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.
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.
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.
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.
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.
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.
Much like TSLA, it'll be 10% of its size eventually, but who knows when or why, its teflon until it isn't.
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.
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.
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
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.
If the price changes this goes up. With something as volatile as Bitcoin, that’s a material risk.
CME has Tether?
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...
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.
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.
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).
I was referring to the Circle entity in the event of a wheels-come-off situation.
> 5. Sell the borrowed USDT to USDC
How is this not shorting? Except DIY instead of a broker hiding the borrowing for you.
Anyways, there may be several competing options coming in the future, but Stellar is just not it.
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://stellarport.io/exchange
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.
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.
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...
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.
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.
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
Alternatively, it could make bitcoin stronger by removing an alternative cryptocurrency
“Through Tether pass more or less 80% of bitcoin trades.”
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.
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.
If that disappears, the price will be in freefall.
[1] https://medium.com/wolverineblockchain/whats-the-situation-w...
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.
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.
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.
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.
> 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?
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.
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 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.
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.
Claiming you don’t trust any auditors so you can’t do an audit is certainly one way of refusing an audit.
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...
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.
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.
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.
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.
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.
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.
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)
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.
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.
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.
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!
Not sure this is going to work for $100m+ amounts.