Investors pull $7bn from Tether as stablecoin jitters intensify | Hacker News Reader

Investors pull $7bn from Tether as stablecoin jitters intensify

ft.com

48 pointsdoener82 comments

Tether’s operators have said the token is backed by a basket of dollar-based assets equal to the size of the tokens outstanding, but it has not released granular details of these reserves

Trust me, dude!

Meanwhile:

Stablecoin holders could not claim deposit insurance to recoup any losses and operators were not able to access bank standing facilities

This (the losing all of your money, thing) happened in 1929 to a lot of people. Yes, it is possible to lose all your money. Yes, this can go to zero. There is a long, long way down. I just don't see how anyone in their right mind has the appetite for risk to stay in Cryptosecurities right now.

"The order further finds that Tether and Bitfinex’s combined assets included funds held by third-parties, including at least 29 arrangements that were not documented through any agreement or contract, and that Tether transferred Tether reserve funds to Bitfinex, including when Bitfinex needed help responding to a “liquidity crisis.”"

https://www.cftc.gov/PressRoom/PressReleases/8450-21

Discussion between George Noble and tether CTO Paolo Ardoino https://www.youtube.com/watch?v=kp5kv7aENxw

Pretty obvious that it's mostly smokes and mirrors. props to George for asking the right questions

There are national governments that have tried and failed to maintain a currency peg. Why does anyone expect a crypto company to be able to do it?

An entity with a single purpose (accounting to issue no more of X tokens than they have Y tokens in another account) has a vastly easier challenge (both directly, and from audit/controls perspective) than a more-powerful entity with lots of conflicting needs. There are still incentives for people at a custodial stablecoin to steal/debase, but it is a relatively tractable problem compared to e.g. federal reserve dual mandate or a non-independent central bank with even more competing concerns.

My understanding is that Luna was crushed by an attack not unlike what Soros et al. did to the British pound in 1992. No, the pound did not go to zero like Luna did, but then the UK has tangible assets in a way that Luna did not.

To reiterate your point, if a

* G7 member

* Security Council member

* NATO member

* Nuclear power

etc., etc. could not defend the pound in 1992, why does anyone expect a crypto company to be able to do it?

What attack? I was under the impression the general market correction brought it down.

https://fortune.com/2022/05/13/terra-ust-stablecoin-crash-su...

If tether have sufficient and sufficiently liquid assets, they shouldn’t have a particularly hard time. The cases where it fails look like:

- tether runs out of liquid assets and must sell illiquid assets at a loss to meet redemptions

- tether / market participants are not willing/able to process redemptions fast enough and the price is dislocated for a long time

- tether never had enough assets and runs out of money and stops processing redemptions

If you think that tether has sufficient good backing then it’s a lot more like maintaining the ‘peg’ of a money market fund or an etf than a peg between two floating currencies.

It is conceptually very simple to maintain a currency peg: just store 100% of reserves in the currency that you want to maintain the peg to, and promise to honor redemptions from those reserves at any time.

What you describe as "difficult" is what Terra/Luna tried to achieve: maintain a peg without keeping 100% of your reserves in the pegged currency. That is what nation states also do, which is why even they can easily fail. But that is not what USDT or USDC proclaim to do. They proclaim to implement the "simple" variant. If that is actually true (for which there are some doubts in the case of USDT, but let's just assume for the sake of discussion that Tether is truthful) they shouldn't have a hard time doing what they plan to do.

Isn't parking Billions of dollars in reserve a waste of capital?

Firstly it isn’t so easy to just ‘park’ billions of dollars. Even if they’re in a bank they can be lent out by the bank.

Secondly the point is sort-of that an organisation like tether doesn’t get the choice: their purpose is to hold dollars and issue equal amounts of their IOU, just like when a bank holds shares in Volkswagen and issues an equal amount of the ADR (the ADR represents the shares held by the bank but, unlike Volkswagen stock, can trade in US markets) because their job is to hold these two meant-to-be-equivalent things rather than to hold Tesla stock instead because they think that would be less of a waste of capital.

If people felt that it was a waste of capital to put money into tethers then maybe they wouldn’t do it (but of course if you have tethers you can lend them in crypto things rather than regular things and maybe you think that’s actually better so you don’t care what tether the company does)

This isn't a particularly clever argument.

It is trivially easy to maintain a currency peg. I could issue one hncoin tomorrow, peg it at a dollar, and hold a dollar in escrow and my coin is pegged.

It'd hard for governments because they have to manage an economy and politics either their currency. Stable coins could end up fitting the same description but not a of them do. If they choose to just peg peg coin with reserves of the underlying and make exchange easy the peg will stick.

The comparison to a government is irrelevant though.

I think it's hard to maintain a currency peg at scale. Your example is technically valid, but not practically relevant.

https://archive.ph/3IqB5

Financial institutions have to have enough safe liquid assets to offset their risk. This is reported and monitored regularly and required to operate. Some of your money deposited with them is also protected by governments, £85k per entity in the UK. Tether is not divulging their backing assets, referencing IP. No regulated authority would accept this, for good reason. Tether does not have adequate vanilla assets otherwise they’d just say so to diffuse the heat, especially right now. So even if they have magically worked out some secret sauce asset model, it inherently has more risk. There’s a run on Tether already, $7bn as of this morning’s press. This doesn’t mean it’s about to lose its peg like Terra did, they are very different models, but the risk of further run is very real and the assets they have to support that is shrinking. There’s a good chance Tether will ride this and it would have been a good test but it feels like a house of cards. Crypto needs to weed out the rubbish to get stronger.

the secret sauce is fraud :-)

Stable or cryptocurrency, pick one.

I'm sure many investors are looking at their portfolio right now and re-evaluating their holdings of USDT.

But Tether honored redemptions for large holders. This does not look like the beginning of a bank run or a Tether collapse to me.

Will the peg break?

People have been saying it will on this website for years now.

https://news.ycombinator.com/item?id=16182423

Currently at $0.9987

https://trade.kraken.com/charts/KRAKEN:USDT-USD

For context, if 0.0013$ seems low, it was hovering between 0.9998$ and 1$ 7 days ago, it de-pegged 6 days ago and hit a low point of 0.95$ 5 days ago for a short time, and eventually climbed back to 0.9990$ where it's hovering right now.

For more context, redeeming USDT has at least a 0.1% fee meaning that when people are doing arbitrage via redemption 1 USDT can only ever reach up to $0.9990. It requires demand for Tether to go up for it to reach $1.

It broke last Thursday but is back again.

Blackrock purchases USDC and one by one all other stablecoins start collapsing.

Well, good thing that the cryptoenthusiasts are not fond of regulation so what you are suggesting is totally normal and ok for the cryptospace, let the market self-regulate wink wink.

And you say it like it's a bad thing?

Tether needs to get wiped out of the face of the Earth.

Headline subtext: It's back to Q1 2022 levels

Any thoughts on Dai stable coin?

It's overcollaterized but highly dependent on USDC/Circle. Last I checked, Circle has not gone through an audit for a long while, but they do make more frequent attestations and are regarded as more trustworthy than Tether.

Thanks that's v. helpful. I pulled my small investments out of Ethereum into dai a few months back. I think I will close this too for now.

So, if you are "just" holding DAI it makes little sense to use at the moment. But if you still want to have some exposure to more volatile assets (e.g, ETH) I'd recommend putting it an ETH/DAI liquidity pool from either Uniswap or Loopring. I wrote about the reasoning [0] before, but the short explanation is that such a liquidity pool softens the volatility swings and also allow you to receive a good amount through swap fees.

[0]: https://np.reddit.com/r/UniSwap/comments/l0l0cu/making_the_i...

Even if USDC instantly went to $0 DAI would still be overcollaterized.

That's assuming that USDC going under would not crater with WBTC and ETH, which is a naive assumption.

That would be tricky for DAI to handle even if USDC was not used as collateral.

Yes, but compare with the likely scenario of Tether coming down. DAI may come out okay even if BTC goes down by ~50% and ETH by ~35%.

Reply on news.ycombinator.com