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Comment by chrbarrol | Hacker News Reader

So here is what I don't get about the "tether scam":

I remember these worries about Tether not being backed by real cash being a major concern all the way back in 2018(?), if I remember correctly the worry was exactly the same that Tether might not be backed by enough real $ and collapsing when people find this out. Now 3 or so years later we know this is a fact, yet there has been no prophesied collapse in Bitcoin value as a result. (It has lost value lately but to my knowledge for unrelated reasons)

So what is going on here? Is Tether not being backed by real $ not actually as big a deal? Or is the Bitcoin bubble so strong people still buy into it even when Tether is basically a scam?

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Is Tether not being backed by real $ not actually as big a deal?

It's no big deal --- as long as enough people accept the fact that they can't actually redeem their Tethers for real USD.

As long as everyone is invested in playing the game, the illusion proceeds unimpeded. But eventually, reality will slowly start to intrude on the fantasy. People will be faced with the fact that the USD they fed into the fantasy ain't coming back out.

When this happens, the exchanges will just vanish into the internet ether from which they sprang and the people who ran them will be a few trillion richer --- in USD, not USDT.

> as long as enough people accept the fact that they can't actually redeem their Tethers for real USD.

Just like a fractional reserve bank, everyone can indeed redeem them. Just not everyone at once. Many people can and do redeem USDT.

FWIW, I think Tether is now backed >80-90%. I don't think they was always the case, but I think it is now. I personally won't touch USDT ever, but I don't think it's today the huge outright scam it has appeared to be at times.

Why do you think it is backed now? If i look at the amount of freshly minted coins since the investigation could not be halted i very much think that the rate may have even got worse.

Genuinely interested

I theorize based on the previously published documents that they made up the previous shortfall in gains in holdings of other cryptocurrencies, via Bitfinex.

I would imagine that much of the recent issuance is legitimate. I, of course, have no way of knowing as they have never once been subjected to an audit. As I mentioned, I never touch USDT for any reason.

I never touch USDT for any reason.

If you trade cryptocurrency, USDT is touching you.

From what I have read, as much as 60 percent of all crypto trades involve USDT. Any stability (such as it is) in the crypto marketplace largely rests on the fantasy that USDT is backed by USD.

Tether themselves just declared that they have less than 3% in actual cash, and that the vast majority is covered by unspecified, highly suspect loans.

By Tether's own admission, you can't cash out. Tether's backing would only matter when cashing out but since you know you can't cash out... it doesn't matter?

I also think people who care about Tether's shadiness have self-selected out of crypto and the remaining traders just treat it as yet another existential risk not to worry about.

As long as Tether maintains the peg on exchanges you can cash out, this is no different than cashing out directly via Tether

When you sell USDT on an exchange the money comes from another trader; this works as long as there are traders who want USDT. If you could redeem and destroy USDT from Tether the money would come from the reserve. If aggregate demand for USDT drops enough then it will matter.

Isn't it Tether itself who "wants USDT"? That's how they maintain the peg.

No, they don't maintain the peg at all.

This is strictly not true, Tether makes trades on exchanges in order to maintain the peg.

It means that nothing is backed and these exchanges don't have the cash reserves to back the liquidity they're handling.

The important thing to realise is once you're an on-paper crypto millionaire, you're not going to be invested in making the music stop even if you have a hand on the volume knob.

If a group decided to call time and try to cash out to the tune of a $billion or so then the music stops and every exchange will cascade fail.

No exchanges, no reserves, no liquidity to get the music playing again, crypto has no value.

As long as there is net inflow it can continue regardless of it being a scam or not. Lookup tethers market cap at coinmarketcap - the inflows are massive and exponentially increasing.

If those inflows are real.

It's either not backed or it's backed by dirty money. I lean toward the latter. It's probably a giant money laundry.

The cryptocurrency market is highly irrational.

That said, bitcoin is down 20% in the last week.

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