People have been sounding the alarm on Tether for a long time now, but we’re finally getting some hard evidence now to back the allegations [2].
Don’t say you weren’t warned.
[1] https://mobile.twitter.com/smdiehl
[2] https://ag.ny.gov/press-release/2021/attorney-general-james-...
[1] https://mobile.twitter.com/smdiehl/status/139366981222046516...
Wild prediction: this BTC crash pops the USDT bubble, cratering crypto in general. TSLA holders (frequently BTC/doge buyers themselves) begin to panic sell, triggering an ARKK bank run. ARKK implosion sparks wide selloff of big tech stocks (essentially their holdings) which depresses the S&P (where tech is the main driver of growth). Everyone is now forced to be conservative; cost to borrow skyrockets; demand chills, and coupled with supply chain disruptions and high commodity and materials costs, some businesses begin to fail. New homeowners who went for broke to buy at the top of their market are immediately underwater, and some of them are now losing their jobs. Fed is now between a rock and a hard place - needs to raise to interest rates but also needs to encourage spending - what to do?
Anyway, there is my daily dose of doom-and-gloom, and I have a vague understanding of any of it, so enjoy.
2 - If you believe the worst allegations, then Tether is artificially propping up the value of Bitcoin. In the event of a run on Tether, Tether may be forced to sell thousands of Bitcoins abruptly onto the market to get cash.
3 - The fallout of a true worst case scenario for Tether could lead to crypto being reclassified in order to fall under all the relevant financial regulations that banks and the traditional finance sector are subject to.
Ponzi scheme would mean that some investors were getting returns...
---
Let's say I decide to make NerdBucks. I offer to sell you n NerdBucks for n dollars, 1-to-1, and tell you I will always buy those NerdBucks back at the same price. This is how NerdBucks get "pegged" to a dollar -- if someone will always buy the currency for a given rate, it will then always be worth at least that much.
Now, you might say, "Okay, what's from stopping you from selling a billion NerdBucks, and when people try to sell them back to you, you just refuse?" Well, normally nothing (outside of litigation, but that is a rabbit hole I'm not going to talk about here). In theory, though, I could have a bank account that I publish the amount of inside it, to show you I am prepared to buy every single NerdBuck back in a worst-case scenario.
---
Going back to Tether: The issuing body of Tether has suggested they are holding reserves of USD equivalent to USDT in circulation. If you look at some of the other articles linked in this thread [0] you can find deep-dives that suggest they are lying, and in fact have been using USDT as a way to print money.
They are relying on the hope that more people will buy USDT than come calling to cash in. That is fundamentally the same hope that a Ponzi scheme relies on.
[0]:https://medium.com/@bitfinexed/bitfinex-and-tether-is-unaudi...
I'm in general just against using Ponzi scheme to describe things that are not systems where previous investors are promised and paid profits with later investors money.
BTC is bubble or mania. But not really Ponzi. Tether is even less so, it's carnival token...
It's fun watching the crypto folks re-learn 100 years of hard lessons about unregulated finance.
Here's a good write up of the recent disclosures and the bag of shit that is Tether's reserves: https://www.mymoneyblog.com/tether-stablecoin-risk.html
"Instead of 100% risk-free, short-term, liquid assets, Tether is less than 7% risk-free, short-term, liquid assets. Commercial paper? Backed by whom exactly? Fiduciary account? At which remote offshore bank owned by a third-party? They could be pointing to a half-eaten sandwich and calling it collateral."