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Comment by mwill | Hacker News Reader

Do people in crypto sincerely believe Tether is backed? I'm not being sarcastic here, I'm genuinely asking. I'm a bit of a skeptic of how the crypto market has developed overall, and the intentions of the major players, so I keep reminding myself that I'm biased, but I haven't believed Tether is even remotely close to being fully backed for a long while, and I've just sort of assumed everyone who's 'bought in' to the crypto space also knows and just doesn't care, or they think it's 'too big to fail'.

Is that the case or is there genuine belief it is fully/mostly/partly backed?

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The pinned top post on reddit.com/r/tether is titled "Tether has always been fully backed and the assurance opinion made available today confirms it once again, and puts Tether ahead of the industry on transparency."

Read the comments on that post though.

That's just like Tether's opinion, man.

"Tether is fully backed but we won't show you what the backing actually is and we won't allow audits just attestations from some rando Cayman island" didn't quite fit in the title, I suppose.

That subreddit is strangely low-volume for such a popular coin. The newest posts are 8-9 months old.

A lot of pro-crypto users avoid USDT like the plague and assume it will at some point come crashing down (and drag the market down along with it).

There are exchanges that refuse to use USDT, with deribit and bitstamp at the top of my head

Financially literate people see that tether might be backed by thin air. They're pretty clear on their homepage that "Every Tether token is 100% backed by our reserves, which includes traditional currency and cash equivalents, and may include other assets and receivables from loans made by Tether to third parties.".

"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.

The thing is that someone will know, if someone does know what the level of backing is then they can figure out what the point of collapse would be and that will allow the construction of a scheme to make it collapse. If they can do that then there is a bunch of money to be made.

> If they can do that then there is a bunch of money to be made.

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.

You could make money off Tether's collapse if you shorted it the simple way (and managed to time it very well) - borrow units of Tether from someone, sell them at $1 (ka-ching) later purchase the same quantity Tether at $0.00001 and return them to your lender for a tidy profit.

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?

>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.

>If you win the bet, you won't have anyone to collect from.

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?

That money isn't in a jurisdiction you may necessarily be able to reach.

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.

> "receivables from loans" can be worth nothing if it's a loan to someone with no assets.

Eerily sounding like CDOs from 2008, collaterised debt obligations.

No, but when many major exchanges only have USDT pairs people are forced to use it.

there are some markets you can't participate in without holding usdt, so for some, it's a calculated risk

why anyone would keep usdt if not actively trading is beyond me

"Yield farming" (covered puts) is why.

You can do yield farming/covered puts on a bunch of cryptocurrencies without USDT https://app.friktion.fi/

Generally Western people do not believe in Tether. People believe in it regionally.

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.

> Meaning that at one point and subsequently, Tether did match their leel 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.

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.

CFTC, DOJ, and NY 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.

> So at one point they were 1:1 USD, which is actually a major revelation

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.

ah okay, thats a perspective.

I'm curious why you feel the need to try to distort and spin stuff to benefit a company like Tether? They don't deserve your loyalty and they help give the crypto community a bad name.

It was actually my understanding of the situation, I feel I gave a balanced view. Not everything bad, not everything good. Like most things: somewhere in the middle and everyone is too emotional to look. 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 think its an interesting way of reading it, like I said, a perspective.

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.

> It was actually my understanding of the situation, I feel I gave a balanced view. Not everything bad, not everything good. Like most things: somewhere in the middle and everyone is too emotional to look..

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 do you think the financial standing is of a company that since 2015 has taken bitcoins and given people tokens valued at the current btc/usd price?

They are essentially taking shorts on bitcoin over the last 7 years.

There are people "in crypto" who believe the FDIC will make good any losses on their investments; which they hold because "crypto can't be controlled or monitored by governments!"

I'm expecting the talking heads to have to spend time on "why there won't be a bitcoin bailout" today or tomorrow.

> There are people "in crypto" who believe the FDIC will make good any losses on their investments

Do you have a source for this? I'm heavily involved "in crypto", and have not seen any indications of beliefs like this.

Source: A couple of conversations with people in real life. If circumstances had been different these people would've been pushing Amway or similar.

Cryptocurrency is Amway for boys.

On r/gemini (named after the NYC-based exchange), it's a misconception that I see (and occasionally dispel) very frequently.

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