[HN Gopher] Stablecoin Mechanics 2: Tether-Celsius
___________________________________________________________________
Stablecoin Mechanics 2: Tether-Celsius
Author : janandonly
Score : 136 points
Date : 2022-10-17 14:24 UTC (8 hours ago)
(HTM) web link (datafinnovation.medium.com)
(TXT) w3m dump (datafinnovation.medium.com)
| m00dy wrote:
| Why Tether has not been collapsing during this bear market ?
| bidirectional wrote:
| Why would they? They're now in an incredible position --
| convert everything to treasuries and yield over 4%.
| 323 wrote:
| In finance, when "everybody knows X", the truth is usually the
| opposite. In our case, "everybody knows Tether is unbacked".
| rossdavidh wrote:
| If anyone had a reliable method of determining _when_ something
| which is unsustainable will collapse, as opposed to just
| knowing _that_ it will collapse, they could make a lot of money
| over the years. But, they probably wouldn't want to tell the
| rest of us their secret.
| chatterhead wrote:
| chowells wrote:
| Because there hasn't been a run. They're definitely insolvent,
| but that only causes immediate failure when enough people try
| to withdraw at once.
| dereg wrote:
| "Because there hasn't been a run."
|
| There were over $10b in redemptions over a couple days in
| may.
|
| "They're definitely insolvent".
|
| Source on the "definitely"?
|
| "but that only causes immediate failure when enough people
| try to withdraw at once"
|
| You mean illiquid, not insolvent.
| wmf wrote:
| I would consider a run on Tether to be $40B of redemptions
| or more. Even if they're not fully backed they probably
| have some assets.
| JumpCrisscross wrote:
| > _There were over $10b in redemptions over a couple days
| in may_
|
| The number of Tethers outstanding went down by $10bn. That
| says nothing about redemptions. They could have just
| cancelled Tether held in affiliated or random peoples'
| wallets, we don't know.
|
| > _You mean illiquid, not insolvent_
|
| If I have a $10bn debt due and $10bn of real estate, I'm
| illiquid. If I have a $10bn debt due and my real estate is
| worth $8bn, I'm insolvent. All evidence to date points to
| Tether being insolvent.
| ceejayoz wrote:
| > There were over $10b in redemptions over a couple days in
| may.
|
| This demonstrated they had at least $10B of the claimed
| $80ish at the time.
|
| Bernie Madoff was able to fulfill fairly hefty redemptions,
| too, until he ran out and the whole thing collapsed. Tether
| has yet to hit that point, but it's not evidence they've
| got all the money they claim to possess.
|
| We don't know how close to collapsing that $10B took them.
| matthewdgreen wrote:
| We also don't know how much of that $10B redemption
| resulted in real cash transactions, and how much might
| have been redeemed to Tether-affiliated business without
| a cash transaction taking place.
| celestialcheese wrote:
| This. Doesn't tether require >$250k USD value of tether
| to request cash redemption?
| devmor wrote:
| Being insolvent would also make them illiquid.
| ac29 wrote:
| In the world of Crypto, Tether is actually one of the least
| sketchy players.
|
| Not because Tether is fully solvent, there are just a lot of
| straight up ponzi schemes and various other scams and frauds
| that have collapsed first. Tether having any % of actual
| dollars makes them more resilient to market pressure than
| schemes with zero real backing.
| jgalt212 wrote:
| My guess is because there's been net selling of BTC, which is
| good for Tether (net buying).
| rs_rs_rs_rs_rs wrote:
| "The market can remain irrational longer than you can stay
| solvent."
| yieldcrv wrote:
| Because the bear market isnt consisting of people exiting
| crypto for fiat, it consists of people selling their other
| crypto assets for stablecoins like Tether and waiting for
| opportunities. (There are over $120bn in stablecoins, about 50%
| of that is Tether, and this is a fairly stable figure as the
| bear market progressed.)
|
| This is functionally similar to selling the stocks in your
| brokerage account but keeping the cash in your brokerage firm,
| with the addition of brokerage firm's total cash being publicly
| reported in real time. It is unlikely that number goes down
| because people dont really withdraw from their brokerage
| accounts, they continue to add more cash and wait for
| opportunities.
| [deleted]
| dragontamer wrote:
| Reminder: If you want a "legitimate stablecoin", get a savings
| account and/or money-market account and/or money market fund.
|
| Prime money market funds are kept at $1 as long as "all is well",
| while the bank responsible buys and sells dollar-based
| instruments (such as commercial paper and US Treasuries). Also
| the whole SEC regulation thing to ensure proper liquidity levels
| (30% must mature in a week), and other such guarantees.
|
| Savings accounts have additional requirements that allow for FDIC
| insurance. Money market is "risk" but not much risk (one fund
| dropped to 97-cents per dollar back in 2007 for example). So its
| possible to "break the buck" but very very rare. And US
| Laws/regulations changed in response to that 2007 failure.
|
| ------
|
| Real life money markets are yielding about 2.95% right now.
| Anyone offering more than that is taking on risk and/or lying to
| you. That's what highly ranked commercial paper can get you
| today.
|
| In a few weeks, the Fed is expected to raise rates. We'll be at
| 3.75%, then 4.5% probably by the end of the year (?? Hard to tell
| the future though). So we're back into a realm where cash
| holdings can generate returns.
|
| Anyone seeking 10% to 20% returns from a "Stablecoin" is taking
| on some kind of risk. Much like Celsius, any one returning that
| much is lying about something (or trusting somebody else's money
| and that someone else is lying to them).
| jcfrei wrote:
| Everything you said is correct, just wanna add that with
| inflation at around 8% you'll still be losing purchasing power
| with said money market funds.
| notch656a wrote:
| Those accounts require KYC.
|
| >If you want a "legitimate stablecoin", get a savings account
| and/or money-market account and/or money market fund.
|
| In my state, I can walk into a bank and legally carry a
| concealed firearm without any ID whatsoever -- and yet not be
| allowed to open an account and put $20, even with a valid US
| passport (it doesn't show proof of address).
|
| Want to put a damper on stablecoins? End KYC/AML/FATCA. If you
| can be trusted to carry a gun in the bank you ought to be
| trusted to put $20 into a new account.
| wcfields wrote:
| So, then the main purpose of stablecoins is crime.
| notch656a wrote:
| Perhaps to you. You can confess your crimes here if you
| like. Where I live, in the United States, there is no
| requirement to conduct KYC to create a wallet that holds
| stablecoins and thus creating such a self-custody 'account'
| is not evidence of crime.
| ikeboy wrote:
| Tether offers 0% returns, though. It's a great business for
| them, they can get riskless 3% yields and pay nothing on 50B+
| in float.
| smoovb wrote:
| All great US-centric points! If you're living in Venezuela,
| Turkey, Argentina, Russia, Poland or other country with
| anywhere from 15 to 167% inflation, you might just be happy to
| have access to USD via easy to get stablecoins.
| notch656a wrote:
| If the argument it allows these people more stability /
| wealth to circumvent currency controls of their country, I
| don't see why the argument can't be extended to first /
| wealthy worlders as well. To note, I'm for deregulating these
| currency controls and deregulating the banking system, but
| giving 3rd worlders a pass while being harsher on those
| richer than us just seems like crab in a bucket mentality
| (not accusing you of that, but I've noticed HN exhibiting
| this duality).
| phreack wrote:
| I'm glad you wrote this. It's eroding to constantly see
| financial advice that is impossible to apply in countries
| like these except for crypto and are mostly US/Europe
| centric. Sometimes, there simply is no other choice and
| that's crypto's killer use-case.
| headsoup wrote:
| Can you explain how crypto is being used to buy many things
| in those countries with their stablecoins?
|
| Also, not the best marketing term: "Our killer use-case is
| that there's no other choice!"
| KaiserPro wrote:
| Can someone please explain the point of a stablecoin?
|
| from the outside it looks like an unregulated, impossibly opaque
| fractional reserve system.
|
| Its pegged to the dollar, or what ever. But none of them are
| resilient against a run, well, not and be profitable.
| colinmhayes wrote:
| Commercial banks experience runs when they write illiquid loans
| that they can't sell at cost as fast as people cash out. If
| they never write loans or only write completely liquid loans
| that never default they will never get run. Tether could park
| all their assets in short term government debt and they would
| never have a problem, but they want to get higher returns.
| [deleted]
| rossdavidh wrote:
| Q: "Can someone please explain the point of a stablecoin?"
|
| A: "...an unregulated, impossibly opaque fractional reserve
| system."
|
| Answering your own questions, well done. :)
| wmf wrote:
| The point is (1) to make trades denominated in USD when you're
| banned from actual USD and (2) to be able to transfer USD
| quickly between different crypto exchanges.
| kotlin2 wrote:
| A stablecoin acts as a pegged currency, which is useful because
| the exchange rate between non-stable crypto coins and USD is
| highly volatile. For instance, let's say I wanted to implement
| something akin to a bond on a blockchain. It would be nice to
| have that smart contract pay out in a stablecoin to avoid any
| currency exchange risk.
| matthewdgreen wrote:
| If the issuer is well-regulated and the funds are kept in a
| regulated bank (or held in US Treasuries) then what you're
| doing is "tokenizing" existing banking infrastructure. This
| makes it easier for participants to quickly settle transactions
| and move fiat balances, without having to work through slow
| ACH-type networks or place major trust in their counterparties.
|
| There are still some risks (company will get hacked, executives
| will go rogue, banks won't be prepared for a major run) but
| these are fundamentally the sort of risks that the US banking
| industry has some experience with. These risks have nothing to
| do with what's going on at Tether: they don't seem to be
| regulated at all.
| vkou wrote:
| It's possible for something like Tether to be resilient against
| a run, if the coin issuer redeems at ~0.999 to 1.
|
| The problem is not one of theoretical possibility, the problem
| is one of perverse incentives. Tether's operators have no
| reason not to go to Vegas and put all that money on a coin
| flip. Heads they win, tails their 'clients' lose. They'd be
| idiots to _not_ do something like that.
| [deleted]
| smoovb wrote:
| Worldwide access to USD.
| 908087 wrote:
| CodeArtisan wrote:
| IIRC you can use them to circumvent USA gambling laws.
| namdnay wrote:
| there are a lot of countries in which converting crypto to fiat
| is a taxable event, whereas converting from one type of crypto
| to another isn't.
| [deleted]
| Defitio wrote:
| I buy a stable coin, the seller now has a dollar and I have a
| stable coin which has a value of nearly a dollar.
|
| Now the seller has real money and does something with it and
| either makes more real money or looses it.
|
| I get my dollar back or not.
|
| I mean don't get me wrong but even Ponzi had to work a little bit
| more for his thing?!
| PragmaticPulp wrote:
| > I get my dollar back or not.
|
| This is the core issue.
|
| Note that you can't go to Tether and demand your $1 back as an
| individual. You would have to use an exchange and hope that you
| can trade 1 Tether for 1 dollar on an exchange where you can
| cash out.
|
| Note that the company that owns Tether also owns and exchange,
| which further opens the door for a lot of fraud and shenanigans
| as they co-mingle exchange deposits with their Tether reserves.
| It's possible for exchanges to run for a long time without
| actually having 100% of funds in reserve as long as the
| customers don't all withdraw their funds at the same time.
|
| In other words: A hypothetical fraudulent stable coin could
| "work" for a long time, until it suddenly doesn't work at all
| and the value plummets.
| bnralt wrote:
| The other thing about this transaction is that it, like all
| crypto, ends up being inflationary if they are able to be used
| as currency and don't end up collapsing. IE, there's $100 worth
| of currency in the system. Everyone gives it to Stablecoin Co.
| and they get $100 worth of stablecoins. Then Stablecoin Co.
| invests the money back into the system. Now there's $200 worth
| of currency in the system, leading to inflation.
|
| What's weird is that crypto folks often complain about people
| printing money and causing inflation. But that's the whole
| crypto ecosystem. If something can be used as currency, it
| doesn't matter if the U.S. government is printing one dollar
| and handing it to somebody so that they can buy goods or if a
| crypto project is printing one NotDollar that has the same
| amount of worth and can be used to buy the same amount of
| things.
| sebastianconcpt wrote:
| Like any currency. If the network has others buying that coin
| for 1 dollar (and there is enough liquidity), then yes.
|
| If you want to call this a Ponzi scheme, then you have to be
| fair and consistent and call the dollar system "the other
| Ponzi" scheme too (because your 1 dollar purchasing power is
| not the same as todays).
| Eisenstein wrote:
| The person holding the last 'dollar' in the 'dollar' Ponzi is
| the US Government. The person holding the last 'dollar' in
| the 'tether' Ponzi is a shady businessman who won't reveal
| his books.
|
| Which one would you rather owe you?
| [deleted]
| max51 wrote:
| The difference is that ponzi are normally offering good rate of
| return on the investment that are difficult/impossible to get
| consistently. When your company/coin don't offer any interest
| on the investment, it's very easy to just buy something super
| safe with a return of 0.25 - 1% and pocket the profit while not
| touching the main capital.
|
| Don't get me wrong, they can still be scams. The only
| difference is that unlike a typical ponzi, it is possible to
| have a sustainable and profitable business model with a stable
| coin.
| namdnay wrote:
| > it is possible to have a sustainable and profitable
| business model with a stable coin.
|
| I guess it's possible, but only within the limits of the
| current general interest rates. there is no magic world of
| safe investments returning higher interest than the safest
| bonds
| gruez wrote:
| Note that all the parent post claimed was "profitable",
| without specifying how profitable. Thus unless interest
| rates go to zero, it should still be profitable. Negative
| interest rates has happened with some currencies, but for
| USD it has yet to happen.
| max51 wrote:
| I don't know how much people is required to run that type
| of operation, but even 0.5% can pay for a lot of people
| when you are sitting on a pile of cash worth >20B.
| athinggoingon wrote:
| Listen/read the latest econtalk episode to learn why Stable
| coins are supper popular at places like Argentina:
| https://www.econtalk.org/devon-zuegel-on-inflation-argentina...
|
| Basically, the reason is that the Government print a lot of
| money which result in high/hyper inflation, but then create all
| these obstacles for the locals to run transactions in more
| stable currencies (e.g. USD). The locals use Stable coins to
| facilitate transactions that would otherwise be very hard or
| impossible to perform in local currencies (e.g. buying a
| house).
| dools wrote:
| " Basically, the reason is that the Government print a lot of
| money which result in high/hyper inflation"
|
| Incorrect, Argentina has problems with currency stability
| because they issue debt denominated in a currency they do not
| issue in order to satisfy import requirements
| notch656a wrote:
| Argentina's money supply has rapidly expanded with their
| recent currency crisis.
|
| https://tradingeconomics.com/argentina/money-supply-m2
| martindale wrote:
| It's mostly Bitcoin, actually.
| JumpCrisscross wrote:
| > _why Stable coins are supper popular at places like
| Argentina_
|
| People want to hold dollars without following KYC.
| Stablecoins temporarily fill this niche. (There is zero
| chance this is allowed to persist. But it won't be a priority
| until we catch serious bad guys laundering money with
| stablecoins.)
| sangnoir wrote:
| I think the most common use-cases is to sell your crypto and
| get an almost-dollar without triggering a taxable event, since
| you're changing from one security for another.
| Sevii wrote:
| Trading from one security to another is a taxable event in
| the US.
| peab wrote:
| You can get a stable coin loan, while using your non stable
| crypto as collateral.
| hurril wrote:
| And before you made that transaction, everything was the same
| as afterwards. Except the trade in ownership. So what is your
| point?
| Defitio wrote:
| It's interesting that you formulate your argument so specific
| to exclude all the risk in the middle while arguing for it.
|
| Just assume you really don't know: you bet that 1. This has
| some advantage for you while the company bets it has some
| advantage for them. Great bet everyone wins?!
|
| 2.also with every bet the company makes with others does what
| to your bet?
| FireBeyond wrote:
| > can therefore prove a lot about ... questionable conduct by
| Tether
|
| Shocking! The company that lied about their holdings, that lied
| about providing audit results, that lied about their relationship
| with Bitfinex?
|
| That company is still acting questionably? I'm shocked.
| [deleted]
| zamalek wrote:
| > We know Celsius borrowed about a billion dollars from Tether
| (and then defaulted)
|
| I wonder if all this money that these people keep "misplacing" is
| softening inflation at all.
| rossdavidh wrote:
| My goodness I hope they are not burning enough money to do
| that, it would be a cure worse than the disease. But since not
| much crypto is used as actual currency, probably not. If people
| spend their fiat currency more freely because they think they
| are rich due to holding Tether or whatever, possibly so.
| delabay wrote:
| related: Tether, biggest stablecoin, cuts its commercial paper
| holdings to zero(https://www.cnbc.com/2022/10/13/tether-worlds-
| biggest-stable...)
|
| Tether now only holds US treasury assets.
| notch656a wrote:
| I'd accept even a burning $100 bill if I knew I was going to
| spend it before it burns and I thought the next guy thought the
| same. Thus is tether.
| flooow wrote:
| My understanding is that Tether have repeatedly refused to
| allow an audit of their holdings, therefore everyone assumes
| everything they say is a flat-out lie.
| FireBeyond wrote:
| They did once say they had an audit done, but would be unable
| to release it...
|
| "because it is in Mandarin."
|
| Like what the actual fuck.
| whimsicalism wrote:
| Source?
| jrochkind1 wrote:
| Too bad so few on the planet read Mandarin who might be
| able to understand it, right? Such a rare language...
| FireBeyond wrote:
| Some of them may even be able to speak both English and
| Mandarin! Like some of their employees for but one
| example...
| hef19898 wrote:
| And now imagine if those people would do a, hold on,
| _translation_ of the audit report...
| FireBeyond wrote:
| Let's not get too creative now!
|
| Office Space: What if - and believe me this is a
| hypothetical - but what if you were able to translate the
| audit. Would that do anything for you?
| btilly wrote:
| My reasoning is different.
|
| They have repeatedly been forced to admit in court that they
| lied in the past. They have also had reserves invested with a
| fake bank whose CEO stole money from them and is now
| convicted in bank fraud. They claimed to be one of the
| largest holders of specific asset classes, but nobody trading
| those has any memory of trading them. And so on and so forth.
|
| The refusing to allow a real audit is just icing on a cake
| consisting of a mountain of evidence of fraud.
|
| As Matt Levine memorably said, they are "practically quilted
| out of red flags."
| bhouston wrote:
| It seems that Tether will survive - why, because they have
| so far. Not sure why, but I figure they bluffed their way
| to solvency?
| davidcbc wrote:
| Everything survives until it doesn't
| throw_m239339 wrote:
| Yeah, I found Tether resilience incredible indeed, but
| Madoff and his Ponzi scheme went on for decades too even
| when JP Morgan figured out it was a scam and still did
| business with him while informing neither the SEC nor the
| US government.
|
| https://www.justice.gov/usao-sdny/pr/manhattan-us-
| attorney-a...
|
| So they must be "backed" by something, we just don't know
| whom or how, that allows them to keep their scheme
| running.
| Darkphibre wrote:
| Is there a way to "short" Teather? Seems like that'd be
| the money play.
| wmf wrote:
| It's possible but it's extremely dangerous. The exchanges
| that you'd use to short Tether are the ones preventing
| Tether from collapsing. These exchanges could invent an
| excuse to liquidate you before they allow Tether to
| collapse so even if you were right you'd still lose all
| your money.
| btilly wrote:
| Huh. When Patrick McKenzie aka patio11 decided to try it,
| he expected to lose his money, but that was not the main
| risk he listed.
|
| https://twitter.com/patio11/status/1580269516331720706
|
| Still his reason to make that bet was the comedy of being
| proven right about how broken crypto is when he lost his
| money. And not for the opportunity to be proven right and
| _make_ money.
| namdnay wrote:
| it took 5 years for people to finally open their eyes on
| wirecard i think? and several years for Madoff too
| ceejayoz wrote:
| Madoff took _decades_ ; there's evidence he was cooking
| books as far back as the early 1970s.
| bombcar wrote:
| And Madoff was apparently ALSO an open secret amongst
| many in the years before it finally burst.
| [deleted]
| ceejayoz wrote:
| Tether _claims_ they cut $30B in commercial paper holdings to
| zero _without any losses_ , which is simply not credible during
| these market conditions. It's yet another fantastical claim
| from an organization that's been repeatedly caught lying.
| jcampbell1 wrote:
| Commercial paper has very short maturities, so unless there
| is a wave of bankruptcies it is hard to take losses. You
| don't sell CP, you just stop rolling.
| ceejayoz wrote:
| Tether claims to have finished liquidating their commercial
| paper as of a couple days ago.
| https://twitter.com/Tether_to/status/1580601123026501642
|
| Chinese commercial paper had a large wave of delinquencies
| earlier this year (https://www.reuters.com/markets/rates-
| bonds/china-commercial...). The chances of Tether's
| holdings having _zero_ defaults amongst all of that is...
| low.
|
| Tether has an easy fix here: release the "frequent
| professional audits" they claimed on their website as far
| back as 2015 (https://archive.ph/mVPmL). They've provided
| various excuses and called attestations audits for nearly a
| decade now; their credibility is shot.
| whimsicalism wrote:
| Nobody said zero defaults, just that they didn't take net
| losses on their paper and so can still liquidate and back
| with T-bills.
| bidirectional wrote:
| By definition they would never have assumed zero defaults
| when buying the paper, just few enough defaults for other
| gains to offset them.
| houstonn wrote:
| What are the lies that we know to be lies?
| ceejayoz wrote:
| As far back as 2015, their website claimed "frequent
| professional audits" (https://archive.ph/mVPmL). To date,
| no audit has been completed; after years of falsely
| representing attestations as audits (despite those
| documents openly stating they weren't audits), they finally
| removed the claim.
|
| Similarily, their website lied for years about 1:1 USD
| backing in their accounts, and they faked it by moving
| money that wasn't theirs (likely Bitfinex customer
| holdings) in and out of their accounts.
| https://ag.ny.gov/press-release/2021/attorney-general-
| james-...
|
| > The OAG's investigation found that, starting no later
| than mid-2017, Tether had no access to banking, anywhere in
| the world, and so for periods of time held no reserves to
| back tethers in circulation at the rate of one dollar for
| every tether, contrary to its representations. In the face
| of persistent questions about whether the company actually
| held sufficient funds, Tether published a self-proclaimed
| 'verification' of its cash reserves, in 2017, that it
| characterized as "a good faith effort on our behalf to
| provide an interim analysis of our cash position." In
| reality, however, the cash ostensibly backing tethers had
| only been placed in Tether's account as of the very morning
| of the company's 'verification.'
|
| > On November 1, 2018, Tether publicized another self-
| proclaimed 'verification' of its cash reserve; this time at
| Deltec Bank & Trust Ltd. of the Bahamas. The announcement
| linked to a letter dated November 1, 2018, which stated
| that tethers were fully backed by cash, at one dollar for
| every one tether. However, the very next day, on November
| 2, 2018, Tether began to transfer funds out of its account,
| ultimately moving hundreds of millions of dollars from
| Tether's bank accounts to Bitfinex's accounts. And so, as
| of November 2, 2018 -- one day after their latest
| 'verification' -- tethers were again no longer backed one-
| to-one by U.S. dollars in a Tether bank account.
| davidgerard wrote:
| The master documents for this are the NY and CFTC
| settlements:
|
| https://ag.ny.gov/sites/default/files/2021.02.17_-_settleme
| n...
|
| https://www.cftc.gov/media/6646/enftetherholdingsorder10152
| 1...
|
| (both PDF)
|
| the incompetence (as well as the lies) is just amazing
| onlyrealcuzzo wrote:
| It's easy to cut their commercial paper holdings to zero!
| They never had any to begin with!
|
| The commercial paper market is small, and everyone in the
| market pretty much knows everyone else.
|
| No one ever noticed a new player - and in the time Tether
| expanded its balance sheet by $30Bn - there wasn't even
| enough commercial paper printed if Tether bought it all:
| https://www.bloomberg.com/news/features/2021-10-07/crypto-
| my...
|
| The easiest way to preserve value in a bear market is to have
| no value to preserve in the first place [=
| jpgvm wrote:
| US commercial paper maybe not. Chinese? Sure. but if so
| there is zero chance they got out without severe losses
| unless they were holding all 30B in Alibaba AAAA bonds or
| something.
| onlyrealcuzzo wrote:
| That's global commercial paper...
|
| The US commercial paper market is the largest in the
| world: https://www.bloombergprep.com/practice/cfa/10b/les
| son/5cf41e....
|
| Look, Tether said they don't own any Chinese commercial
| paper: https://www.bloomberg.com/news/articles/2022-07-27
| /tether-sa...
|
| I don't know why you'd believe they have commercial paper
| - but think they lied about what kind of commercial paper
| they had.
| lamontcg wrote:
| Yes. The title article literally is all about how Tether
| was making collateralized loans of Tether to Celsius where
| the collateral was crypto:
|
| > How do we know this? Because we can see Celsius borrowing
| from Tether. And we now know those loans were
| collateralized.
|
| > We do not know the precise collateral arrangements except
| that Alex Mashinsky told the FT:
|
| > If you give them enough collateral, liquid collateral,
| bitcoin, ethereum and so on . . . they will mint tether
| against it
|
| It isn't USD, it isn't treasuries, it isn't commercial
| paper (Chinese or otherwise). At the end of the day it is
| going to be 90% crypto collaterialized loans that makes up
| Tether.
|
| It is so weird to clearly read an article about the funding
| mechanism behind Tether and people literally refuse to read
| it correctly and start yapping about commercial paper.
| onlyrealcuzzo wrote:
| How does it work?
|
| 1. Celsius calls up Tether and asks for $30Bn to buy
| Bitcoins.
|
| 2. Tether says, sure, prints 30 Bn USDT out of thin air,
| gives it to Celsius, and Celsius uses that to buy
| Bitcoins.
|
| 3. Celsius collects a bunch of money from retail
| investors.
|
| 4. Celsius steals all the Bitcoins and files for
| bankruptcy - and, oopsie, the retail investors lose
| everything.
|
| The Celsius insiders obviously get something out of this.
| They got Bitcoins for nothing. They can and did sell
| those Bitcoins for the miniscule fiat liquidity that
| exists for Bitcoin.
|
| What does Tether get? They're printing funny money out of
| thin air. Sure, it doesn't cost them anything. But they
| have to know that none of that funny money is going to
| get paid back with real money.
|
| So why lend Tethers to someone else, so they can sell
| Bitcoins for real money - instead of just printing
| Tethers for themselves to capture all fiat inflows?
| lamontcg wrote:
| 1. Celsius has closer to $500M in BTC in a cold wallet
| that for security reasons they do not want to touch and
| trade with on a daily basis.
|
| 2. They call up Tether who loans them $500M worth of USDT
| which they can use as a more liquid security to loan out
| or trade crypto with.
|
| 3. They pay interest to Tether on the loan in crypto.
|
| 4. Eventually they have to pay back the USDT loan with
| USDT, although if their BTC value hasn't declined they
| probably extend the loan period instead -- although
| sending the USDT back is probably how Tether gets burned.
|
| 5. If the loans are denominated in $USD and Tether
| accepts USDT at the market rate for paying back the loans
| that would be a mechanism that would naturally pin Tether
| to the $USD via arbitrage by people who want to buy a
| cheaper USDT token to pay back their loans with whenever
| Tether falls, and don't want to be actively paying back
| Tether with their USDT when the price has fallen.
|
| > But they have to know that none of that funny money is
| going to get paid back with real money.
|
| To first order, none of it is about $USD so literally
| nobody cares, and its all just funny money collateralized
| by other funny money.
|
| It is very much like someone sitting on a vault full of
| Gold (the BTC cold wallet) that wants to borrow money
| (the USDT in the crypto space) in order to have liquidity
| (buy crypto shit with it).
| JumpCrisscross wrote:
| > _What does Tether get?_
|
| Celsius has Bitcoins. They borrow $30bn against those
| Bitcoins from Tether. Tether charges interest.
| davidgerard wrote:
| there's also a bit of a difference between 90-day CP from
| IBM or Amazon, and perpetually rolled over CP ("loans" that
| never in fact get paid back) from Honest Jan's Crypto
| Casino and Bait Shop
| bidirectional wrote:
| You don't need to trade with an intermediary in the
| commercial paper market, companies could directly issue the
| paper to Tether, no one would ever know about it. They
| could then reduce their holdings to zero by holding the
| paper to maturity and buying treasuries with the proceeds.
| By definition this being commercial paper means it would
| take just months to do this.
| namdnay wrote:
| That's even more obvious to spot: someone in one of these
| companies would have talked by now
| bidirectional wrote:
| Why would they? Tether said they had commercial paper, so
| it's not some mind-blowing revelation and they'd be
| risking their job by doing so.
| namdnay wrote:
| the quantity of paper they claim to hold would mean
| having major stakes in at least a dozen very big
| organisations. the probability that not a single employee
| or ex-employee leaked anything is very low, especially
| since such a leak would obviously help tether
| onlyrealcuzzo wrote:
| You're assuming the commercial paper market is much
| bigger than it is.
|
| You can't go out and find $30B worth of commercial paper
| that no one else knows about and buy it in 3 months.
|
| When governments around the world were stuffing everyone
| and every company to the brim with money - and banks
| couldn't find anyone to borrow money beside people to buy
| third homes in Ibiza - how did Tether find a bunch of
| companies that wanted to print $30B of commercial paper
| in 3 months that no one in the market was competing for?
|
| Oh - and also - this heretofore undiscovered market was
| bigger than the previously known commercial paper market?
|
| Yeah, right... It didn't happen.
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