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Comment by deepvibrations | Hacker News Reader

It certainly would, as currently USDT is used as collateral throughout the system, but I don't think Tether would just 'go down'. Regulators aren't stupid and the worst case imo is that there is a time period where people are told to redeem tether to USD or other stablecoins such as USDC/DAI. The space has been through worse things and always recovered, I do hope Tether is properly investigated so that we can have confidence in them or remove them from the space and use other stablecoins.

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> "where people are told to redeem tether to USD"

If Tether has no actual cash in its kitty and its price on open exchanges plummets to zero, how exactly are "people" going to redeem it for USD? Tether is entirely unregulated, there's no FDIC insurance or equivalent backing it.

Where would these real USD come from if USDT is worthless? Why would a holder of USDC or DAI accept USDT in return if USDT is worthless?

Yeah, if you move fictional dollars in the form of USDT to USDC then you are just shifting the imaginary amount around, it doesn't change the fact $61B is rendered worthless.

And that’s actually been happening. For week’s usdc’s biggest trading pair has been usdt. So some people are dumping usdt on usdc holders at 1:1 ratios.

Why anyone holding usdc would exchange one for a usdt at par is a question I don’t have an answer to, but it’s happening en masse.

"Why anyone holding usdc would exchange one for a usdt..."

One possible explanation is that you have more pairs available for other cryptos with USDT than with USDC on some exchanges

DAI is backed by USDC, and USDC is a competing stablecoin. Why would a competing stablecoin want to use their own reserves to redeem USDT for you? I don't mean to be antagonistic here, but there is no safe and steady off ramp for holders of USDT if it is found to be a scam. The value of USDT will collapse, and anyone holding it will have to take a 100% loss. The only way to remedy that would be in the form of some sort of bailout from some other entity, but I don't know how or why that would happen.

I do agree that crypto has been through some issues in the past and has recovered, and I'm sure in the long run it will recover from a Tether collapse as well. In the short term the market will take a significant hit, and many of the exchanges that deal heavily in USDT could collapse because of a lack of liquidity.

EDIT: DAI is backed by USDC not USDT, terribly typo :( https://share.streamlit.io/tadzz/maker_dai_collateralization...

DAI is not backed by USDT.

My fault, I meant USDC. DAI is backed by USDC, and USDC is a competing stablecoin to USDT.

I guess an important distinction is DAI is not 100% backed by USDC, but it is backed >50% as of this time: https://share.streamlit.io/tadzz/maker_dai_collateralization...

Says who?

Tether was 100% backed by USD too, until the lawsuits.

Then it became 2,9% USD backed.

Yeah I definitely don't disagree with you. The backing can change over time, and I linked to a tool that programmatically checks the backing of DAI so that's what I quoted.

In Tether's case they are backed by almost no USD and mostly short term loans to undisclosed entities... I do not think Tether is legit, and USDC is questionable as well. Without third party auditing it's hard to trust any of this stuff.

My original response was trying to highlight how DAI is mostly made up of USDC (at this time), and USDC is a direct competitor to USDT. So in what world would it make sense for USDC to bail out USDT in the event USDT is revealed as a total fraud.

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