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> Now that there's strong evidence the commercial paper is just fake money

Tether is issuing loans of USDT against collateral in the form of crypto and calling that "commercial paper".

The whole idea that anyone would be sending $70B of actual USD to Tether is now "fucking ludicrous". But the idea that anyone is selling $70B of crypto to Tether during a massive bull market in crypto (and it should be now quite apparent that this is still a bull market) is also "fucking ludicrous". There's no counterparty that massively stupid for either side of those trades.

What makes sense is that people sitting on large cold wallets of BTC are using that as collateral to get USDT loans. They then trade it between themselves and any retail "investors" on a USDT exchange. The loans are USD denominated which provides an incentive to maintain the USDT-USD peg. Since they're loans against collateral and aren't redeemable that removes a lot of the risk of a run on the bank.

It is still crypto-backed wildcat banking script, which won't end well.

I don't understand why so many people who are Tether-skeptics believe them that their commercial paper is something the banking system would regard as commercial paper.

And try graphing Tether issuance denominated in BTC rather than $USD and it is much more stable at around 1M BTC.

Would those loans be called commercial paper by any accountant’s definition? We have two data points:

* Moore Cayman, the auditing firm doing Tether’s attestations, says they have commercial paper. They risk penalties for blatant lies

* Bloomberg reporter Zeke Faux say Tether’s accounts and said they have “a lot” of Chinese commercial paper

The massive loophole in the attestation regarding CP is Tether management policy is to value it at redemption value, even if the CP trades below par. So, they could buy the worst quality CP, for say $5 billion, with a redemption value of $30 billion, and the accountants would say “yup, $30 billion of CP per management policy”

That seems easier than a pure lie. NYAG has also seen the statements for recent months. I suspect a total lie would carry more risk than the blatant misleadingly accurate statements I outlined above.

Some of the paper could also be to crypto exchanges, collateralized the way you say. Then it would technically be CP. Tether has denied taking CP from affiliated entities but they use a narrow definition. Only majority ownership counts as affiliated I believe, since they consider their loans to Celsius non-affiliated despite part owning celsius.

Also those Celsius loans are USDT denominated with crypto collateral.

> seems easier than a pure lie

Aren't Tether and Bitfinex firms with a documented track record of repeatedly telling "pure" lies?

Yes, but not through accountants. Recall one incident where they transferred in a few hundred million to a formerly empty account. Moore Cayman accounting accurately reported they say money in the account. Then the money was transferred out after accountants looked at it.

Much more complex than just lying. They used the accountant’s true report to cover the truth.

> Would those loans be called commercial paper by any accountant’s definition?

We're talking about crypto here, blantant lying is pretty rampant, and Tether has clearly blatantly lied in the past.

> They risk penalties for blatant lies

If the amount they're being paid for those attestations exceeds the risk then it makes sense to blatantly lie.

They are also not audits, but attestations, so Tether can be blatantly lying to them.

> Also those Celsius loans are USDT denominated with crypto collateral.

And that is it right there.

It's all about incentives.

Everybody knows Tether is a scam - and it will probably take down crypto once it implodes. But the people 'with knowledge of the matter' have 0 incentive to expose it, and they have every incentive to keep it as it is. People are making hundreds of millions of dollars on it. Until the music stops, they will keep dancing.

Anyway, it's fascinating ! As Patrick McKenzie put it ""we are living in the middle chapters of a Michael Lewis book."

Why do people think that Tether will take down crypto if it implodes? The market survived the implosion of Mt Gox, which was much more severe.

By this point everybody knows that Tether has junk status. Much ink has been spilled about the matter. It's hardly a secret.

A few years ago when Tether was the only stablecoin, then yes it's implosion would have been catastrophic. But now anybody using Tether clearly has some (good or bad) reason to do so. There's simply not enough people living under rocks to be surprised when the thing collapses.

Agreed, and I was doing cross exchange arb with mt gox in 2012 and knew never to keep anything on there overnight when I wouldn't run the bot.

I think this quote from somewhere describes this best: "It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so."

If you ask me, i think the big thing™ most people trust and don't question that's pretty much backed into tradfi mm funds and centralized crypto stablecoin reserves alike is US treasuries. Most assume that they are super safe and that nothing can go wrong, however most ignore or are in ignorance of the rehypothication of them in eurodollar markets (and the rehypothication of collateral more generally). The heavy usage of them as collateral in the post 2008 monetary system has basically tied the super-safe-risk-free-asset™ asset to the credit risk of the most junkiest actors globally (that for the most part, whose balance sheets go unseen and will never see the light of day).

I sort of agree. I think people know they're taking a risk with Tether, but they think they'll get out in time. Maybe they're right. Maybe it will be slowly and then all at once and if you get out in the slowly phase you'll be fine. People did that with Gox.

Everyone certainly knows the risk exists by now. And the markets keep on chugging.

I am commenting here, because I want to save this "And if.." list, because it is beautiful in its simplicity and yet we see it played out over and over again.

HN also has a "favorite" button you can use to save things for later.

Just fyi that favorites are public.

...I did not know this. So thank you for letting us know.

By default..? Oh dear.

Where is that favorite button? I have never seen that functionality.

Found it: just click on the comments’s time, and you will see the “favorite” option underneath the link.

You have to click through to the comment’s page to use it - it’s not on the main page.

Click on the "n minutes ago" time stamp next to the user name.

For example, it's on this page:

https://news.ycombinator.com/item?id=28880280

That's the perma link for that comment. The favoriting action should maybe exist in the thread as well.

I also just learned that by visiting one's own profile, one can see which submissions and comments they've upvoted—which is private, unlike favorites[1].

[1]: https://news.ycombinator.com/item?id=28880623

You can favorite a comment

Just upvote or favorite it and you can find it in your profile.

> It is difficult to get a man to understand something when his salary depends on his not understanding it.

> When thousands of people lose their retirements in a gigantic defi crash

Do we have any evidence this would happen? That ordinary people who didn't know they were investing in Tether would lose money in its collapse? (Honest question.)

I own a bunch of crypto and often people ask me questions.

I endlessly have to warn then to never hold tether. The problem is people don't understand what tether is, they assume it is just USD and use it because it is the most popular in many platforms or the outright default settings.

Tether crash will be very, very ugly when a lot of people leaving money on their "default" account realise the money all went poof.

Thank you for your perspective. Are there any U.S. services which default balances into Tether this way? Trying to get a sense for whether the shockwaves will be principally offshore or not.

I don't think there are.

IIRC, until recent demand triggered by use of tether in ethereum "defi" I believe the only US exchange which even had access to tether at all was Kraken and it didn't see much trade.

Basically the main reason for tether existing outside of acting as USD in bitfinex is for people to trade altcoins at sketchy offshore altcoin exchanges that have no access to actual USD by virtue of being sketchy and/or offshore. I believe there is essentially no reason for US residents to use these exchanges except for access to more obscure altcoins (as they require much smaller bribes to list things than larger exchanges).

It's extremely hard to estimate the aggregate impact because the very same exchanges that use tether as their primary/only form of "USD" are the ones which have volumes which are dubious (zero fee trading) to outright obviously fake (e.g. showing volume when the exchange is off the internet).

It's also hard to estimate the impact because its possible that as tether comes untethered people will trade out of it (e.g. into Bitcoin) thus driving _up_ the price of the things they're trading into.

(see the bitwise report to the SEC on fake exchange volume: https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2... (they also wrote a paper on the subject, but a quick google isn't turning it up).

If hypothetically Tether ever crashes, then a lot of big accounts will need to cover their losses. Meaning they will exchange USDT to BTC (also a big IF), and then will immediately sell those BTC, and primary points of sale would be USA exchanges specifically because they don't list USDT and are reputable. Tether flash crash will bring down all crypto prices a lot.

Meanwhile BTC is racing towards a new all time high, I simply can't wrap my head around this. What on earth is going on? Does anyone have a clue? I'm genuinely interested.

Nobody gives a f-ck about tether except those who keep yelling at the sky. The govt said it will be regulated like a bank and they received a fine.

Tether doesn't change the fact that my percentage ownership of all btc will never be diluted like my dollars constantly are.

The unlicensed offshore exchanges that use Tether to avoid USA banking regulation and AML/KYC don't let you cash out real money. You have to buy crypto and hope that they let you transfer it out before their real asset reserves run out. Now that people have the data that Tether has <5% in cash reserves it's a race to get converted into BTC etc and get it out before the insolvency stops everything.

The fact that USDT is currently trading at $0.9995 seems to contradict that theory.

I haven't seen anyone defending Tether in a really long time

You can find plenty on twitter. E.g.

https://twitter.com/BrutalTrade/status/1449035910658600969

Some are paid bots but some are real

> I haven't seen anyone defending Tether in a really long time

Check out comments in this discussion by bpodgursky and vmception, for example. Similar comments come out in every Tether article on HN.

> Check out comments in this discussion by bpodgursky

Here's one from bpodgursky:

>My stance has always been "Tether is a scam,

Not sure how that's "defending" Tether.

The full context, which you have chosen to elide, is clearly defensive of Tether[1]:

> Tether is a scam, but no worse than the US dollar and normal banking fractional reserves... and even if it collapses, who cares,

[1]: https://news.ycombinator.com/item?id=28880411

It's not, he's simply pointing out that there's even bigger scam out there. That's not the same thing as defending Tether.

It is defending Tether, because he is wrong. Some things are worse than other things. Fraud is worse than the Fed. No one sensible would claim the Fed is as bad as, say, Bernie Madoff.

Formally, his tactic is known as “whataboutism”

> No one sensible would claim the Fed is as bad as, say, Bernie Madoff.

Give it a couple of decades.

Making comparisons to a perceived bigger problem is a defensive statement. The implication in this kind of comparison is that because Y is worse than X, that somehow ameliorates the harm of X. This is reinforced by the "who cares" remark.

Or also matheusmoreira in the other parallel discussion on the same news. Again, this kind of stuff shows up on every Tether article.

"Defend" is a four letter word; I wouldn't paint with such a broad brush.

I hold the position that you need to be careful to distinguish between a) "every Tether statement is true/in good faith" vs "b) Tether will fail to produce sufficient backing value, sending crypto into a secular crash", and that a) is false but b) is false as well. That is enough to get me labeled a "defender" in some contexts.

Disclosure: I hold liquidity pools that have Tether and have borrowed Tether against BTC via DeFi.

Has Sam Bankman-Fried changed his tune? Last I heard on Odd Lots, he was conceding that their optics were poor, but still seemed to claim that they were legit.

I don't disagree with you, but USDC and USDT are identical in their transparency, yet everyone hates USDT.

Not by a mile. USDC are emitted by a consortium which the HN unicorn Coinbase is a major part of. They have something like 73% of USDC in actual USD and the rest are corporate bonds / money markets and things like that. It's not 100% USD, but they're 100% backed.

Coinbase is a reputable US company ran by US citizens.

USDT is operated by shady people with an history of fraud from shady micro countries on the dark list of fiscal havens.

They are nothing similar.

I do believe there are actual people wiring a lot of real USD / EUR to Coinbase's bank accounts to buy crypto. I'm really not so sure there are people actually wiring lots of money to Tether's bahamas bank accounts. I'm not sure many ever did.

I really don't get this: Coinbase is a HN unicorn. Do you think it's a gigantic fraud / scam and there aren't a shitload of real people putting a shitload of freaking real money to Coinbase's very real bank accounts?

There’s just over $68 billion Tether.

The 24hr trade volume for BTC alone is just over $50 billion.

If all tether were to completely turn to dust, it would not lead anywhere close to a “gigantic defi crash”. This is in no way a defense of Tether. I’m just zooming out from the hyperfocus on Tether as the pseudo foundation of crypto. That is just simply not the case.

If all retail investors were not allowed to buy or sell stocks anymore what would that do to the stock market? Its only 10% of transaction volume, but critical to so many liquidity dependent financial instruments, it would be catastrophic for the market.

Pretty big and popular strawman you got there. Tether has been a boogie man since forever, the traditional system is infinite times more corrupt. Top voted hackernews comment like this? Probably a pretty amazing time to buy some more and short some yc. edit: remember eth being mentioned here for the first time 6 years ago, how the cycles roll.

My stance has always been "Tether is a scam, but no worse than the US dollar and normal banking fractional reserves... and even if it collapses, who cares, there are other stablecoins not built on a house of cards."

I don't see that stance changing.

2 differences: 1. You have to have USD to pay taxes, which most Americans have to do. 2. The feds will bail out depositors in banks that have screwed up badly.

Also fractional reserve lending is both how new money is created and how it's backed. When you borrow money from the bank, they create a positive balance in your account and a negative balance in theirs. As you repay the loan, the new money disappears. The money in circulation is backed by the demand created for that dollar at issuance (in that the loan must be repaid).

Banks also take hard assets as collateral. They can send guys with guns to collect if need be.

And yet, during the recession of 2008 the M2 went up by a 1000 billion dollars, despite the fact that there were millions of houses foreclosed on, their assets tanked, and millions of loans defaulted. Curious how that works.

Tether is much worse than the Fed(or would be if equivalent scale), but the Fed is no sweetheart.

The money supply is protected by the Fed, yes - that's kind of the point. The supply is adjusted to maintain the 2% inflation target. Generally in big financial crises, velocity of money drops so the supply is increased to offset it - and avoid a deflationary spiral.

It's pretty logical right? If the economy is imploding around you, your natural response is to save your money - out of fear - and not spend it. However, that has knock-on effects. If everyone starts saving, prices go down to tempt people to buy, which means less revenue for the business, which means salary cuts and layoffs, which means folks have less money to spend - and so on.

To avoid this situation, the Fed increases the money supply. This happened in COVID too. The fed IMO deserves a ton of credit for saving the American economy from a massive depression - twice so far since 2008.

By the way those bailouts earned a $15B profit for the government [1].

[1] https://en.wikipedia.org/wiki/Emergency_Economic_Stabilizati...

I know you know about Moral Hazard. I know you know about small bubbles allowed to get bigger getting out of control. I'm sure you know the phrase "Privatized gains and Socialized losses." These all apply here.

The mark of a successful Fed is in reducing not just the frequency of banking issues but also the amplitudes. Every time the Fed is forced to step in, the interest rate cuts get bigger, the debt they create gets bigger, the Congressional action larger.

The mark of a successful Fed is in stepping in ahead of time before the bubble gets out of control. If a Fed needs to take drastic action, they've already failed. CO-VID, being the first non-financially caused recession in 50 years, is a special case, and for that I give them leniency.

I agree with all that broadly, but I would push back and say the Fed's responsibility wasn't to stop the subprime crisis. That was Congress' responsibility. It's not the fire fighters job to stop people building houses made of paper. That's the fire marshal, the city planning department, the inspectors, and so on.

They stepped into the repo market when secured overnight rates blew up to 10% in sept 2019, they get no leniency from me (should have blew up instead of engaging in moral hazard).

That and getting into corporate debt were extremely harmful.

Agreed (I was long tail risk on HY and IG corp bonds from dec 2018 which still payed out alot in feb/march 2020, was watching the slow motion train wreck with SOFR-UST yield spreads before sept 2019), that combined with all the other shenanigans last year with exchanges and their custodians (I used IB and robinhood), made me sell everything and move into defi and dex only.

Now time to watch the slow leverage build up of stablecoins on chain with the decentralized non custodial derivatives protocols :D

> The fed IMO deserves a ton of credit for saving the American economy from a massive depression - twice so far since 2008.

I'm not sure I agree with this. I think The Fed stepping in after the stock market crashed in March 2020 gave stock investors an unreasonable expectation that stocks are safe. Stocks are a risk-on asset and should be treated as such. Right now many people treat them like a savings account. IMO we should've let the stock market crash lower so people understand that stocks are not risk free.

Also, we may not know all the consequences from all that money that The Fed printed yet. So far we are seeing increased inflation, which hopefully will go down when / if they raise interest rates again, but we'll have to see what happens. I think, if anything, The Fed having to step in showed that the traditional markets are a house of cards as well. Just like in crypto, people just want the of price of stocks to go up, but that isn't reasonable. Volatility is normal and sometimes there should be crashes in markets so that people understand the risks.

I agree 100%, and not letting stocks crash is a severe policy error.

Regarding 2, if crytocurrencies fire up all cylinders and get not only many traditional market makers, hedge funds, but also FOF involvement and with-hold tens of millions people's savings. They can potentially get buyout like traditional banks do.

Maybe someday.

> 1. You have to have USD to pay taxes, which most Americans have to do.

61% of Americans paid no federal income taxes in 2020[0], up from 47%[1] in 2019 and the long term chart seems like the non paying number will get higher regardless of what people "have to have" and "have to do".

> 2. The feds will bail out depositors in banks that have screwed up badly.

Ignoring the moral hazards at play, this really only considers on shore dollar denominated deposits, not dollar denominated deposits held overseas and will only work if its only a few banks and not something systemic.

So none of this really means anything to in the tail risk scenarios people are opining about because its all just SSDD at the margins, crypto or non crypto (because everything is connected and getting more so everyday).

[0] https://taxfoundation.org/us-households-paying-no-income-tax...

[1] https://www.forbes.com/sites/howardgleckman/2019/08/06/remem...

I gave a breakdown of why that statement belies a lack of understanding of fractional reserve lending here: (https://news.ycombinator.com/item?id=28880063)

> Tether is a scam, but no worse than the US dollar and normal banking fractional reserves...

So tether insures up to $100,000 for every depositor?

The U.S. government insures its own currency using its own currency or security.

Tether can’t do that without hurting the stability guarantee.

Tether can absolutely insure its own currency by printing more Tether as needed -- it's identical to what the US government will do to protect bank deposits, by printing more dollars!

That's actually out of date.. a decade ago, the US FDIC upped the limit to $250k per depositor.

I really would like to see an attempt to defend Tether (and by extension most of the cryptocurrency ecosystem in practice) that doesn't require me to buy into ultra-libertarian ideology. Most people, including me, do not in fact believe that the US dollar is a scam.

The point re: tether directly is that it doesn't matter if tether is backed 1-1 or .05-1 or .01-1 as long as people trust it as a stablecoin.

The point re: the ecosystem is that there are a lot of stablecoins and you can pick the one that isn't a scam. You can use crypto and not touch tether at all. There's no need to tie the ecosystem to it.

I don't think that the US dollar is a scam but I think The Fed is struggling to keep it afloat. Also, the ever increasing debt of the US concerns me, as well as all the money printing. I just wonder, where does it end? How does it end? Just borrow more and print more? Drop rates to 0%, and then go negative if there's no further to go? Does all that seem sustainable? I do hope inflation will drop when / if The Fed raises rates again. Maybe that will bring some sort of balance. We'll have to see what happens. I don't think the US debt could ever possibly be paid off now though, and we'll have to keep raising the debt ceiling or remove it. There's also some absurd ideas like minting a trillion dollar platinum coin [1]. I just don't think this ends well.

[1] https://en.wikipedia.org/wiki/Trillion-dollar_coin

I think it's mostly because it fits their views.

Not sure if it's bots or hackernews sentiment changing but pretty much this. I guess that's what happens when the disruptors become the corporate. But yes it's like the classic democracy quote about it being the worst but better than all the other alternatives. If this is the slap for running an unregulated exchange for 10-15 years which today traded $350 mil everyone here not building that including me is the idiot.

Tether isn’t some new innovation that is it’s own animal. We know what to compare it to. The right comparison isn’t “the US Dollar.”

The right comparison is money market funds - they are very highly regulated. If a money market fund said “we are backed by very highly rated short term debt,” but they weren’t, that is 100pct a scam that has huge fines.

Just because Tether is in the crypto world doesn’t mean it’s now a magical novel currency. Still just a money market fund in a slightly different form.