Comment by jpdaigle | Hacker News Reader

Comment by jpdaigle | Hacker News Reader

What's incomprehensible to me about the Tether saga is: the idea of a stablecoin pegged to USD is so incredibly useful as a bridge between financial systems... why go through all the trouble and risk of doing it fraudulently when you could... just not be crooked?

The basic idea seems sound: people want to transfer around cryptocurrencies (or speculate on them, fine), but actually selling them for USD is somewhat hard and peppered with regulatory issues. So swoop in with a partial solution: a stablecoin worth exactly 1$ USD that you can transfer quickly around using the blockchain, but doesn't have any price volatility so is a safe store of value until you can move out and redeem for USD through a slower, regulated offramp (of which there are fewer).

That seems like the hard part? They solved all the hard problems, and it's so useful that it should be possible to get rich just by charging small transaction fees, success just requires doing all that plus not being crooked and lying about the 1:1 backing.

Interacting between the crypto space and the U.S. financial system is hard. USDC does it by being a well-regulated in the U.S. and internationally financial institution, but that's certainly not easy.

Just one example (from [1]):

> At the time, Bitfinex (theoretically a Hong Kong entity but whose location, like a Bond villain, changes moment-to-moment to fit the needs of the scene) was banking in Taiwan at Hwaitai Commercial Bank, KGI Bank, First Commercial Bank, and Taishin Bank.

> Taiwanese banks do not have direct access to the U.S. financial system; they engage via correspondent banking relationships. These banks corresponded through Wells Fargo. Wells, in the wake of publicity about the Bitfinex hack, told the banks they would no longer clear USD wires to or from Bitfinex.

[1] https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/

People want to transfer around cryptocurrencies, because their price is high and they can speculate on them and mine them.

If the price was lower, then the mining activity would be reduced as would the interest in speculation.

The interest in tether is thus directly associated with the price of bitcoin.

It makes sense then to use the power of controlling Tether and Bitfinex to pump up the value of bitcoin, in the hope (I guess) that the value becomes self-sustaining.

But, basically, we have been duped at a civilizational level and this whole crypto pyramid needs to come crashing down for the good of electricity, chip shortages, limiting ransomware and criminality, and wasting technical talent.

Crypto is basically the Uber of money laundering and ponzi schemes.

Ok so I know this answer! They lost money through exchange hacks and bad banking relationships so they could never rely on 1:1 backing and fees, they had to make it up through bitcoin price increase which they contributed in pumping and then backing with commercial paper from their sister exchange.

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