Tether minted most USDT to just 2 firms – Alameda and Cumberland
protos.com
protos.com
None of this is inherently bad, but there seems to be a growing divide between "mainstream" tech and the crypto world that is harder and harder to understand if you aren't already steeping in the ecosystem.
Another challenging aspect is how much of crypto (particularly non-mainstream) has somewhat shady origins. Maybe the shadiness is just subverting expected norms, but there seems also to be sufficient evidence the shadiness also often is around illicit activity.
I'm curious if others have found ways to build and keep an understanding of the crypto ecosystem without fully going down the rabbit hole?
You're right on the mark. Most of the content around crypto is heavily biased and just looks untrustworthy for a number of reasons. From what I can tell, it's because they're actually unreliable sources. Not because they're trying to scam you, but because there's more money in selling you crypto services than there is in crypto itself. So what you end up finding is pretty much all content marketing. Basically, you're looking for how to mine gold, and all you can find are websites from shovel companies telling you about how great gold mining is.
The sites that are not content marketing tend to come off as amateurish, often times because on deeper inspection they are actually run by amateurs. A strategy I tend to use for vetting information is to give the site a scan and look for technical inaccuracies (ie: confused/wrong/bizarre/shallow explanations about technical topics). From that, you can get a good picture of how knowledgeable the source actually is.
You know what, I could never put my finger on what exactly it was other than the amature feel of some of the content. But you're correct here, there's a lot of magical thinking that goes along with the crypto world. Lots of random sounding predictions about how crypto will evolve that are clearly not grounded in any deep understanding of technology.
I wonder how much of it is magical or wishful thinking in the classical sense, versus people who lack knowledge in general making claims about things that they don't really understand, which come off as bizarre. I've noticed actual technical knowledge is inversely predictive of interest in crypto.
So... half the reasons are those you mention... subculture. Alien ecosystem, hard to distinguish between geniuses, quacks and con artists, blade runner theme music.
The other half is because crypto is an unregulated, start up financial sector. Stories and headlines about the financial sector tend to also look inscrutable those on the outside. Chase a rabbit down a financial story for real, and it always leads to a "they can't do that! outrageous!"
The fun thing about the gamestop thing, a few months back, was that every person had reached a different outrage. Margin lending by default. That the brokers' business model is selling users' trading data to competitors who frontrun it. That the hedge funds targeted for the short squeeze is the attackers' brokers' investor/partner/customer. That there is a layer of private clearing houses between brokers and markets that regulate the market. That this private regulator can impose unlimited capital requirements on brokers. That it did so, cutting most retail investors out of the market while institutions sorted out their positions. Etc.
Stablecoins are basically an unregulated USD account. Sounds innocuous enough, until you consider that USD is just numbers in regulated USD accounts. Someone is making US dollars, and it's not the issuer of that currency. That's what a totally unregulated bank is.
So... it's only natural to think "scandal" when you hear that some billionaire and a financial demigod minted $60 billion US Dollar denominated money.
The difference is banks have fractional reserve banking and stable coins do not.
Reason being is that how most of crypto works is a derivative of bitcoin or ethereum. And, it’s fairly normal in a technical sense, just applied in a unique way that needs to be understood via good ref doc.
Once you wrap your head around those two anchor protocols and get a sense of how it relates to its comp sci primitives (file systems, p2p, cryptographic certs), it can be really demystified - ie “blockchain” is stored as blocks on a file system, in the comp sci sense.
I'm very skeptical of 90% of what I hear and I've limited interest getting involved in the industry right now but crypto is hugely impactful no matter how you look at it so it's worth keeping a decent amount of curiosity in my opinion.
---
Edit: because I explicitly called out two podcasts, I should make it clear I listen to them knowing full well the hosts and the guests often have an agenda (which much of the time amounts to pumping their own investments). That's true of many types of promotion of course but especially true in this space and especially true of a16z. But the subject matter can still be very interesting.
their whole game was/is leveraging their clout to give credibility to the scene, therefore increasing the value of their investments.
"use case for Bitcoin is micropayments", "Switching to Bitcoin, which charges no or very low fees" , "Another potential use of Bitcoin micropayments is to fight spam" https://a16z.com/2014/01/21/why-bitcoin-matters-nyt/
It’s an okay podcast if (and only if) you recognize that a16z is in the business of “investing” early into new coins, using their brand to hype those coins, then selling them off when they can get the market excited about the coin.
The technical content of the podcast might be reasonable, but you can’t separate it from their very large conflict of interests.
In my opinion, the process of buying / selling real estate, at least in the US, seems antiquated. There has to be some way to automate this instead of manually having some escrow company hold funds and then manually releasing them once the sale is complete, and issuing the title (gets more complicated if it's a mortgage vs a cash deal, since a bank loan would also be involved, but either way, it is possible). The smart contracts could be coded in a way where the funds are automatically released, and a title issued, once certain criteria are met. One risk is that the smart contracts could be hacked, but over time the code could be become more solid.
It seems that as a whole the world will move more to automation, over time, and smart contracts might play a part in that. That said smart contracts that can't really be stopped could also become Skynet or something (i.e. Terminator), but I don't think fear of that should prevent us from exploring the possibilities. My point is that smart contracts could automate certain things that are done manually now. They might still require some human involvement, but the amount of human involvement required could be dramatically reduced. I don't think the main benefit of smart contracts is just that they are unregulated. I also don't think that the way smart contracts are used today are the only ways they can be used. It is a new field and many things that folks haven't even thought of yet are possible with this type of technology.
I don't know that I'd invest in a deployed smart contract but I suppose it depends on the traffic and the situation of the developer
it wouldn't be hard for the original developer to deploy a competing contract
follow smart individuals religiously, podcasts are probably the best. thanks for uncommon core, i hadn't heard of it. bankless is another high signal podcast (although eth-maxi).
e.g.
Alameda offers to buy 20B USDT in exchange for commerical paper offered by them. It's rated as A or B in part because before the sale they have net positive assets.
Tether's sheets look good at a very high level pass (https://tether.to/wp-content/uploads/2021/08/tether_assuranc...) Notably they have 14B in Commerical Paper rated at A-1 and 13.9B in Commerical Paper rated at A-2.
My guess is that they're sitting on collectively about $45B in BTC and other crypto and they take loans out in USDT with that crypto as the collateral. Then they use that USDT to fund crypto ventures, speculate, and fuel arbitrage and wash trading bots.
Maybe there's an intermediate step in there where those two companies are the originators of the crypto-backed loans, but it'll amount to basically the same thing.
LOL! They're not loaning USD, they're loaning USDT which they create out of electrons --- and accept an IOU is return --- but only from select individuals/companies.
The rest of the crypto marketplace are the ones who produce USD and exchange it for USDT.
And to the extent that you're arguing that tether is backed by quite literally nothing and its printed out of entirely thin air, I'll disagree vehemently with that. Then it wouldn't be stable and would have already collapsed, and there's no mechanism to maintain the pin.
USDT is pretty clearly backed by crypto one way or another, which is why USDT issuance increases as bitcoin goes up (and USDT is used to pump bitcoin up, around and around). To the extent that crypto is "just electrons" I'd agree, but I think you were making a dramatic oversimplification which isn't how it all works.
But there is a method to maintain the pin --- cooperative collusion from the exchanges.
You are assuming that the exchanges are honest, "free market" promoters like those found in regulated stock and currency markets. You have no way to know or verify this. They are accountable to noone but themselves.
Tether being collateralized loans against crypto actually offers a service that people would buy, and offers a mechanism to defend the pin by having the loans be dollar denominated. I don't assume they're honest, but I do assume they're out for(what they believe to be) their own self-interest.
It also explains why Tether is issued as bitcoin increases and not when it collapses. If Tether was just IOUs the demand for them would boom as bitcoin price fell and people sold bitcoin for Tether at the top. All the printing during the run up to $50k makes sense if it is collateralized crypto, it makes no sense if its IOUs that sops up excess bitcoin selling demand.
Your thinking here is overly simplistic.
Minting new tethers cost them literally nothing, zero, nada.
What if they are just minting and giving away tethers to select individuals (aka "business associates") with the understanding that they (with their artificially "pegged" value of $1 USD) will be used to buy Bitcoin and inflate the price?
Knowing in advance that the price of Bitcoin will be going up gives them plenty of opportunity to make money.
Alameda and Cumberland are the 2 biggest liquidity providers in crypto trading. Tether is the source of liquidity for many of the exchanges that they trade on. So of course they'd use Tether to on-ramp into the crypto ecosystem and trade.
I suppose the real news here is that Alameda and Cumberland haven't redeemed much Tether (proportionally), so if Tether collapses, it could blow them up?
They may be able to extract enough $ to cover it by the time they actually have to show reserves, that's what they did previously.
My understanding is that Alameda is trading with fairly high frequency, so they would keep funds in USDT in order to facilitate those trades. Further, the on-chain data suggests that they don't trade out of USDT to USD – otherwise we'd see high corresponding USDT burns.
When you call the OTC desk and wire them dollars they mint stablecoins using their account with - presumably - Bitfinex. Bitfinex issues Tethers no different than Coinbase/Circle issues USDC in a just in time transaction.
You either receive the Tether you asked for to make your own trades, or they keep the Tether and purchase the crypto you really wanted. In either scenario, someone besides the OTC has the Tether now.
There is no reason to use custodial exchanges for your fiat onramps. They put you at a major disadvantage in speed.
It is strange that this is to be the smoking gun for people against Tether. These kind of juvenile inexperienced arguments (seen in other comments) are why more serious scrutiny of Tether takes so long, because its mixed up with all this benign stuff put in front of regulators who have a huge learning curve already.
So instead of buying coins directly, people are buying Tether then immediately selling that Tether to… someone? Who apparently is okay holding on to huge quantities of Tether?
It’s weird that crypto proponents always act perplexed at why anyone would hold large amounts of fiat losing out to inflation, but when that fiat comes in the form of a cryptocurrency representation it’s actually okay and perfectly logical for huge amounts of it to exist in the crypto system, sitting in a few very large accounts somewhere.
Comparing Tether to USDC is also conveniently ignoring the fact that Bitfinex and Tether tried to mislead everyone into thinking they were unrelated companies, when in fact they were tightly coupled this whole time.
The Bitfinex loan to Tether literally had the same two signatories on both sides of the loan.
Liquidity providers are the ones okay holding large amounts of tether. Just look at the liquidity pools, they all earn commissions from other people routing trades through those pools onchain, and many of them yield farm too. The risk is tolerable for them, Tether has had much greater crisis of confidence in the past and didn't implode, trading at worse 15% away from $1 for prolongued periods of time so if those werent going to make holders lose all their money than (compared to the 99% drops in most crypto assets) then people have more confidence amongst the universe of pricing confidence. That's where we are.
Like I said, and what you walked directly into anyway: Bitfinex and Tether’s poor management and governance and opaqueness are issues, randomly picking any Tether headline as validation of those issues are a distraction, as it clouds everyone’s ability to focus on real issues with Tether.
Fed wires are only available 8-4 weekdays. Us wires are not very liquid.
Compare contrast with usdt and it’s instant settlement 24/7. So yeah the exchanges prefer it vs tradfi.
I would suggest to you that maybe it’s said from a place of significant experience that the cryptocurrency community simply doesn’t possess at 11 years old.
That aside, the notion that your problems as an individual begin and end at your “onramp” (which is a terrible term for it’s own reasons) are incredibly naive.
If massive amounts of the value in the market is fake money, as has been alleged, then what’s the value of a [COIN]?
Is it $1M? Is it $30k? Is it a song?
You’ll only find out when more than 5% (20:1 issuance:redemption) of people try to take profits, at which point I don’t know how you turn all of those unbacked IOUs into real money? Sorcery? Sassy remarks about “boomers” not “getting it”?
What do people want to hear? If the issuing organization has no liquidity for its commercial paper or literally non existent assets then people cant redeem their tether.
OTC desks using bitfinex as advertised isnt news and has nothing to do with speculating on an opaque reserve issue with Tether. That was my entire point.
Knowing the answer doesn't make me a proponent of it.
If you get caught holding the bag that's what happened. Congress won't step in. A stronger variant will emerge. Nobody wants a regulatory sandbox hellbent on nothing ever going wrong, while holding up projects indefinitely because something might go wrong. Get out the market if you can't handle that. In the mean time, regarding Tether, I wish they weren't the dominate stablecoin and I don't feel I need to preface my responses with that just so crypto skeptics will respect what I wrote. I've seen greater fractional systems which I believe are very commonplace in the industries that Congress will step in on. Nobody is confused about Tether's potential to be insolvent in a bankrun or asset forefeiture.
I realise this was just addressing the general "you", but I sold what little I had a couple of years ago for this exact reason.
I've only become more convinced it's a house of cards over time - although each to their own, I fully get that I'm one random on the internet and could be proven utterly wrong on this.
I just really wonder what the price is of any of these things? I don't think anyone knows. For anything else the free market is usually what decides the price, but this information undermines confidence even in that. How much of the money coming in was ever real? 50%? 5%? more? less?
On one hand I get that's why it's so volatile and some people have made a fortune on paper, but there's just so much that could go catastrophically wrong at any moment that I just don't have the stomach for. I also get very weary when people say they intend to keep buying and holding forever - that really is placing an all-or-nothing bet on this.
I get that stocks/real estate/whatever can crash too, but at least you have something of intrinsic value in each of those cases.
In any case this was a good back-and-forth and it was nice to hear a perspective on the other side of this without the non-stop acronyms and emojis on Reddit and Twitter :-)
Slightly less obvious is the fact that Tether and other "Stable coins" are the only "stability" that exists in the crypto marketplace. More than half of all crypto trades involve stable coins.
And exchanges play along (wittingly or not) with the ruse for their own benefit.
So if Tether is a scam, so is bitcoin and the entire crypto marketplace.
Sure, just like they did with AAA-rated mortgage CDOs before the https://en.wikipedia.org/wiki/Subprime_mortgage_crisis.
"The bankers say it's fine" is not the comforting statement you're making it out to be.
https://liquidity-provider.com/news/coinbase-has-dropped-the...
https://ag.ny.gov/press-release/2021/attorney-general-james-...
> Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’
> On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
An actual audit looks at more than a bank balance snapshot.
But they could not release it. Because it was in Mandarin!
You can't make this shit up if you tried.
The interview with a Deltec VP after all that also revealed that Deltec is heavily intertwined. He said "we know they're fully backed because we can see the issuance of Tethers in the internal systems and the corresponding deposits".
Like, interesting, your bank has insights into your internal systems? Curious.
They are absolutely running afoul of banking regulations but that's not exactly catastrophic for the whole market. Unless there's a bank run the only thing Tether actually needs to do is keep the trading value of their coin near $1.
> Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.
What is actually bad about Tether that doesn't apply to USD and the current largely functional banking system?
Like rake them over the coals for lying about having assets they didn't but if Tether had been from the start open about holding only a small fraction in cash would it be a problem?
Sure. If the Nigerian prince was actually a Nigerian prince and actually gave me $100M, that changes the scenario substantially.
They acquired their dominant position via fraud. Their website claimed audits they never completed. They issued bank attestations showing funds they didn't have legal rights to; transferred from Bitfinex in the day before, and then back out the day after. To this day, there's no way of knowing if that fraud continues; they've yet to complete an audit or provide the transparency promised for years.
You answered your own question. There are no
1. regulations
2. regulators
3. capital requirements
4. backing insurance guarantees> ceejayoz 4 hours ago [–]
> Yup. https://tether.to/legal/
>> Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.
To me, that disclaimer sounds like they are trying to make a scam legal later when a rug is pulled out from underneath everyone and a trap is sprung like darknet drug bazars that shutdown and take everyone's assets once there was enough money on the platform.
No.
They still, to this day, have not completed one of their promised audits. As such, we don't know what their current state is, and they have a track record of lying about it. There are rumblings that much of their current holdings are in commercial paper that aren't worth what they're assessed as, because Tether values them at the purchase price rather than the current mark-to-market value.
Even if they're solvent now, getting there via fraud is bad.
Tether is a scam on a whole other level than this
We’ve seen bank runs before. We’ve seen failed currencies. These aren’t unprecedented events.
With that said, the old Buffett quote “it’s only when the tide goes out that you see who’s been swimming naked” has never been more apt than to this situation.
To take your hypothetical example, you’re correct that the user in question is able to trade on their token to someone else for another asset quickly - but as the article states, issuances outstrip redemptions by 20:1.
That means almost all of these tokens are still in circulation. Someone is on the hook for those losses.
The thing is, who’s liable? If the whole marketplace is a fugazi then it’s probably up to the exchanges to organise haircuts as they deem appropriate.
That isn’t even the real problem though. What’s the value of [COIN] if 95% of the market cap is suddenly revealed to be fake money?
I mean, sure, you can assume everyone will just shrug that off and hold what they have while you sell, but it seems really unlikely.
tldr; this information suggests that most of the value in most of cryptocurrency tokens does not and has never existed.
Lebanon’s central bank was found to be engaging in funny business. Its currency crashed. Tether is akin to the central bank of USDT, not another player in the system.
> They are absolutely running afoul of banking regulations
> the only thing Tether actually needs to do is keep the trading value of their coin near $1.
How do you propose Tether do that if they don't have financial backing to create a watermark below which the value won't fall? Increase the scam?
At any given moment you just need the ability to pay out the people who come to you and ask which is already teeny tiny (as evident by banks needing less than 5% cash reserves of deposits) and made even smaller since people don't typically cash Tether out directly and do it at exchanges.
> as evident by banks needing less than 5% cash reserves of deposits
You may not be aware, but when you deposit money into a bank, deposits are insured, so it doesn't matter if they have 1% on hand. You will eventually get your deposit back. That is not even close to what Tether is.
1. Retail/Institutional USD/other --> Tether --> BTC
2. {over-minted/under-reserved Tether} --> BTC
I dont see 1 as a problem, as Tether is just a conduit for the actual transaction. I can see the issue in 2, but is that an issue any longer given the current scrutiny?
An IOU is a promise to pay --- not the same as being paid in hard currency.
"Commercial paper" is a loan, an IOU --- not hard currency/assets.
You can't have your dollars and loan them to others too. If I give Donald Trump an unsecured loan for $1000, I can't "legally" claim to still hold the $1000 in cash.
The idea that an unsecured IOU is without risk and is worth just as much as dollars in hand is pure fantasy. Yet all the exchanges collectively peg USDT at $1.
https://www.wsj.com/articles/tether-says-massive-reserves-he...
That's what I suspect and I'll be shorting more USDT today on AAVE.
Sorry, I don't see how this can work.
USDT is a fraud. Exchanges are active participants in the fraud by pegging USDT at $1.
The only way your short can pay off is if the exchanges stop the "pegging" game. When the pegging stops, the exchanges will likely fold up and disappear.
Who will you collect from for your short?
Deposit ETH on AAVE (this is a DeFi DAPP)
Use this collateral to borrow USDT (~4% APY at current rates)
Trade that USDT for ETH.
If the peg breaks for USDT than I can get USDT for very cheap to pay back the loan and unlock my collateral.
If it doesn't break than I owe ~4% APY for the period that I shorted.
One of the really amazing things about DeFi is that it allows counter-party free financial operations.
Of course that ETH will be worth much less, but long term I am optimistic about ETH.
Short answer --- no. They can just print more tethers --- which exchanges and crypto-fools will readily accept as being worth $1 USD.
You're making a common mistake --- you're assuming that the crypto market is actually a "free market" similar to the regulated stock and currency markets. You're assuming it is free of the inside manipulation that keeps the price of USDT artificially pegged at $1 USD no matter what.
Which is laughable.
Apple, Microsoft, Google, Verizon Communications and Pfizer COMBINED hold $400B in reserves.
Tether can barely say who they bank with.
Not a fan of Tether, but I can't understand what your argument is here.
In what way does the fact that a huge chunk of Tether was sold to a liquidity provider and an exchange point to a scam?
Tether is outside of the control of any goverment. It's just another faceless shell company.
I believe you have it the wrong way around.
The Fed's powers come from Congressional legislation, and the Governors are Senate confirmed. They have substantial power over the Fed.
Not saying there’s nothing nefarious occurring, but it also doesn’t scream scam. The whole point of Tether is to supply liquidity to the crypto market. So is it surprising firms specializing in it utilize an outsized share??
The thing is tether is pegged. It’s not like if you buy a million dollars worth you’ll get rich. In fact that money is now tied up in an asset that doesn’t grow and will slowly shrink due to inflation.
What would be much more problematic is tether being used by large criminal organizations to help shelter or launder money, but I haven’t yet seen evidence of that.
I think the point you're missing here is that there is no logical basis for the "pegging".
It's pegged because crypto exchanges play along with the pegging fantasy.
Banks are worse anyway, all banks function on fractional reserve, but we don’t immediately call them scams.
You can't just declare yourself a bank and turn a million dollars into ten million dollars, say.
US (and many other) Banks have capital requirements, regulations, regulators, and insurance that covers the deposits!
Reserve requirements were lowered to zero percent in 2020 to ease lending during the pandemic:
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
Also a good read on the implications… basically banks can keep loaning out to infinity.. a situation that doesn’t seem a whole lot better than tether in my opinion:
https://www.forbes.com/sites/bobhaber/2020/03/16/the-fed-fir...
And perhaps you have noticed inflation starting to creep up.. this and QE5 very likely a source
https://www.usinflationcalculator.com/inflation/current-infl...
Edit: Haha.. asking legit question for data because I’m curious gets downvoted. Lol. I should know to avoid the crypto discussions here. Lots of emotion and not much useful information getting shared
I would say that’s definitely problematic. Still wouldn’t call it a scam. That’d be like calling Lehman Brothers a scam.
A scam is pretending something is true when it clearly is not --- for financial gain.
The scam here is the fact that the exchanges cooperate to keep the price of USDT pegged at $1 USD --- even after Tether itself has admitted they do NOT have $1 USD for each USDT minted and they are NOT obligated to redeem 1 USDT for $1 USD.
The big miss with tether everyone makes is that it’s not an investment. It’s a tool to support liquidity. The average investor uses it then converts it, buys or sells.
The companies holding it are the ones providing liquidity to investors. So if anyone is getting scammed it’s these large companies offering liquidity services.
Whenever a crypto company uses the word "liquidity" that's a red flag that it's likely some kind of a scam. It's the same way that pyramid schemes call themselves "multi-level marketing" companies or say that they are "sales driven".
Be careful friend.
That’s really not the case. If you deal with investments on any real scale the utility of liquidity becomes very clear.
If for any reason I decide I need to move a large sum of money (let’s say 100k), and god forbid I need to do that internationally, you’re going to have to wait. (too bad if it’s the weekend) Meaning your cash isn’t as liquid as it could be.
Tether and other stable coins primarily make moving sums of money within minutes internationally possible. If I see an investment opportunity and want to act, waiting on a wire might be a no go.
The vast majority of Tether and stable coin use is for that. People holding tether as some kind of investment is practically nil (it’s a horrible horrible investment even if it’s backing was physical dollar bills in a vault)
The reason services like Nexo provide 12% interest is not to hold, it’s to facilitate trade and moving in and out. If I want to have cash available for trading, moving it as USD is very hard. Moving it as stable coin is simply and allows trading quickly. The 12% is a bonus/hedge so you don’t feel like you have to immediately convert your liquid positions (dealing with taxes etc). With the interest, one can keep some stable coin on hand for trading and minimize losses. With Nexo, people are also taking out collateral loans. If you take that as USD, then tour waiting on banks to use it. Take it as stable coin you can use it immediately. The 12% also offsets the loan interest so you don’t need to pay it back immediately.
So maybe tether’s strength as a stable coin can be scrutinized, it could be more arable with better backing… but again the concept isn’t a scam, and certainly nothing to do with pyramid schemes etc.
Most people who talk about tether as a scam (or other stable coins) have no experience in using it.
That 1 USDT is worth $1 USD.
The entire crypto market is a house of cards built around this fantasy.
Nothing has yet shown that is a problem or that’s not being done.
Go deposit 1 million in a bank, and then ask for it in cash the next day. You won’t get it.
Here’s a discussion from may, “Tether says its reserves are backed by cash to the tune of 2.9%”
If there is a run on Tether tomorrow it will collapse. You won’t get your money. Assets will need to be liquidated, and some of them might be junk.
But, you will get it. Try that with Tether, and you might just get laughed at. They would have already put your million dollars to other uses outside of being a deposit for you.
https://www.linkedin.com/pulse/when-i-tried-withdraw-20000-m...
https://www.cleveland.com/business/2012/04/man_who_wants_to_...
https://grantcardonetv.com/ever-withdraw-1000000-in-cash-fro...
https://finance.zacks.com/federal-banking-rules-withdrawing-...
The point of stable coins is to have a working capital system that is compatible with the rest of the crypto ecosystem. The reason is that most services in crypto aren't natively compatible with fiat due to fragmented legal & regulatory environments. Stablecoins are instant transfers to anywhere in the world. It's why a lot of countries are trying to build regulatory frameworks for stablecoins.
Two caveats: (1) USDC actually can earn a lot more in a coinbase earn account or vault than your dollars in your bank account, so lot's of people are saving with stable coins via higher interest rates -- I just wouldn't call it "investing".
(2) Some stable coins are pegged to a value that isn't real fiat money. Some good thoughts here: https://twitter.com/balajis/status/1422993084002934788
Still a scam imo.
That is a legal opinion not a technical one, and it's far from clear that the enforcement of KYC will be kept off coins forever.
It's a pretty good use case if you ask me haha.
You can currently get 8.88% APY return on lending stablecoins on Celsius[0]. It's also much easier to borrow and use in incredibly risky contracts, yield farming, etc
Stablecoins let you engage in much more risk than USD without the volatility of crypto prices.
Banks doing C&I lending to modest risk (but still not "rated bond issuer") companies are charging mid-single-digit rates. Those banks are generally paying depositors way under 1%.
There do exist loan portfolios legitimately producing these kind of yields, but they are not trivial to produce. Actively managed and monitored specialized portfolios -- where you would really want to diligence the track record and underwriting/origination methodology of the lender.
Don't get me wrong: dislocations do happen and arbitrages do open up, sometimes for far longer than you might think. But fundamentally, if this is non-Ponzi finance, someone must be using those funds for a productive enterprise that yields enough to cover the cost of capital. What is that in stablecoin lending??
(Source: I am an investor and former operator in specialty lending company, having sourced/raised capital in > 100 debt and equity deals.)
There's a number of companies offering something similar, like Celsius and Blockfi and a few others. Do your own research, and no need to go near it if not comfortable with it.
Things could go either way from here on out, perhaps crypto is the future and 8.88% interest for stablecoins will be the standard; or perhaps it'll all come crashing down and all cryptos go poof in a few years. Who knows? Point being, when a new paradigm comes along, it usually seems strange and uncomfortable enough to feel suspicious. Maybe it's legit, maybe not, there's a chance for either case.
Celsius is a British company and is also HQ'd in the US now.
But in the mean time you can get an 8% return.
Then you can transfer them to other exchanges and buy crypto there. Works the other way too. You can optimize your trading and withdrawal fees this way. So very mediocre utility.
The only entity the stable coins are most wonderful deal is the the one that emits them. They basically have money printing machine for the crypto-economy. And if the project tanks they are left with hard money in hand and everybody else ends up with now worthless stablecoin, because the only source of it's value and utility was the stability.
Some stable coins like DAI have bit more indirect mechanisms of attaching their price to dollar. This seem to work and managed to keep DAI value stable without any manual intervention while ETH price (which is involved in control mechanisms) swung wildly.
An example often cited for El Salvador, where a US worker A sends money to a family member B at home. If A uses banks and dollars, B may need to travel to a bank (long trip on a bus through areas not very friendly to strangers), pay sizeable cross-border commission, evade gangs looking for people withdrawing money, etc. With crypto, they could receive it at home. Businesses buying and selling things that accept crypto need to have significant amount in crypto to handle transactions. Neither of those parties wants BTC with its wild swings; they just want a "crypto dollar" that they can exchange, if and when needed, for a real one, so they build a position in it. My 2c.
I understand the advantages of USDT, like making crossborder transactions faster/cheaper.
However the often cited example but not 100% accurate because it ignores some of the features of the Salvadoran financial system.
There is a a system of "financial agents/correspnondents". There is no need to visit a branch of the bank to receive a remmittance if it is under US$ 500. That can be done in a Supermarket, pharmacy or the main tienda in town. It can even be done with an app (like the one used by the largest credit union).
This is the map of one of just one of the networks, this network owned by cooperatives owned by its users, like a credit union, and not a private company like a bank or multinational bank.: https://www.fedecredito.com.sv/puntos-de-atencion
> With crypto, they could receive it at home.
Remmittances can be received using finantial apps too. The largest private bank in El Salvador has a simple bank account. It can be opened with a selfie, a photo of the ID card. Other banks also offer this simple bank accounts.
Currently the transaction costs via the normal remmittance system, are lower, than by using the only three bitcoin atms in the country. Twitter users reported that recently when the bitcoin price reached $40,000, the only Bitcoin ATM in San Salvador ran out of cash. And that the only way to contact their technical support was via Whatsapp message to a phone number based in another country, Colombia.
> having USDT (as opposed to the U.S. dollar) removes transaction costs and delays that impair trade execution within the crypto market.
My algorithms constantly watch USDT/USD price at 3 exchanges which are independent from Tether Inc, and if USDT drops below $0.95 at one of them, they stop issuing orders selling to USDT.
All trades on DeFi that go from 'fiat' to crypto go through stablecoins.
If you want a cut of the fees paid by speculators then you are probably interested in stablecoins because that's how you market make in these markets.
[1] https://www.bloomberg.com/opinion/articles/2021-08-11/crypto...
> This is better than any bank in the universe.
"If it sounds too good to be true..."
Most of the defi world is a scam, however, stablecoin<->stablecoin liquidity pools are handling millions of dollars and paying the liquidity providers handsomely at 0.1%. It is then that you understand who exactly is making big money in this space :-)
I'm not saying there is no risk -- indeed, there is considerable risk and no FDIC insurance; BUT, the game is far more complex than looks on the surface.
Bernie Madoff's ponzi scheme survived for decades before it was revealed to be "too good to be true".
If those defi contracts collapse, your savings that got loaned out to them are gone. You're not getting that APR, and you're out the principal too.
and the reason you wouldn’t just deposit actual dollars on the exchange is to avoid regulations and laws related to actually depositing dollars
So you are better positioned and can act faster on a broader universe of assets, than a large portion of the crypto space.
Given some additional maturity to the markets, I see this as being THE forex markets of the future.
Example: You earn $1000/month. Cost of living is $500/month, labour tax is $500/month. By using cryptocurrency you can skip tax and save up $500/month, in legit employment (labour law, worker rights protection) you save up $0/month, you work for free, hand to mouth.
If your employer is obligated to withhold taxes from you per pay period, then they can do that and still pay you the rest in stablecoins.
If your employer is not obligated to withhold taxes because you are a contractor, then not having taxes withheld has nothing to do with earning fiat or earning stablecoins.
If you are trying to avoid the record of payment by earning stablecoins, this is neither an efficient way to do it nor is it legal.
> "There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money."
Edit: Oops this has been updated to:
> Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves.
> Any individual who is a U.S. Person and any entity that is a U.S. Person is prohibited from using the Site or any Services, including but not limited to using a Digital Tokens Wallet on the Site
Maybe the question is why do some big exchanges still work with tether? Must be worth it to them!
Does that mean that $60bn in net Tether has been sold by the "mint?"
I guess that counts as a sale, even if the exchange mostly uses it to wash trade the price of cryptocurrencies up.
Coinbase can be considered the cleanest thing out there. On the other hand their employee Charlie Lee without any trouble did inside trading with the knowledge of CEO.
AAVE on polygon currently has USDT borrowing at 3.75% with 4.74% being returned as MATIC to incentivize borrowing & lending.
You can borrow up to 50% of your locked collateral.
So if you deposit 1 ETH into AAVE you can borrow 1.5k USDT
Trade that USDT for ETH & deposit it back in AAVE.
You are now shorting USDT and long on ETH for only 3.5% APY.