Tether is “too big to fail” – the entire crypto industry utterly depends on it | Hacker News Reader

Tether is “too big to fail” – the entire crypto industry utterly depends on it

davidgerard.co.uk

40 pointsdavidgerard32 comments

The argument against this view of Tether often seems to come down to: "If something this big was a scam, surely it would have been exposed a long time ago."

That's exactly what was said about Enron and the Madoff fund, though. If anything, Tether is flashing much bigger warning signs.

Bitcoin proponents make a big deal when some giant fund invests an experimental $100M in crypto tokens (a small fraction of a percent for the fund), but they don't seem to care about $20B of fake money from Tether (a large percentage of the total money supposedly in Bitcoin).

> Bitcoin proponents make a big deal when some giant fund invests an experimental $100M in crypto tokens (a small fraction of a percent for the fund), but they don't seem to care about $20B of fake money from Tether (a large percentage of the total money supposedly in Bitcoin).

I'm not sure this is true. I get the impression that Bitcoin / crypto proponents see it as a problem (it's regularly discussed amongst them), but really aren't sure what they can do about it. A lot of people avoid holding it and say it's risky / a problem waiting to happen, but beyond that, I fail to see what they can do.

Yeah, i feel like that crypto replaced the fed with ether. Ether gets printed and buy bitcoin when the price falls.

Hmmm

I think you mean tether

Ah, yeah right, tether :)

The author might be a zealous sceptic of crypto in general and I lean more on the crypto-optimist side but Tether well-earned the scepticism. It honestly worries me to no end that people keep cashing out in USDT, because it is non-auditted, no proof of sufficient backing or collateralisation.

The last audit Tether had was in 2018 I believe, and then it was found they are only 70% backed by equivalent fiat [1]. God knows how much unbacked USDT they printed in between then and now. Other stablecoins are much safer: USDC is more than 100% backed by fiat USD [2] and is audited by several firms at set intervals. DAI v2.0 (MCD) is also over collateralized by a large margin. I personally prefer DAI for my stablecoin needs.

Tether has also been rife with scandal [3]. I hate to see so many DeFi projects relying on USDT. People need to start to exclude Tether because they resist transparency and accountability, completely antithetical to the cryptocurrency ethos.

[1] https://www.bloomberg.com/news/articles/2019-04-30/tether-sa...

[2] https://news.bitcoin.com/tethers-stablecoin-dominance-drops-...

[3] https://cryptopotato.com/the-downfall-of-a-stablecoin-tether...

I respectfully disagree with the premise of your article. The entire crypto industry depends on Bitcoin, not Tether. There are plenty of stablecoins to take tether’s place if it fails and I personally think if it went away the entire industry would be better off.

Tether's trading volume is bigger than that of Bitcoin.

Before anyone gets worried that this means anything - it appears the author is using the term "crypto" in the "cryptocurrency" sense.

I regret to inform everyone that "crypto" for "cryptocurrency" is standard finance jargon now.

If it makes you feel better, you can replace it with "cryptosporidium" and it'll still be correct.

Okay, now I want to know how long this has been part of the wikipedia article.

>Cryptosporidium, sometimes informally called crypto, is a genus of apicomplexan parasitic alveolates that can cause a respiratory and gastrointestinal illness (cryptosporidiosis) that primarily involves watery diarrhea (intestinal cryptosporidiosis) with or without a persistent cough (respiratory cryptosporidiosis) in both immunocompetent and immunodeficient humans.[1]

(emphasis mine)

CDC's been calling it that for a while https://www.cdc.gov/parasites/crypto/index.html

Cryptocurrency: not even chlorine can clear it up

Cryptozoology is the field where you try to keep abreast of all those new cryptocurrencies. ;-)

I've changed the title to "cryptocurrency" to make it clear!

Is there really a [non-currency] "cryptography" industry? Cryptography is more an academic field, and well there are certainly companies in that space, they usually get grouped into what industry they serve, not as a "crypto" industry itself.

All that is to say, i thought it was pretty clear from context that we are talking about cryptocurrency.

Yes - going back a century to the various cryptography systems which companies bought to protect telegram messages. Think companies like RSA but also Crypto AG, which is why the NSA subversion was so significant:

https://en.wikipedia.org/wiki/Crypto_AG

Cryptocurrency has had a huge VC bubble attracting attention to it but that’s mostly a marketing play which I suspect will age as well as “cyber”. The surviving companies will be finance companies, since everyone uses cryptography.

Sure, the past was different. However we are in the present.

CryptoAG doesn't even exist anymore.

As far as RSA goes, look at their website https://www.rsa.com : it is all about risk management and compliance. Yes its an information security company, but is the modern version a crypto company? It doesn't look like it from their website.

I don't mean to suggest that there are literally no crypto companies, that is certainly not true, but it doesn't seem to be a unified industry by any means.

To the extent that it’s not an industry that’s because it by became part of the larger computer industry as everyone started needing it. If cryptocurrency proponents are lucky, the same will be true subsuming into the financial industry; if not, nobody will remember it except as an odd curiosity a few decades ago.

Right, but that is kind of my point - the headline was clear in context it wasn't referring to the cryptography industry, because a separate cryptography industry doesn't really exist anymore.

Let's assume tether is a scam (not backed by enough USD) and at some point would start to loses it peg to the USD. Wouldnt that increase the demand of BTC? Everyone holding tether would start buying BTC (or other coins) because this is the only thing you can do with tether.

Many DeFi projects have Tether as their largest stable liquidity pool.

While Tether is currently the largest stablecoin, the competition competes on the fact that they are overcollaterized, fully backed and auditted. The sooner Tether is replaced by the competition the better. On the upside, stablecoin swaps like Curve and Balancer have made exchanging USDT for any other competing stablecoin cheaper and easier.

I wager these services are being used mainly to decrease reliance on Tether for whales. Would be interesting to analyse the data of stablecoin swaps to gauge trust in USDT.

Well if tether went to say 90c and dropping, tether holders would certainly try to swap them for bitcoins but I'm not sure the bitcoin holders would be keen resulting in bitcoin going up in tether terms but probably down in US$ terms as tether fell.

But why would it go down in USD in the demand increases?

If tether was collapsing people would probably panic a bit and try to exit crypto for normal money. It's not certain though.

Because demand for Tether would not actually increase.

BTC holders would not look to exchange for Tether in the case Tether turned up unbacked. If BTC sellers were to sell they would exchange for other cryptocurrencies or more likely other stablecoins that are actually auditted.

If Tether goes does, and people try to exit to USD via Bitcoin, then the few exchanges that still trade Bitcoin for USD would be overwhelmed and would run out of liquidity, causing Bitcoin to drop as well.

The author has also written a hilarious book: Attack of the 50 Foot Blockchain

and I have a new one out! Libra Shrugged: How Facebook Tried to Take Over the Money

For 5 years now every few months articles like these pop up. Nothing happened and will not. It's just based on misinformation and fear mongering.

I'm with you on that apart from "will not." It's hard to predict the future.

Also at the Dec 2017 peak tethers market cap was about US$1bn and now $20bn for much the same bitcoin price suggesting they may have to print more to prop things up. Or not. Dunno - quite interesting to watch.

From your sentence it's clear you don't understand how tether works and you think BTC price and tether issuance should be relative to each other.

It's true I don't understand how tether works and I'm not sure anyone does apart from insiders. I'm fairly sure it's not just send them 1 US$ and they issue 1 tether and hold the dollar anymore.

Also there's this stuff:

>David Miller, an attorney for Bitfinex said: “Tether actually did invest in instruments beyond cash and cash equivalents, including bitcoin.” https://www.theblockcrypto.com/daily/24139/tether-admits-in-...

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