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.
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
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?
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.