Emphasis on the "supposed to be", since many, many, many unanswered questions have been raised about Tether's reserves and they've previously been caught straight-up lying about them.
Is that the case or is there genuine belief it is fully/mostly/partly backed?
why anyone would keep usdt if not actively trading is beyond me
"receivables from loans" can be worth nothing if it's a loan to someone with no assets.
I believe the whole thing is intended to be sufficiently backed to not collapse easily, but is by no means 100% backed with actual cash.
Hoping to make money by betting on Tether collapsing is like taking out insurance against the event of a combined global thermonuclear war & genocidal alien invasion of the Earth.
If you win the bet, you won't have anyone to collect from.
I suppose if Tether collapsed to the extent that it was impossible to trade it at all, you'd have a hard time buying the worthless Tether back. What happens if you're short a stock traded only on the NYSE and the stock exchange itself disbands? Or maybe the better analogue is, how do you fulfill your end of the deal as a short seller and return the shares owed to your counterparty if the company disbands in the meantime?
If you're short a company and the company goes properly bankrupt then the shares are literally worthless paper, you just throw them away.
I've been in this situation with interactive brokers and the position just disappears. (You get the profit as though you closed the position at a price of zero.) Shares of something that doesn't exist similarly don't exist. They just vanish.
They have $78B of assets, not $78T. It wouldn't rival even the smallest of national defaults. Heavy rhetoric but a bit OTT don't you think?
They also have no obligation to pay anyone a cent of their reserves. Any USDT->USD exchanges they do/claim to do are a courtesy, not a requirement.
Eerily sounding like CDOs from 2008, collaterised debt obligations.
I'm expecting the talking heads to have to spend time on "why there won't be a bitcoin bailout" today or tomorrow.
Do you have a source for this? I'm heavily involved "in crypto", and have not seen any indications of beliefs like this.
They are essentially taking shorts on bitcoin over the last 7 years.
The counter argument is that Tether's growth is the exact same as USDC's growth and other stablecoin's growth, especially those that are structured in the exact same way, with 1:1 redeemability for fiat somewhere. Some of those, people like the level of validation they show, others have undermined trust and never show the level of validation that people want.
Tethers are primarily created upon deposit into Bitfinex. Any fiat deposit. And are only destroyed upon redemption, but people rarely do that because they often just trade out or sell the Tethers. This is akin/analogous to Robinhood creating a RobinBucks whenever a deposit hits. We would see the growth of RobinBucks redeemable 1:1 for dollars. We don't see that because Robinhood and other exchanges don't do it that way. But if a popular exchange did that, we would see what that really looks like and say "ah, this isn't strange actually, we just weren't used to this level of transparency". Redemptions would be low because people don't really leave their brokerage/investing accounts, they just sit in cash waiting to buy a dip... in their brokerage accounts.
Finally, multiple US authorities have looked into Tether multiple times. Typically their fines have been about a combination of A) not being 100% backed by dollars at some point in time and B) not disclosing that. Meaning that at one point and subsequently, Tether did match their level of review, and at one point was backed 100%. Tether has had skepticism from the day it was created nearly 10 years ago, and a US authority got all the information was like "well that one time in 2018 we didn't like that". Tether is not 100% backed by dollars, it mostly is though. The standard is better than other respected financial institutions.
Let there be a run, I don't like to use Tether. I don't like algorithmic stablecoins more. There are options now, those options are holding up. Regardless, Tether isn't as complicated as people think. There are other reasons to avoid Tether and all centralized stablecoins that can be frozen address by address, or by losing access to their bank account. Remember when that was the criticism? Probably not.
Its also easy to see how and why it does work so swimmingly, despite all the questions and criticism. And thats because someone can arb really well and reliably.
This is some serious spin and misinformation. I can't believe you'd post this with a straight face.
The "100% USD backing" was at best more like 67% at the end of 2021, the rest is "commercial paper".
The "US authority" (OAG) was more like: you lied repeatedly about how you were backed, here's a big fine and you aren't allowed to do business here (New York) anymore.
Edit: The only reason we know that Tether was 2/3rds backed at the end of 2021 is because they are required to share that information as part of the settlement with the OAG.
Yes, I was referring to the NY one, and I'm referring to how they were like "okay you went unbacked in 2018 and didn't disclose that to our standard, but at least disclose that its not USD". So now they paid a fine and disclose that. So at one point they were 1:1 USD, which is actually a major revelation because from 2014-2018 the same Tether FUD existed the same as now. In any case, now they aren't backed 100% USD, which is more relevant. Dollars and commercial paper isn't... horrible. Maybe they have a liquidity issue if 2/3rd of Tethers were attempted to be redeemed, maybe they don't.
Is it a revelation or something you made up? NY OAG was confident they were able to prove that that Tether lied about backing in 2017, 2018, and 2019. Just because they don't have sufficient proof that Tether lied prior to 2017, doesn't make it a revelation that Tether was telling the truth. Indeed, given the trend, it seems quite reasonable to think that Tether was lying about backing at some point in 2014, 2015, and 2016. Who knows how much, they certainly aren't trustworthy.
Tether also grows in the same trajectory as USDC. or said another way, USDC grows in the same trajectory as Tether. That means if we were willing to assume it is actually functioning as detailed, then the same global sentiment perpetuates stablecoin growth.
What part of anything I wrote gave you the impression I have any loyalty to Tether. I was pretty explicit about the opposite of that.
> Let there be a run, I don't like to use Tether. I don't like algorithmic stablecoins more. There are options now, those options are holding up.
You're grasping just because I'm not auto-admonishing them. That's not necessary. It mostly works because its mostly dollars, the western-retail trader fud is not matched by western institutional sentiment[0], and is definitely not matched by eastern retail or eastern institutional sentiment. There is no surprise untethering, it would come from redemptions causing a liquidity issue after the dollars are all redeemed, or a crisis of confidence when redemptions are actually cut.
[0] https://www.bloomberg.com/news/articles/2022-05-12/money-mar...
If Tether's $25bn of commercial paper needs to be sold during a redemption run, after its $50billion of tethers were redeemed for dollars, then at that point there would likely be a liquidity issue spreading further to the all the Defi apps as Tether confidence shrinks, and some contagion to the "money markets". But the money markets should be able to absorb this size, commercial paper is a huuuuuuuge market.
The boogeyman stuff just is ... overblown. There is an objective reality, its not that bad, and doesn't mean you have to use it either way.
In what way was it balanced? It completely misrepresented the findings of the NYAG in the best possible light for Tether. If you were acurately representating your understanding of the situation, you need to seriously re-asses your sources.
> It was new information to me that NYAG simply didn't investigate prior years at all, that's not the impression I got when I was reading that case.
I never said that. What I said is that not bringing charges isn't evidence that Tether wasn't lying about their backing during those years.
> You're grasping just because I'm not auto-admonishing them. That's not necessary. It mostly works because its mostly dollars, the western-retail trader fud is not matched by western institutional sentiment[0], and is definitely not matched by eastern retail or eastern institutional sentiment.
The concern isn't that the peg can't be held through large downturns, with the assets that Tether has, it would take an extremely large down turn to _force_ them to break their peg. What the question comes down to is trustworthiness because there is nothing stopping the people running Tether from walking away with all the backing assets if they don't think it is worth it to hold the peg anymore.
Thus I think it is extremely important to not whitewash Tether's previous shady behavior since their trustworthiness is the prime concern.
What is happening right now that is causing the price to fall, what prevented it from falling over the last few years, and why isn't that thing preventing it from falling now?
What is currently happening is because of too much volume they have hard time putting more money back into the ecosystem (which is the good scenario, it means they have money but things are going just a bit slow), or they are running out of money (which is a bad scenario that would cause many things to go down with it).
Even national governments struggle to do this. https://en.wikipedia.org/wiki/Black_Wednesday
A price is just an abstraction for the willingness to buy and sell. If you know there are 1000 of some token in the world, and you have 1000 of some item, you can guarantee that people will always be able to buy one item for one token - by selling your items to them at that price.
But of course, just holding the dollars makes it hard to profit.
I don't think the Black Wednesday situation is similar, because the UK was never going to be able to hold enough of the currencies it was supposedly pegged to to make that same promise. Definitely not my expertise there though!
Now, of course, if you decided to _not_ be open and _not_ hold your reserves in safe assets but instead decided to invest the reserves to speculative gambling tokens or shady commercial papers, then it really is difficult to keep the guarantee if the gambling token loses value.
"1. You wake up one morning and invent two crypto tokens.
2. One of them is the stablecoin, which I will call “Terra,” for reasons that will become apparent.
3. The other one is not the stablecoin. I will call it “Luna.”
4. To be clear, they are both just things you made up, just numbers on a ledger. (Probably the ledger is maintained on a decentralized blockchain, though in theory you could do this on your computer in Excel.)
5. You try to find people to buy them.
6. Luna will trade at some price determined by supply and demand. If you make it up on your computer and keep the list in Excel and smirk when you tell people about this, that price will be zero, and none of this will work.
7. But if you do a good job of marketing Luna, that price will not be zero. If the price is not zero then you’re in business.
8. You promise that people can always exchange one Terra for $1 worth of Luna. If Luna trades at $0.10, then one Terra will get you 10 Luna. If Luna trades at $20, then one Terra will get you 0.05 Luna. Doesn’t matter. The price of Luna is arbitrary, but one Terra always gets you $1 worth of Luna. (And vice versa: People can always exchange $1 worth of Luna for one Terra.)
9. You set up an automated smart contract — the “algorithm” in “algorithmic stablecoin” — to let people exchange their Terras for Lunas and Lunas for Terras.
10. Terra should trade at $1. If it trades above $1, people — arbitrageurs — can buy $1 worth of Luna for $1 and exchange them for one Terra worth more than a dollar, for an instant profit. If it trades below $1, people can buy one Terra for less than a dollar and exchange it for $1 worth of Luna, for an instant profit. These arbitrage trades push the price of Terra back to $1 if it ever goes higher or lower.
11. The price of Luna will fluctuate. Over time, as trust in this ecosystem grows, it will probably mostly go up. But that is not essential to the stablecoin concept. As long as Luna robustly has a non-zero value, you can exchange one Terra for some quantity of Luna that is worth $1, which means Terra should be worth $1, which means that its value should be stable.
All of this is, I think, quite straightforward and correct, except for Point 7, which is insane. If you overcome that — if you can find a way to make Luna worth some nonzero amount of money — then everything works fine. "
Also the price of a stablecoin can shift from it's peg, even if it has 100% backing, when there is latency/congestion/spread/volume for the arbitrage trade.
That said, there is a whole heap of plenty of evidence that USDT is not backed by dollars 1:1.
There are 3 different things: Governance related, market module related, and staking related.
You can spend 50 LUNA to submit a governance proposal. The second is to stake your LUNA. When your LUNA is staked the first benefit is that you can vote on governance proposals. Proposals can be onchain changes such as modifying a parameter or an offchain change which people should respect even if there is nothing technically forcing them to follow it.
There is a limited amount of UST that exists so what happens if more people want UST? You can burn LUNA to mint new UST. In times where the demand for UST is strong enough to make UST go above $1 it may be profitable for someone to burn their LUNA to mint UST.
Every transaction has gas fees. Any swaps between stable coins have a tobin tax. Using the market module to exchange UST for LUNA has a spread fee. All of these fees are collected and then distributed to the stakers. To help protect against times when the protocol is less active the fees are actually spread out over time. Right now every 5 blocks 5/9400000 of the reward pool is paid out to people staking. 9400000 is how many blocks there are in 2 years.
Ah, the good old trust-less blockchain. Proved by maths, not by trust and decency and conventions like traditional finance.
The cash is less risky but it’s value does not change (apart from inflation).
Stocks are more risky but may give you profit over time.
To properly answer your question, Terra has no upside: no way to 10x. So yes, gambling.
The people using Terra give up their returns to Luna holders for the convenience of a universally acceptable exchange medium that is pegged to something else of value that isn't universally acceptable.
As with all leveraged investments to problems occur when the underlying real assets fail to perform as expected. Or at worst don't exist at all.
The names are the cleverest part of the whole scheme.
And what coins do is in effect marketing for all other coins. If one stablecoin crashes, trust in others will erode.
How do you ensure you have enough Luna to maintain the exchange? If you hold enough Luna but then the price of Luna goes down, where do you get your extra Luna from? A run on your promise kills you.
The problem occurs when the amount of Luna that trades for $1 becomes undefined because nobody is willing to do the trade anymore.
In the long run you're right though. Eventually you run out of people who believe them and you get the events of the last few days.
The printing of luna when people sell terra should be offset by luna having been burned when the terra was printed. Ideally (when the price of luna is growing) then you print less luna at sale time than you burned earlier when the terra was printed. This decreases supply of luna, making luna worth more.
What if the oracle has downtime?
https://docs.terra.money/docs/develop/module-specifications/...
This made me genuinely laugh out loud! But not just because it's funny, but it's also the essence of all digital coinage.
Their solution was to staple a HYIP scheme to the side of it-- a service where you can deposit coins and get a 20% annual return.
...
Of course, this isn’t always the case, and with Tether, there has been much scrutiny over the years that they do not have the USD collateral to back their stablecoin.
Ok, but let’s assume Tether has the USD. Why is it depegging? This is most likely due to sell pressure and Tether’s ability to liquidate their USD holdings. I think Tether has more than enough real USD to deal with the sell pressure we’re seeing now, but the system is having a hard time keeping up.
There is no collateral requirement. In UST/LUNA’s case they had collateral, mostly in Bitcoin, in the Luna Reserve Guard but their collateral proved insufficient. Some algorithmic stablecoins are entirely uncollateralized.
They will always swap a UST for $1 of LUNA so a UST is implicitly worth $1.
LUNA itself doesn’t have anything behind it though apart from concidence. So we have a stablecoin manufactured from a volatile unbacked asset where the market cap can fall arbitrarily low.
I know it failed, but it’s not quite clicking for me what they were even trying?
Probably applies only to some, but still a real insane thing...
It's "worth" whatever price the bid-ask spread meets at.
It's exchangeable for USD to the company. As long as there isn't a bank run where they'd stop fulfilling exchanges, when the price drops below $1 anyone can arbitrage it. It reached like 95 cents earlier, anyone could've bought millions of it and got USD for it at like 6% profit. It creates buy pressure/price support as the price falls.
But if the crash keeps getting bigger, will they get away?
How can I or anyone get 1 physical dollar from selling USDT? All I've ever done is exchange some coin => USDT and vice versa.
So if no one is actually asking for a physical dollar, why does it need to be backed by a physical dollar?
a) 1 USDT for a USD, and
b) 1 USD for a USDT.
Any USDT/USD deviation from 1 thus gives rise to arbitrage opportunities. Tether can guarantee
a) because they can issue an unlimited amount of USDT, so when you give them 1 USD, they can definitely give you 1 USDT, and b) because
b1) they do not issue USDT without someone giving them the equivalent amount of USD, and
b2) they keep those USD safe in cash, deposits, or equivalent, without price, credit, and FX risk.
a) is undisputed. b) is the tricky part, both
b1) - they could just issue USDT without having received USD. Who's checking?
b2) - they could just take the USD they've received and buy a yacht, or put it in shares (price risk!) or commercial paper (credit risk!) or Chinese Yuan (FX risk!) or anything else. Who's checking?
the backing by a physical dollar is whats supposed to peg it to make the fiction that holding $1m in tether is equivelant to holdong $1m.
Otherwise there's no need for physical backing right?
Not defending their other practices.