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Comment by NelsonMinar | Hacker News Reader

I don't understand how Tether has survived this long. Bitfinex and Tether sure look transparently like a fraud, all the way back to the "no really we have $1 in the bank for every Tether but you can't audit us" days. And yet it continues to occupy its role as the underpinning of most cryptocurrency markets. Why hasn't it blown up yet? My best guess is that it's useful to everyone taking in money from new retail investors. Also there's no clear financial incentive for blowing it up; there's no way to easily short Tether, for instance.

This article talks about the way Tether is loaning out what reserves they have. The Economist looked at this phenomenon and found Tether has a 383-to-1 leverage. That's going to be a complete disaster the moment there's a major blip in the economy. Say, a major Chinese real estate company going broke. Or interest rates in the West finally going up and causing a market correction. Maybe that's what will blow it up.

The good news is the Economist also thinks the inevitable cryptocurrency disaster will be bad but won't destroy world economies. " its holders would lose hundreds of billions of dollars but that the fallout would be manageable." I sure hope that happens before this tower of unregulated investments gets so big that when it falls over it crushes the real economy.

But don't worry folks, this is all good for Bitcoin.

https://www.economist.com/leaders/2021/08/07/why-regulators-...

View on HN

It took Liberty Reserve 7 years and 17 countries cooperating to get nuked from orbit.

Tether was founded as Realcoin in 2014 by a group including former child star and accused sex offender Brock Pierce, so while it’s technically just rounding the 7 year mark, it didn’t begin in earnest until it was taken over by Bitfinex towards 2015 and didn’t become majorly problematic until 2016/2017 according to the NYAG findings. [1]

Given the vastly larger scope here, I suspect we’re going to be dealing with them for a few more years as the wheels of Justice spool up.

For anyone wanting to learn more I highly recommend Bennett Tomlins write up. [2]

[1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

[2] https://bennettftomlin.com/2020/12/08/an-introduction-to-the...

> by a group including former child star and accused sex offender

This makes your argument seem conspiracy-theory-esque, despite your links having some quality information. That quote is more akin to clickbait than it is a valid point in your argument.

Every other crypto investment seems to be run by someone with past criminal convictions, accusations of sexual misconduct, or shady past. I have somehow been able to avoid all of this in my own career without much effort.

It speaks volumes that this is the kind of characters interested in this space.

So you’ve never used anything connected to Facebook?

What could this possibly mean? Why single out Facebook?

It was a little ad hominemey, for color. I'll own that criticism.

Bennett has done a fantastic job. There WILL be a movie about this company when investors lose faith. Like next decades, "the big short".

But how exactly do you short stablecoins? You can't and even if you did the game is heavily rigged against you.

If you remember in the movie, Cohodes got his ass handed to him as banks margin called him out of his position and that's in a regulated market. These guys own their market and the exchange on which it originates. There's no way to even verify if they received dollars for every tether issued and by some miracle the yield on USDT is incredible. You'd be losing 4-5% a year guaranteed holding a short position.

All shorting consists on 5 steps:

1. Borrow 2. Sell 3. Wait 4. Buy back 5. Close

There is USDT lending available. Even more, there is decentralized collateralized lending available.

If someone wanted to short USDT there are plenty of opportunities to do so. (And there might be a lot of people doing so, specially now that the shadyness is being reported on some of the more reputable traditional newspapers)

Also you can trade the USDT/USD swaps as well

You can only do that at exchanges that are seriously exposed to systemic Tether risk and will also collapse if USDT goes down. So even if you're right, you won't get paid on USDT/USD swaps. Shorting USDT at Bitfinex is like shorting Caesars chips at Caesars. News flash: if Caesars goes bankrupt just which cashier do you think is gonna give you which dollars?

At this moment you can deposit defi borrowed usdt into Coinbase pro, swap it for usdc there, and then swap the usdc back to USD and withdraw to your bank account. Then if tether collapses you'd be able to pay back the borrowed usdt for pennies on the dollar.

The first step (borrowing usdt on a defi platform) needs you to collateralize that loan with some other form of cryptocurrency. You are forced to have exposure to crypto to make the trade that shorts it.

Have you ever seen the bit in a show (or, hell, been caught by a street hustler) where someone asks for help breaking a large bill, and then after a few rounds of confusion and money being handed back and forth walks away with everything?

Very easy to do on FTX or aave for basically as much size as you'd like. Yes, it costs 4-5% a year to short. If it blows up in the next few years you'd make a killing though.

If USDT blows up FTX goes down with it, and they won't pay you out. That's just a 4-5% annual donation to SBF.

Why do you think that? They treat USDT as any other coin, has no special status in the system. FTX is very well capitalized. Can you show me even napkin math that shows FTX going under if USDT blows up in a realistic scenario? (Going from $1 to $0 instantly isn't realistic.)

Why isn't going from $1 to $0 not realistic? Tether is completely centralized and has the ability to prevent token transfers on all major networks it operates on. They regularly add to their blacklist, much more often than other stablecoins. Were it seized by the DOJ, they could simply freeze all transfers subject to proof of AML/KYC and source of funds analysis. That would nuke the market for them immediately.

I believe FTX has some 10+ billion USDT on hand. That'll put a serious hole in their balance sheet. Not to mention whatever would happen to their futures insurance fund when the collateral evaporates. I'm trying to find my source for their balance sheet size, will follow up.

It's not realistic instantly. Even Madoff's victims got a recovery eventually. From OP we know at least 25% of tether's reserves is in a bank in cash. If it was seized I could see the market heading to 50-75c or so, there will be lots of people that want to gamble on an eventual recovery.

I'm very skeptical that FTX has 10B USDT on the balance sheet. OP here says Sam has billions of tether, which makes sense but is not enough to blow them up, and is likely in Alameda being as he says it's for trading, not in FTX.

(Of course it's possible that FTX has 10B in USDT deposits, but that belongs to their customers who would be very sad if it nuked but doesn't directly hurt FTX.)

Futures insurance fund may be an issue, yes, especially in scenarios where it shifts very rapidly. If you have math on a plausible scenario and total losses across the major markets I'd be interested in seeing it. But you'd have to be looking at several billion in losses or at over 1B directly attributable to FTX for them to go bust - they've raised over a billion and make 350M/year per recent Forbes article, so that's a lot of capital.

It's very easy to short stablecoins on any defi lending platform. Here are some examples:

https://app.fulcrum.trade/trade

https://app.cream.finance/

https://app.aave.com/markets

5% is a low cost for a short position that you believe will eventually pay out 100%.

That 100% payout will be in crypto, whose value in USD terms is going to tank if Tether implodes. And that's assuming the lending platform in question survives the carnage.

Short against USDC then.

The payout will be in a different stablecoin. USDC won't collapse with Tether.

Would you gamble your entire investment on that? If Tether collapses, there will be major outflows from all stablecoins, and we'll find out which ones have been swimming naked.

I would. I'd wager Tether's collapse would cause inflows to other stablecoins. It's also worth noting that smart contract based stablecoins, such as DAI, are incapable of being under-collateralized.

But the collateral is also in crypto! Tether is a systemic risk: if the peg breaks and there's a run, every cryptocurrency will suffer in fiat terms.

From where? USDT will be worth exactly $0 so some 80% of all trading volume in crypto will evaporate instantly, and so will probably 80% of its dollar equivalents.

doesn’t saying the volume evaporates instantly presumes that there is no real demand? (certainly a possibility)

alternatively, could another stablecoin take the place of tether, without any fundamental change in crypto trading volume?

>are incapable of being under-collateralized.

Knowing pretty much zero about DAI (and honestly, not too interested to spend any time to learn), this still sounds incredible. Does that incapability hold even if prices of whatever underlying assets are not continuous? Like, at one point of time the asset is trading at 100 dollars, and at the very next moment it trades at 1, with no possibility for anyone to trade at 50 at any point in between?

I very much assume not. If you think that is laughably stupid to assume that prices would not be continuous, well, you are in good company, even some Economics Nobelists have fallen on that trap. And lost billions. In that case you may want to spend some time researching what comes up when you search for LTCM.

Circle [0] and Coinbase [1] have recently reported that they are shifting their USDC reserves fully into short-term liquid assets. Given that both Circle and Coinbase are US-regulated, and given the attention being paid to stablecoins specifically by US regulators right now, USDC is probably the safest on-chain asset that currently exists (assuming that you consider USD itself to be a safe asset to hold).

[0] https://www.circle.com/blog/evolving-usdc-reserves-to-100-ca...

[1] https://twitter.com/emiliemc/status/1429664322725158914?s=20

Domiciled is probably a better term than "regulated" for USDC. To quote their homepage disclosures box:

> Digital asset markets and exchanges are not regulated with the same controls or customer protections available with other forms of financial products and are subject to an evolving regulatory environment. Digital assets do not typically have legal tender status and are not covered by deposit protection insurance.

They're regulated as money transmitters like Venmo, and depending on the state, that can mean as little as "pay us a few thousand dollars and we'll ignore you." This regulatory framework was created as a way of side-stepping the more onerous regulations that apply to real depository institutions. Thats why they were able to invest the backing in ... whatever before the SEC came knocking.

> that can mean as little as "pay us a few thousand dollars and we'll ignore you."

This is simply not the case. Most, if not all, state money transfer regulations mandate financial reporting to the state, and place limitations on the permissible investments that a licensed entity may hold as backing for customer obligations held in trust. Any failure to comply will result in fines and/or loss of the license (which effectively results in the closure of the money transmission business).

A number of states (California and New York among them) also conduct on-site examinations of licensees' businesses (paid for by the licensed entity). As someone who was has served as a senior executive at a company that undergoes these examinations regularly, I can assure you that they tend to be rigorous and all-encompassing.

> This regulatory framework was created as a way of side-stepping the more onerous regulations that apply to real depository institutions.

This regulatory framework was not created as a way of sidestepping anything. It was created as a way to proactively regulate money transmission.

Money transmitters are not depository institutions; they serve a different, more narrow economic function, and existing regulations are properly tailored to that economic function. In practice that means that money transmitters are required to maintain 100% reserves backing any and all customer obligations, they must hold their reserves only in certain permissible investments (i.e. government debt and bank deposits), and they are required to obtain surety bonds to further insure those obligations.

Venmo, PayPal, Western Union, Money Gram and dozens of other companies are all subject to these requirements, and there has never been any instance that I am aware of where this regulatory arrangement has resulted in consumer funds being lost, in the twenty years since this regulatory regime began to be fully implemented after passage of the USA PATRIOT Act.

Furthermore, I am not seeing what the material difference is between the outstanding obligation represented by USDC and the outstanding obligation represented by a PayPal or a Venmo account. The fact that the law treats them the same is entirely appropriate.

Tether is a problem precisely because it is unlicensed and has thus far illegally evaded these regulations. The fact that Tether is operating illegally in the US should not impugn its competitors that are in fact operating legally.

That's nonsense. When something as big as Tether falls the entire sector is going to fall apart. Everyone will run for the exits, USDC holders as well. I would not coount on Coinbase having enough real money to cover USDC redemptions. https://www.bloomberg.com/news/articles/2021-08-11/coinbase-...

You could short COIN on the stock market

You can short Tether against USD on Kraken. It's rather expensive though.

Bitcoin effectively is the reason I stopped leaving breadcrumbs for Twitter researchers in the future. I read his research and see forum posts from idiots we use to laugh at on irc, but I myself participated in the pirate@40 ponzi, as other people did - maybe 47 poor souls if memory serves.

What a lot people can’t seem to grasp about 2012 is Bitcoin miners were flush with Bitcoin and no place to spend it, no place to invest or divest it. So you are bored it’s a nascent market you browse the forum it’s all one big joke anyways- until it’s not anymore. But you are looking for something to do with Bitcoin and you have to possibilities: bitcointalk or #bitcoin-otc of freenode

One of these requires a registered gpg to trade, one is a dang website

So flush with bitcoins We were running Perl pool hopping proxy scripts to game block rewards and jump to deepbit last minute pre next block - boosting profits by 25%. Trendon Shavers aka The Jimmy Buffer PonziMan also ran a mining meta pool gpumax.com where we could buy gpu shares, say 10 million shares of hash power from your 10 buddies running 10 rigs stuffed full of gpus and then you point that at one of the two Bitcoin mining pools that were left paying a Proportional payout scheme instead of PPLNS (pay per last n shares) and take most of the whole pool rewards in a flurry of blocks blocks blocks… kinda like satoshidice except fun - maximizing ROI and exploiting Bitcoin mining pool payouts was kinda neat for awhile

I normally don’t do this, but the comments and citations have me feeling nostalgic and I do enjoy reading u/arcticbull

Was this comment written by a Markov chain? Subreddit Simulator?

I don’t think so. At least I remember the pool payout “trick”.

People who do well on IRC often have trouble not rambling on forums. I should know, I'm one of those people.

Jcpham is very much a real person talking about real things from the past: https://serajewelks.bitcoin-otc.com/trustgraph.php?source=jo...

A real boy!!!!

Getting downvoted by people who weren't there, didn't understand the original community or how it worked, that or they just don't believe you. The community was small, I sold you a laptop at one point in it.

It really was all a game in the early days, then it blew up.

Hi Joe . The Laptop that the UPS truck ran over that I bought for $100 in Bitcoin in 2013 still works.

I always get downvoted here because I don’t cite sources :-)

The over the counter chat and trade seemed to end around the first big ATH blow up of 2017. The prices got too high and the conversation ended, my friend.

I’m still around on libera

Can you explain how the proportional payout is broken? It is not immediately obvious to me how the pool hopping worked. Of course I accept it was broken, I've just never seen an explanation of now. Any explanation of PPLN lasts the historic perspective.

Early on Bitcoin mining pools payed proportional to mining hashpower. Not PPLNS, not PPS, just proportional.

Bithopper would basically jump to, or jump away from deepbit( the largest proportional payout pool) on long rounds, long 10 minute blocks.

Deepbit and Bitcoin.lc were basically the only two proportional pools you could overwhelm with hashpower, take block rewards from the pool, and damn anyone’s shares or how long they mined there for how many blocks.

Others could and should be able to speak to pool hopping but this is why the pools pay the way they do - we exploited the payouts early

> Brock Pierce

Excellent documentary involving him called "Open Secret".

It's very easy to short tether, it costs around 4-5% a year.

You can do it directly on FTX, or you can do it on ethereum by borrowing tether on aave against, say, USDC, and then selling it for USDC.

You can do this in significant size, 8 figures+ if you'd like.

You can also do this and go long ETH/BTC if you'd prefer.

The same ability is spinning up for sushiswap as well if you don't want have any exposure to other assets blowing up and threatening the collateral you care about.

> You can do it directly on FTX

I’m no expert, but wouldn’t this be unrealizable?

If tether were to fall it’s not crazy to think it would take with it most exchanges, given how most of them use USDT for maintaining operations.

This just isn't really the case any longer. Crypto has matured a lot in the last few years. And if you're still regurgitating the same FUD from 2016 you're in for a big surprise.

> And if you're still regurgitating the same FUD from 2016 you're in for a big surprise.

I’ve just given up on crypto at this point. I’m a big proponent in “invest in things you can understand”, and crypto is a space where very little people really understand what’s going.

You can call that FUD if you want, but not acknowledging that crypto is a wild, wild west with a lot of shady corners, will set you up for a big reckoning at some point.

There happens to be a lot of opportunity now, and lots of ponzis / scams / bubbles / etc. You're right that understanding it is needed, I've done deep dives on many projects and am doing quite well overall. Not for the faint of heart.

> I’m a big proponent in “invest in things you can understand”

How many people understand the US banking system? What a bank is allowed to do with your $, how inter-bank payments are settled; how a bank secures its records; under what circumstances a bank might lose its records; what recourse you have in the case that your bank loses your records or makes what you believe is a mistake… yet everyone gives money to their bank.

2012 Bitcoin was great: it takes all of an hour to understand the entire protocol, the act of building/installing bitcoind shows you the entire surface area, and everyone interacting with it understood as much about it as you did. Contrasted to the substantially more opaque banking system, where most people don’t understand it, but trust it due to the test of time.

2021 crypto is indeed different. Now it’s approaching similar complexity to the existing banking system. But do I still understand it better than banking? For the low-level abstractions: BTC, ETH, etc: absolutely — especially so now that we’ve seen them fork and understand the hypotheticals there better. Higher-layer social protocols like NFTs… maybe not. So I stay away from those. Crypto gives you optionality that existing digital investments completely fail at. So that’s nice from your “invest only in what you understand” perspective, right?

FTX has received nearly 30% of the $48,000,000,000 in tethers that have been "minted" in the last year. You are telling me if tether fails they aren't going to be affected?

That belongs to their customers who will lose a lot if tether fails. Unclear why it would cause FTX directly to lose money - main mechanism is if insurance fund isn't enough to cover liquidations if the price shifts very rapidly but that still doesn't seem enough to blow through their significant capital.

https://news.ycombinator.com/item?id=28798944

FTX in particular has standard coin/USD pairs and also USDT pairs. No reason that USDT collapsing would cause FTX to go bust. Alameda and other market makers might lose a ton if they didn't see it coming.

Shorting Tether would be an amazingly dangerous thing to do, especially on a closely associated exchange like FTX.

If Tether goes completely bust, it's likely that closely associated exchanges won't be able to cover the bets.

Until that happens, they control all the levers and can just move the market as necessary to make you lose your bet.

https://news.ycombinator.com/item?id=28798944

Also don't understand what moving the market means in this context. The market is at 1:1 for USDT/USD, if there's selling pressure that would lead USDT to trade under $1, the only way to manipulate that is to buy lots of USDT from everyone who wants to sell, which tends to support the peg. Not even sure why that's called manipulation. If there's a real panic and tether turns off withdrawals there's no way anyone has the money to buy everything up at peg.

> You can do it directly on FTX

Not if you're a US citizen

That is true, although if you try it's not that difficult to pass KYC and use a VPN. AAVE method works for anyone though.

Doing this on aave would actually be net profitable right now with the "liquidity incentives" they offer, and you can apply leverage (deposit USDC, borrow USDT, swap for USDC, deposit again, ...). The rates aren't fixed, so you'd have to watch it, but it would be an interesting strategy.

Keep in mind that the original Ponzi scheme ran for quite a while and even had the media defending it as a great investment.

Tether (and most crypto) seems like someone copied Ponzi's original scheme 1:1. Put in some money, transfer it to another format (Tether to other crypto, with Ponzi it was stamps), then eventually pull out loads of cash. Some people will undeniably get rich off it. But it's not sustainable.

The part I have never seen elaborated on in the "Tether is a Ponzi" claims is at what point will people using Tether make money? Tethers are IOUs to facilitate moving USD between financial institutions (mainly between exchanges, and mostly used by the exchanges themselves).

You can spend $1 USD to get 1 Tether that is "redeemable" (by trade, not through the Tether company) for exactly $1 USD. A Ponzi requires some kind of promised payout, no?

Tether takes a bunch of money to facilitate users converting to Bitcoin or other currencies. The maintainers of Tether keep sucking up real money, minting Tether that they claim is backed by cash (real currency), but the real cash backing goes poof and they aren't demonstrating that there is any stable backing. But so long as other crypto isn't crashing, they can reliably take real cash, skim off some for themselves, and pay out small amounts of what they receive to people cashing out on Tether. More people are putting money in than taking money out.

This is all elaborated in the article.

Now if, for some reason, too many people decide to withdrawal and cash out on their Tether, there's not a sufficient cash backing there. It'll completely collapse and people will be left with a bunch of Tether that's no more valuable than any other bunch of random sequences of 0s and 1s on the internet. This is no different from the original Ponzi scheme. Just replace crypto with stamps/international reply coupons and it's absolutely identical.

If too many people decide to withdraw their money from any financial system (e.g. banks, brokers, exchanges, etc.), you can expect there to be liquidity problems. These are not Ponzis.

This distinction doesn't even make sense though. The Tethers aren't redeemable directly from the Tether company. People redeem Tether for USD by market transaction. As these Tethers are just USD IOUs, it doesn't seem to matter much whether they are fully backed by USD, as long as there is liquidity to buy and sell them for their full USD value as required.

If there is not sufficient USD to back them then its fraud. People purchased these securities relying on the representations they made about it being backed by USD.

Fraud does not automatically make it a Ponzi, and no custodial service will have sufficient USD on-hand at all times to cover everyone withdrawing their funds.

The specific claim that was made by GP, and the claim that I see bandied around, is that Tether is a Ponzi scheme.

Tether doesn't appear to share any characteristics with a Ponzi scheme, which is why I am puzzled to see people so adament it is one.

The most important characteristic (IMO) is that there is no promise of a return. $100 of Tether will only ever be worth $100 maximum.

If anthing, Tether is basically operating as an unregulated bank. You're not calling banks Ponzis are you?

You give your money to X in order to facilitate buying Y. Y is a potential investment opportunity that promises explosive growth. X promises that your money is backed by cash, so there's nothing to lose. People give their money to X and purchase Y. Some people make loads of money and cash out.

How exactly is X making a profit when they're just working as an intermediary? Why do they absolutely refuse to show their finances? How exactly are they getting the resources to do all this?

Now, am I talking about Ponzi or Tether?

It’s not a ponzi per se. My guess is that they take the money from exchanges, mint more tokens at no cost to themselves and buy a bunch of junk bonds with high yields and pocket the 8% or whatever they make in those. Given their market cap that is a lot of money.

They always use precise wording about their holdings “commercial paper”. I’m guessing it’s not US treasury bonds equivalents or they would say that explicitly

Commercial paper is not junk bonds, and is pretty standard for a money market fund to hold. It’s a pretty specific thing and doesn’t really deserve scare quotes.

Perhaps the "scare quotes" are because Tether can't get anyone reliable to certify their "commercial paper" actually exists.

It is a ponzi/illegal bank scheme the moment they mint more tokens than they have liquid assets.

Could they come clean, will there be a bank/USDT run?

Depends of how much USDT real clients hold and how much USD they hold, and how likely it is that EVERYONE wants to convert USDT back to USD -- it would take a very catastrophic collapse of cryptos for that to happen.

USDT has intrinsic value for money laundering, so even if all other cryptos would go to 0, not everyone would want their USDT converted to cash.

While I don't like USDT, and I don't think that's the case --someone printing USDT could have already amassed a great fortune, and if he was benevolent enough, could probably redeem all USDT of all the real people holding USDT.

Ponzi has a pretty specific meaning..illegal banking scheme sure.

Absolutely an illegal banking scheme

It's the combined complex of Tether and other cryptocurrencies that forms the ponzi. Crypo "prices" keep rising, but those prices are denominated in Tether that people pretend is dollars.

The payout is the complicit exchanges wash trading Bitcoin, SOL, etc., with freely printed and unbacked tethers, in order to drive the price up. The more crypto goes up, the more people FOMO in and trade, the more money the exchanges make.

I don't see the payout. If you buy $100 of Tether, it will only ever be worth a maximum of $100.

By what you describe, the crypto purchased with Tether would be the Ponzi... but that's not the subject of this article or my question on why people insist Tether is a Ponzi.

1. The high yield defi and centralized funds which have offered 9-20% on stablecoins. That’s ponzi level interest

2. The appreciation of crypto generally. If Bitcoin offered to pay out interest based on how many invested, people would see it more transparently as a ponzi

It's quite likely they put some of the money into Bitcoin and are well ahead. They pretty much admit holding Bitcoin and things like the Celsius loan are profitable. I don't think they'll collapse due to not having funds. If anything gets them it will be the executives being arrested for money laundering or similar.

It's trivially easy for anyone to short tether, simply take out a DeFi loan of tether backed by any other crypto collateral (including e.g. USDC so you don't have liquidation risk).

It will just cost you a few % APR to keep the position open

I'm not sure I follow your short structure but you're mentioning other cryptocurrencies. Is there a clean bet where I sell Tethers and get dollars? (USDC are not dollars.)

So convert the USDC to dollars and withdraw the dollars. Done.

In the event Tether busts, the entire crypto markets will freeze up, and it’s plausible usdc will not be redeemable or face a run. USDC aren’t dollars and have been opaque about their backing. The bulk of their assets are in “cash and cash equivalents” which sound good, except they include less than 90 day commercial paper here! They also don’t state its quality or say how much of their cash/equivalents are CP rather than cash or treasuries.

Never been audited, only attestations

Yeah but where do they run to? I could see dark money having to run into BTC and ETH because real dollar redemption is a problem if you operate out of China for example.

A run means “run on the bank” where you go to Circle and ask to trade in your USDC for dollars.

It’s called leverage. Every player in the financial system uses it; some have cut deals with the government to socialize catastrophic losses so we pretend the leverage doesn’t exist but there it is. As long as Coinbase allows on-demand redemptions nobody is going to care about an audit because it’s trivially easy to just convert all your USDC to real dollars almost immediately. Can’t say the same for Tether.

> As long as Coinbase allows on-demand redemptions nobody is going to care about an audit because it’s trivially easy to just convert all your USDC to real dollars almost immediately.

And what happens if Coinbase were unable to convert all the USDC because the demand exceeded their stockpile of USD?

Likely some very accidental network misconfigurion, we apologize for the inconvenience?

Like I said, USDC is not dollars. If you're betting on Tether collapsing you sure as hell aren't going to take payment on that bet in USDC.

They're different organizations, few people seriously think that USDC is going to 0.

And USDC can be converted back into actual dollars, on demand, not via a market transaction but literally a 1:1 conversion, through a variety of exchanges. You cannot say the same of Tether.

USDC is backed by Coinbase (USDC are issued by Centre, a joint venture of Coinbase and Circle if I'm not mistaken). And Coinbase is an HN unicorn.

Everybody at Coinbase is known, it's operated from the US.

Coinbase ain't anywhere, not even remotely, like tether/bitfinex. There totally exists a world in which USDT goes to 0 while USDC is still worth 1 USD.

So your logic is that big, known entities can’t go bankrupt or be scams?

No, the logic is that it is less likely. Anyways, Coinbase allows on-demand conversion of USDC to USD so you really only have to hold the USDC (and Coinbase’s counterparty risk) for about a day for that process to complete. At some point that window might close but given that Coinbase is a publicly traded stock in the US and must report financials, there is quite a bit less risk compared to Tether.

Agreed, the risk that it goes bust by itself is less than that Tether goes bust. However, what we are taking about is repercussions of Tether going bust: how will it affect Coinbase if suddenly 69B are trying to get cashed out?

Bernie Madoff was the chairman of the NASDAQ stock exchange. Being a known entity with cred doesn’t mean anything.

It's like you never heard of the 2008/2009 financial crisis and how financial contagion works.

Also Coinbase is not so pristine or pure. They were misleading customers with a gentler version of the same thing Tether did. "Coinbase Vowed Token’s All-Cash Backing; That’s Not True". https://www.bloomberg.com/news/articles/2021-08-11/coinbase-...

Doesn’t matter that much whether it’s “100% backed” or whatever. The time it takes to (1) send USDC to Coinbase, (2) convert that USDC to USD, and (3) withdraw the USD to a bank account is short enough (less than a day by wire transfer) that the counterparty risk is pretty darn minimal.

Until it's not. Part 1 and 2 of your list require Coinbase's implicit consent and cooperation, and if there is a bank run on USDT, that cooperation may be in short supply.

I would bet money that Coinbase has a button on their admin panel that says "Pause redemption of USDC" or equivalent, so you're just hoping they don't push that button in extremis. I find that silly, if what we're hypothetically betting on is that the crypto system will be in extremis.

Coinbase will swap your USDC for dollars. It's pretty painless.

Today they will, for a few people, for small amounts. The problem being discussed here is that they can't every day for arbitrary numbers of people and amounts, because they don't have enough USD on hand.

Tether USDT is being discussed in this article. USDC is a different organization that has many partners, Tether is one extremely sketchy organization.

Yes, but no money market fund (which is how any centralised stable coin is structured) can face extremely high redemptions (which a collapse of Tether would likely trigger) without breaking the buck.

It's like people didn't live through 2008 and discover the magic phrase "counterparty risk", or something. I guess that was 13 years ago, so maybe they didn't.

Every crypto bro was like 10.....

…okay, so if I deposit USDC at Coinbase, I can instantly convert the entire balance into USD, and then withdraw that USD to my bank account. The statement that “USDC is not USD” means nothing to anyone who has access to instant and reliable conversion between the two.

How much USD does Coinbase hold at any given moment?

What you are missing is "counterparty" risk in the sense that Coinbases coffers are not infinite and certainly not 100% cash.

In the event of a bank run they would have to say "sorry we can't pay you right now...maybe later...maybe never...nobody knows".

That would effectively kill any trust in USDC and it's value plummets through the floor.

Are you serious? When there's a run on something, like Tether, by definition everybody is going to be trying to dump their crypto simultaneously and cash it out for dollars. And the entire problem here is that the system does not have $69B cold hard cash floating around, meaning that the vast majority of people will be left with nothing if (when) the crash happens.

"instant" really doesn't exist in cryptocurrencies.

Short version is no unless you actually get someone to loan you their tethers under contract, and you sell them to someone else for USD with the promise you'll return them.

This architecture doesn't exist AFAIK - certainly no trustworthy parties are offering it (since why would they want Tethers?).

Yup, you can do it on Kraken (https://trade.kraken.com/charts/KRAKEN:USDT-USD?period=1d)

Nope, occasionally exchanges will manipulate the price up to liquidate shorts - for instance the highest recorded trade price of USDT was about $1000 and dexes leave you at risk of flashbots and smart contract bugs.

I've held a short position on USDT through AAVE for a couple months now. USDT would have to go to ~2 to liquidate me.

If USDT goes, so does AAVE and everything else. And as has been mentioned, the iFinex crew have squeezed USDT to $1,000 before.

Mentioned, yes. Cited (as happening on a decentralized exchange), no.

What is the actual mechanism by which AAVE collapses if USDT nukes?

AAVE on polygon has 1B in ETH, 851M in Dai, 1B in USDC and only 215M in USDT.

Why would AAVE blow up if USDT blows up?

Because the fiat valuations of ETH, DAI, USDC and all coins will tank if Tether implodes.

Why? USDC is backed by dollars and treasuries...

Not anymore it isn't, and they've admitted it:

https://beincrypto.com/coinbase-drops-guarantee-of-usdc-stab...

I wrote that it was backed by dollars and treasuries. You wrote that it wasn't backed solely by dollars. So we agree.

No, we don't, since USDC can now be backed by pretty much anything:

> "the assets in fact include commercial paper, corporate bonds and other assets."

Hello,

You're right. Their latest attestation[0] does not yet reflect their move to only cash and treasuries[1].

0: https://www.centre.io/hubfs/pdfs/attestation/2021%20Circle%2...

1: https://www.centre.io/blog/usdc-reserves-composition

Can you cite this? I have seen some pictures of Kraken wicks but not liquidations on Aave and not trades on FTX USDT quarterly futures above $1.10 or whatever.

You’ve just cited it. I never said they squeezed in all places. They squeezed it where there was sufficient short interest: Kraken.

I haven't just cited it! I said I saw a screenshot. I don't have a date or whatever, but if someone has a date then I can download the ticks from that day and check it out.

Without a date I can't compare the short interest at Kraken to e.g. the $100,000,000 OI in USD-settled USDT futures at FTX today.

May 11, 2019 - https://trade.kraken.com/charts/KRAKEN:USDT-USD

Took me all of 10 seconds to find this.

Are you sure that actually happened?

It should have been a huge story, but there seems nothing reported

https://www.google.com/search?q=kraken+usdt&tbs=cdr:1,cd_min...

If something that weird (a USDT price spike to $1000) really did happen, somehow nobody noticed and nobody was affected, in spite of millions of dollars of daily trades in that market at that time

It's probably a glitch in Kraken's historical chart

Many people noticed. It’s not a big deal because the market is mostly wash trading.

It’s not a glitch. How you can say it’s “probably” a glitch is beyond me, you have zero evidence to support that. There have been other instances of Tether spiking well above $1, that is simply the most egregious.

Can you find any contemporary report of that May 11, 2019 USDT price spike incident at all? Because, if 'many people noticed' it, as you claim, then that should be easy

But I'll tell you now, to save you time: there are no such reports, because it did not happen.

I don't know anything about 'other instances', I only assume that spike on the Kraken chart that you linked to must be a glitch, because I found zero corroborating evidence for it. As you yourself have implied, such an insane price spike would have been a significant incident so it could hardly have gone unnoticed.

Your arguments would be more persuasive if you based them on facts.

DeFi exchanges operate algorithmically with published smartcontracts, so they can't be deliberately manipulated like that[1] -- can you link the example of the DeFi where USDT traded at $1000?

Or were you just equivocating between DeFi and centralized exchanges in response to a comment that specifically suggested DeFi?

[1] Which is not to say they can't be manipulated at all, but you'd have to go after the entire market or exploit some existing bug; it's different from the ones where centralized exchanges pull arbitrary shenanigans on their own platforms.

OP is obviously talking about CEX since it’s not possible for a DEX to have a USD market (like the above mentioned USDT/USD).

As for DEXs being manipulated, absolutely not sure why you believe that’s the case? This has nothing to do with DEXs and everything to do with margin (which is coming to DEXs).

DEXs and AMMs make it much more expensive to provide liquidity in terms of capital efficiency versus CEXs, and thus more vulnerable to manipulation. But without margin, there’s not much economic benefit for a bad actor.

>OP is obviously talking about CEX

Certainly -- I agree OP (arcticbull) was replying to a comment about DeFI by explaining the dangers of a centralized exchange! That makes it a confused, unhelpful response, not one that "obviously" meant something coherent if you squint hard enough and practice sufficiently strained exegesis.

>As for DEXs being manipulated, absolutely not sure why you believe that’s the case? This has nothing to do with DEXs and everything to do with margin (which are coming to DEXs).

Margin has "come to" DEX the moment smartcontracts offer collateralized DeFi lending, which they have, so I'm not sure what you mean here.

>DEXs and AMMs make it much more expensive to provide liquidity in terms of capital efficiency versus CEXs, and thus more vulnerable to manipulation.

The reason (I'm claiming) centralized exchanges are more vulnerable is that

a) they own the platform and are the word of god on it -- whence the stories of people getting margin called at flash-crash prices that don't exist on other platforms. If they say prices are trading at some level, you just have to deal with it. That's not possible when you have to trade how the algorithm says.

b) If someone "stupidly" buys in one direction on a DEX, "for manipulation", they've vulnerable to the entire universe of arbitrageurs who can exploit the resultant price differences. Inter-[centralized] exchange arbitrage is much harder.

I brought up the point simply to emphasize that, to the extent that there's manipulation, it does not look like the manipulation you'd see on CEX, which was how OP was basing his argument.

Furthermore, even the issue of more expensive liquidity from transaction fees wouldn't be true for the far-cheaper L2 sidechains.

(Btw, you might want to use the terms in their unabbreviated forms at least once just to make it easy on people who aren't up to speed.)

> Margin has "come to" DEX the moment smartcontracts offer collateralized DeFi lending, which they have, so I'm not sure what you mean here.

Ok, fair. What I mean is high leverage, which is the fuel for the type of manipulation I’m referring to.

To your point about CEX lying about price, that’s a very risky proposition for the arbitrage reasons you mention (CEX arbitrage actually easier for a number of reasons, but I understand why you’d think DEX is easier).

If I run a CEX, unless I collude with every other venue I risk all the arbitrageurs buying/selling my fake prices which means it’s not fake, I’ve just traded against them.

> Furthermore, even the issue of more expensive liquidity from transaction fees wouldn't be true for the far-cheaper L2 sidechains.

No, I said capital efficiency, not execution cost. DEX costs are crazy, but that’s by choice, whereas the capital efficiency is a structural issue. If I want to provide liquidity on 100 CEX markets, I only need enough capital to wear the orders I actually get filled on at any given point in time. As an AMM I’d have have enough capital to be in a 100 different LPs.

To illustrate: let’s say I want to provide $1m of resting liquidity in 100 CEX markets. Let’s say that in doing this, I end up having positions at any point in time that require $10m of capital. If I want to provide the same $1m of liquidity in 100 DEX markets, I need $100m.

So a CEX ends up being 10x more efficient from a capital use perspective.

>Ok, fair. What I mean is high leverage, which is the fuel for the type of manipulation I’m referring to.

Why does that make a difference? And how is it any more coherent to talk about margin "coming to" DEX? The moment anyone can borrow on margin, it has "come to" DEX. You keep speaking with a mental model of DEX that doesn't jibe with reality, like they're walled gardens rather than platforms open to anyone with little friction other than gas fees.

>To your point about CEX lying about price, that’s a very risky proposition for the arbitrage reasons you mention (CEX arbitrage actually easier for a number of reasons, but I understand why you’d think DEX is easier).

It's fun to idly speculate about this, but we know for a fact that flash crashes have happened on centralized exchanges, which is stronger evidence than any of your assertions of superior understanding of how they work. Furthermore, people have had their margin liquidated on those CEXes at the fake prices.

>No, I said capital efficiency, not execution cost. DEX costs are crazy, but that’s by choice, whereas the capital efficiency is a structural issue. If I want to provide liquidity on 100 CEX markets, I only need enough capital to wear the orders I actually get filled on at any given point in time. As an AMM I’d have have enough capital to be in a 100 different LPs.

If that's what you meant, then it's coming from the same dubious mental model I complained about above -- when you enter into a liquidity pool, you are providing liquidity to the entire cryptocurrency's network, not just people who are "on" that DEX (which isn't a coherent concept). Anyone and everyone has the option to accept that offer (sorry, "remove that liquidity"). Several protocols look at the entire DEX market to find the best (combination of) price(s). You do not need to be in multiple liquidity pools (which, again, not a coherent concept).

LPs are not something you have to "be in"; you as a trader are free to accept the offers (sorry, "remove the liquidity") of any LP in existence.

> If that's what you meant, then it's coming from the same dubious mental model I complained about above

It’s not, because I’m saying something different than you think I am.

> when you enter into a liquidity pool, you are providing liquidity to the entire cryptocurrency's network, not just people who are "on" that DEX (which isn't a coherent concept).

Um, what?!? I’m really not sure you understand how this works. What do you think it means to be an LP?

> Several protocols look at the entire DEX market to find the best (combination of) price(s). You do not need to be in multiple liquidity pools (which, again, not a coherent concept).

No, just no. You keep saying it’s not coherent but I don’t think you understand how it works. You might be in an optimizer that moves your capital around, but a given unit of capital can only be providing liquidity for one LP at a time.

> LPs are not something you have to "be in";

Uh, if you’re not in it, then you’re not providing liquidity. This whole conversation is premised on providing $X liquidity to Y market. In a DEX that requires $X, whereas in a CEX, it requires a maximum of $X and in practice a fraction of $X.

>>LPs are not something you have to "be in";

>Uh, if you’re not in it, then you’re not providing liquidity.

Why did you cut off the rest of that sentence, which clarifies that I was referring to traders not having to be in an LP to accept an offer (sorry, "remove liquidity")?

People who really have some deep, coherent insight don't have to resort to that.

Furthermore, the point was that, even though you provide liquidity "to" a liquidity pool, that liquidity is available to the entire cryptocurrency's market, so "being in" the LP isn't a meaningful concept (with respect to whether you can buy from it -- though you'll still probably cut this off).

>I’m saying something different than you think I am.

The great thing about a discussion forum is that you can point to specifically where someone misinterpreted what you said and correct it. If you're just going to assert that someone totally misinterpreted you, but never clarify what you claim that deep insight was, then I'm not sure what you think you're adding to the conversation.

>Um, what?!? I’m really not sure you understand how this works. What do you think it means to be an LP?

It means that a) you have locked up tokens in the pool, and b) you receive a fraction of the fees when someone trades with it. You're still working from the (incorrect) mental model that thinks a DeFi LP is some walled off garden. This is in error. The LP is available to trade with everyone using that cryptocurrency's blockchain. So it's not very meaningful to speak of traders who can't trade with you because they're not "in" "your" LP. Once your liquidity is in any LP, everyone can access it. You do not need to provide it to more than one pool, as your premise requires.

Alright, last attempt. I never said anything about other traders being in the same liquidity pool or whatever you think I said. Let me spell it out.

Let’s say I want to be a market maker on Binance, in both BTC/USD and ETH/USD. Let’s say that I have a strategy where I can provide $5m in liquidity to each of those markets (i.e. $5m of orders for other traders to aggress) for a total of $10m of liquidity. But because most of the time those orders are just resting unexecuted, it turns out I actually only need $1m in capital to run my market making algos.

In the DEX example, if I want to provide $5m liquidity to a BTC/USDT LP and $5m to an ETH/USDT LP, I need $10m to do this.

So to run my $10m liquidity provider on a CEX I only need $1m whereas in order for an AMM to provide $10m in liquidity, it needs $10m in capital.

That ... isn't your last attempt, actually. It's your first; you haven't said anything like this before, even though it would have been the natural thing to bring up in any of your three previous replies. Why you didn't, I can't tell.

Now that I see what you're saying, it still doesn't prove what you think it does. If you can remember back to the original point, the question was whether DEXes can be manipulated to the point of forcing margin calls. I was skeptical, since we have seen localized flash crashes on CEXes (when you insist are not possible because of super-easy inter-CEX arbitrage) that forced liquidations, while we have not seen that on DEXes [1].

I further expressed skepticism since any manipulation would have to be via "stupidly" overpaying in one direction on one LP, which would just draw traders -- from the entire market -- in to exploit the price difference, and correct it.

You kept appealing to the MM capital-inefficiency issue, but that isn't relevant because my point was that the counteracting force is from liquidity consumers, not providers -- the traders that accept the LPs' (formulaic) offers, and profit from the attempts to artificially push the price one direction across the entire market.

Your latest reply feels like a further confusion, because (AFAICT) you're effectively saying, "Don't worry, CEXes are more manipulation-resistant because I can falsely represent myself as being able to trade in $10m when I only have $1m".

If anything, that would mean they're more vulnerable to false signals about price support/resistance: If you can't actually put in $10m, you weren't really providing $1m of liquidity, and DEXes simply make this transparent.

[1] though arcticbull mentions a case where the value could be propped up for a similar kind of attack: https://news.ycombinator.com/item?id=28798110

Btw, re: DEXs I was thinking specifically of flash loan manips that exploited a number of platforms a few months ago. These involved briefly breaking the peg of stable coins on DEXs via short-term loans. [1] I think it's brilliant.

> One of the most notorious flash loan attacks to have ever hit the space is the exploit on DeFi protocol bZx, where the attackers borrowed funds from the platform and quickly swapped them with stablecoins (sUSD). Since the stablecoin is governed by a smart contract, the attacker had manipulated its price by placing a large buy order on sUSD, which pushed the price of the stablecoin to $2, doubling its pegged value. Then, the attacker took a larger loan from the higher-priced sUSD, repaid his loans, and took the profit with him.

It's relevant here because stable coin prices can be manipulated at DEXs too, or at least have been in the past. I'm not sure there's a long enough track record to guarantee it won't happen again before things go pear shaped if you're trying to take your short structured this way via DEX. There's smart contract bug risk, counter-party risk in the stable coin collateral and peg risk. Also regulatory risk.

[1] https://www.cybavo.com/glossary/flash-loan-attack/

The relevant question is whether the peg can be broken long enough for the loan to get margin called (by someone else exploiting the smartcontract to liquidate collateral). Lasting for the length of a flash loan isn’t enough.

I suppose that's true, but are you confident that's not possible? I'm not but as you can probably tell I'm pretty skeptical :)

Flash loans have to be paid back in the same block or everything the flash loan funded reverts. And to ensure this happens, it usually is all wrapped up on the same transaction bundle.

But liquidations are only triggered on oracle updates. And those happen at fixed intervals (measured in time or price movement), and can only happen a block at a time, in blocks after the flash loan has been closed.

Here's a question, how do you guarantee that every USDT was backed by a dollar at origination? Say USDT holds a bond that defaults, what do they sell to offset the risk? Where does the 5% yield on tether even come from? This is the most plausible form of manipulation: unbacked liquidity. The only way you'll ever find out is with a bank run, and with massive yields and a hyped crypto space, it may be a while before that happens.

Absolutely do not do this. Do not bet against the house inside casino walls.

If you have enough capital to weather potential dislocations, the only real way to play this is to be long off shore (perps, probably) and short CME. This position is long BTC/USDT vs short BTC/USD, the net of which is short USDT/USD. The reason for doing it this way is if it doesn’t play out, or goes to 100k first, you’re just wearing a bit of spread and funding risk, but let’s call it delta neutral. OTOH, if Tether nukes, crypto will explode in Tether terms (since it’s worthless) and implode in USD terms. Now, you won’t actually get paid on your offshore long because the house is bust, so you’ll have a paper cut there (keep as little margin as possible). But your CME short will pay you nice, hard, centrally cleared greenbacks.

I don't entirely understand this; could you provide a concrete example, or actual trades, that could be involved in such a position? (I'm just curious how it would actually look like in practice.)

Binance: buy $1m BTC/USDT

CME: short $1m BTC futures (which are dollar settled and thus BTC/USD)

On Binance you are long BTC, and short USDT. On CME you are short BTC and long USD (implicitly on the fiat legs).

So if we add that up, the BTC positions net off and you’re just left with short USDT and long USD which is the desired outcome.

In practice, if Tether implodes I would expect everyone to sell Tether (by buying crypto with it) and then due to panic, to send that crypto to exchanges with fiat off ramps where they will then sell it. So the price of BTC on Binance goes to the moon, and the price on CME collapses. You will likely lose whatever money you had on Binance (your profit is denominated in worthless USDT and Binance is probably bankrupt at this point) however you should make multiples of that with your CME short.

This is all of course not investment advice and extremely hypothetical.

> So the price of BTC on Binance goes to the moon, and the price on CME collapses.

How long could this arbitrage oppportunity exist? It doesn't sound all that reasonable, in my opinion.

BTC/USDT (on Binance) goes moonward as the denominator collapses, BTC/USD goes doomward as the numerator falls.

It’s not an arbitrage. Our price on Binance is denominated in USDT whereas our price on CME is USD (which is the entire point of the trade).

The difficult part seems to be getting someone lending you $1m in USDT, isn't it? From their POV, you're getting exposed to BTC volatility, and the collateral is likely to be too high to make this practical.

You’ve missed something, but I’m not sure what.

Nobody is lending us anything in the above example (well, Binance perps and CME futs have embedded leverage but that’s another story).

> You’ve missed something, but I’m not sure what.

This is what I'm trying to figure out too.

Basically, how do you buy $1m worth of BTC/USDT perps without depositing $1m of USD into Binance? Let's say if we put in $100k USD with a 1:10 leverage, it means the position on Binance is wiped out if BTC drops by more than 10%. So the only way for this to work is to deposit $1mil of USD into Binance and opening the position. But this means we lost a whole $1m when Binance implodes, cancelling our gain in the short position.

Otherwise, we need to borrow $1mil of USDT to open the Binance BTC/USDT position.

What did I miss?

You will need to monitor your positions (both long and short) and transfer the margin accordingly between each account.

On May 19th, Binance froze up and prevented people from adding margin. Lawsuit about it now. The claims are that Binance was insolvent and redid the trades to stabilize themselves. See Frances Kim for info or an FT article about the lawsuit.

Whatever the reason, no guarantee you can deposit collateral.

I'm not quite sure I follow - in the event that Tether implodes, if you expect the long $1m BTC/USDT exposure to be worthless (assuming you lose the money you had on Binance, and Binance goes under), and your short BTC/USD exposure to make money (since it's a short position, you can only make 100% gain at maximum), doesn't that net out to zero PnL (-$1m loss in long BTC/USDT, and +1m gain in short BTC/USD)?

Unless I'm missing something in your math...

I think because shorting futures is a leveraged position so max profit is more than 100%

The loss is in usdt, which is now worthless and easy to get 1 million units of to repay.

Why do you expect the trade not to work at Aave and at FTX?

I'm not sure you understood what I was suggesting...

A more concrete example:

Buy $10k USDC, borrow $5K USDT on Aave, trade this for USDC on Uniswap

Net result: $15k USDC and -$5K USDT, if USDT crashes you gain $5k, if it doesn't, you pay ~4% APR on the $5K loan (current rate, variable)

No, this doesn’t work. You’re not short USDT/USD in the above which is what people really mean when they say short Tether (since we’re talking about losing the peg).

You’re already short USDT anytime you buy crypto in USDT terms (i.e. BTC/USDT). But if Tether nukes, and you’re long BTC/USDT you will likely lose a lot of money, even if BTC/USDT goes to the moon. Why? Because BTC in terms of all other fiat (BTC/USD) will implode.

You must have a short crypto vs long fiat leg to net off and leave you with a true Tether vs fiat structure.

> You’re already short USDT anytime you buy crypto in USDT terms (i.e. BTC/USDT

That doesn't make any sense. If I buy BTC with USD and then transfer it to an exchange with a BTC/USDT pair, I'm not suddenly "short USDT".

So I don't see why buying BTC with USDT directly makes me short USDT either if I didn't borrow the USDT but bought it with USD

> If I buy BTC with USD and then transfer it to an exchange with a BTC/USDT pair, I'm not suddenly "short USDT".

It does, it just doesn’t make you short against USD which is what you’re thinking of. It only makes you short vs. BTC which we expect to collapse in price as well. This is why you need the other leg.

> So I don't see why buying BTC with USDT directly makes me short USDT either if I didn't borrow the USDT but bought it with USD

Which is why I keep talking about margin and perpetual swaps. Since we expect to lose our shirt on Binance, we need a levered position which means borrowing the USDT which will ultimately become worthless. This borrowing happens implicitly in a swap or future.

Back to your first question, when you buy something, you’re going to denominate that in some unit of account. We usually write this price as saying asset A is $X or asset B is €Y. But in reality every market is two asset pairs, no different to FX or crypto. We could have talked in terms of A/USD being X or B/EUR being Y. It’s just a different convention.

So when we talk about (for instance) the price of AAPL stock, what we really mean is AAPL/USD. Or when we talk about the price of crude oil we really mean CL/USD. I am buying AAPL, selling USD. Or I am selling crude oil, buying dollars.

To illustrate let’s say that you’re long AAPL (AAPL/USD). If shortly after you buy AAPL, the dollar loses purchasing power versus all other currencies, net net we would expect AAPL to go up in price (otherwise known as inflation). It’s not that AAPL became more valuable, it’s that the USD became less valuable. So you’re implicitly short the dollar. You sell your AAPL, and pocket your profit. You could frame this as being short USD and then covering your short. Same thing.

The opposite also holds true. Let’s say you short AAPL (remember: AAPL/USD). This leaves you long USD. If the purchasing power of USD increases, ceteris paribus, the price of AAPL should fall (otherwise known as deflation). You cover your short, and pocket your profit. You can view that as being short AAPL and AAPL going down, or you can view that as being long USD and the dollar going up. It’s the same thing.

This is the kind of thing that would have been helpful to explain before using the notation. At least if your goal was to help others understand.

I appreciate you have some sort of issue with me from our other comments, and for that I'm sorry.

It's not always clear when talking about complex domains, what is obvious and what isn't. My first comment in this thread explained why a simple USDT/USD short is not a good idea. I thought I had explained it in very simple terms, to help people with less experience understand.

HN has a wide spectrum of users, and obviously some people still needed more info, which I was happy to provide. I thought I had explained it plainly but obviously I hadn't. It's easier said than done to imagine a good explanation for something like this without having any experience in the area.

I may have just gotten it wrong.

No issue with you, just your arguments.

>So when we talk about (for instance) the price of AAPL stock, what we really mean is AAPL/USD. Or when we talk about the price of crude oil we really mean CL/USD. I am buying AAPL, selling USD. Or I am selling crude oil, buying dollars.

This sounds eminently reasonable to me.

However, it immediately reminds me of all the people (I haven't seen one in a while though) who go on about the geopolitical significance of what currency oil or other commodities is denominated in.

I'm just not sure how numerous and influential the latter sort of view is, and it unsettles me at times when they appear to be everywhere and the things you say aren't.

Kraken.com has ether. I'm not sure if you can short it there... Nonetheless. The market can stay longer irrational, then you liquid :)

hmm, I know one real estate investor that has similar hedging ratios. Financial press still claims he is worth billions.

Some of you may have heard his name before as he is a former head of state, Trump.

Just to point out that it is not hard to fool financial press and others about a firm's true financial position in terms of losses and gains.

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