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Comment by SethTro | Hacker News Reader

Over the last year Tether has looked more and more like fraud. I was reading this article covering some of the recent developments since Tether's failed attempt to suppress discovery by New York's Attorney General

https://crypto-anonymous-2021.medium.com/the-bit-short-insid...

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Here is a good piece explaining why the data backing that articles arguments is BS: https://medium.com/@nic__carter/assessing-bitcoins-liquidity...

It actually doesn't really matter.

Yes, The Bit Short isn't completely right, but it's right enough that even if you go back and make the corrections to the data, the point remains equally valid.

Here's one follow-up piece worth reading that does some statistical analysis: [1].

Nic goes on for days about fake volume. Let's use Bitcoin Trade Volume, which I'm led to believe is a very generous pro-crypto take on the actual volume in the space. It shows 59% USD and 41% USDT. That's not the 75% USDT The Bit Short suggested, but who cares? It's huge.

If you sub in those numbers when you're reading The Bit Short, it's just as compelling. Something Nic doesn't care to talk about, slamming the WSJ instead of who he should be pointed at, Paolo Arduino.

[1] https://adrianbarwicki.medium.com/impact-of-tether-trading-o...

[2] https://www.bitcointradevolume.com/

Bitcoin still feels like a house of cards. Does anyone remember what happened after everyone said “buy gold”?

The biggest tell IMO is that you still can't buy many things with Bitcoin.

The transactions are extremely slow, and Steam etc. have even stopped accepting Bitcoin payments.

Then where does the value come from? Sure there's a base layer of narcotics trading, etc. but that could switch to other cryptocurrencies too (like Monero). It just feels like a massive pump and dump built over some base layer of illegal transactions (drugs and money laundering).

> The biggest tell IMO is that you still can't buy many things with Bitcoin.

I get that there is a prevailing anti-cryptocurrency sentiment here and that it's natural to read a statement so often and come to internalise it, but it's really quite egregious to keep reading this when it is beyond trivial to find websites that sell literally anything for bitcoin.

No sites actually accept Bitcoin, they partner with companies that convert them to human dollars. The volatility against the currency their suppliers use and the government uses for taxes makes it entirely impractical not to.

There’s substantially one merchant that accepts Bitcoin: bitpay, and all sorts of merchants happy to take bitpays actual money.

Look if the customer wants to pay a $20 transaction fee to buy something, and an hour to confirm, and bitpay is willing to deal with this absolute garbage situation and turn them into dollars for me for 1% what kind of merchant would say no? The fact any are saying no speaks volumes to be honest.

It’s definitely more like gold now.

Sure just worse in virtually every way.

>I am the cofounder of Coin Metrics, a data business that licenses crypto market data to financial institutions, asset managers, and banks

Oh, so his credentials are "my company depends on crypto and if it fails we fail". And he's saying "oh these exchanges arent legit by our metrics we wont count them". That's the exactly the problem and he's saying "put on a blindfold and its gone".

This is a horrible take.

Anyone who knows the crypto industry knows many exchanges fake volume and companies like CoinMetrics reduce the noise to get better figures on the actual nature of transactions and liquidity in the industry.

Nic Carter knows the data is bullshit because he has a company that specializes in proving such things.

The false data from exchanges likely is key to the belief that these coins have value, and thus affects the data even from exchanges that aren't noticeably faking data.

I appreciate skepticism, but attacking someone's credibility isn't as useful as attacking their argument on its merits. Are there points he makes or facts he uses in his article which are themselves invalid or in bad faith?

The basis itself of the article is invalid and it is in "bad faith". I'm not attacking their credibility, I am attacking the thesis in itself. But since the author attacks the author of the original article and the WSJ in their rebuttal, I apply the same here and note that they have a large piece of cake in the play they are talking about and are thus also not objective.

So to go to the arguments:

1. Total crypto market isn't just US, on which this rebuttal seems to focus.

2. Is bitcoin price determined only by fiat inflow via "whitelisted" exchanges? Are they the only part of the whole crypto community that matters? The answer is no, and thus we gotta count the whole market.

3. And again, the article completely avoids the problem by saying "there are problematic exchanges but we will ignore them". The problematic exchanges are exactly the problem. They are creating fiat-tied coins with no backing and putting that money into market - which is valued by the amount of money in it. So the "whitehat" exchanges, even tho not directly involved in dirty money, are involved and profit off of the same ecosystem the dirty money is in. Thus, they are not an isolated system and cannot be observed as such and the market cannot be judged on the behaviour of these isolated systems alone.

Imagine if this was about gambling and illegal casinos (which in a way, it is). So this article would be written by someone working in Vegas saying "Well, yeah if we're looking at all casinos there is illegal stuff going on and people are printing their own chips and trading them for real Vegas chips, but as a company that counts chips, we only count chips sold in Vegas casinos and we haven't found such problems in Vegas casinos". Would you say "hey but there is a bunch of illegal casinos you are not looking at that print chips which are exchanged at your place for money" or "oh okay this makes sense"?

On top of the suspect data source, I notice I few more issues with that teather hit piece.

1. They are only looking on the buy sides. They don't even show the sell side with all the people selling their bitcoin back for teather.

On most exchanges, the amount of teather buys is roughly equal to the amount of teather sells. People just sit there all day selling back and forwards between teather and bitcoin, trying to take advantages in short-term fluctuations in the price.

But by only presenting one side of the trades, that hit piece implies (but never actually claims) that teather is being created out of thin air to buy bitcoin.

2. They misrepresent teather's reserve by implying (and once again not claiming) that it is all cash held in a single bank account in a single Bahamian bank account. (and then pointing out that the value of teather massively exceeds all Bahamian bank holding)

In reality, teather claims their reserves are cash and cash equivalents. They only need to hold a small fraction as actual cash for quick withdrawals. And there is a good chance that teather hold cash in multiple bank accounts in multiple countries. It's a huge risk to have it all in a single bank.

--------

Personally, I'm not a fan of teather, or cryptocurrencies in general. Teather even admit they don't hold full cash/cash-equivalent reserves, saying in April 2019 they only had 74% cash+equivalent reserves.

But I hate misleading journalism way more than I dislike teather. That article is hugely misleading and feels like it's designed to drive the price of bitcoin down so the anonymous author can profit from a short position.

> In reality, teather claims their reserves are cash and cash equivalents. They only need to hold a small fraction as actual cash for quick withdrawals. And there is a good chance that teather hold cash in multiple bank accounts in multiple countries. It's a huge risk to have it all in a single bank.

They haven't burned a single token in the last year.

Give or take zero banks in the world want to do business with Tether, they're totally and utterly toxic to USD banking. Tether got shut down by every major bank on the mainland US, one. By. One.

It got so bad they started getting rejected by third and fourth tier banks. They had to purchase Noble bank in Puerto Rico to get them onboard. Once Noble's mainland US correspondent bank found out, they got shut down immediately and pushed into insolvency.

So they found the sketchiest bank in the entire world, Deltec, chaired by the man who created the Inspector Gadget TV series, Jean Chalopin.

Look, I'm not saying they don't have the money, I'm saying I don't believe them, neither should you, and neither should anyone else until they pony up an audit.

> They haven't burned a single token in the last year.

They burned 1 billion tokens 6 months ago, back in August.

Besides, why do people act like not burning tokens is evidence of wrong-doing? That just shows ignorance for how tether have setup their accounts.

They have a "treasury account" where tether tokens go when people redeem them, and where they can quickly issue tokens when people deposit cash. They only need to issue more tokens when the treasury account gets low, and they only need to burn tokens when they have an excess in treasury.

It makes total sense that in the current bull market that they haven't had the need to burn many tokens. The burn in August only happened because they now have multiple tokens on multiple networks and their TRON treasury account had too much.

------------

All your remaining criticism about banking is 100% valid. And other peoples criticism about auditing and legal troubles.

I don't want to write comments on hackernews rebutting claims about Teather. I want the crypto market to go bust again so I can afford a new GPU. But so many people just parrot invalid criticism without understanding it.

True, my implicit issue is that Paolo was justifying the Saturday billion tether prints by saying they were often chain swaps. If you’re doing a chain swap and minting new tokens do you not burn the old ones? Maybe I’m misunderstanding.

Tether implements chain-swaps by depositing into the treasury account on one chain and withdrawing from the treasury account on the second chain. There is no printing/burning required.

But there is a problem when a large wallet does a chain-swap. These are often exchange wallets with all their user' funds, and there simply isn't enough funds in the target chain treasury wallet.

In these cases, new tokens need to be issued on the target chain. As for the tokens on the old chain, the treasury account just gets really large for a while.

Perhaps they should be burning, but in this bull market, it looks like tether has just taken the approach of waiting and skipping issues until the treasury account gets down to a reasonable level.

Tether document their treasury account balances on their transparency page[1] as "Less: Authorized but not issued" for each chain. Sure it's horrible that the transparency page is missing anything about real-currency reserve holdings (other than saying "All Tether tokens are backed 100% by Tether's reserves"), but they are quite transparent about all the on-blockchain stuff.

You can also view the treasury accounts directly and view the inflow/outflow. Omni is here[2] and eth is here[3]. etherscan even has a nice 'value over time' graph [4]

[1] https://wallet.tether.to/transparency

[2] https://www.omniexplorer.info/address/1NTMakcgVwQpMdGxRQnFKy...

[3] https://etherscan.io/token/0xdac17f958d2ee523a2206206994597c...

[4] https://etherscan.io/token/0xdac17f958d2ee523a2206206994597c...

Thanks for the thorough reply!

> In reality, teather claims their reserves are cash and cash equivalents

In reality, Tether claimed that they held full reserves, in cash, audited.

Then they failed to ever produce an audit.

Then they admitted, in court, that they did not actually have full reserves.

Then they admitted that the reserves were not actually in cash, but in "cash and cash equivalents", never specifying what exactly "cash equivalent" meant.

So we KNOW for a fact that they have lied repeatedly about their reserves. Why, exactly, would we trust anything they say about those reserves NOW? Why are you assuming they have stopped lying?

> In reality, teather claims their reserves are cash and cash equivalents.

FWIW, no, they claim their reserves are

> currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities

which is pretty different.

(Psst, it's tether, not teather. Carry on.)

For years I've told loved ones, friends, and anyone with a passing interest in the nascent space to avoid Tether like the plague. In my opinion, it's only a matter of time until it blows up.

Yes. If you own Tether, get out. There is zero upside and a significant downside.

The question is what happens when 50% of volume disappears. Tether currently has about as much volume as the other 9 of the top 10 cryptocurrencies have combined, and is the top trading pair for BTC, ETH and many others. You dont have to hold any to be exposed to a huge downside risk.

>The question is what happens when 50% of volume disappears.

Surely this isn't an issue because the volume will just move the other exchanges? The bigger threat is investors getting cold feet and not wanting to buy at all.

What happens is at un-banked exchanges, people try and run for the hills, buying as much BTC or ETH as they can get their hands on with their vanishingly worthless USDT. The price of crypto on these exchanges goes up parabolically into the millions.

These folks then transfer their crypto to banked exchanges to try and salvage what little they can - to try and pay back some of the stupid loans they've been taking on the run-up, and they flood these banked exchanges with sell orders, and the price there crashes to pennies.

Some exchanges may go insolvent, and those could be on the CME BRR calculation list, causing the price there to spike, leading to cascading liquidations in the futures market.

The worst case scenario where the wheels come off is that the wheels come all the way off, like a MtGOX on steroids.

Yes, so much this. Everyone keeps simply saying that the BTC price will blow up because everyone sells Tether. Yes and no! What will really happen is that the BTC spot price will diverge between those exchanges that denominate in USDT and those that do in USD. Therefore, the best indicator to see if Teether is failing is to track the difference in the rate between exchanges.

Yup, last time Tether traded as a significant discount(Oct 15 2018) BTC price on bitfinex went up $1500 and on coinbase it went up $700. This was in the depths of the bear market with price around $6200 too.

The volume is fake, which is the point. They want you to believe they are equivalent to dollars, and this fake money comprises the majority of purchase orders for all coins. If the spot price of the fake money falls to an accurate price (nothing), then it will tank everything it has touched.

Tether is not an exchange. It is a centralized cryptocurrency where the centralized authority has the ability to freeze assets (they did this recently after a DeFi hack). While I dont necessarily think it will happen, theres no reason the US government or some other authority cant seize and suspend operation of Tether's blockchain. At that point zero Tether transactions can occur, on any exchange, any DeFi contract, or any number of other associated activities.

If you're up on any kind of crypto, get out as well; when Tether goes, it will take down the rest of the market. Again.

Tether definitely sucks, but it was an absolutely reasonable response to banks randomly freezing out USD bank accounts of various exchanges, for various reasons.

If you're an exchange that's going to be touching actual USD bank accounts, it turns out you need a fleet of lawyers and significant political and business connections to maintain the relationships required to keep the money flowing. USDT allows smaller, more agile exchanges to play with USD, and delegates the icky legacy finance stuff to the larger players who are set up to deal with it.

Of course no one should ever try to store long term value in USDT, but that's not what it's for. It's a tool for shifting the risk of touching USD to people that are actually prepared to handle it, which is fine.

Me too. I'm looking into shorting it on Kraken but I am not quite sure how it would work because it would be delisted before it went to 0 possibly and I am not quite sure how that would work.

Never short anything cryptocurrency related.

There is simply too much counter-party risk. If the wheels fall off the Tether bus, they're going to take Kraken down with it, and you just won't get paid. Plus you're going to have to post collateral for your short position, which simply opens you up to even more loss potential.

tr0lly seems to think the market is pricing in a 50% chance of a total systemic collapse on a 1 year time horizon by working backwards from the 2% per month contango on CME futures [1].

[1] http://www.tr0lly.com/bitcoin/bitcoins-overnight-collapse-pr...

The argument there starts from bitcoin futures being worth more than bitcoin today. What's wrong with the simple explanation that people expect the price of bitcoin to rise?

This is actually covered in the write-up but the answer is arbitrage.

In a perfect world, I'd simply short-sell the future at a 2% premium over the spot price, then I'd buy a bitcoin on the open market. This pushes the price of Bitcoin up and the price of the future down. The gap closes to roughly zero, an I get 2% for my service.

Hello,

The reason that people don't take the 20%/year arb is that they are taking arbs that pay more than 20%/year.

An additional reason, at some venues, is that the venue does not allow you to use 1 BTC to fully collateralize 1 short BTC future. At those venues, if you do this trade and the price of BTC goes up, you begin to pay interest to borrow dollars for your paper loss on the futures half of the trade.

Edit: for CME in particular, I don't know, but I sort of expect that you cannot post collateral in crypto.

Instead of shorting it, you can do this:

1. Lock up your USD to USDC (get some ETH for gas)

2. Go to https://app.compound.finance/

3. Deposit the USDC as collateral

4. Borrow USDT (Tether)

5. Sell the borrowed USDT to USDC

6. Wait until USDT implodes to $0

If USDT implodes to $0 then you'll have nothing to pay back.

You can even deposit the USDC to, say, Yearn and cancel out your interest expense.

Of course, I do not expect USDT imploding anytime soon, so don't do this. Although it's often the preferred stablecoin to borrow because when it does implode, you will be lucky (assuming it goes under the peg).

> 4. Borrow USDT (Tether)

> 5. Sell the borrowed USDT to USDC

How is this not shorting? Except DIY instead of a broker hiding the borrowing for you.

Yeah they literally described the process of shorting a stock. Which, to me, is the best alternative to shorting a stock that one could ask for.

Yes, good point.

Oh, this is perfect, I'm going to do this with 100k. Also, yeah it is shorting, but it's honestly less convoluted than how I have to do it on Kraken. + I get profits off staking.

Edit, did it with $500 as a test, I am arbitraging 0.5% as I took the tether I borrowed, turned it. into USDC and staked it. I am getting paid 0.5% to short Tether :O

USDC is now natively on Stellar, so no need to pay Ethereum's transaction fees:

https://stellar.org/usdc

But there is no lending/borrowing market or a decentralized exchange on Stellar. Besides, when you deposit USDC to Compound Finance you will earn interest plus COMP tokens that can cover your gas fees.

Anyways, there may be several competing options coming in the future, but Stellar is just not it.

> But there is no lending/borrowing market or a decentralized exchange on Stellar.

I can't imagine where you got that idea.

https://developers.stellar.org/docs/glossary/decentralized-e...

https://www.lumenauts.com/explainers/stellar-decentralized-e...

Here are a few clients:

https://www.stellarx.com/

https://stellarterm.com/

https://stellarport.io/exchange

https://interstellar.exchange

https://lumenswap.io/

You can lend and borrow just fine on the Stellar network. Here for instance is Celsius' current rate on Stellar Lumens:

https://celsius.network/earn-rewards-on-your-crypto/

> Anyways, there may be several competing options coming in the future, but Stellar is just not it.

Passing judgment is best done after informing oneself.

It looks like the game is rigged on Stellar.

All of the above exchange links that I've visited required account registration and login, which means that they are not decentralized. For the celsius, you have to download an app on your phone. Ewwww. Whatever. Claiming to be decentralized and then requiring signup is dishonest.

It looks like there is not not much liquidity. Also, the only type of exchange supported is "Limit Order", which is also cumbersome to use on a blockchain, and you would probably prefer Automated Market Maker (AMM) type exchanges once you experience them. (You can perform all the steps I've outlined in a single transaction for example)

Also, it looks like that all the assets on stellar are custodial. There are no non-custodial stablecoins for example.

> All of the above exchange links that I've visited required account registration and login, which means that they are not decentralized

Next you'll tell me that Ethereum is centralized because Coinbase requires registration and login.

You've been looking at clients, i.e. independently developed user interfaces to the Stellar DEX. You can interact directly with the DEX here:

https://laboratory.stellar.org/

Or you can roll your own clent. Stellarterm is open source, could be a good starting point:

https://github.com/stellarterm/stellarterm

If you prefer algorithmic trading, there is Kelp:

https://github.com/stellar/kelp

> Claiming to be decentralized and then requiring signup is dishonest.

I find it hard to believe that you honestly don't understand the difference between an independently developed client and the decentralized exchange which it connects to.

> you would probably prefer Automated Market Maker (AMM)

See Kelp above.

> There are no non-custodial stablecoins

This subthread started with your recommendation of USDC, a custodial stablecoin...

…which, lest we forget, went live on Stellaräs decentralized exchange this month:

https://www.stellar.org/press-releases/usdc-is-live-on-the-s...

USDC was just an example, you can use non-custodial coins too. Looks like stellar only offers custodial.

Look, I get you. There is some degree of decentralization, although not fully decentralized. There's definitely a lot more smoke and mirrors there, especially when I need to register to these websites.

The other problem is that Stellars consensus protocol is not sufficiently decentralized.

Regular users may not care about that, which is fine. However, that's a crucial point for me.

> There is some degree of decentralization, although not fully decentralized.

Please stop spreading disinformation.

> There's definitely a lot more smoke and mirrors there, especially when I need to register to these websites.

Again: those are independently developed and managed web apps which provide a nice graphical user interface to Stellar's decentralized exchange.

You don't need to use them to access the exchange. If you do, the accounts you create with them are unrelated to the exchange; they are specific to those web apps, and serve obvious purposes like helping you keep track of your trades.

None of this is even remotely hard to understand for anyone who knows anything at all about the subject. That somebody who claims to be more than a regular user would fail to understand it is not credible.

You're assuming if the wheels fall off Circle will be around to pay you back.

USDC is audited monthly to verify that it's backed by real dollars. The reports are public:

https://www.centre.io/usdc-transparency

Totally, just a minor quibble, they don't have audits, they have attestations. That's not the same thing, it's much less detailed. I'm not particularly worried about the existence of their backing assets, however, it's just worth noting.

I was referring to the Circle entity in the event of a wheels-come-off situation.

Which part of "don't do this" you didn't understand?

"Of course, I do not expect USDT imploding anytime soon, so don't do this" doesn't suggest anything about counterparty risk with USDC.

USDC is an example, it's not necessary that you use USDC, there are a few other currencies that can be used for collateral and swapped in to while you wait. Let's be clear: "Do not do this" means do not do this in whatever variation.

Why wouldn't they be?

> I'm looking into shorting it on Kraken

Why do you think Kraken would be in a position to pay you out if Tether goes under? Even the CME contract becomes sketchy when you’re talking about a meltdown at this scale—it’s priced off these exchanges. If they start experiencing edge case behaviour, prices could crash or multiply erratically.

If you want to play this, it would likely involve a more sophisticated bet on exposed public companies and/or credits, or a simple bet with a trusted counterparty.

Hence the 2% per month contango on a cash-settled futures contract which is practically unheard of.

In theory you should be able to arbitrage by purchasing a bitcoin and shorting the futures contract to collect that sweet 2% per month. However in a wheels-fall-off situation, the price at USDT-only and insolvent USD exchanges could approach infinity, and since your real-world broker won't take your BTC as collateral, they'll simply liquidate you.

Appears arbitrageurs are willing to leave 2% per month on the table to avoid being strung up in the event the wheels fall off.

> In theory you should be able to arbitrage by purchasing a bitcoin and shorting the futures contract to collect that sweet 2% per month

Variation margin. Shorting the future requires you put up cash. If the price goes up, you have to put up more cash. One could hedge away part of this by holding Bitcoin and borrowing against it. But those lending channels are costly and not presently reliable.

TL; DR That 27% spread [1] includes more than just systemic risk.

[1] (1 + 2%) ^ 12 - 1

Not entirely, right, shorting the future requires you put up margin. Current maintenance margin requirement is about $100,000 per contract, which covers 5 BTC, notionally $258,000.

Margin interest at the institutional level is 0.75% per year, so you're free to collateralize your position with something other than cash or bitcoin. You could have 1 short /BTCG1, collateralized by a portfolio of other investments, and buy BTC to cover at an exchange somewhere.

Yeah it's not risk free, but it's certainly not 27% per annum.

I do agree it's a simplification, however.

> Current maintenance margin requirement is about $100,000 per contract, which covers 5 BTC, notionally $258,000.

If the price changes this goes up. With something as volatile as Bitcoin, that’s a material risk.

> Even the CME contract becomes sketchy when you’re talking about a meltdown at this scale

CME has Tether?

Tether USD is a token. If you short Tether, you already got paid. If Kraken is legit, then Tether should not affect its operations.

This. If you short Tether, you already got paid.

Don't short it. The market can stay irrational much much longer than you can stay solvent.

For stocks I agree, but here tether isn't ever going to go much above $1, right? So the downside of shorting is just that it ties up a lot of capital, right?

Counter-party risk is the issue. The only places you might be able to short for real dollars will require you post up collateral for your short. Then once the wheels fall off they'll declare bankruptcy and keep your collateral.

'declare bankruptcy' is optimistic. More likely is that they disappear completely/fake their own death in a weird jurisdiction/get killed by gangsters/go to prison for child porn, etc.

Exchanges don’t just say it; they declare it ;)

Wouldn’t you be paying for time decay on any short positions?

Time decay happens on options. You pay interest on the tether you borrow.

Thanks, this clarified what’s going on for me.

That means you’ll still be paying interest for whatever period you’re holding the position, which really isn’t that bad depending on the rates. However, not to detract from the thread I would think other concerns like market irrationality and delisting still applies.

If you short the futures I don't think you'd be as affected by delisting of the spot, but the price calculation at settlement time could be dicey

Not just at settlement, if one of the index exchanges goes insolvent and the price of BTC goes parabolic, it may push your short position past your brokers assigned personal risk tolerance for your account and they'll liquidate you. You'll be right, but broke.

I don't think FTX has any policy on this matter other than that they will liquidate you if you are sufficiently under-collateralized. A move in the price of an unrelated asset would not cause you to be under-collateralized.

I'm referring to a real SEC regulated broker like InteractiveBrokers which allows you to buy and sell /BTCG1 futures. The price of the /BTCG1 future is calculated based on a blended average of the spot price at a bunch of other exchanges (the "Bitcoin Reference Rate" or, humorously, BRR).

The current maintenance margin for a /BTCG1 contract is 40%. You're required to have enough margin to cover 40% of the notional value of the contract which is 5 BTC, roughly $100,000.

Let's say you only have $200,000 of margin. A parabolic move towards infinity in the BRR due to insolvency in some of the exchanges involved in the calculation may double or triple the price of BTC. Further, the high volatility may increase the margin requirements beyond 40% and up towards 100%. This means you're going to get a margin call, and you either post collateral or get rekked.

Not sure how FTX works.

Sure, that's shorting BTC in an attempt to short Tether. I agree this is a terrible idea.

Don't short the spot.

It costs like a penny per year to short Tether quarterly futures at one venue.

I highly recommend not doing this - I was shocked to see this article because I'm surprised its _still_ rolling - 2 or 3 years ago I was in your spot, and I would have wasted a ton of money and acquired a much darker view of the world.

Much like TSLA, it'll be 10% of its size eventually, but who knows when or why, its teflon until it isn't.

Why will TSLA be 10% of its size? Why can't it 2x and be worth an Amazon?

Because Amazon has 1.2 million employees, $386.1 billion yearly revenue, and $20 billion yearly net income. Tesla has yearly revenue of $31.5 billion and net income of $721 million. Presumably people think that Tesla is priced for explosive growth, but Amazon has also been on a growth tear that shows no sign of stopping, so the basic premise that Tesla at less than 1/10th the revenue and 1/20th the net income is worth half as much as Amazon seems fishy.

The bull case is Tesla goes 0.8% of global car sales to 20% or some such. Which is not impossible.

People just throwing numbers. In the very long term, everything will go back to 0. Thus, not putting a timeline for your predictions is useless.

You wouldn't have wasted much money. At one crypto venue, this trade costs you less than 1% per year to keep on and ties up only 5% of your collateral (assuming you are 1x short and don't push the "pay higher fees for more leverage" button)

I was briefly short USDT on Kraken but their fees for that were terrible, like 25% per annum. I'm not sure if there is a more reasonable way of doing it.

If you think tether will crash don't you think the whole crypto space will crash too? Or can you short it with fiat money on kraken?

When it blows up, it will take Bitcoin with it.

Yes it will blow up the Bitcoin price, as everyone wants to exit tether

That requires the Tether to exist or be worth anything. As I understand it it's a protocol on top of Bitcoin that allows the issuer to arbitrarily destroy it. [1] Even if it wasn't destroyed, the value could fall over a million fold if they were discovered to be totally irredeemable and without backing. Unlike the Papiermark, you can't even burn them.

[1] https://medium.com/wolverineblockchain/whats-the-situation-w...

Temporarily blow up the Bitcoin price and then crash down to oblivion.

I believe that's what you meant. If you think Tether implodes and Bitcoin's price goes higher and higher, I have more creepto to sell you.

What makes you think that?

Alternatively, it could make bitcoin stronger by removing an alternative cryptocurrency

> What makes you think that?

“Through Tether pass more or less 80% of bitcoin trades.”

I'm not an apologist by any means - I absolutely hate Tether, and cryptocurrencies - though for perspective, the most optimistic take is that if you exclude exchanges that are known for reporting fake volume, the breakdown is roughly 59% USD and 41% Tether. [1]

It will likely take the whole space down with it, not just Bitcoin, because what'll happen is on all USDT exchanges and insolvent USD exchanges, the price of crypto will reach millions of Tethers per coin as people try and flee, then on all real-dollar exchanges, the price will collapse to pennies as everyone tries to sell their crypto for actual people money that you can use to buy goods and services in the real world.

Think MtGOX on steroids.

[1] https://www.bitcointradevolume.com/

I think you underestimate demand massively. If bitcoin price ever starts to drop precipitously, it will be scooped up by a mass of buyers who have a ton of money to blow and a lot of interest in maintaining price. The only thing that could cause a real collapse to sub 4 digits is if something went wrong in the actual protocol or some unforeseen exploit occurred that affected the system in a way that was unrecoverable. If the cryptography and incentive systems continue to function, the price will probably never approach 4 digits again even if Tether blows up (which it probably will).

The logic here is that many people will buy a crashing asset because, if they all cooperate, they can keep the price up. That seems highly unlikely. You can't just will away a bad equilibrium or a collective action problem.

I think this gets to the crux of it. Tether/iFinex isn't just a bad player, it's a bad player that has become the plumbing of the crypto space.

> The only thing that could cause a real collapse to sub 4 digits

Only thing? I agree that Tether’s collapse won’t be the end of Bitcoin. But if Tether collapses amid a real recession, i.e. one where incomes fall, that potential demand may not be able to act on its impulses. And note that Tether’s collapse and such a recession are correlated.

There is a very, very strong suspicion that Tether is involved with market manipulation of bitcoin to keep the price high.

If that disappears, the price will be in freefall.

Wouldn't the price go up even more as people try to get rid of their USDT by buying stuff with it?

Temporarily. For all the talk of crypto replacing central banks and the FIAT system, people heavily involved in crypto want to be able to cash out and buy their Lambo and have fun not being poor. So there will be a rush to use fiat gateways such as Coinbase to liquidize their crypto assets. Enormous sell pressure.

I would imagine the USDT to BTC rate would skyrocket while the USDT to USD rate plummeted. The exchange value between BTC & USD would not really be impacted.

How do you prepare / avoid / protect from that ? I mean most people don't have USDT it's simply what exchanges us as a pair. Or are you afraid that any exchange using Tether as the main stablecoin will go under with tether and users won't be able to withdraw assets ?

How do you invest in Tether? I thought it was just like a dollar peg for btc for inter-exchange operations.

In theory, if you give Tether some dollars, they will store those dollars in reserve and issue you new Tethers. In practice, there is no evidence that any part of that happens aside from the minting new tethers part. Most likely there is some amount of money and/or crypto held in reserve, but despite allegedly having several tens of billions of dollars in reserve, they refuse to do an audit.

I think the currently most plausible answer for how Tether works is: 1 )Tether issues tokens to OTC exchanges in exchange for an IOU 2) The exchange buys BTC with it 3) The exchange sells that bitcoin for dollars, and pays off that IOU. This almost certainly wont fly with regulators, and has many ways it could explode, hence the investigations.

What's the best guess on where the actual cash sits in the meantime, or long term?

Impossible to know. 30 billion Tethers ago, it was at 74% according to a filing from Tether with the New York Attorney General.

In my opinion, best case scenario: Tether is buying Bitcoin and other assets with Tether, and has been able to sell them at a profit as prices rise, leaving their reserves at or above 100%. This sort of initially unbacked issuance may be a crime in and of itself, but its possible Tether holders would have a legitimate claim on any assets if Tether fails or is shutdown and wouldnt take a loss (though it could take years to get back their money).

Worst case scenario: its entirely, or almost entirely fraudulent, and Tether insiders have embezzled and spent as much of Tethers available hard currency as they can.

Consider their T&Cs are very clear - owning USDT gives you no rights or claims on their reserves. They can also arbitrarily, and indefinitely, delay/postpone your withdrawal request. They can also substitute whatever they want from their assets to satisfy your claim. They can also just tell you to go pound sand.

Owning a USDT gives you as much right to cash from the Tether treasury as owning a Chuck-E-Cheese token gives you right to the coins in the cash drawer at your local fun-a-torium.

Why would they sell their bitcoin? I think that the most plausible explanation is that they're almost completely backed with bitcoin. In a bull trend, they're able to keep issuing more Tether because their collateral value increases. They can buy unlimited amount of bitcoin as long as the bull trend continues. In a down trend, they'll liquidate/sell the bitcoin.

> most plausible explanation is that they're almost completely backed with bitcoin.

Even if that's true it would be a direct contradiction to what they promise to their customers, that Tether is fully backed by USD. Any angry customer can then sue them for fraud.

They don't promise that. From their website: "Every Tether token is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”)."

That's a recent change, and come about since they've been taken to court.

They originally claimed that every USDT issued was backed by cold hard USD cash. No 'cash equivalents', no 'other assets', no 'loans'. The wayback machine can give you a historical view on their pages and their claims.

Your best case scenario is worse than what most people in the industry consider the truth..

Or rather, what most people in the industry pretend doesn't exist, because they know it's a systemic risk and everyone's in way too deep at this point.

Look, it's easy, just phone up Paolo and get us an audit, you seem to imply you're connected.

Then we'll move on! I'll eat my hat and apologize to everyone I've ever told Tether is anything other than the most legitimate entity in the entire world. I'll borrow from the r/wsb folks and tattoo a Tether logo on my backside, even.

Not sure this aged like you think it would:

> Or rather, what most people in the industry pretend doesn't exist, because they know it's a systemic risk and everyone's in way too deep at this point.

Are you referring to the NYAG here?

Bank accounts in Shell companies around the world. They are pretty good at this game, but it's pretty risky one.

That's how CryptoCapital operated after all. It's a pretty standard approach to money laundering.

> but despite allegedly having several tens of billions of dollars in reserve, they refuse to do an audit.

They don't refuse this, instead they fail to find an auditor that people actually trust that wants to work on a big crypto project. They are very open about this.

The big problem about Tether is the amount of FUD and misinformation going around as common knowledge.

> I think the currently most plausible answer for how Tether works is

As someone who deals with Tether as well as all the big exchanges that run Tether markets, this is about as real as Alice in wonderland.

> They don't refuse this, instead they fail to find an auditor that people actually trust that wants to work on a big crypto project. They are very open about this.

No no, let's not rewrite history.

Tether hired Friedman LLP to audit them in ~2017/2018. Friedman literally walked out of the audit [1] because, and I assume this is true, it was just too squeaky clean to bother finishing.

Friedman claims to be a specialist in this area [2], and I believe they're actually involved with GBTC [3].

In retrospect it makes sense Friedman ran about as fast as they could. The New York AG lawsuit indicates at the time, Tether knew they were only 74% backed by assets. Boy, that'll make it tough to pass an audit when your website says you're actually backed 1:1 with actual humanly usable physical dollars.

Remember, Bitfinex banked with a money launderer, CryptoCapital, and had $850 million dollars seized by authorities, so they just reached into the Tether kitty to plug the hole. [4] At the time Bitfinex and Tether were of course denying they even had any relationship at all - let alone a "friends with mutually accessible bank accounts" relationship - but we found out thanks to the Paradise papers. [5]

Tether is "very open" about absolutely nothing. Claiming otherwise is the biggest misleading statement in this entire thread, intentional or not.

Let's stick to the facts, Mike.

[1] https://www.coindesk.com/tether-confirms-relationship-audito...

[2] https://www.friedmanllp.com/industries/digital-currency

[3] https://www.friedmanllp.com/insights/congratulations-to-gray...

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

[5] https://www.icij.org/investigations/paradise-papers/paradise...

> Tether hired Friedman LLP to audit them in ~2017/2018. Friedman literally walked out of the audit [1] because, and I assume this is true, it was just too squeaky clean to bother finishing.

Reading the source you linked it looks like tether's main criticism of Friedman is that they were 'too detailed'.

God forbid that an auditor actually wants to get into the detail rather than just taking Tether's word for everything.

> They don't refuse this, instead they fail to find an auditor that people actually trust that wants to work on a big crypto project. They are very open about this.

Claiming you don’t trust any auditors so you can’t do an audit is certainly one way of refusing an audit.

Circle/USDC has ~$7B of coins issued and makes available monthly attestations of assets (an attestation isn't an audit, but its better than nothing). Tether claiming that they cant get an audit because of the haters on twitter is laughable.

The claims I have seen from you and from e.g. Sam Trabucco amount to basically "Tether is legit because we create and redeem tethers regularly." This is not real evidence, in the same way that "Bernard L. Madoff Investment Securities LLC is legit because I deposit and withdraw funds regularly" is not real evidence.

I am guessing people park their money in tether during periods of instability without needing to pay a broker to transfer into fiat. It looks like a place for temporarily hedging against crypto generally.

They don't invest in tether, it's just a means of moving money between exchanges like you say or temporary hold between trades.

Kraken will sell you some if you like.

1. Why would any of them care about Tether to begin with? It's not a speculative instrument, like Bitcoin. It's not useful for money transmission, unless they have some incredibly interesting requirements. It's an in some ways better, in some ways worse version of stuffing a pile of money into a mattress.

2. The problem is that even if you stay away from it, because you can't speculate with it, and you aren't moving money around, it is entirely unclear whether or not tether blowing up will take bitcoin down with it. If you want to be prudent about Tether blowing up, you should be advising them to stay away from bitcoin, until it does.

> It's not useful for money transmission,

It's extremely useful for money transmission, and a way to bypass KYC/AML entirely. For example, Iran can export heroin to Europe and get paid in Tether. It can then use that Tether to buy weapons from North Korea. North Korea can then spend that Tether to import luxury goods from the West. At which point, it then gets sent to Binance and converted back to clean fiat.

None of that's possible with SWIFT. Yes Tether's risky. But in many parts of the world, holding dollars in a bank account is riskier.

> At which point, it then gets sent to Binance and converted back to clean fiat.

Not sure this is going to work for $100m+ amounts.

Why not?

You are going to be hit by KYC from Binance and the bank you are withdrawing the money to.

The companies withdrawing the money in that scenario would be a number of legitimate luxury goods sellers. KYC would need to uncover that their customers, possibly through several layers of further indirection, have channeled illegitimate funds from North Korea.

There isn't a big market where people pay for luxury goods with Crypto. This is going to raise eyebrows. As much as the crypto landscape is the wild west, banking on/off crypto is incredibly hard.

I'm not suggesting it wouldn't be hard. But the point is that if you've found somewhere to buy valuable goods for with Tether from a suspect source, then the KYC isn't your problem any more, it's theirs. And it's theirs only if your purchases make up a conspicuous enough portion of their order flow to cause their bank to take a closer look, and assuming that the way you did those purchases causes looking at the source of those order to raise further red flags. People will look just as hard as they have to in order to shift the risk to someone else.

Okay, sure, but those are some pretty odd requirements, that are only relevant to a tiny fraction of people. I doubt the friends and loved ones of the grandparent poster are buying surplus Soviet weapons from North Korea, hence why I don't understand why they need to be warned away from it.

I understand why a normie gets into bitcoin or GME or dogecoin speculation. I don't understand why they would get into Tether - hence I don't understand why warning them away from Tether is a priority!

In many exchanges you exchange your crypto against tether (usdt) instead of real dollars. There are other alternatives such as USDC as well.

The argument some people have is that tether is printing fake money to prop up crypto market. I think it might have some effects like that if it was truly all fake money. I hope that NY investigation will shed more light on it.

>The argument some people have is that tether is printing fake money to prop up crypto market.

I don't think that's actually supported by evidence. AFAIK there are concerns about tether's solvency (because one of their bank accounts got frozen), but evidence of money printing is lacking.

They never provided the audit they promised. They lied many times about their banking partners. Its on them to prove that they are not printing money.

Further, their auditor, Friedman LLP, ran away in 2018. According to the evidence in the NYAG lawsuit, this was when Bitfinex had reached into the Tether kitty to borrow 26% of their assets, $850M. That'd make it hard to pass an audit when your website says 1:1 backed with real physical dollars.

Few fun facts, ready?

- At that point Bitfinex and Tether were pretending not to know eachother.

- The Paradise Papers revealed they had the same owners.

- Bitfinex lost the $850M because they were banking with a money launderer, CryptoCapital, after getting shut out of literally every bank in the entire world.

USA prints money. How is the actual dollar any better supported?

You will always be able to pay taxes in the US with US dollars, that is the promise of the US government, and there is no reason to believe this will change.

The promise of USD tether is that you will be able to get back 1 USD for 1 token, and there are reasons to believe this may not happen.

  Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens,... 

  ... and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. 

  Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.

[1] tether.to/legal

As mentioned otherwise in this thread (but it warrants repeating) their T&C say that they have absolutely no obligation to give you USD for your tether, so it's even worse.

Aircraft carriers?

Ultimately, the dollar is backed by US military force.

Historically, atremps to debase markets from US dollars have been met with military intervention (khadafi et al). This enforces a relationship between dollar value and global resource value.

The US military is so vast that it has no legitimate challenger on any strategic scale, and nuclear deterrent is traditionally irrelevant to this type of threat model.

US military power still has it's limits. Imagine for example that China refuses to trade in USD, demanding payment in physical gold for all the goods manufactured there. Or Russia refuses USD payments for oil and gas. No way the US Navy would be able pull of an invasion.

> Imagine for example that China refuses to trade in USD, demanding payment in physical gold for all the goods manufactured there

Lets imagine. All of a sudden, China has decided that USD SWIFT payments are no longer acceptable, and requires all exports to be settled in physical gold.

Suddenly, the vast majority of consumers are no longer able to buy goods from China, as the vast majority of consumers do not posses physical gold. Those that do, do not have gold in small denominations, and now costs have to round up to whatever denominations of gold that one has. How do you buy things with $400 sovereigns and $1800 kugerands and still make change?

So instead, we now rely on the banking industry to magically transport this problem away. We still pay USD, and it's transparently converted to AU for you in the background. The banks pool enough transactions together, and do T+2 settlement. Except due to the trade deficit, outflows are going to be significantly higher than inflows, and the vendors would rather have the physical gold delivered before issueing the products, given that massive trade deficit.

So now the banks need to arrange for regular, and large transports of physical gold. They also need to do this securely, since gold is a tempting target for theives. Shipping by air is too expensive, and few people will be willing to face transaction fees that high, so then it returns to sea freight, which is slow. Suddenly T+2 settlement becomes T+50.

So now you're waiting 50 days for your $5 payment to clear, before goods ship, which take another 2-5 weeks depending on shipping method.

Or you'd just buy from someone else, who's willing to settle in cash.

Or you use bitcoin instead of gold and your $5 payment gets cleared almost instantly

The GP's suggestion was physical gold, not another electronic payment form.

To get a transaction cleared inside the next block today costs 185 satoshis per byte, and a minimum transaction size of 192 bytes. So "almost instant" clearing (~10 mins if you're happy to accept one block, ~30 mins if you're waiting 3 blocks, etc) costs a minimum of $18 today.

So that $5 tee that takes 30-60 mins for payment to clear just cost you $23.

As the rate of transactions wants to go up, the cost to get into the next block will go up too. We're already at maximum transaction rate, so the only mechanism left is increasing the price.

Or you could buy local.

(Inb4lightningnetwork)

$5 plus a $20 transaction fee (or, really, something higher, if you're competing with everyone else who wants to send $5 to China)

Vietnam and Iraq?

Well, the obvious answer is that the supply of dollars is only half the equation. Velocity of money is the other. Inflation is a function of velocity and supply. This is well managed by the Fed.

Inflation literally only matters from the moment you obtain fiat to the time you spend it on necessities or invest it in productive assets - or bitcoin.

It's amazing how crypto folks hate on inflation, but the 2% well-controlled rate is specifically designed to incentivize people to allocate that capital in the way they think is best. In some cases, that's Bitcoin. So inflation causing people to invest in Bitcoin (or anything else) is literally inflation doing what it's designed to do.

Of course bank runs are different, but in the US, bank runs are backstopped by the FDIC which has, since the Great Depression seen exactly $0 lost by depositors. Tether is backstopped by literally nothing.

The dollar doesn't claim to be convertible, whereas Tether does claim to be convertible and therefore needs backing.

The chance of a bank run on tether is much higher than that of a bank run on US banks.

The US Gross Domestic Product.

https://www.coindesk.com/tether-usdt-russia-china-importers

The whole thing feels like scammy / tulip mania, but I think it is worth pointing out that Bitfinex repaid $550 million Feb 5. Though nothing comes up right away, I think the next trial date w/New York is Sept 2021.

Why do you think next trial will be only in Autumn?

Tether isn't a fraud perse... In the worst case it's a severely overleveraged bank that operates outside of traditional regulatory regimes akin to many eurodollar banks. My bet is they hold something around 5% in reserves.

Reserve requirements in the US have dropped from 10% to 0% thanks to the fed, so our fractional reserve system has turned into an inverted ponzi scheme of sorts.

The biggest risk for tether is a liquidity event. If everyone cashes in for dollars at once, tether is probably dead. But honestly, I might consider buying the dip.

The problem is that Teather advertises themselves as 'non-fractional'. They are meant to hold 100% reserves.

As for their actual holdings: "On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents"*

That's better than your pessimistic 5% estimate, assuming their statements can be trusted.

That was really, really old data lol.

That was from when they had about $3B in market cap. Today they have $33B in market cap. What a difference a year or two makes! In fact, they printed in the last week the entire market cap they had when that statement was made, in $1B USDT increments.

That figure comes from the time when Bitfinex reached into the Tether kitty and snagged $850M (leaving an IOU) to make up for the money seized by world governments as being the proceeds of money laundering. That happened when their money launderer, CryptoCapital, got shut down.

CryptoCapital was run by former NFL player Reginald Fowler [1] whose lawyers just withdrew from his case because he's broke.

Luckily Tether has since moved on, and they bank with Deltec in the Bahamas, whose chairman is the guy who created inspector fucking gadget. [2]

I'm not sure 5% is all that far off, given the 33 billion USD they're supposed to have is more than the entire Bahamian banking system has on deposit in USD according to regulators. By like, a lot.

[1] https://coingeek.com/crypto-capital-ny-court-grants-reginald...

[2] https://en.wikipedia.org/wiki/Jean_Chalopin

The one fact we can gather from that statement is "Tether is comfortable lying about their reserves".

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