I'm more surprised that anyone still holds Tether, unless they're stuck with it. The company has been caught in lies several times before, it's not as if a $41M fine will turn them honest.
The lending rates are determined by a separate mechanism and reflect the probability of a future departure from the peg.
In the depths of a crash, the potential is definitely there. Last time Bitfinex bailed out Teather when its reserves came up short. So to really see Teather fail, we probably need a crypto crash and a weakened Bitfinex.
This is why people still use Teather. Even though it is risky, the current market dynamics make a failure unlikely.
IMHO failure due to embezzlement (Teather reserves stolen by an inside man) is a real possibility. The management team has already proven to be very shady...
How much crypto is borrowed on platforms like Compound against USDT? That collateral takes a 5% haircut, we’ll see painful liquidations. 10% or 20%? Fire sale everywhere.
Close to zero. Compound, Aave, Maker - none of them allow folks to use USDT as collateral to borrow against. You can lend it for yield, and borrow it from others, but you can't use it as collateral.
There are some riskier protocol that allow it (rari, cream) but those are much smaller.
https://compound.finance/markets/USDC
https://compound.finance/markets/USDT
For example, on October 7, it shows USDT at over (sorry, "north of") 13%, while USDC was (sorry, "clocked in at") ~5%.
The demand for Tether comes mostly from Binance and the other centralized Asian exchanges. The demand for Circle dollars comes from the DeFi ecosystem and FTX.
I would speculate that the premium is because of USDTs network effects -- the USDT/crypto trading pairs are the most liquid on centralized exchanges.
There is no reason that holding any "worthless" commodity by itself should incur any premium on the market.
Edit: More details in my other comment: https://news.ycombinator.com/item?id=28882422
The price BTC shooting up right now (it is around $61k as I write this) is probably because lots of USDT holders are starting to realize what a bad idea that is.
If you were in their shoes ... what would you be doing right now?
That's assuming other stablecoins are:
a) actually backed up by non-risky assets, Quite a stretch.
b) can easily be exchanged to USD in large quantities
c) can be purchased with USDT
If I was holding USDT right now (I am not, thank god), my preferred exit route would most definitely be BTC. And in very short order.
Now they claim to be backed by cash and cash equivalents, namely a lot of "commercial paper" (short term debt obligations), which is widely believed to be in Chinese markets.
For some reason though, they won't reveal exactly what it is they hold. It could be that they think the market will not react kindly to the kind of assets they hold, or that they entered some kind of weird agreement no to reveal them.
I highly doubt they're not backed by assets whose face value adds up to the total UST distribution, because multiple auditors have said they were fully backed. But it is possibly that some of these assets are junk that won't (or have a high risk not to) redeem at face value.
Even in very bad scenarios, UST could fall to 0.8$ if 20% of Tether's asset default (and they burned through profits). Problematic but not quite such as a risk as it going to zero, which is why people still hold it.
"Pump and dump" refers to promoting some investment by other means, usually spreading some false news.
I beg to differ. The Securities and Exchanges Act of 1934 criminalizes all sorts of things that are deemed market manipulation, and inflating the price of a security by false trading, i.e. selling it to yourself or a conspirator, is one of the very things it was created to prohibit.
Tether got few attestations from an unknown company a few times, but they have also been caught red handed by NYAG for moving funds a day before attestation snapshot is taken, and moved it the day after.
For the uninitiated, attestation verifies a single point in time, so it's easy to game it. And this is something tether has done.
Which auditors? The only ones I know of quit before making a statement (which is a very bad sign).
So you hold USDT in a wallet instead of transferring it back to the bank. It's also a lot faster to transfer money using stablecoins then it is with banks.