He is right. Tether is completely messed up.
- USDT is a fictional currency invented by Bitfinex to make up for the fact they don't actually have access to banking because they're unbelivably shady.
- They got many other exchanges onboard since it effectively allows you to skirt AML and KYC regulations.
- Bitfinex is a shadowy cabal of truly dreadful market participants who mess around under the covers with Tether and use it to effectively control pricing. They print Tether and use it to buy BTC to drive the price up. They then sell BTC for Tether if they want to drive the price down.
- They promised for 5+ years that they'd get Tether's bank account audited but instead auditors up and quit.
- They had 30% of their assets seized in a money laundering sting but of course, the exchange rate remained 1:1 instead of 1:0.7
- The NYAG is suing them.
The price you see of BTC doesn't really reflect anything other than Bitfinex' manipulation. The rate of BTC inflation falling from 12.5BTC/block to 6.25/block affects miners and their ability to be solvent. Not much else.
Thsi one I don't understand: A ton of MXN has been seized because El Chapo had been using it for shady stuff, but yet nobody expects the MXN/USD pair to suffer from that.
Why would it be different? The fact that someone takes the token "by force" won't suddenly decrease their value.
But they obviously don't, they hold, at most, 70 cents.
It'll be a bank run.
Is the exchange rate supposed to be related to the amount of assets they hold? If you go to exchange one currency for the other in either direction and that's the amount you can get, that's the exchange rate. If everybody tried to cash out all at once then they might not have enough, but neither would Bank of America. That doesn't mean the exchange rate between physical cash and Bank of America deposits isn't 1:1.
Meanwhile they presumably turn a profit, so just because they lost some of their assets, how do you even know they don't still have enough?
How do you know they have any? In order to have any semblance of legitimacy Tether needs to complete and publish the audit they promised every 6 months for 5 years.
Currently, based on their own website, the limiting factor is that their auditors only publish their reports in Mandarin, so there's literally nothing they could possibly do to release them. Even though those same auditors happily published attestations in English [1]. Before they were fired, and replaced with Friedman LLP, who quit.
All very cool, and very legal.
Tether works on explicitly the opposite principle. One banked dollar for every minted Tether. Since they have no government propping them up, the certainty of those dollars is the only thing you can hold onto as far as Tether’s reality. Once they’re gone, the music stops.
BoA doesn't claim to back every deposit 1:1 with physical cash. Far from it. The whole basis of fractional reserve banking is that they lend most of those deposits out to other customers. This is fine though, because the deposits are insured by a government-backed protection scheme.
Who are the the same people, don't forget, despite repeated denials thereof, even if the same executives signed contracts between the two, on both sides.
And even when you get beyond that, you run into the 'arms length' fiduciary issues.
[1] https://www.icij.org/investigations/paradise-papers/paradise...
I find the older comments really illustrate some of the cognitive dissonance Tether skeptics hold.
Keep doubling down I guess, might get lucky one day.
Like most cryptocurrency constructs, Tether is ridiculously shady, but that doesn't mean it's easy to predict when it will go out of business.
It's a link in the chain, which makes it fair game.
Traders value Bitcoin the same in USDT or USDC, and USDT / USDC trades at parity. That implies the market trusts USDT. It doesn't matter what people on HN say, as long as the market agrees.
1. ...that "the feds are debasing our currency through their relentless printing"
It is producing a measured, consistent, relatively small 2% rate of inflation over decades and decades. They are of course acting on behalf of an elected body, and ultimately accountable to that body. They're also audited.
2. ...that Tether's relentless, un-audited, 70%-at-most backed printing is fine because the "market trusts it" and "nobody's forcing you to use it."
The market trusts it because number go up, and it's in the interest of exactly zero market participants to show the world the emperor has no clothes.
It's also not fair to say that "nobody's forced to use it" when everyone is forced to use it. In 2018, 80% of all crypto exchange transactions were conducted in Tether. That makes USD transactions by far the minority. Since arbitrage bots keep the prices in sync, and the majority is USDT, even the USD exchanges follow the USDT prices so long as there exists sufficient liquidity to balance the books. [1]
[1] https://www.wsj.com/articles/the-mystery-behind-tether-the-c...
> The market trusts it because number go up, and it's in the interest of exactly zero market participants to show the world the emperor has no clothes.
Wouldn't work on extreme market fluctuations. Bitcoin dropped 50% and USDT still hold the peg. Bitcoin then almost tripled in a short period and USDT still hold the peg. I'm not sure if they have full reserves or running some magic; but whatever they are doing is working very well.
We know they don't have full reserves because we know 30% of them were seized. [1]
> ...but whatever they are doing is working very well.
Frauds work until they don't.
[1] https://cointelegraph.com/news/head-of-crypto-capital-arrest...
You suspect they don't have full reserves because you know 30% of them were seized. Presuming "full reserves" means 1:1 backing (what else could it mean, here?), your statement assumes they had exactly 1:1 reserves before the seizure. If they had more than that, your assumption could end up false.
So sure, you suspect. From what I've read in this thread, I tend to agree. But I fail to see how you know.
Presumably they buy tether when it's under $1 and sell it when it's over $1 to maintain the peg. Not magic.
That body being whom?
>They're also audited.
By whom?
[1] https://www.newyorkfed.org/aboutthefed/fedpoint/fed46.html
The idea is that you use it to invest: into real estate, into equities, into bonds, heck even a savings account collateralizes mortgages. Yes, even your magic beans represent the system working. The system is designed to encourage the continued survival of the most economically fit companies, etc, by your picking winners.
Don't hold money. Certainly not more than you need in the event of an emergency.
Yes, for very short periods of time, ideally. To the extent that remains true the effect of inflation is smoothed out. As at each stage in the transaction chain prices can adjust pricing to reflect inflation. Think of it like a continuously variable transmission. Yes, it has gears. But the effect is basically smoothed out if you do it quickly enough.
> Saying “don’t hold money” tells me everything I need to know about your understanding of economics.
It clearly doesn't.
In such an environment you want to get rid of your USD as fast as possible and turn them into something you value, whether it be land or whatever. The money itself is by design an inflationary currency. Most people don't understand this, which is just fine with the people who print the money and the ones who distribute and loan it out.
Now, having lots of liquid cash AKA liquidity is a good thing as long as you get rid of it soon by putting it in assets. Lots of people gladly go into debt taking out loans to buy productive assets and declare bankruptcy multiple times playing this kind of game. It's kind of insane in a way.
All of this information you can obtain via quick google.
Doesn't that auditor owe FRS $17T?
It is a fact that at present, you can't replace your entire life with cryptocurrency transactions, but the actions of the Federal Reserve over the last few months demonstrate how useful it is to have a parallel construct that actually represents an asset that isn't immediately able to be transmogrified by actions of a shadowy cabal (JPow in particular, who with his 50mm nest egg stuck in a hole at BlackRock, has a direct incentive to keep markets afloat)
Just my $0.02
"It doesn't matter what those crazy geologists say, as long volcano hasn't exploded yet."
The market can never overvalue or undervalue? Hmm...