $1/share peg.
| User23 wrote:
| https://www.investopedia.com/terms/b/breaking-the-buck.asp
|
| Edit: Just providing context for those who may be
| interested.
| SilasX wrote:
| Right, I'm familiar with an alternate expression for what
| I just described. Were you disputing that it's rare,
| or...?
| ChrisLomont wrote:
| First, MMMFs _target_ $1 /share, they do not promise it nor
| are they legally beholden to honor it. It's a goal, not a
| promise.
|
| It also works because the US dollar has been remarkably
| stable and most of their holdings are USD. No crypto is so
| stable, with a bunch of them being about the most volatile
| assets you can lose money with.
| SilasX wrote:
| > First, MMMFs target $1/share, they do not promise it
| nor are they legally beholden to honor it. It's a goal,
| not a promise.
|
| How is that relevant to the claim in question? (Which, if
| you'll recall, was whether tether can maintain the peg
| and redemptions while holding the same assets as MMMFs,
| which generally do that just fine.)
|
| > It also works because the US dollar has been remarkably
| stable and most of their holdings are USD.
|
| Okay, now you lost me, and I'm not convinced you have the
| recent discussion in mind. The original comment was
| claiming that Tether can't maintain the peg, because it
| holds non-dollar assets. I pointed out a trillion dollar
| industry by that maintains a peg, using those same
| assets, and you're saying the _non_ -dollar assets only
| succeed _there_ because the dollar is stable? Which is
| somehow an argument about how these assets are good
| enough for MMMFs to work but not Tether?
|
| Please take a minute to review the thread and see if
| you're still supporting the claim I disputed.
| agumonkey wrote:
| So the financial system is mostly reluctance ?
| NortySpock wrote:
| Well, friction in transactions, arbitrage, and collective
| belief in the value of an asset.
| worik wrote:
| >....and collective belief in the value of an asset.
|
| Among other things the financial system is a web of
| trust.
|
| IMO one of the fundamental things that crypto gets wrong
| is replacing trust with algorithms. I do not think that
| can be done. Trust is about people.
|
| Time will tell if an algorithm that can automate trust
| can be found. I do not expect it will
| hackingforfun wrote:
| I think a sufficiently advanced algorithm can over time.
|
| Bitcoin is an example of a system of trust that has
| worked pretty well so far (although it requires a lot of
| electricity, but that is the trade off). There are also
| people on the Bitcoin core team, so there is some trusted
| element there.
|
| Crypto will likely continue to innovate on algorithms,
| given the chance.
|
| I think there can be trust in people, plus algorithms,
| with algorithms taking over more over time. This is
| already happening even in traditional finance, i.e.
| giving more control over to algorithms that participate
| in HFT. People do monitor those, but people monitor
| crypto, too, and maybe the failures in crypto so far mean
| too much control has been given.
|
| I would argue that some more things in finance can be
| automated, without things being so black and white (i.e.
| no control vs total control given to algorithms). I do
| think the trust model given to governments and
| traditional finance gatekeepers can be iterated on, with
| some regulation involved too. I don't think we've figured
| everything out yet.
| jcranmer wrote:
| > What if the value of those assets is already below 1:1
| because of recent market events?
|
| The statistics you're bringing up are as of March 31. Do note
| that 6% of reserves are in "Other Investments (including
| digital tokens)", and Bitcoin (as a proxy for all
| cryptocurrencies) is down ~30% since then, so that's at least
| 2% of their assets that have been wiped out by market
| conditions. Keep in mind that said report also said that, as
| of March 31, liabilities are 99.8% of assets, so Tether's
| accounts says it should _already_ be underwater.
|
| (Although, if I'm reading the attestation correctly, all of
| the assets--including cryptocurrencies--are actually valued
| at purchase cost and not fair market value, so what the
| actual present value of those cryptocurrences is now or was 2
| months ago is extremely unclear. Transparent is the opposite
| of how one could describe Tether's financials.)
| LatteLazy wrote:
| They only need to have made 2% on those other investments
| and the 2% lost on crypto is irrelevant.
|
| Also, if 2% of outstanding tether has been lost (forgotten
| wallet keys etc) then those can never be redeemed and
| again, tether wins.
|
| Inflation is another factor worth considering here: tethers
| deposits are deminishing but it's investments are (or
| should be) shielded.
|
| I think people fail to notice how similar a (non-fraud)
| tether model is to a traditional bank: you take short term
| deposits, you make long term loans, and you hope to have
| enough capital on hand to deal with any runs. Given the
| liquidity of modern capital markets, it's very rare for the
| fed to have to bail out small deposit banks. So it's
| reasonable to assume the same will apply to tether.
| jcranmer wrote:
| > They only need to have made 2% on those other
| investments and the 2% lost on crypto is irrelevant.
|
| A quarter of their investments are commercial paper,
| which hasn't averaged as high as 2% yield since a brief
| period in March 2020. Actual cash of course has 0% yield.
| US Treasuries (sub 1-year), which make up nearly half
| their assets, also hasn't hit 2% yield any time recently.
| So no, they aren't recouping their loss on
| cryptocurrency.
|
| > I think people fail to notice how similar a (non-fraud)
| tether model is to a traditional bank: you take short
| term deposits, you make long term loans, and you hope to
| have enough capital on hand to deal with any runs. Given
| the liquidity of modern capital markets, it's very rare
| for the fed to have to bail out small deposit banks. So
| it's reasonable to assume the same will apply to tether.
|
| One of the reasons why banks rarely have to be bailed out
| is because there are stringent regulations on bank
| holdings. For example, a minimum tier 1 capital ratio,
| the amount of equity that needs to be held to cover
| unexpected asset shortfalls. This requirement is I
| believe 10%, and based on the evidence Tether has
| produced, Tether's tier 1 capital ratio is... 0%. It
| should also be noted that Tether is perilously close to
| insolvent, with (claimed) assets about 100-101% of total
| liabilities; most financial institutions prefer to be at
| least ~110-115% of total liabilities.
|
| Compare Tether to banks if you want to, just be aware
| that it just makes Tether's financials look _even worse_
| in comparison.
| LatteLazy wrote:
| Don't mistake me for a tether fan. I don't pretend to
| know if it will work or if it moral or if it's all a
| scam. I don't own any.
|
| I'm just laying out the maths...
|
| And to be clear, they only need to make 2% _total_ to
| cover their crypto loses. If the average tether coin
| exists for 18 months before being redeemed, 1.5% per
| annum will net them 2.2% over that period and they 're
| golden.
|
| That extra 0.2%, for a $10bn withdrawal is 2million USD
| in profit right? Not bad split equally between 5
| employees, for a month with massive crypto loses and 10bn
| in net withdrawals...
| ncallaway wrote:
| > I think people fail to notice how similar a (non-fraud)
| tether model is to a traditional bank
|
| That's exactly what's unethical about it. They're
| operating a bank, but have skipped all the regulations
| and oversight that banks operate with.
|
| I have no issue with Tether operating a fractional
| reserve deposit system, _if_ they are subject to the same
| oversight (and insurance) that banks are subject to.
| LatteLazy wrote:
| The reason banks are regulated is the risk of contagion
| and the risk of short term drops in markets making them
| illiquid or shallow so banks can't meet their
| commitments.
|
| But tether has no risk of contagion to a bank does it?
|
| And markets have never been more stable or deep or
| liquid.
|
| So the case for regulation here is weak.
|
| Again. I don't actually know if tether is a giant fraud,
| or how much actual business case there is here for stable
| coins. I'm just saying, it's sort of easy to make a case
| at least that they're fine.
| WinstonSmith84 wrote:
| Tether, or rather Finex is a famous MM. Don't worry too
| much about their "other investments", they are up a lot no
| matter BTC price.
|
| Tip of the iceberg
| https://bitinfocharts.com/bitcoin/wallet/Bitfinex-
| coldwallet
|
| Also, you're going with the assumption they shall be able
| to redeem 100%. Crash happens, like we have seen, but
| everyone cashing out their USDT is not a scenario going to
| happen. Or if you want to account for this scenario, then
| you can as well assume that crypto is going to disappear,
| and that would not happen without a cataclysmic event in
| the stock market either. Probably we will be back to the
| stone age at this point, and will have other things to
| worry about
| giaour wrote:
| > but everyone cashing out their USDT is not a scenario
| going to happen
|
| Didn't bankers say something similar in 1928?
| dsomers wrote:
| If I recall correctly, the stock market _only_ lost 90%
| of its value during the crash that proceeded the Great
| Depression.
| hiq wrote:
| It would be more relevant to compare to bank runs. How
| many banks got _only_ 90% of their deposits withdrawn and
| managed to go through this?
| ineptech wrote:
| > Crash happens, like we have seen, but everyone cashing
| out their USDT is not a scenario going to happen.
|
| This seems wildly optimistic. All it would take is for
| users to adopt some new FOTM stablecoin faster than
| Tether backers can liquidate their reserves. It needn't
| be rational, either; it could be catalyzed by, let's say,
| a *ism scandal involving someone connected to Tether.
| solveit wrote:
| Without commenting on the likelihood of a tether bank run
| in general, it seems incredibly unlikely that it'll be
| catalyzed by an *ism scandal purely based on the general
| political leanings of crypto whales (hard to pin down on
| the left-right spectrum, but definitely highly
| libertarian for obvious reasons).
| darcys22 wrote:
| See this is just low quality FUD,
|
| They have 39B in US Treasury Bills, how much do you think
| these will drop if they sell? The truth is next to nothing.
| and a 39B moat for sell offs seems very reasonable
| sbf501 wrote:
| I read that selling off commercial paper can impact just
| about everything because it is used extensively between
| banks. I don't quite understand it, but apparently this is
| how crypto came to impact the stability of other markets;
| through buying and selling huge amounts of commercial paper
| and impacting its price. I'd like to understand that better,
| if anyone feels like writing an ELI5.
| Majromax wrote:
| > whenever the price of Tethers drops to $0.99, they buy
| tethers until the price is back up to $1.
|
| Buy Tethers with what? If the money is in fact saved in
| regulated banks or other such instruments, there's nothing
| liquid left to defend the peg on the exchange.
|
| Instead, the standard "backed stablecoin" approach is to make
| money with a small spread on redemptions/creation, while
| allowing others to do that hard work. Tether takes
| (https://tether.to/es/fees) a 0.1% spread on redemptions, so if
| you hand them $1mUSDT you'll get back $999k USD.
|
| > But they should be solid as long as they have made more money
| on those investments than they've spent in salaries and yachts
| and what-not, and Tether was already huge back when BTC was
| below $2k.
|
| One possible "bank run" scenario is that their backing is in
| fact stable, but it is illiquid. Suppose Tether invested part
| of its reserve in long-term loans to another company (like
| Binance). If Tether ever faces a crisis of confidence, it would
| face large-scale redemption requests, but it may be unable to
| call in its loans to fund those requests. That would leave
| Tether unable to redeem its currency, and a public suspension
| of redemptions would drive a further exodus.
|
| In theory, every single USDT in circulation could be redeemed
| at a moment's notice. Unwinding some $73 billion in investments
| would be a Herculean feat _even if everything is fully
| legitimate_.
| martincmartin wrote:
| Like the bank run scene from It's A Wonderful Life:
| https://youtu.be/iPkJH6BT7dM?t=45
| datadata wrote:
| > In theory, every single USDT in circulation could be
| redeemed at a moment's notice
|
| The easy way to protect against this is to not contractually
| promise _instant_ redemption. I think this is what tether
| actually does, but I could not find a source. Regular savings
| account banks do typically do this, for example the bank has
| the right to ask for 7 days to honor a withdrawal.
|
| If you are tether and your asserts are in bonds that mature
| in under N days, then you could just promise redemption
| within N days to eliminate bank run risk. You would still of
| course have counter party risk that when the bond matures it
| is not paid back.
| logifail wrote:
| > Regular savings account banks do typically do this, for
| example the bank has the right to ask for 7 days to honor a
| withdrawal
|
| Source?
|
| I'm familiar with savings accounts described as "instant
| access" or "easy access" where you can get your money out
| whenever you feel like it.
|
| Unless the bank actually markets an account as a "notice
| account", can they really ask for 7 days notice?
| datadata wrote:
| Here is an example:
| https://www.capitalone.com/bank/disclosures/savings-
| accounts...
|
| > Advance Notice of Withdrawal: Under federal law, we
| must reserve the right to require you to give us at least
| 7 days written notice before you take money out of your
| 360 Savings. (This hardly ever happens but legally we
| have to say it!)
| logifail wrote:
| > Here is an example [..]
|
| Interesting, _and_ this appears to be federally-mandated.
| Wow.
|
| Are there other jurisdictions where this kind of rule
| exists?
| Symbiote wrote:
| I used to have savings accounts with similar terms in the
| UK. They have a higher interest rate.
|
| https://www.moneysavingexpert.com/savings/savings-
| accounts-b...
| logifail wrote:
| Sure, I understand the general principle of locking up
| your investment for longer and [perhaps] getting better
| conditions, but the notice periods on those accounts
| aren't government-mandated, though?
| User23 wrote:
| Of course. A depositor might walk in and ask to withdraw
| more money than the bank has cash on hand. The seven days
| gives the bank time to get the requisite notes (or call
| the appropriate law enforcement agency).
| Majromax wrote:
| > If you are tether and your asserts are in bonds that
| mature in under N days, then you could just promise
| redemption within N days to eliminate bank run risk.
|
| I don't think that's reasonable for Tether, at least not
| with a bulletproof N. I can't quickly find any specific
| redemption guarantee, but their March reserves report notes
| that their US Treasuries (the largest single claimed
| category) can have maturities up to 120 days. The
| commercial paper category claims an average duration of 44
| days.
| User23 wrote:
| A Tether is an IOU for a dollar right? So long as you have
| one USD per Tether issued you can always redeem your
| outstanding IOUs.
|
| I acknowledge the complexities of investing that collateral
| in more or less liquid instruments, but in principle the
| notion appears sound. I'd be happy to give you an interest
| free IOU in any amount you like if you provide me cash money
| for that nominal value in exchange.
| frgtpsswrdlame wrote:
| >The people behind Tether sell tethers for $1
|
| This is the problem. I don't believe all the tethers were sold
| in exchange for $1. If Tether wasn't receiving $1 for every
| tether then everything else falls apart.
| mesozoic wrote:
| You're assuming they're actually receiving the dollars for the
| tethers they mint which they have chose not to prove.
| jonahbenton wrote:
| There is an assumption behind your question to the effect of
| saying "If we assume Tether is not, ultimately, a fraud, it
| seems like the only way..."
|
| That is, IMHO, a questionable assumption.
|
| Now, "fraud" in this case too strong a term. The intent to
| defraud may not be explicit in Tether's internal conversations
| and practices.
|
| All business ventures by definition involve risk, and corporate
| structures and venues and liability shields and so forth exist
| precisely to create a space for risky ventures to be undertaken
| without failure leading to death or personal poverty for the
| principals. In those cases, the customers, investors, and other
| participants are also partaking in the risk, based on
| information that is deliberately- sometimes responsibly,
| sometimes incidentally, and sometimes maliciously- incomplete.
|
| At the end of the day, when the full accounting is known, a
| post facto judgement of fraud vs speculation may be rendered.
|
| But the assumption that Tether is behaving as one might want
| one's bank to be behaving, in terms of customer/user risk
| exposure, should be strongly, strongly questioned.
| ufo wrote:
| Let's be honest with ourselves... Tether is almost certainly
| intentionally fraudulent.
| sgammon wrote:
| how is fraud too strong a term? what else would you call
| deliberate financial malfeasance?
| jonahbenton wrote:
| Have just seen it many times, specifically in finance, the
| risk complexity of which is really hard to understand, and
| which has an equilibrium of stasis punctuated with
| earthquake-level surprises that make even careful bets into
| speculations into existential threats more quickly than
| most people are able to respond. Fraud is a catchall for a
| really wide range of often unintentional outcomes.
| Incompetence rather than malice, though the common
| behaviors both of information hiding and cutting customer
| hair rather than one's own shades awfully close to malice,
| even if they are in compliance with terms and disclosures.
| drc500free wrote:
| Very early on in my MBA, I ran a pretty simple simulation
| of different investment strategies with different
| expected returns and different tail distributions. Each
| round, new money entered the market and was distributed
| based on previous empirical returns.
|
| The result was the same "slow up fast down" sawtooth we
| see in the real market, and investments that had real
| alpha were crowded out by investments that simply pushed
| risk into the tails. It took like an hour to assemble
| that agent-based simulation and it scared me out of
| finance. Most financial engineering seems to just be
| Martingale betting schemes that guarantee small to modest
| returns 99% of the time.
| Geee wrote:
| The problem is that it's not that simple to just park $80b on a
| bank account. The bank will use the money to buy bonds or give
| it out in mortgages to get interest on it. It's akin to kicking
| the can to the bank, and getting the money out might fail or be
| too slow. It's probably better to manage the reserve yourself,
| to be able to manage risk and liquidity properly, rather than
| outsource it to a bank.
| wolpoli wrote:
| It would seem like the banks would be much better equipped to
| handle $80 billions because they have experience with
| companies that need to move cash around. If push comes to
| shoves and Tether needs that $80 billions immediately, the
| bank could always get an overnight loan from the interbank
| system or the Federal Reserve.
| jameshart wrote:
| The problem with trying to park $80bn in a bank account is
| not the risk that the bank might invest it. That is what
| banks do. You can find a legitimate bank who will be willing
| to hold your $80bn with reasonable terms for how fast you can
| access it, backed by insured guarantees and as secure as you
| would like.
|
| But such a bank, when you show up with your $80bn, in order
| to protect their ability to reliably offer those kinds of
| terms, will want to ask you a few questions about where you
| came by that cash.
|
| And if you can only say 'I have no idea', and when they then
| ask 'how much of it belongs to sanctioned individuals or is
| criminal proceeds?' Your best guess is 'not _none_ of it',
| then the legitimate banks are going to walk away from that
| conversation.
|
| So then, yes: where _are_ you going to keep that $80bn?
| sudosysgen wrote:
| What prevents you from only selling the coins to US
| citizens with full KYC? Wouldn't that be enough?
| Geee wrote:
| Yes, that's another problem and probably the more likely
| one. Buying and selling bonds and other stuff also requires
| arrangements with banks and so on, but might be easier from
| capital control perspective, or actually work as a money
| laundering mechanism, but I'm not really sure.
| __turbobrew__ wrote:
| It sounds like the only way to do this is to create your own
| bank which directly integrates with the federal reserve.
| logifail wrote:
| > It sounds like the only way to do this is to create your
| own bank which directly integrates with the federal reserve
|
| ...but isn't the whole point of Tether to stay as far away
| from the traditional banking system as they can?
|
| This of course includes avoiding - as much as possible -
| all the KYC/AML legislation that traditional banks are
| obliged to follow?
| __turbobrew__ wrote:
| There is tension between being as far away from the
| banking system as possible and having the ability to cash
| out your USDT to USD.
|
| The only way I can think of a stablecoin being totally
| independent of banks is to store their reserves as bank
| notes, and when someone wants to cash out USDT to USD
| they have to go pick up the bank notes. This glosses over
| the obvious challenges of storing billions of dollars in
| bank notes and distributing those notes during a cash
| out. The bank notes are also worth less than face value
| because you have to physically store and secure them.
| mtremsal wrote:
| The banks used by crypto companies tend to be outside the
| US and have large crypto positions.
| lottin wrote:
| A stablecoin that was fully backed with dollar reserves would
| be fail-proof. The problem is such a stablecoin would also be
| unprofitable, because the issuer would have expenses but no
| revenue. The way they generate revenue is by investing part or
| all of their reserves in assets that generate a return.
| However, as soon as they do that, the stablecoin is no longer
| fail-proof because these investments are not risk-free.
| User23 wrote:
| The risk-free rate of return is generally greater than 0%, so
| with a large enough issuance I imagine it could be done
| safely. But "don't get greedy" is a commonly ignored
| principle.
| [deleted]
| mdoms wrote:
| throwaway6734 wrote:
| What's stopping them from just printing tethers without dollar
| backing and injecting them into the market?
| stavros wrote:
| Tethers aren't dollar-backed, are they? You just create as
| many tethers as you want out of thin air, and you sell them
| for a dollar each. If people want to sell them back, you
| (presumably) have the dollars still.
| pyrrhotech wrote:
| That's how it should work. What if instead, multibillion dollar
| exchanges that have a vested interest in keeping the price of
| crypto propped up instead paid Tether much smaller numbers to
| print out of thin air and create artificial demand during any
| price drops?
| vkou wrote:
| That is a fascinating hypothetical that an audit of tether
| would either prove or disprove.
|
| The fact that tether has never been audited makes the former
| more likely than not.
| aftbit wrote:
| What if Tether has issued a substantial amount of USDT to
| people in exchange for either nothing or things that ultimately
| prove to be worth much less than $1/USDT issued?
| lysecret wrote:
| Found this explainer video it's quite good as someone who never
| heard of tether. https://youtu.be/-whuXHSL1Pg
| swamp40 wrote:
| Eventually, the US will figure this out and make a USD crypto
| that will be used as THE stablecoin.
|
| It seems obvious to me that a stablecoin needs a solid
| governmental backing, since there is no profit in it and you need
| unlimited deep pockets in case of a run.
|
| The advantage is then that the USD remains the world's premier
| reserve currency, even into the digital age.
| xwolfi wrote:
| W...why do you want something more digital than the existing
| system ? I dont want each dollar to be tracked from its infancy
| to where I spent it, I m quite fine with withdrawing my digital
| money back to cash at the ATM and spending it anonymously
| thereafter.
|
| The system is perfect, why change it to liquefy the dumb
| investment a few crypto lunatics made ?
| swamp40 wrote:
| The existing system would stay the same. A USD stablecoin
| would be something new - a cryptocurrency that is backed 1:1
| by the USD and the US Government.
|
| It's too big of a job for private finances and too prone to
| corruption because there is zero profit if you do it
| properly.
| klyrs wrote:
| What value does "cryptocurrency" add to a centralized
| currency? I can see that we'd be better off with a
| standardized protocol for sending money around, but plenty
| of countries have done that fine. The US is stuck in a
| technological backwater, yes, but I fail to see why
| "cryptocurrency" would decrease the number of problems.
| malermeister wrote:
| But why should the US government build something just so
| crypto folks have something to gamble with? Why does the
| government need to enable their habit? What benefit is
| there to its people?
| dxhdr wrote:
| > W...why do you want something more digital than the
| existing system ?
|
| > The system is perfect
|
| Still amazes me how conservative the HN crowd is when it
| comes to finance. Move fast and break things... except not
| the monetary system; that, is perfect.
| ProjectArcturis wrote:
| What could you do with a USD stablecoin that you can't do with
| a regular old dollar? Other than let everyone see your
| transactions and account balances.
| hanniabu wrote:
| Well for one you can give the government full control to
| freeze your funds whenever they want
| bpodgursky wrote:
| Exchange it for another coin in less than 3-5 business days
| ceejayoz wrote:
| My Dad sends me money via Zelle. It shows up instantly in
| my account, with zero fees, even if it's 10pm on a Sunday.
|
| https://mashable.com/article/ethereum-gas-fees-skyrocket-
| bor...
|
| > If you were trying to complete a transaction on the
| Ethereum network last night, you might have been taken
| aback by the ridiculously high gas fees you saw. For
| example, one user purchased a $25 NFT on Saturday evening.
| Their total price? $3,325. That's $3,300 just in fees.
|
| I'll stick with USD, I think.
| mikeyouse wrote:
| And within the next few years, the FedNow service will be
| live and render Zelle and a lot of other systems
| obsolete;
|
| https://www.frbservices.org/financial-
| services/fednow/about....
| SparkyMcUnicorn wrote:
| Zelle has strict limits on how many transactions you can
| do and how much you can transfer.
|
| Yeah, ETH has high fees. Don't use it directly. Use an
| L2, Polygon, or something else where fees are pennies or
| less. ETH is not a good chain to be on for the average
| user, unless you have a lot of money to waste on gas.
| postalrat wrote:
| So don't use ethereum because the fees are too high?
| swamp40 wrote:
| Why do you think any stablecoin exists? What need do they
| solve?
| ProjectArcturis wrote:
| Right now they seem to mainly be used A) as a proxy for US
| dollars on crypto exchanges, and B) by their creators, to
| pump up the crypto markets.
| adhesive_wombat wrote:
| > by their creators
|
| Who often _are_ the exchanges.
|
| "When in a gold rush, sell spades" is old hat. Now it is
| "sell spades but also denominate everything in the
| SpadesRUs Prospecting Emporium in SpadeCoin scrip" and
| relieve people of their dollars at the door before
| they've even laid hands on a spade.
| brokensegue wrote:
| at least somewhat its evading taxes/regulation
| horsecabletruck wrote:
| Many things. A stablecoin that implements ERC20 interface can
| be used across Ethereum ecosystem and it's smart contracts.
| You could even program your own smart contracts around the
| token, such as to setup a time lock or auction.
|
| Examples: converting it to another token on a decentralized
| exchange, purchasing an NFT, holding the token in a non-
| custodial wallet, holding the token in a multi-signatory
| wallet, participating in DAOs, using a smart contract to
| handle decentralized escrow, interacting with decentralized
| lending protocols and liquidity providers.
| humbleMouse wrote:
| mdoms wrote:
| [deleted]
| robonerd wrote:
| Most of these are just _" do a thing you can already do
| with money, but shittier"_
| amanj41 wrote:
| I would guess that you have never been made to remit
| money to someone living in a different country. There are
| multiple uses for a CBDC but this one is a low hanging
| fruit example. I have had headaches doing because of
| existing infrastructure. Wire fees + exchange fees
| ProjectArcturis wrote:
| Why aren't stablecoins already used widely for
| remittances? Is it the gas fees? Or lack of technical
| sophistication on the receiving end?
| randomhodler84 wrote:
| "But without permission". Shittier might be acceptable if
| you do not wish to seek permission. Which is the whole
| point.
| ProjectArcturis wrote:
| So, for crime? Like, what is the legitimate use-case
| where not needing permission is the defining requirement?
| randomhodler84 wrote:
| We do you need to seek permission by default to save,
| spend and transact over the internet? Do we need
| permission to send TCP packets? To send an email?
|
| Consider that the internet works because it is permissive
| in what it accepts. What if money was abstracted from the
| states monetary policy, and it was as frictionless as any
| other internet protocol. The internet experiment changes
| our lives every day, in ways we cannot fathom.
| horsecabletruck wrote:
| woeirua wrote:
| Decentralization is not a goal of the modern financial
| system. Indeed for many reasons, decentralization is not
| desirable, as crypto-bros are about to find out when
| Tether blows up and takes out 3/4 of the market.
| horsecabletruck wrote:
| Tether is hardly decentralized and it blowing up will not
| have impact on the network. Who cares if a high-risk
| stablecoin crashing takes out the market price of ETH so
| long as the chain continues to fill blocks and protocols
| like DAI, RAI and USDC continue to operate as intended.
|
| > Decentralization is not a goal of the modern financial
| system.
|
| Many people in the world do want a broader range of
| options than "fiat in centralized digital bank." Even the
| HN crowd sometimes praises cash and its peer-to-peer and
| censorship-resistance attributes.
|
| The ability to have a smart contract perform operations
| like atomically and trustlessly swapping two assets
| without human oversight is interesting. Maybe not to you,
| but to many users and industries.
| vinyl7 wrote:
| You know when theres a tech bubble when people are
| pushing pointless products
| DANK_YACHT wrote:
| This point always comes up, and it typically shows a lack
| of knowledge about what you can do with a smart contract.
| E.g. with a smart contract, you can implement an option
| on anything and sell the option to a counter party with
| very little work. How would you do that without a
| blockchain? One way would be to sell an option on a
| listed security through your brokerage, but the
| blockchain democratizes this ability and makes it so
| anyone can do it for a different set of assets then would
| otherwise be possible.
|
| Like why have digital banking infrastructure at all? What
| new thing was enabled by digital banking infra? The
| answer is that nothing new was enabled, but the tech made
| banking operations faster and more accessible to more
| people. The same thing applies to blockchain tech.
| ProjectArcturis wrote:
| Auctions already exist. Time-locking your own money is a
| very niche case but I'm sure you could find a way to do it
| with regular dollars. You can buy other tokens with
| dollars. You can set up trust funds, corporations, and non-
| profits in dollars. Escrow exists. Loans exist.
|
| The difference is the decentralization of it, but why is
| that an advantage? We've had hundreds/thousands of years
| working out the kinks of, say, how to operate an escrow
| provider. Replacing that all with "smart" contracts just
| opens you up to hacks of poorly written code, of which
| Ethereum itself is a prime example.
| horsecabletruck wrote:
| Crypto does not need to replace all financial activity.
| But it may be used in place of some activity, and opens
| up some new use cases that we did not have before.
| Somebody can purchase their coffee with fiat and their
| NFT (which may be an ENS domain) with an ERC20.
|
| Take decentralized escrow, which underpins auctions,
| crowdfunds, markets, atomic swaps and more: it does not
| require a private third party.
|
| Most traditional escrow are companies that will do data
| collection, long settlement windows, arbitrary
| thresholds, high take-fees, and restrictions based on
| locale.
|
| A decentralized, open source, forkable, global, instant-
| settlement, ownerless, and feeless protocol to handle
| escrow of digital assets is rather novel.
| Group_B wrote:
| You're gonna use nft's as your example for a crypto use
| case?
| munificent wrote:
| Don't forget: waste tons of energy, dump tons of carbon into
| the atmosphere, and generate tons of e-waste from fried GPUs.
| lampshades wrote:
| That's what Circle is for. Only a matter of time before it
| becomes an arm of the Federal Reserve.
| malfist wrote:
| The US government already backs a stablecoin. It's called the
| dollar.
| [deleted]
| drumhead wrote:
| We're in the get out while you still can phase. At some point
| they'll suspend conversion and holders will be stuck with
| something virtually worthless. It's like watching a landslide in
| its early stages, as soon as enough people realise what's going
| on it's going to be too late.
| TuringNYC wrote:
| I know in the equities, forex, and other traditional markets,
| these things are all force-arb'd by arbitrageurs forcing the
| cycle. So is that possible here? Forgive my ignorance here, but
| how do i short Tether here?
| SilasX wrote:
| If there is another stablecoin you trust, you can do it via
| defi:
|
| https://news.ycombinator.com/item?id=31495496
| dougmsmith wrote:
| anm89 wrote:
| And I assume you are substantially short these markets then
| given that you know this for a fact and it's trivially easy to
| become wealthy one you know this for a fact?
|
| I don't even disagree that there are potentially major issues
| here but stating this as a fact is just silly.
| ceejayoz wrote:
| > And I assume you are substantially short these markets then
| given that you know this for a fact and it's trivially easy
| to become wealthy one you know this for a fact?
|
| That's not a safe bet.
|
| https://en.wikipedia.org/wiki/Michael_Burry, which the film
| "The Big Short" is based off, correctly predicted the
| 2007-2009 collapse of the housing market, but nearly lost
| everything waiting for it to _occur_.
|
| > During his payments toward the credit default swaps, Burry
| suffered an investor revolt, where some investors in his fund
| worried his predictions were inaccurate and demanded to
| withdraw their capital. Eventually, Burry's analysis proved
| correct: He made a personal profit of $100 million and a
| profit for his remaining investors of more than $700 million.
| Scion Capital ultimately recorded returns of 489.34% (net of
| fees and expenses) between its November 1, 2000 inception and
| June 2008. The S&P 500, widely regarded as the benchmark for
| the US market, returned just under 3%, including dividends
| over the same period.
|
| You can be right and still not be able to safely profit.
| Especially in crypto, where shady exchanges can wipe out a
| big short position pretty much at will with some wash
| trading.
| X6S1x6Okd1st wrote:
| borrow APY variable for USDT on aave on Ethereum is
| currently 3% apy.
|
| If you can stomach the various risks involved (e.g. smart
| contract risk, exposure to ethereum 51% attack or
| something) then acquire any asset that AAVE has (e.g. USDC,
| Dai, ETH, BTC), deposit it, withdrawal USDT & sell the USDT
| thereby naked shorting USDT for 3% APY at current rates.
|
| Those rates are low enough that it just doesn't seem like
| the market is that spooked yet.
| missedthecue wrote:
| Way too much counterparty risk in crypto markets. If
| there is an epic tether crash, I can't be confident that
| I'll get my payout. Compare this to established markets.
| I could log into my Charles Schwab account, make a short
| bet that Charles Schwab will go bankrupt overnight, and
| if I'm right, I know I'll get my payout.
| randomhodler84 wrote:
| The counter party is a smart contract AMM like curve or
| aave. Your only issue is liquidity and chain reliability.
| alasdair_ wrote:
| I wonder how easy it is to actually short Tether assuming the
| likely scenario where USDT goes the way of UST and trading is
| effectively halted. How does one cover their short when no
| trading is possible? In a regular exchange, there are rules
| about how to handle this but I'm not clear how it happens
| with crypto.
| X6S1x6Okd1st wrote:
| UST trading only halted on some centralized exchanges. If
| you are willing to expose yourself to DeFi then trading
| continued.
|
| You can short USDT on AAVE for 3% APY at current variable
| rates.
| initplus wrote:
| The actual UST blockchain was halted for a time.
| anm89 wrote:
| if tether crashes so will every other crypto. Just go short
| coinbase or another crypto proxy if you want to stay in
| your brokerage account.
| kravvall wrote:
| It is a question of when, not if.
|
| If you do some research on Tether you realize that there is
| so much fishy stuff going on, it's surreal. This HAS to
| implode at some point.
| ProjectArcturis wrote:
| I'd love to short Tether. How do I do that?
| Ekaros wrote:
| It is specially relevant to get out as there is no upside or
| very minimal upside... Why ever hold tether... If real money is
| an option.
| askmike wrote:
| USDT is the fuel that powers a lot the crypto ecosystem. Good
| luck trying to move USD around between different places in
| the crypto ecosystem (especially outside office hours). While
| possible it's complicated, slow and has terrible uptime.
|
| The biggest crypto markets in the world are quoted in tether.
| rglullis wrote:
| Fiat-backed, collaterized stable coins that are better than
| USDT - USDC (Circle USD) - GUSD
| (Gemini USD) - BUSD (Binance USD) - EURS
| (Stasis EUR)
|
| Crypto backed (overcollaterized) stable coins that are
| _soft-pegged_ and better than USDT - DAI
| (MakerDAO) - sUSD (Synthetix USD) - sEUR
| (Synthetix EUR)
|
| No one needs USDT anymore. The fact that even _Binance_
| gets more credibility than Tether should tell you how
| scammy the people still trading USDT really are.
| thebean11 wrote:
| Binance doesn't have that much to do with BUSD. It's a
| white labeled version of USDP run by Paxos which is an
| American fintech company not related to Binance.
| cuteboy19 wrote:
| If this was two weeks ago you most certainly would have
| included UST at the top of this list.
|
| People reading this should definitely question the other
| ones on the list as well. what proof do we have that the
| rest of these coins are really stable?
| rglullis wrote:
| No. I wouldn't. Never used Terra, and I already said here
| that I never understood these "algostables" with no
| collateral.
|
| As for "proof", you should've learned already that there
| is no such thing as "proof" with any of them. It's all
| about risk. For the fiat backed, the risk could be
| measured by the trustworthiness of the institution behind
| it and how they are managing the _real fiat_ they have in
| hand. I 'll risk them of my list if I hear that any of
| them is doing any kind of shady (we are collaterized by
| other assets that are not money) like Tether.
|
| DAI and synths also have a non-zero chance of
| catastrophe, but _at least_ this is mitigated by the
| over-collaterization. Synthetix requires something like
| 6x the SNX for each sUSD you can mint and their
| governance was not afraid to increase this requirement
| (and consequently reduce their sUSD supply) when their
| token went down.
| cuteboy19 wrote:
| But Terra did have collateral. Luna equal to 1 USD was
| burnt (more like locked) once a UST was minted.
|
| The whole conceit of DAI is that instead of burning luna
| at a rate of $1 they would burn it at a rate of $1.5 ,
| The mechanism is exactly the same! And it will fail in
| exactly the same way.
| rglullis wrote:
| DAI has multiple assets, the vaults are at 150% _at a
| minimum_ and independent from one another and, most
| importantly, there is no one offering 20% APR on staked
| DAI. It already went through worse crashes than UST did
| and it managed to recover.
|
| It's far from perfect, but it is certainly more resilient
| and has shown to be able to pass the Lindy test.
| cuteboy19 wrote:
| >DAI has multiple assets,
|
| And so did Terra. They held AVAX, BTC, LUNA and a little
| bit of USDC.
|
| >150% at a minimum
|
| And for Terra this was 100% at a minimum. It makes 0
| difference.
|
| >independent from one another
|
| Cryptocurrency are extremely correlated.
|
| >it managed to recover
|
| UST itself had recovered from a previous depeg event
| rglullis wrote:
| You know what is missing on your list? _The 20% APR
| staking ponzi!_
|
| You keep pointing out the similarities, maybe it would
| help to realize that the problem was in the difference?
| cuteboy19 wrote:
| Iron/Titan did not have any such high apy and still
| collapsed. In case of terra, I concur that the driving
| force was the Anchor ponzi, but it was the mechanism that
| failed.
| [deleted]
| hihihihi1234 wrote:
| I don't follow crypto stuff closely, so maybe this
| question has a laughably obvious answer, but: what's
| wrong with Binance?
| kd913 wrote:
| This casually ignores the point being made. Tether is a
| fuel. USDT printed money without backing and pumped it
| into exchanges/btc/eth.
|
| Without that upward pressure, there will be nothing
| preventing btc/eth from freefalling. Heck without that,
| what is the point of the above coins either.
| rglullis wrote:
| "Proper" stable coins are still important (at least for
| me who still would like to see crypto as a viable
| alternative for payments), and at this point I am
| honestly _hoping_ for USDT and BTC collapsing.
|
| ETH's price is still unfortunately too correlated with
| BTC, so it will also fall down a lot when BTC comes
| under, _but_ as long as the price of ETH is high enough
| to secure the network, it is not a problem.
| jules-jules wrote:
| I'd be careful about adding Stasis to this list. Discord
| users have been complaining about not being able to
| withdraw through their platform for some time now.
| rglullis wrote:
| Ok, that is good to know. I got in and out EURS only
| through Curve and Uniswap, so I don't know what is the
| process to redeem for fiat.
|
| I will stop recommending it until I can make sure that it
| is easy to do on/off ramps with them.
| jules-jules wrote:
| Sure thing! You won't be able to redeem unless you
| deposited fiat directly with the Stasis affiliated
| platform. And even then, users have been saying it's
| currently disabled.
| AlexandrB wrote:
| This is what get's me when people say "do your research"
| in crypto. Where am I supposed to do that? Do I need to
| trawl Discord until I'm satisfied a coin is on the up-
| and-up? Is the absence of complaints like this for a
| crypto project evidence of quality or evidence of
| vigorous moderation?
| Geee wrote:
| Dyor means that they know it's a scam, but they want to
| avoid responsibility.
| robonerd wrote:
| It's also a method of making yourself seem authoritative
| or knowledgeable without having to prove it. It implies
| that you did your research, but you aren't going to prove
| it because everybody else needs to do the same for
| themselves.
| aftbit wrote:
| Yes, IMO you should treat a crypto investment as
| requiring much more DD than a typical investment. You
| should have a thesis about why a given project is more
| likely than baseline to succeed, and you should have done
| enough research in the actual community of users (not
| just investor shills) to convince yourself that real
| people are actually using this thing reliably. There is
| just too much vaporware and outright scams to do
| otherwise.
| rglullis wrote:
| Going by my experience, 100% of the people saying "do
| your own research" are either shills or they are getting
| into a project without having no idea of how things work.
| If people can explain easily and if it is a legit
| opportunity, they wouldn't be saying "do your research",
| this will just be accumulating as much as they could
| without making too much of a fuss about it.
|
| Corollary: any coin that is on the up-and-up and you can
| not easily explain the tokenomics is _worthless_.
| overtonwhy wrote:
| Tether is the fuel for unlicensed unregulated exchanges
| that are happy to list the shit coins that legit exchanges
| won't touch because they're pump and dump scams. All those
| sketchy exchanges are almost certainly not keeping client
| funds segregated either so when Tether goes down all those
| exchanges will become insolvent and probably just disappear
| with the rest of the money.
| TomSwirly wrote:
| Your answer is not false, but does not explain why someone
| would _hold_ Tether instead of using it as an intermediate
| vehicle.
| cormacrelf wrote:
| The wisdom of holding is always relative to the rest of
| the market and what else you could be holding. Imagine a
| metals exchange. If copper were going up in value
| compared to the other metals, you'd want to hold copper.
| But you can also sell all your metals for cash. You would
| do this when all the metals are going down in value,
| which means USD is the "best-performing metal" and you
| want to be holding it. You always want to be holding the
| thing going up in value the most. Sometimes it's USD, and
| the fact that it is also your reference point for pricing
| everything else doesn't mean it's not front of the pack
| sometimes. Obviously when you buy USD with your copper,
| the value of USD goes up. But since it's all denominated
| in USD, that just looks like "all metals go down in price
| but especially copper", and because so many other markets
| set the value of USD, it really just looks like "copper
| goes down". It's similar to the relative velocities etc
| you do when you study physics.
|
| So primetime for holding cash is when there is deflation
| and you expect to be able to buy more for your dollars
| later, so you stash it in a bank account or under your
| mattress. This is generally bad for a regular economy
| because people stop spending and the economy slows down.
| That's why there's always a little bit of inflation,
| because better that than deflation! Inflation makes
| people use their money lest it lose value / gather dust
| sitting still, and spending money makes the economy run.
| Having to beat inflation with your investment is a chore,
| but it's better that everybody individually decides to do
| something with their money. I digress.
|
| For Tether, where the only things you can really buy are
| other cryptocurrencies, deflation just looks like a
| crypto bear market. So people are likely holding USDT
| right now.
|
| At the same time, given that the value of USD is set by
| many trillions of dollars changing hands and millions of
| contracts priced in it every day, compared to Tether
| which is like a gift card for a record store that might
| go out of business, it's possible for USDT to get
| unpegged if that record store posts bad results. The
| strength of the proposition that USDT can be redeemed for
| USD is the only thing holding it together.
| jakelazaroff wrote:
| This all is a good explanation for why you might hold USD
| instead of other assets. It's a less compelling
| explanation for why you might hold USDT, which would be
| the same as holding USD except it also might crash and
| leave you with nothing.
| logifail wrote:
| > If copper were going up in value compared to the other
| metals, you'd want to hold copper. But you can also sell
| all your metals for cash. You would do this when all the
| metals are going down in value, which means USD is the
| "best-performing metal" and you want to be holding it.
|
| I'm not sure I follow that description, are you really
| saying one buys commodities when they're rising in price
| and sells when they're falling? You make it sound like
| there's a trend one can observe .. and predict the
| future?
|
| Back to real life, take a look a the copper price chart
| zoomed out to one year[0] It's been going up - and also
| down - all the time.
|
| I'm reminded of the proverb "Nobody rings a bell at the
| top or the bottom of a market"...
|
| [0] https://www.bloomberg.com/quote/HG1:COM
| vagab0nd wrote:
| Besides convenience, the answer seems to be yield.
| lampshades wrote:
| People hold Tether because it is away from the eyes of
| governments.
| Bud wrote:
| How precisely is it away from the eyes of governments?
| We've seen ample reporting in recent days about just how
| easy it is to trace crypto assets.
| ryanSrich wrote:
| Real money isn't an option, at least not globally. USDT is
| how much of the developing world buys crypto.
| Proven wrote:
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