Tether Withdrawals Top $10B | Hacker News Reader

Tether Withdrawals Top $10B

cnbc.com

284 pointslxm438 comments

Someone help me understand this.

All you need for a stable stablecoin is to save every dollar put in to it. The people behind Tether sell tethers for $1, they save all of those dollars, and whenever the price of Tethers drops to $0.99, they buy tethers until the price is back up to $1. As long as they never spend anything from the reserve, this can't fail no matter how unpopular the currency is - they can back the currency right up until they buy back the last outstanding tether with their last dollar.

Of course, they didn't save every dollar; they spent some and invested some, presumably in things that have lost money recently. But they should be solid as long as they have made more money on those investments than they've spent in salaries and yachts and what-not, and Tether was already huge back when BTC was below $2k.

I know I'm leaving out a lot of detail here, but it seems like the only way Tether is not stable is if the people behind it have been wildly profligate. Is this about right, or am I off base?

Someone buys $10 tethers for $10 worth of bitcoin, then bitcoin loses value, then the original buyer wants to redeem 10 tether for $10 USD.

That's no problem at all. The person who bought the Bitcoin / sold the Tether loses , but that doesn't affect USDT.

The person who bought the Bitcoin and sold the USDT is the Tether organization itself.

Here’s the same example, stated more explicitly:

1. I buy 10 USDT from Tether in exchange for $10 worth of Bitcoin. Tether now has 1:1 reserves of Bitcoin backing USDT.

2. The price of Bitcoin decreases by 50%. Tether no longer has enough reserves to cover all the USDT in circulation.

3. I want to sell my 10 USDT back to Tether and get my $10 worth of Bitcoin. But Tether only has $5 worth of Bitcoin in its reserves! USDT will lose its peg.

This is a common misconception and is not at all how Tether works.

Tether acts more like a central bank, they allow people to trade USD for USDT for exactly $1. Trading USD directly can be difficult because there are extensive KYC rules and not everyone has access to a USD bank account.

On some exchanges, there is still a demand to trade in USD and it commands a premium due to the difficulty in trading it. This generates demand for USDT and slightly increase the price, suppose to $1.02 on this exchange.

Arbitrage traders can now buy USDT for $1.00 and sell it on this other exchange for $1.02. The tether corporation simply holds the original $1 (of actual USD). They should have $1 USD for each USDT in circulation, and that's a lot of 'float' that they can invest in safe things like short-term US treasuries to make money off simply holding the cash. No need to speculate on Bitcoin or other risky investments, they are making plenty off just holding cash-equivalents.

> They should have $1 USD for each USDT in circulation, and that's a lot of 'float' that they can invest in safe things like short-term US treasuries to make money off simply holding the cash.

That's the issue — they don't have $1 USD for each USDT in circulation.

How do you know?

Tether has seen over 10B in withdrawals over the last couple weeks. The total circulating supply is 73B so that was something like a 12% withdrawal over a very short time window.

Consider that banks are only required to maintain a 5% leverage ratio. 12% is a pretty extreme test, it's enough to cause most banks to fail. It also does not make sense for Tether to take on additional risk. They can make a nice yield by investing the 70B+ in very safe highly liquid short-term US treasuries.

> How do you know?

They've admitted to it in court. Multiple times. Patrick Mackenzie (patio11 on here) has a couple good articles about the fraud. [1][2]

> 12% is a pretty extreme test, it's enough to cause most banks to fail.

A bank can cover its customers' withdrawals by borrowing money from the Fed. If a run happens on Tether, who's going to rescue them?

> It also does not make sense for Tether to take on additional risk.

It might not make sense. That doesn't mean they didn't do it.

[1] https://www.kalzumeus.com/2022/05/20/tether-required-recapit...

[2] https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ (2019)

From your link:

>The Consolidated Reserves Report alleges that Tether’s reserves included, as of March 2022, $4,959,634,446 of “Other Investments (including digital tokens).” A 3.27% decrease in the value of these investments wipes out all Tether equity and causes their tokens to be undercollateralized.

First this is wrong, equity includes Enterprise Value which the article seems to ignore. The ability to control $70B of float is worth quite a lot enterprise value. They should be able to take out debt against that EV (or even sell shares/equity) if needed to re-collateralize.

They can also handle another 73-5=68B worth of redemptions before they need to touch those "Other Investments".

Why not have a step between #1 and #2? "Tether immediately sells the BTC for $10"

There's still some risk if the price is rapidly moving and they can only get $9.99 for the BTC you sent them, but that could be mitigated by ordering the transactions to keep the peg: you send $10 of BTC, they sell it (and "only" get $9.99), they give you 9.99 USDT and say, "tough, what you thought was $10/BTC was really $9.99/BTC"

> Why not have a step between #1 and #2? "Tether immediately sells the BTC for $10"

Yes, why indeed? That's a great question for Tether! If they were holding enough actual cash reserves to cover all the USDT in circulation, there wouldn't be an issue.

My apologies, I was talking about a hypothetical true stablecoin not whatever Tether is.

Unless Tether itself is the entity on the other end of that transaction. From Tether's reserves report, it has $82.42bn of reserves against $82.26bn in liabilities ($82.19bn of which are the tokens), for a net equity position of about $160m. However, its reserves include $4.9bn of "other investments (including digital tokens)".

Suppose that's all bitcoin, which is valued at "cost less impairment" (i.e. the lowest price bitcoin reaches since the purchase), and bitcoin drops by 10%. That would wipe out about $490mn of equity, putting Tether underwater. The same could happen with a similar drawdown on $3.7bn in "corporate bonds, funds and precious metals," which are marked to market.

In theory, you're correct. If 1B USDT is backed up, 1 to 1, with exactly 1B USD and no one every moves, sells, invests, or otherwise trades the underlying USD then the coin is actually stable... but it's already been established that Tether is backed by assets other than USD[0]. So... how much are you willing to trust them?

0. https://www.cnbc.com/2021/02/23/tether-bitfinex-reach-settle...

And look at the incentives of all the individual parties in such a scenario.

I think this is the only way a "stablecoin" can function as designed... but it is not possible to construct an entity that has any scalable incentive to provide the backing that would create such a coin. For that entity, it is nothing but downside.

Therefore, stable coins are a fiction on par with perpetual motion machines. In the short term there's all sorts of perpetual motion and over unity machines... in the long term, not so much.

What about the scenario your parent describes, but free redemption is 30 days and faster redemption costs (some basis points) ?

Why couldn't you use short-term fed paper? Even a 0.5% yearly yield would be more than enough.

But why would you use short-term fed paper to make money with your stake, when you could just plain buy short-term fed paper, without the risk of people "redeeming" it from you?

Backing a currency isn't about taking deposits from people. You can't back with deposits because your liabilities = assets then. You have to put your own stuff up, but then all you are doing is running the risk that people will redeem it away from you. Backing a currency is basically just giving your stuff away with extra steps.

Because you can get interest on the fed paper from money that isn't yours?

And if people redeem from you, just add a clause where if the liquidity pool is gone you have to wait X days before getting it redeemed.

It is yours. Again, you can't back with "deposits". If you have deposits, the depositors have a claim that encumbers the assets; you can't then "back" something with encumbered assets. You can only back a currency with unencumbered assets. And if you have unencumbered assets, why would you use them to back a currency?

Sure, I understand what you mean. It is still beneficial to the holder of deposits on which a small but nonzero yield is being received.

Even backing by other assets isn’t a big deal as long as they’re liquid assets or the interest they’ve been earning is enough of a buffer for the difference.

It’s like panicking because you’re because your bank only has $30k cash onsite, or your money market fund is only 3% cash.

Disclaimer: I’m still slightly short Tether, just think this a bad reason to be. Search my history for the details.

Also for it to be backed up 1 to 1 in this way, tether would require zero operating costs, which clearly isn’t the case.

Think the concern is the folks behind tether have printed tethers to buy/prop up Bitcoin over the years. You can see the issuance of new tethers align closely with Bitcoin rallies or sell offs.

>the only way Tether is not stable is if the people behind it have been wildly profligate

This is exactly the case and exactly what most people believe has happened. It's a minor miracle that usdt hasn't evaporated already, it's a matter of time.

> whenever the price of Tethers drops to $0.99, they buy tethers until the price is back up to $1.

Buy Tethers with what? If the money is in fact saved in regulated banks or other such instruments, there's nothing liquid left to defend the peg on the exchange.

Instead, the standard "backed stablecoin" approach is to make money with a small spread on redemptions/creation, while allowing others to do that hard work. Tether takes (https://tether.to/es/fees) a 0.1% spread on redemptions, so if you hand them $1mUSDT you'll get back $999k USD.

> But they should be solid as long as they have made more money on those investments than they've spent in salaries and yachts and what-not, and Tether was already huge back when BTC was below $2k.

One possible "bank run" scenario is that their backing is in fact stable, but it is illiquid. Suppose Tether invested part of its reserve in long-term loans to another company (like Binance). If Tether ever faces a crisis of confidence, it would face large-scale redemption requests, but it may be unable to call in its loans to fund those requests. That would leave Tether unable to redeem its currency, and a public suspension of redemptions would drive a further exodus.

In theory, every single USDT in circulation could be redeemed at a moment's notice. Unwinding some $73 billion in investments would be a Herculean feat even if everything is fully legitimate.

Like the bank run scene from It's A Wonderful Life: https://youtu.be/iPkJH6BT7dM?t=45

> In theory, every single USDT in circulation could be redeemed at a moment's notice

The easy way to protect against this is to not contractually promise instant redemption. I think this is what tether actually does, but I could not find a source. Regular savings account banks do typically do this, for example the bank has the right to ask for 7 days to honor a withdrawal.

If you are tether and your asserts are in bonds that mature in under N days, then you could just promise redemption within N days to eliminate bank run risk. You would still of course have counter party risk that when the bond matures it is not paid back.

> Regular savings account banks do typically do this, for example the bank has the right to ask for 7 days to honor a withdrawal

Source?

I'm familiar with savings accounts described as "instant access" or "easy access" where you can get your money out whenever you feel like it.

Unless the bank actually markets an account as a "notice account", can they really ask for 7 days notice?

Here is an example: https://www.capitalone.com/bank/disclosures/savings-accounts...

> Advance Notice of Withdrawal: Under federal law, we must reserve the right to require you to give us at least 7 days written notice before you take money out of your 360 Savings. (This hardly ever happens but legally we have to say it!)

> Here is an example [..]

Interesting, and this appears to be federally-mandated. Wow.

Are there other jurisdictions where this kind of rule exists?

I used to have savings accounts with similar terms in the UK. They have a higher interest rate.

https://www.moneysavingexpert.com/savings/savings-accounts-b...

Sure, I understand the general principle of locking up your investment for longer and [perhaps] getting better conditions, but the notice periods on those accounts aren't government-mandated, though?

Sort of - to the FDIC, the difference between a savings account and a checking account is that a checking account is a "demand deposit" account that historically didn't pay interest and a savings account is a "time deposit" that does. Capital One is telling you that this savings account is a time deposit to legally categorize it as different from a demand deposit so the FDIC treats them as two separate categories and gives them both the $250,000 deposit insurance. It's federal law that requires them to delineate the two.

Of course. A depositor might walk in and ask to withdraw more money than the bank has cash on hand. The seven days gives the bank time to get the requisite notes (or call the appropriate law enforcement agency).

> A depositor might walk in and ask to withdraw more money than the bank has cash on hand.

I'm sure you didn't mean it that way, but that sounds rather like an excuse for a bank to hold on to someone's money. Withdrawals don't have to be in cash, banks can issue cheques or money orders (always assuming they still exist in your jurisdiction!) If not the bank can simply pay out your balance by electronic transfer to an account you specify.

I was referring specifically to those rare cases where someone exercises their right to withdraw coins and Federal Reserve notes despite it being virtually always imprudent. For example here[1] is a story about a man who asked for $600,000 in cash. The bank didn't have that many coins and bills on hand and actually took considerably longer than seven days to acquire it.

[1] https://www.investopedia.com/terms/n/notice-of-withdrawal.as...

> If you are tether and your asserts are in bonds that mature in under N days, then you could just promise redemption within N days to eliminate bank run risk.

I don't think that's reasonable for Tether, at least not with a bulletproof N. I can't quickly find any specific redemption guarantee, but their March reserves report notes that their US Treasuries (the largest single claimed category) can have maturities up to 120 days. The commercial paper category claims an average duration of 44 days.

Agreed, I think N would have to be too high to depend on this entirely, and high N looks a lot like insolvency. But it could still buffer against a partial bank run.

A Tether is an IOU for a dollar right? So long as you have one USD per Tether issued you can always redeem your outstanding IOUs.

I acknowledge the complexities of investing that collateral in more or less liquid instruments, but in principle the notion appears sound. I'd be happy to give you an interest free IOU in any amount you like if you provide me cash money for that nominal value in exchange.

You're assuming they're actually receiving the dollars for the tethers they mint which they have chose not to prove.

There is an assumption behind your question to the effect of saying "If we assume Tether is not, ultimately, a fraud, it seems like the only way..."

That is, IMHO, a questionable assumption.

Now, "fraud" in this case too strong a term. The intent to defraud may not be explicit in Tether's internal conversations and practices.

All business ventures by definition involve risk, and corporate structures and venues and liability shields and so forth exist precisely to create a space for risky ventures to be undertaken without failure leading to death or personal poverty for the principals. In those cases, the customers, investors, and other participants are also partaking in the risk, based on information that is deliberately- sometimes responsibly, sometimes incidentally, and sometimes maliciously- incomplete.

At the end of the day, when the full accounting is known, a post facto judgement of fraud vs speculation may be rendered.

But the assumption that Tether is behaving as one might want one's bank to be behaving, in terms of customer/user risk exposure, should be strongly, strongly questioned.

Let's be honest with ourselves... Tether is almost certainly intentionally fraudulent.

how is fraud too strong a term? what else would you call deliberate financial malfeasance?

Have just seen it many times, specifically in finance, the risk complexity of which is really hard to understand, and which has an equilibrium of stasis punctuated with earthquake-level surprises that make even careful bets into speculations into existential threats more quickly than most people are able to respond. Fraud is a catchall for a really wide range of often unintentional outcomes. Incompetence rather than malice, though the common behaviors both of information hiding and cutting customer hair rather than one's own shades awfully close to malice, even if they are in compliance with terms and disclosures.

Very early on in my MBA, I ran a pretty simple simulation of different investment strategies with different expected returns and different tail distributions. Each round, new money entered the market and was distributed based on previous empirical returns.

The result was the same “slow up fast down” sawtooth we see in the real market, and investments that had real alpha were crowded out by investments that simply pushed risk into the tails. It took like an hour to assemble that agent-based simulation and it scared me out of finance. Most financial engineering seems to just be Martingale betting schemes that guarantee small to modest returns 99% of the time.

That's how it should work. What if instead, multibillion dollar exchanges that have a vested interest in keeping the price of crypto propped up instead paid Tether much smaller numbers to print out of thin air and create artificial demand during any price drops?

That is a fascinating hypothetical that an audit of tether would either prove or disprove.

The fact that tether has never been audited makes the former more likely than not.

What if Tether has issued a substantial amount of USDT to people in exchange for either nothing or things that ultimately prove to be worth much less than $1/USDT issued?

My understanding is that while USDT isn't this $1:$1 ratio you describe, other stablecoins are, specifically USDC.

So what you're describing does exist, but isn't what USDT is. IMO the infatuation with USDT has always confused me a bit; why would anyone use USDT over USDC in the first place?

USDC hasn't been audited either, so how would we know that?

Because they've claimed it and we have no reason not to believe them, unlike USDT which we have many reasons not to believe them.

If your model is to trust entities until there's a specific reason to distrust them, I've got a billion dollars in USDLMM to sell you. Tether is larger and has been subject to more investigation than their competitors.

(Don't get me wrong, I assume everyone in this space is some combination of fraud, ponzi, and money laundering)

Tether has not survived those investigations.

My model is the same as your model, you're just making assumptions I'm not.

USDC has monthly "attestations" of their assets. This is less than an audit but it isn't nothing: https://www.centre.io/usdc-transparency

I don't think even banks do monthly external audits.

USDT does quarterly external reports: https://tether.to/en/transparency/#reports

> whenever the price of Tethers drops to $0.99

If the Tether is pegged to the USD, who would ever sell one for $0.99?

Folks who want their fiat.

What does "pegged" even mean unless Tether is always willing to pay 1 USD for one? Then who would sell their tether for $0.99, at a loss?

Tether is not willing to do this

So their idea of pegging is just a forcefully worded request?

More of a vague promise to buy. They have a lot of dollars. If tether skips to 99 cents will they buy it from people to push the price up? Maybe.

It’s been sitting at 99.9 for several days now.

"Sure, it's pegged, Anyone who fills in the right forms can get their USD back. After a few weeks. And if the request is big enough. Oh, but there was a problem with your form. Sorry. Try correcting it and resubmitting it. No, we can't tell you what the problem was."

Those who bought it at 0.9999954 and resell it at 0.9999978, making less than pennies on the dollar, but still profit. Then you make a chain of suckers until it goes back to 1USD

Tether will only redeem amounts of $100k or more. The vast majority of people get out of USDT by selling it on the market.

Depending on how many people want to sell, how quickly they want to, and how many market makers are willing/able to arb it back up to $1.00, you might just take $0.99 instead.

This is exactly what keeps it at $1. If someone is willing to sell at $.99 then the number of buyers is gigantic. Ditto with someone buying at $1.01. That’s why it’s news when the peg drops by more than a fraction at a penny.

As for why would someone buy or sell for other than $1.00? Plenty of reasons, if a market opportunity to make 10% in a crypto investment pops up, damn right people will liquidate tether at a slight loss

Anyone unable to sell for $1.00 because no one is buying at $1.00.

Because $0.99 is better than $0.

Pegged is a meaningless term if nobody is supporting the peg.

It's my understanding that the people behind Tether buy at some price slightly below a dollar, to allow some "play" (slight volatility) in the Tether market and to incentivize others to hold Tethers and provide liquidity in exchange for arbitrage. But since you bring it up, I don't know if that's true, I could be misremembering that.

I don't think it's super important to my question though.

I think it would be super helpful if some of ya'll were to watch the USDT:BTC (edit: really any USDT currency pair) order books on the exchanges on different intervals and watch the market making bots in action - this is what I think. See the spreads, see the intervals they make their trades on - study it.

Its not entirely obvious what they "should" do with the fiat they make selling their token. They could invest it something safe like treasuries and keep the interest for themselves. But even treasuries could go down in value and if there are enough withdrawls they'll have to sell it at a loss.

Or they can invest in money market funds, or similar short term investments. Or commercial paper (unsecured short term debt). From what I read, they invested a lot in commercial paper to Chinese companies. It's all a game to eek out a slightly higher yield.

They face the same problem as any bank. Except banks have a regulatory framework that tells them exactly how much they can invest and in what, and every decade or so the bank gets bailed out.

The problem is that it's not that simple to just park $80b on a bank account. The bank will use the money to buy bonds or give it out in mortgages to get interest on it. It's akin to kicking the can to the bank, and getting the money out might fail or be too slow. It's probably better to manage the reserve yourself, to be able to manage risk and liquidity properly, rather than outsource it to a bank.

It sounds like the only way to do this is to create your own bank which directly integrates with the federal reserve.

The banks used by crypto companies tend to be outside the US and have large crypto positions.

> It sounds like the only way to do this is to create your own bank which directly integrates with the federal reserve

...but isn't the whole point of Tether to stay as far away from the traditional banking system as they can?

This of course includes avoiding - as much as possible - all the KYC/AML legislation that traditional banks are obliged to follow?

There is tension between being as far away from the banking system as possible and having the ability to cash out your USDT to USD.

The only way I can think of a stablecoin being totally independent of banks is to store their reserves as bank notes, and when someone wants to cash out USDT to USD they have to go pick up the bank notes. This glosses over the obvious challenges of storing billions of dollars in bank notes and distributing those notes during a cash out. The bank notes are also worth less than face value because you have to physically store and secure them.

Not at all, the whole point of Tether is to create a clean link to the US financial system — a tether to it.

> the whole point of Tether is to create a clean link to the US financial system

If one's business is "providing a clean link to the US financial system", why would one choose to avoid financial services regulation?[0]

If one is clean, or at least trying to look clean, why would one choose an accountant based in the Cayman Islands?[1] This bit in particular is beyond parody.

[0] https://www.coindesk.com/policy/2021/01/26/what-tether-means... [1] https://www.coindesk.com/markets/2022/01/26/tethers-new-acco...

It would seem like the banks would be much better equipped to handle $80 billions because they have experience with companies that need to move cash around. If push comes to shoves and Tether needs that $80 billions immediately, the bank could always get an overnight loan from the interbank system or the Federal Reserve.

The problem with trying to park $80bn in a bank account is not the risk that the bank might invest it. That is what banks do. You can find a legitimate bank who will be willing to hold your $80bn with reasonable terms for how fast you can access it, backed by insured guarantees and as secure as you would like.

But such a bank, when you show up with your $80bn, in order to protect their ability to reliably offer those kinds of terms, will want to ask you a few questions about where you came by that cash.

And if you can only say ‘I have no idea’, and when they then ask ‘how much of it belongs to sanctioned individuals or is criminal proceeds?’ Your best guess is ‘not none of it’, then the legitimate banks are going to walk away from that conversation.

So then, yes: where are you going to keep that $80bn?

Yes, that's another problem and probably the more likely one. Buying and selling bonds and other stuff also requires arrangements with banks and so on, but might be easier from capital control perspective, or actually work as a money laundering mechanism, but I'm not really sure.

What prevents you from only selling the coins to US citizens with full KYC? Wouldn't that be enough?

Because the very purpose of a stablecoin is that one person buys the stablecoins with real USD; okay, you can KYC with them. But then once they have those stablecoins they go off and use them - to pay someone else for something - like some Bitcoin or something. Possibly something illegal.

This is not someone you have a direct relationship with. And now those stablecoins ‘belong’ to that new person.

Then that person uses the stablecoins to pay another person for something else, and eventually a completely different person can now come along and go through your KYC process and cash out the coins.

All above board and legitimate.

Except in the middle there’s a part where you might actually be acting as a bank for an international drug cartel or a sanctioned Russian oligarch. You just can’t be sure.

Agreed, but as long as the people you interact with are above board, it's on them if they use it wrong, no? You could make the same argument for physical treasury bonds, or gift card codes, or generally any interaction with crypto currency, but I don't see any bank having an issue with that.

In Swizerland maybe? (or Malta, Luxembourg, Isle of Man, etc..)

Now imagine that Tether, instead of waiting for someone to give them a dollar to print one USDT, printed billions of them and said "yeah don't worry they were paid for they're backed. Trust us" and then never opened any of their books to anyone but a single unknown audit company that is basically owned by one of their friends.

Also imagine that they took the actual money that was given to them and, instead of keeping them in a bank account, said they were going to invest them. (Or did not say it, and did it anyways). Imagine they invested it in amazingly profitable sectors like the housing market in China which is definitely not crashing right now.

Tether isn't backed.

The 'all you need' part is the part you can't hand-wave away. One typically can't both satisfy the requirements of generating a rate of return needed to remain viable[1] with low risk and keep the funds liquid. In the event of a run on their currency, they would need to have most of those funds available on short notice without a significant loss of principal to avoid an implosion. Even liquid, safe government bonds will often need to be sold below the price paid during extreme market conditions (the exact kind of situation that runs on the coin are likely to occur during)

[1] Especially in a near-zero interest rate environment.

The best rebuttal to this is the following quote from the article in question, which shows that not only is Tether NOT fully backed by cash, a lot of their supposed collateral sounds quite shady and they are also not letting anyone else audit what they are doing:

"Regulators and economists have long questioned whether Tether has enough assets in its reserves to justify its stablecoin’s purported peg to the dollar.

“USDT is, quite simply, fully backed by collateral,” Tether said in a statement Monday.

“It has maintained its peg because every USDT is redeemable for dollars via Tether, and as such any time the price goes below $1 investors can earn a profit by buying USDT for a discount and redeeming it with Tether.”

The company previously claimed tether was backed one-to-one by dollars in a bank account, but subsequently revealed it was using other assets including commercial paper — short-term corporate debt — and even digital tokens as collateral after a settlement with the New York attorney general.

Last week, Tether said it reduced the amount of commercial paper it owns and increased its holdings of U.S. Treasury bills. For the first time, the British Virgin Islands-based firm said it also holds some foreign government debt. Tether declined to comment further on the source of its funds, but said it is pursuing a more thorough audit of its reserves."

Here's what you're missing:

The USD:USDT exchange rate should always be 1:1. If 1 USDT is, due to market pressure, suddenly worth $0.98 USD, Tether's responsibility involves some analysis of either waiting for the market to resolve itself (maybe its a transient thing, and its an arbitrage opportunity, so The People may step in), or act as the source of market liquidity; they buy USDT up, with their dollar reserves. Now they, as they always do, have a reserve of USDT they can re-sell for $1 USD without minting new currency, which is convenient (though ultimately a liability on their balance sheets).

But there's a second situation: the exchange rate hits 1 USDT == 1.02 USD. This would happen if demand for Tether were very high; people want safety and stability, so they demand USDT. But: they aren't interested in "leaving crypto"; they don't want to convert USD to USDT, they want to convert crypto assets to USDT. The open market doesn't have enough liquidity to support the 1:1 exchange rate, so the price of USDT starts rising.

This absolutely happens in exchanges which price crypto assets in USDT, which is many. One exchange says 1 BTC = X USD, another says 1 BTC = X*1.01 USDT, and there's now an inter-exchange arbitrage opportunity based on the promise that 1 USD should be 1 USDT. That arbitrage, in some market conditions, can act as an upward force on the price of USDT.

It is ALSO Tether's responsibility to cool off the market. What do they do in this situation? There's only one solution: they need to increase the liquidity pool of USDT. In other words, there are sources of demand for USDT outside the scope of the purist viewpoint of "give me one USD and you get one USDT" rooted in their responsibility not just to act as a reserve bank for USD/T, but also a market maker. Markets misbehave; Tether promises stability.

What's the source of these USDT? They probably have some USDT in their reserves. But beyond that, they need to be minted! Their promise is that every minted token is backed with USD. Assume they're keeping their promise, then follow the line of questioning into where the USD comes from. Return on USD investments for sure. Bank loans? External investor capital? CEO working nights at McDonalds? Regardless, it gets minted and then sold (probably at $1 USD); they make the money back.

And, of course, there's the situation if that assumption is wrong. They have no external source of capital; they just mint tokens to meet demand, hoping that they get sold at $1 USD to refill the reserves. And that's damn convenient, wouldn't it be? USD-backed investments are pretty risky; we could be in a down market and their AAPL shares are in the red; and its USUALLY the case that demand for USDT, for stability, would be high when other markets are in the red; when it rains it pours. They need to pay taxes on the ROI of those investments. Things like bank loans or external investor funding usually also have expectations of ROI. Those are all costs; and it would be REALLY convenient if they could just ignore those and mint the tokens, who cares, the money will flow back in.

This actually works most of the time; it's literally called Fractional Reserve Banking, and everyone does it. But during black swan events, it can break down; especially when you mix in typical finance bro greed, but that isn't even necessary for something like USDT to break down.

There's no perfectly safe way to create a reserve-backed stable asset. The best hope in a deflationary context is that if the price of USD:USDT goes to something like 1:1.01, people preemptively come to Tether, give them USD for USDT, then arbitrage it back to 1:1. But because the logistics of doing that are different than just exchanging crypto-to-crypto (latency, KYC, etc), there could be a demand mis-match. Tether can't let the price stay above 1:1 for long, because it actually devalues the USD basis of anyones' investments denominated in USDT, which is a loss-of-faith event that can spiral to be even worse. So Tether steps in.

> All you need for a stable stablecoin is to save every dollar put in to it.

That’s the issue right there. How does Tether save its dollars? We can see it in their transparency report[1]. Whether you believe them or not it’s not just cash in a bank account.

* 0.41% Non-U.S. Treasury Bills

* 55.53% U.S. Treasury Bills

* 0.15% Reverse Repurchase Agreements

* 5.81% Cash & Bank Deposits

* 9.63% Money Market Funds

* 28.47% Commercial Paper and Certificates of Deposit

How much of that is liquid and directly convertible to dollars 1:1 in he next 24 hours? Not 100%.

What happens when they start selling billions in Treasury Bills and Commercial Paper to fund redemptions? The market price of those assets will drop.

What if the value of those assets is already below 1:1 because of recent market events?

What if they’re not being as transparent as they say they are?

> As long as they never spend anything from the reserve, this can't fail no matter how unpopular the currency is.

This can easily fail many different ways.

[1]: https://tether.to/en/transparency/#reports

So the financial system is mostly reluctance ?

Well, friction in transactions, arbitrage, and collective belief in the value of an asset.

>....and collective belief in the value of an asset.

Among other things the financial system is a web of trust.

IMO one of the fundamental things that crypto gets wrong is replacing trust with algorithms. I do not think that can be done. Trust is about people.

Time will tell if an algorithm that can automate trust can be found. I do not expect it will

I think a sufficiently advanced algorithm can over time.

Bitcoin is an example of a system of trust that has worked pretty well so far (although it requires a lot of electricity, but that is the trade off). There are also people on the Bitcoin core team, so there is some trusted element there.

Crypto will likely continue to innovate on algorithms, given the chance.

I think there can be trust in people, plus algorithms, with algorithms taking over more over time. This is already happening even in traditional finance, i.e. giving more control over to algorithms that participate in HFT. People do monitor those, but people monitor crypto, too, and maybe the failures in crypto so far mean too much control has been given.

I would argue that some more things in finance can be automated, without things being so black and white (i.e. no control vs total control given to algorithms). I do think the trust model given to governments and traditional finance gatekeepers can be iterated on, with some regulation involved too. I don't think we've figured everything out yet.

Billions is a small number in the US Treasury market. They do not move the market with that kind of size.

True. The US Treasury market is backed by war. That's solid business that you can rely on :-)

> What if the value of those assets is already below 1:1 because of recent market events?

The statistics you're bringing up are as of March 31. Do note that 6% of reserves are in "Other Investments (including digital tokens)", and Bitcoin (as a proxy for all cryptocurrencies) is down ~30% since then, so that's at least 2% of their assets that have been wiped out by market conditions. Keep in mind that said report also said that, as of March 31, liabilities are 99.8% of assets, so Tether's accounts says it should already be underwater.

(Although, if I'm reading the attestation correctly, all of the assets--including cryptocurrencies--are actually valued at purchase cost and not fair market value, so what the actual present value of those cryptocurrences is now or was 2 months ago is extremely unclear. Transparent is the opposite of how one could describe Tether's financials.)

They only need to have made 2% on those other investments and the 2% lost on crypto is irrelevant.

Also, if 2% of outstanding tether has been lost (forgotten wallet keys etc) then those can never be redeemed and again, tether wins.

Inflation is another factor worth considering here: tethers deposits are deminishing but it's investments are (or should be) shielded.

I think people fail to notice how similar a (non-fraud) tether model is to a traditional bank: you take short term deposits, you make long term loans, and you hope to have enough capital on hand to deal with any runs. Given the liquidity of modern capital markets, it's very rare for the fed to have to bail out small deposit banks. So it's reasonable to assume the same will apply to tether.

> They only need to have made 2% on those other investments and the 2% lost on crypto is irrelevant.

A quarter of their investments are commercial paper, which hasn't averaged as high as 2% yield since a brief period in March 2020. Actual cash of course has 0% yield. US Treasuries (sub 1-year), which make up nearly half their assets, also hasn't hit 2% yield any time recently. So no, they aren't recouping their loss on cryptocurrency.

> I think people fail to notice how similar a (non-fraud) tether model is to a traditional bank: you take short term deposits, you make long term loans, and you hope to have enough capital on hand to deal with any runs. Given the liquidity of modern capital markets, it's very rare for the fed to have to bail out small deposit banks. So it's reasonable to assume the same will apply to tether.

One of the reasons why banks rarely have to be bailed out is because there are stringent regulations on bank holdings. For example, a minimum tier 1 capital ratio, the amount of equity that needs to be held to cover unexpected asset shortfalls. This requirement is I believe 10%, and based on the evidence Tether has produced, Tether's tier 1 capital ratio is... 0%. It should also be noted that Tether is perilously close to insolvent, with (claimed) assets about 100-101% of total liabilities; most financial institutions prefer to be at least ~110-115% of total liabilities.

Compare Tether to banks if you want to, just be aware that it just makes Tether's financials look even worse in comparison.

Don't mistake me for a tether fan. I don't pretend to know if it will work or if it moral or if it's all a scam. I don't own any.

I'm just laying out the maths...

And to be clear, they only need to make 2% total to cover their crypto loses. If the average tether coin exists for 18 months before being redeemed, 1.5% per annum will net them 2.2% over that period and they're golden.

That extra 0.2%, for a $10bn withdrawal is 2million USD in profit right? Not bad split equally between 5 employees, for a month with massive crypto loses and 10bn in net withdrawals...

Cash has a negative yield, because rats and other vermin nibble on it.

Close. Cash has a negative yield once savings exceed investments because any additioan investment in physical capital will produce capital that rats and other vermin nibble on. If the yield is stuck at 0% then the physical capital is gone but the money is still there, leasing to inflation. Since money is a claim on the production of other people, it would be wholly absurd to distort the market by forcing the interest rate to never fall below zero as this does not deal with the rat problem. In fact it makes it worse because holding onto money let's you avoid costs associated to rat damage and therefore it fools our brain into thinking we have something that really isn't there anymore, the rats ate it. So instead, to prevent rats from eating our physical capital, we decided to produce none and leave a portion of the population unemployed. As it is illegal to trade without money the division of labor breaks down, people can no longer feed themselves because it is illegal for them to do so. The masses get angry at the rich because they took all the remaining opportunities while simultaneously pretending to be the heroes with their philanthropy.

Slightly lower actually according to https://en.m.wikipedia.org/wiki/Capital_requirement, though the exact figure doesn’t matter that much. The 10% figure in your mind was probably the old reserve requirement, which was recently eliminated in the US.

> I think people fail to notice how similar a (non-fraud) tether model is to a traditional bank

That’s exactly what’s unethical about it. They’re operating a bank, but have skipped all the regulations and oversight that banks operate with.

I have no issue with Tether operating a fractional reserve deposit system, if they are subject to the same oversight (and insurance) that banks are subject to.

The reason banks are regulated is the risk of contagion and the risk of short term drops in markets making them illiquid or shallow so banks can't meet their commitments.

But tether has no risk of contagion to a bank does it?

And markets have never been more stable or deep or liquid.

So the case for regulation here is weak.

Again. I don't actually know if tether is a giant fraud, or how much actual business case there is here for stable coins. I'm just saying, it's sort of easy to make a case at least that they're fine.

Banks are regulated to protect your money from the bank stealing them. Before those regulations keeping your money in a bank was riskier than keeping it at home. That same situation now plays out with crypto, the crypto bankers create banks with high risk investments that nets them huge profits, but that will easily fold to market fluctuations. But them folding doesn't matter to them, they still keep all the profits generated before them, while you the guy who put your money in the crypto is the big loser.

I think there is just no way you could have a traditional bank provide the capabilities that tether provides. It acts like a bank, but it certainly does things that banking regulations to not actually regulate, and there is no way tether would have been granted a bank charter. Like it or not, waiting for regulation is not a way to build something that is new. As for forgiveness, not for permission.

I think that that idiom is perhaps overstated, it can be good, but it can also be an excuse to be morally corrupt.

> They only need to have made 2% on those other investments

Made, realised and not spent/withdrawn by them. The required assumption here is that the pool of money behind tether grows / is reinvested. But given they only need to keep 1:1 (assuming even that is true) the investment profits may have been exchanged for hookers and blow for all we know.

The federal reserve is a backstop for banks, if they need cash to pay depositors they are there with unlimited cash. Part of why they are there is because they know every banks assets exceed their deposits. Tether doesn't have that backstop.

Tether, or rather Finex is a famous MM. Don't worry too much about their "other investments", they are up a lot no matter BTC price.

Tip of the iceberg https://bitinfocharts.com/bitcoin/wallet/Bitfinex-coldwallet

Also, you're going with the assumption they shall be able to redeem 100%. Crash happens, like we have seen, but everyone cashing out their USDT is not a scenario going to happen. Or if you want to account for this scenario, then you can as well assume that crypto is going to disappear, and that would not happen without a cataclysmic event in the stock market either. Probably we will be back to the stone age at this point, and will have other things to worry about

> but everyone cashing out their USDT is not a scenario going to happen

Didn't bankers say something similar in 1928?

If I recall correctly, the stock market _only_ lost 90% of its value during the crash that proceeded the Great Depression.

It would be more relevant to compare to bank runs. How many banks got only 90% of their deposits withdrawn and managed to go through this?

> Crash happens, like we have seen, but everyone cashing out their USDT is not a scenario going to happen.

This seems wildly optimistic. All it would take is for users to adopt some new FOTM stablecoin faster than Tether backers can liquidate their reserves. It needn't be rational, either; it could be catalyzed by, let's say, a *ism scandal involving someone connected to Tether.

Without commenting on the likelihood of a tether bank run in general, it seems incredibly unlikely that it'll be catalyzed by an *ism scandal purely based on the general political leanings of crypto whales (hard to pin down on the left-right spectrum, but definitely highly libertarian for obvious reasons).

Correct. Finex may have started out on shaky ground, but now passed a NYAG lawsuit and is working to become more legit. Even the CEO is out in public now doing podcasts and he never used to be. The only way USDT fails now is a concerted attack, likely by a government, thru some mix of disinformation, lawsuits and new laws.

> What if the value of those assets is already below 1:1 because of recent market events?

My long-term treasuries are down well over 10% this YTD, in case anyone wants to know. So if Tether had say, $50-billion in 10-to-30Y treasuries at the start of the year, they only have $45-billion of that now.

There are serious market risks when you buy/sell Treasuries. Yes, they're among the safest instruments on the market, but rising interest rates and inflation are huge issues and absolutely wreck the value of long-term treasuries.

> So if Tether had say, $50-billion in 10-to-30Y treasuries at the start of the year, they only have $45-billion of that now.

They don't. As stated at the link:

> U.S. treasury bills comprises U.S. treasury bills with a maturity of less than 120 days.

Except USDT doesn't have any audits or proof of their reserves.

My overall point is that USDT could very well be buying up dollar-backed securities, such as 30-year treasuries, and yet still lose a ton of money if the market moves under them. Unless Tether allows 3rd party audits of their reserves, I don't think its necessarily safe to assume that they actually hold those reserves.

If you assume that the attestation is fabricated, there's really no reason to talk about treasuries - might as well assume they embezzled 50-70B. Personally, I think it's mostly accurate, with discrepancies being around things like marking securities to market. (Just look at VC practices there, for example.) The explicit statements of "X amount of treasuries under Y maturity" are likely to be true, a vague catchall like "other investments" not so much, which puts an upper bound of ~ 15B short.

Lastly: a temporary liquidity crisis that drives USDT down far below the peg is something that would be incredibly profitable for the operators. With perfect information, it would be a situation of trading 50 cents for dollars, and could be used to erase a partial deficit overnight.

>> So if Tether had say, $50-billion in 10-to-30Y treasuries at the start of the year, they only have $45-billion of that now.

This is nuts - they dont and it wouldnt make any sense. You cant have a short term cash-equivalent backed with long-duration bonds. It would be a total asset-liability mismatch.

For reference:

T-bonds mature in 20 or 30 years and offer the highest interest payments bi-annually.

T-notes mature anywhere between two and 10 years, with bi-annual interest payments, but lower yields.

T-bills have the shortest maturity terms—from four weeks to one year.

This (more yield with longer duration) is true most of the time, but sometimes the yield curve inverts. Especially in recent months, the yield curve has flattened quite a bit.

Everything you’ve just said would apply equally well to money market mutual funds (which hold the same kinds of assets), and yet they very rarely have problems honoring redemptions or keeping $1/share peg.

https://www.investopedia.com/terms/b/breaking-the-buck.asp

Edit: Just providing context for those who may be interested.

Right, I’m familiar with an alternate expression for what I just described. Were you disputing that it’s rare, or…?

First, MMMFs target $1/share, they do not promise it nor are they legally beholden to honor it. It's a goal, not a promise.

It also works because the US dollar has been remarkably stable and most of their holdings are USD. No crypto is so stable, with a bunch of them being about the most volatile assets you can lose money with.

> First, MMMFs target $1/share, they do not promise it nor are they legally beholden to honor it. It's a goal, not a promise.

How is that relevant to the claim in question? (Which, if you’ll recall, was whether tether can maintain the peg and redemptions while holding the same assets as MMMFs, which generally do that just fine.)

> It also works because the US dollar has been remarkably stable and most of their holdings are USD.

Okay, now you lost me, and I’m not convinced you have the recent discussion in mind. The original comment was claiming that Tether can’t maintain the peg, because it holds non-dollar assets. I pointed out a trillion dollar industry by that maintains a peg, using those same assets, and you’re saying the non-dollar assets only succeed there because the dollar is stable? Which is somehow an argument about how these assets are good enough for MMMFs to work but not Tether?

Please take a minute to review the thread and see if you’re still supporting the claim I disputed.

See this is just low quality FUD,

They have 39B in US Treasury Bills, how much do you think these will drop if they sell? The truth is next to nothing. and a 39B moat for sell offs seems very reasonable

I read that selling off commercial paper can impact just about everything because it is used extensively between banks. I don't quite understand it, but apparently this is how crypto came to impact the stability of other markets; through buying and selling huge amounts of commercial paper and impacting its price. I'd like to understand that better, if anyone feels like writing an ELI5.

So buyers thought they were buying some kind of novel risk-free crypto asset tied to Real Dollars™, while in reality they were mostly just buying T-Bills with unknown maturity dates and probably sound commercial paper.

Nice.

What's stopping them from just printing tethers without dollar backing and injecting them into the market?

Tethers aren't dollar-backed, are they? You just create as many tethers as you want out of thin air, and you sell them for a dollar each. If people want to sell them back, you (presumably) have the dollars still.

Considering how much marketing there is over “decentralised” and “trustlesss”, crypto systems are remarkably based in trust.

They don't have the dollars. That's the catch.

[citation needed]

Oh they have dollars, but the question is: How much of their non-USD assets are very liquid, and not too sensitive to market conditions?

Say they have 50% in cash, 30% in other easily convertible assets, and the last 20% in more speculative instruments.

What if they figured - hey, let's put those 20% on the market. Any returns, we keep, no-one needs to know. The rest we can use as reserve to keep the 1:1 ratio. Hell, investing 20% of xx billions on any fund or security that beats inflation is going to make you filthy rich - especially when there's only a handful of employees.

The disaster, of course, happens if/when any of the markets they're exposed to takes a nosedive, and they either can't prop it up fast enough, or get problems with paying.

Probably just the cynic in me, but I wouldn't be surprised if that's how things play out internally. Without any solid audits, it's hard to say. For all I know they have a very high % of USD reserves, or they could be Bernie Madoff reincarnated.

There is another, more legitimate way to create a stablecoin. DAI is the dramaless version of a USD stablecoin and is decentralized, secured by 150% reserve automatically, run entirely by smart contracts.

https://makerdao.com/whitepaper/Dai-Whitepaper-Dec17-en.pdf

It does not perfectly track USD but stays within a couple percentage points. Arbitrage traders automatically stabilize the coin thanks to the way the smart contracts are arranged.

The NY Attorney General successfully prosecuted the parent company of Tether and Bitfinex. They found that the two were sharing funds, transferring them back and forth to make it appear that Tether was fully backed while using the same funds to prop up Bitfinex (after they lost coins, maybe in a hack?)

https://ag.ny.gov/press-release/2021/attorney-general-james-...

That doesn't necessarily mean that Tether's assets are less than its debts. I don't know the details. I just know that the NY Attorney General finds their activities to be shady.

The outcome was a $18.5 settlement with no admission of wrong doing. If there was really shady activity, would NYAG disclose it?

If there was no shady activity, would tether pay a $18.5 million settlement for no reason?

They did disclose it; it was in the press release:

In the case of Tether, the company represented that each of its stablecoins were backed one-to-one by U.S. dollars in reserve. However, an investigation by the Office of the Attorney General (OAG) found that iFinex — the operator of Bitfinex — and Tether made false statements about the backing of the “tether” stablecoin, and about the movement of hundreds of millions of dollars between the two companies to cover up the truth about massive losses by Bitfinex.

also

Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.

The settlement also bars Tether from trading with New Yorkers, and the must submit regular reports about their compliance with this prohibition.

I suspect the AG got what they wanted, they just managed to do so without taking time in the court system. I would assume that Tether realized that it wasn't worth trying to defend themselves and so agreed to settle. My use of "successfully prosecuted" might not have been the right way to phrase it.

Remember the NYAG wording is going to biased in their favor.

Reading between the lines - there was a period in the past where Tether was not fully backed. If Tether was still, as of today, not fully backed, would NYAG conclude this case?

I suspect the AG thought it had a bigger case involving ongoing fraud but settled as it could not find evidence of any ongoing false claims.

While biased in Tether's favor, worth a read: https://tether.to/en/stress-tests-resiliency-and-bank-runs/

>The people behind Tether sell tethers for $1

This is the problem. I don't believe all the tethers were sold in exchange for $1. If Tether wasn't receiving $1 for every tether then everything else falls apart.

A stablecoin that was fully backed with dollar reserves would be fail-proof. The problem is such a stablecoin would also be unprofitable, because the issuer would have expenses but no revenue. The way they generate revenue is by investing part or all of their reserves in assets that generate a return. However, as soon as they do that, the stablecoin is no longer fail-proof because these investments are not risk-free.

The risk-free rate of return is generally greater than 0%, so with a large enough issuance I imagine it could be done safely. But "don't get greedy" is a commonly ignored principle.

Part of the issue is that the US government keeps fucking with their bank accounts, making it difficult to have 100% of their reserves in plain old cash deposits.

Yeah, "Fake it till you make it", and they made it.

They are the only stablecoin I would ever consider buying, because they by now have enough resources to fake it long term.

I've read that the main reasons that people invest in a stablecoin (from least to most) is to: a) buy/sell other crypto easily, b) store illegal gains without drawing attention to yourself c) move your money out of the country.

Reason C is especially pertinent to China, and the environment there (from what I read on U.S. media, which is HIGHLY unreliable) is not pushing them to run the bank.

IMO, the biggest risk for Tether is that the AG suddenly announces that they won't be able to trade in the States, as that will cause a run, and that is definitely possible.

We're in the get out while you still can phase. At some point they'll suspend conversion and holders will be stuck with something virtually worthless. It's like watching a landslide in its early stages, as soon as enough people realise what's going on it's going to be too late.

It is specially relevant to get out as there is no upside or very minimal upside... Why ever hold tether... If real money is an option.

USDT is the fuel that powers a lot the crypto ecosystem. Good luck trying to move USD around between different places in the crypto ecosystem (especially outside office hours). While possible it's complicated, slow and has terrible uptime.

The biggest crypto markets in the world are quoted in tether.

Your answer is not false, but does not explain why someone would hold Tether instead of using it as an intermediate vehicle.

The wisdom of holding is always relative to the rest of the market and what else you could be holding. Imagine a metals exchange. If copper were going up in value compared to the other metals, you’d want to hold copper. But you can also sell all your metals for cash. You would do this when all the metals are going down in value, which means USD is the “best-performing metal” and you want to be holding it. You always want to be holding the thing going up in value the most. Sometimes it’s USD, and the fact that it is also your reference point for pricing everything else doesn’t mean it’s not front of the pack sometimes. Obviously when you buy USD with your copper, the value of USD goes up. But since it’s all denominated in USD, that just looks like “all metals go down in price but especially copper”, and because so many other markets set the value of USD, it really just looks like “copper goes down”. It’s similar to the relative velocities etc you do when you study physics.

So primetime for holding cash is when there is deflation and you expect to be able to buy more for your dollars later, so you stash it in a bank account or under your mattress. This is generally bad for a regular economy because people stop spending and the economy slows down. That’s why there’s always a little bit of inflation, because better that than deflation! Inflation makes people use their money lest it lose value / gather dust sitting still, and spending money makes the economy run. Having to beat inflation with your investment is a chore, but it’s better that everybody individually decides to do something with their money. I digress.

For Tether, where the only things you can really buy are other cryptocurrencies, deflation just looks like a crypto bear market. So people are likely holding USDT right now.

At the same time, given that the value of USD is set by many trillions of dollars changing hands and millions of contracts priced in it every day, compared to Tether which is like a gift card for a record store that might go out of business, it’s possible for USDT to get unpegged if that record store posts bad results. The strength of the proposition that USDT can be redeemed for USD is the only thing holding it together.

This all is a good explanation for why you might hold USD instead of other assets. It’s a less compelling explanation for why you might hold USDT, which would be the same as holding USD except it also might crash and leave you with nothing.

I'm not going to do the job of Tether's accountants. There is no compelling reason to hold it given this risk. Nevertheless people do, and the reason is what I said + they additionally believe the claims about it being redeemable 1:1 for USD + it's easier to buy and sell crypto with it than actual USD.

>* There is no compelling reason to hold it given this risk.*

Sounds like we're on the same page :)

> If copper were going up in value compared to the other metals, you’d want to hold copper. But you can also sell all your metals for cash. You would do this when all the metals are going down in value, which means USD is the “best-performing metal” and you want to be holding it.

I'm not sure I follow that description, are you really saying one buys commodities when they're rising in price and sells when they're falling? You make it sound like there's a trend one can observe .. and predict the future?

Back to real life, take a look a the copper price chart zoomed out to one year[0] It's been going up - and also down - all the time.

I'm reminded of the proverb "Nobody rings a bell at the top or the bottom of a market"...

[0] https://www.bloomberg.com/quote/HG1:COM

Uh yeah, predicting the future is the entire idea. People are always guessing what the price is going to be in the future. If you guess correctly you make money when you sell later. If you don't, you lose money. Lots of people are highly incentivised & therefore trying really hard to predict the future, and this is what makes capitalism an efficient resource allocator. That's not only true of metals exchanges. If you think the price of copper is going up, you could also survey for and build a copper mine. That knocks on to labour markets, as you're now hiring miners. So the market's predictions can move the price of everything, and everything readjusts itself to match, all on its own, and finds itself ready (i.e. a whole mine built & ready to go) for when the prediction comes true, or adjusts itself back when it doesn't. The effect of efficient resource allocation + predictive power is that when e.g. supply goes down but demand is up, people have tried to predict this and have already built capacity for more supply. This is pretty fundamental to how most of the world works.

Markets function in general terms as information -> price machines, where people are rewarded for seeking out information and converting it into prices by moving money. If you HAVE INFORMATION that suggests copper's going to go up in value, you buy copper, and because you did that, it DOES GO UP A BIT. So the information becomes a price signal, in advance of the event that actually affects copper supply/demand. If you predict a supply/demand change, and then your prediction "comes true", the price moves, and you can sell at a profit. Magic. You are rewarded for predicting, and in exchange the market learns the correct price a little bit earlier by incorporating your "bets" in the market price. This is known as news being "priced in". Every single day watching financial markets involves big news that some analyst at a bank mispredicted, and then the price has to move a little further or a little back to correct the value it had "priced in". Sometimes announcements come in as predicted, and the markets barely react at all, even to a huge profit announcement. It's because they already knew. They predicted it.

As people "share" the information they have about the assets in the market by buying and selling, the price walks about as it discovers its value. On short timescales, this fluctuation is largely made up of people fretting about really tiny predictions in a capricious and flighty way. The most valuable information, i.e. the stuff that will let you buy in lowest and sell highest, is information the market doesn't know yet. Only some of the information is revealed by buying/selling, as it's a weaker signal than the prediction actually coming true & being reported as news. The creation of newsworthy events happens slowly, much slower than people can trade. People can make a lot of money doing insider trading, because they can predict the future value very accurately & without trades sending a huge signal as they're anonymous! But everyone agrees it's unfair to everyone else, so it's not allowed.

All the people playing this game are trying to predict, because predictions are more lucrative than current information that the market already knows. But they can also be wrong. Fortunately the price of an asset is the aggregate of everyone making predictions, and this averages out to a more useful summary of "what do these 300,000 people think" rather than "one dude at one trading desk". The "invisible hand of the free market" is the emergent wisdom of a whole lot of people trying to guess what's going to happen in the future. And it is pretty wise -- capitalism is actually pretty good at resource allocation to projects that are going to be most useful in the future. It performs better than a Politburo at this task. The main criticism of it is not that it's bad at this job, but that it is too good at it -- and too ruthless at exploiting the information it has to the detriment of the poor humans without much capital at the bottom.

> Lots of people are highly incentivised & therefore trying really hard to predict the future, and this is what makes capitalism an efficient resource allocator.

It seems a majority of those (highly-paid) people incentivised to predict the future seem not to be that good at it?

FT: "Active managers fail to beat the market again"[0]

FT: "Only a third of UK-based active equity funds outperform passives" [1]

FT: "Three-quarters of stockpickers lagged US market last year"[2]

FT: "Active funds underperformed during Covid market stress, watchdog finds"[3]

[0] https://www.ft.com/content/7e4c0d91-8b6d-419b-9be3-80131d5cb... [1] https://www.ft.com/content/06317e0e-b6bf-4fdc-9255-cf664cb92... [2] https://www.ft.com/content/d1f96d83-1a72-47d7-a4af-2483bd49b... [3] https://www.ft.com/content/fbb3d1e7-f5a7-41fc-95c7-d7bf20e3c...

You missed the point entirely, which is a bit sad for the amount of effort I put into writing all that. It is right there in the bit you quoted. Individuals may do poorly or they may do well. The market as a whole, as you point out, is likely to do better than individual investors. The reason the market does well as a whole is that individual correct predictions are rewarded and incorrect ones are not, and there are a lot of people guessing. The smart ones tend to use more money and account for a lot of the market's overall intelligence, and the small fish tend to be dumber, so you would expect a Pareto distribution of performance of individual investors.

If your evidence that people aren't making good predictions is that the market itself does better, then... who do you think the market is made up of? It's just more people!

Are you really trying to argue that people aren't trying to predict the future when they buy a stock? Or are you just butting your head against these concepts and getting nowhere?

People hold Tether because it is away from the eyes of governments.

How precisely is it away from the eyes of governments? We've seen ample reporting in recent days about just how easy it is to trace crypto assets.

Besides convenience, the answer seems to be yield.

Fiat-backed, collaterized stable coins that are better than USDT

  - USDC (Circle USD)
  - GUSD (Gemini USD)
  - BUSD (Binance USD)
  - EURS (Stasis EUR)

Crypto backed (overcollaterized) stable coins that are soft-pegged and better than USDT

  - DAI (MakerDAO)
  - sUSD (Synthetix USD)
  - sEUR (Synthetix EUR)

No one needs USDT anymore. The fact that even Binance gets more credibility than Tether should tell you how scammy the people still trading USDT really are.

This casually ignores the point being made. Tether is a fuel. USDT printed money without backing and pumped it into exchanges/btc/eth.

Without that upward pressure, there will be nothing preventing btc/eth from freefalling. Heck without that, what is the point of the above coins either.

"Proper" stable coins are still important (at least for me who still would like to see crypto as a viable alternative for payments), and at this point I am honestly hoping for USDT and BTC collapsing.

ETH's price is still unfortunately too correlated with BTC, so it will also fall down a lot when BTC comes under, but as long as the price of ETH is high enough to secure the network, it is not a problem.

I'd be careful about adding Stasis to this list. Discord users have been complaining about not being able to withdraw through their platform for some time now.

Ok, that is good to know. I got in and out EURS only through Curve and Uniswap, so I don't know what is the process to redeem for fiat.

I will stop recommending it until I can make sure that it is easy to do on/off ramps with them.

Sure thing! You won't be able to redeem unless you deposited fiat directly with the Stasis affiliated platform. And even then, users have been saying it's currently disabled.

This is what get's me when people say "do your research" in crypto. Where am I supposed to do that? Do I need to trawl Discord until I'm satisfied a coin is on the up-and-up? Is the absence of complaints like this for a crypto project evidence of quality or evidence of vigorous moderation?

Going by my experience, 100% of the people saying "do your own research" are either shills or they are getting into a project without having no idea of how things work. If people can explain easily and if it is a legit opportunity, they wouldn't be saying "do your research", this will just be accumulating as much as they could without making too much of a fuss about it.

Corollary: any coin that is on the up-and-up and you can not easily explain the tokenomics is worthless.

Dyor means that they know it's a scam, but they want to avoid responsibility.

It's also a method of making yourself seem authoritative or knowledgeable without having to prove it. It implies that you did your research, but you aren't going to prove it because everybody else needs to do the same for themselves.

Yes, IMO you should treat a crypto investment as requiring much more DD than a typical investment. You should have a thesis about why a given project is more likely than baseline to succeed, and you should have done enough research in the actual community of users (not just investor shills) to convince yourself that real people are actually using this thing reliably. There is just too much vaporware and outright scams to do otherwise.

Binance doesn't have that much to do with BUSD. It's a white labeled version of USDP run by Paxos which is an American fintech company not related to Binance.

If this was two weeks ago you most certainly would have included UST at the top of this list.

People reading this should definitely question the other ones on the list as well. what proof do we have that the rest of these coins are really stable?

No. I wouldn't. Never used Terra, and I already said here that I never understood these "algostables" with no collateral.

As for "proof", you should've learned already that there is no such thing as "proof" with any of them. It's all about risk. For the fiat backed, the risk could be measured by the trustworthiness of the institution behind it and how they are managing the real fiat they have in hand. I'll risk them of my list if I hear that any of them is doing any kind of shady (we are collaterized by other assets that are not money) like Tether.

DAI and synths also have a non-zero chance of catastrophe, but at least this is mitigated by the over-collaterization. Synthetix requires something like 6x the SNX for each sUSD you can mint and their governance was not afraid to increase this requirement (and consequently reduce their sUSD supply) when their token went down.

But Terra did have collateral. Luna equal to 1 USD was burnt (more like locked) once a UST was minted.

The whole conceit of DAI is that instead of burning luna at a rate of $1 they would burn it at a rate of $1.5 , The mechanism is exactly the same! And it will fail in exactly the same way.

DAI has multiple assets, the vaults are at 150% at a minimum and independent from one another and, most importantly, there is no one offering 20% APR on staked DAI. It already went through worse crashes than UST did and it managed to recover.

It's far from perfect, but it is certainly more resilient and has shown to be able to pass the Lindy test.

>DAI has multiple assets,

And so did Terra. They held AVAX, BTC, LUNA and a little bit of USDC.

>150% at a minimum

And for Terra this was 100% at a minimum. It makes 0 difference.

>independent from one another

Cryptocurrency are extremely correlated.

>it managed to recover

UST itself had recovered from a previous depeg event

You know what is missing on your list? The 20% APR staking ponzi!

You keep pointing out the similarities, maybe it would help to realize that the problem was in the difference?

Iron/Titan did not have any such high apy and still collapsed. In case of terra, I concur that the driving force was the Anchor ponzi, but it was the mechanism that failed.

Iron was explicitly under-collaterized, and it was also trying to lure stakers by providing yield-farming. DAI is the opposite, stakers pay the stability fee to open a vault.

It did have a yield-farming component (you could mint DAI at 1% fee and put it in the DSR that would pay 2%), but that got completely knocked out in 2020. That crash was already a quite expensive lesson (tens of millions USD) for the MakerDAO team, and a lot of the investors had accepted a haircut in order to bring DAI back to the peg.

To repeat: I am not saying that DAI is bullet-proof. What I am saying though is that all the reasons you are using to make your case do not apply to DAI as it currently works.

I don't follow crypto stuff closely, so maybe this question has a laughably obvious answer, but: what's wrong with Binance?

Politically speaking, Binance is too tied to China.

Business-wise, Binance made its fame by shitting on Ethereum and its developers, and then copying every innovation they could while completely eliminating all the valuable aspects of decentralization. The Binance Chain is not really decentralized, which means that they can censor participants or revert transactions. They kept all the bad parts of blockchain tech, but none of the ethics.

100% agree to that list. I moved from USDT to USDC months ago. And now, that the exchange rate is very good i relocated around 80% on my stablecoins in EURS. My opinion with EURS and the company stasis that issue this stablecoin is very positive, simply no problems. I feel safe holding eurs cause it is backed with fiat money. Never liked the synthetic assets, so for the moment i am good with Eurs and Usdc for the euro and dollar part of my portfolio..

Nice try, Stasis CEO...

Agreed :) EURS is a great stablecoin for people counting their wealth in Euros :)

Tether is the fuel for unlicensed unregulated exchanges that are happy to list the shit coins that legit exchanges won't touch because they're pump and dump scams. All those sketchy exchanges are almost certainly not keeping client funds segregated either so when Tether goes down all those exchanges will become insolvent and probably just disappear with the rest of the money.

Real money isn’t an option, at least not globally. USDT is how much of the developing world buys crypto.

Avoid cgt, not the meta in this crash

And I assume you are substantially short these markets then given that you know this for a fact and it's trivially easy to become wealthy one you know this for a fact?

I don't even disagree that there are potentially major issues here but stating this as a fact is just silly.

It is a question of when, not if.

If you do some research on Tether you realize that there is so much fishy stuff going on, it's surreal. This HAS to implode at some point.

I wonder how easy it is to actually short Tether assuming the likely scenario where USDT goes the way of UST and trading is effectively halted. How does one cover their short when no trading is possible? In a regular exchange, there are rules about how to handle this but I'm not clear how it happens with crypto.

if tether crashes so will every other crypto. Just go short coinbase or another crypto proxy if you want to stay in your brokerage account.

UST trading only halted on some centralized exchanges. If you are willing to expose yourself to DeFi then trading continued.

You can short USDT on AAVE for 3% APY at current variable rates.

The actual UST blockchain was halted for a time.

fair enough, def a reminder that not all L1s are sufficiently secure

> And I assume you are substantially short these markets then given that you know this for a fact and it's trivially easy to become wealthy one you know this for a fact?

That's not a safe bet.

https://en.wikipedia.org/wiki/Michael_Burry, which the film "The Big Short" is based off, correctly predicted the 2007-2009 collapse of the housing market, but nearly lost everything waiting for it to occur.

> During his payments toward the credit default swaps, Burry suffered an investor revolt, where some investors in his fund worried his predictions were inaccurate and demanded to withdraw their capital. Eventually, Burry's analysis proved correct: He made a personal profit of $100 million and a profit for his remaining investors of more than $700 million. Scion Capital ultimately recorded returns of 489.34% (net of fees and expenses) between its November 1, 2000 inception and June 2008. The S&P 500, widely regarded as the benchmark for the US market, returned just under 3%, including dividends over the same period.

You can be right and still not be able to safely profit. Especially in crypto, where shady exchanges can wipe out a big short position pretty much at will with some wash trading.

borrow APY variable for USDT on aave on Ethereum is currently 3% apy.

If you can stomach the various risks involved (e.g. smart contract risk, exposure to ethereum 51% attack or something) then acquire any asset that AAVE has (e.g. USDC, Dai, ETH, BTC), deposit it, withdrawal USDT & sell the USDT thereby naked shorting USDT for 3% APY at current rates.

Those rates are low enough that it just doesn't seem like the market is that spooked yet.

Way too much counterparty risk in crypto markets. If there is an epic tether crash, I can't be confident that I'll get my payout. Compare this to established markets. I could log into my Charles Schwab account, make a short bet that Charles Schwab will go bankrupt overnight, and if I'm right, I know I'll get my payout.

The counter party is a smart contract AMM like curve or aave. Your only issue is liquidity and chain reliability.

Both of which are pretty big issues in the scenario we're talking about. When Tether crashes it will take down a significant chunk of the crypto world with it.

I wouldn't be surprised if congestion is extremely high on ETH if USDT collapses, but I'd be shocked if the chain started missing blocks.

Do you think that USDC would depeg as well?

If the bid and offer are like $2 - $.50, do you consider that a "depeg" or not? I think liquidity will disappear, transaction fees will go to the moon, and there won't really be a meaningful "price" because trades won't be happening.

I'd love to short Tether. How do I do that?

Sell short USDTUSD on an exchange that supports margin trading.

It’s simple. You are going to need collateral — BTC or ETH will do. Use this to borrow USDT from the open source money markets. Sell the USDT for BTC or ETH. You can double down by cycling this recursively and borrowing up some percentage of to your collateral if you wish to increase your leverage.

Meanwhile, you are paying 3-4% to whomever you are borrowing from. Addendum Meanwhile, you are probably funding an ecosystem something you are do not understand and against in the first place. :-)

I know in the equities, forex, and other traditional markets, these things are all force-arb'd by arbitrageurs forcing the cycle. So is that possible here? Forgive my ignorance here, but how do i short Tether here?

If there is another stablecoin you trust, you can do it via defi:

https://news.ycombinator.com/item?id=31495496

A chart of the landslide: https://stablecoins.wtf/

This is either a good thing in that "wow, they atleast have $10B to redeem instantly"

Or its a bad thing in that "welp, there's all the insiders exiting the boat first"

Redemptions are also done when exchanges need to offload Tether to buy other crypto currencies to fulfill orders.

For what it is worth I have been getting a lot of emails from OTC brokers trying to fill BTC and ETH orders over the last few days.

Note there no mention of redemptions, just a reduction in the circulating supply.

My guess is the USDT was borrowed and Tether is holding less commercial paper now.

>Note there no mention of redemptions

They have mentioned paying out billions in redemptions on twitter.

From the horse's mouth:

"Tether has over $70 billion dollars of collateral which it can redeem USD₮ against. No exchange’s order book has anything remotely resembling that amount of liquidity."[0]

When you look up the attestation that they provide each quarter 24% of this collateral is commercial paper.[1]

Companies could be redeeming USDT for their own commercial paper.

If you trust these attestations they have a lot of treasury bills and have increased their cash holdings by a couple percent so fingers crossed for those holding USDT.

[0] - https://tether.to/en/understanding-tethers-peg-and-reserves/

[1] - https://tether.to/en/transparency/#reports

> If you trust these attestations they have a lot of treasury bills and have increased their cash holdings by a couple percent so fingers crossed for those holding USDT.

This is the big if. They only do attestations, they don't allow proper audits and fired their auditors once when they got too nosy. It might have changed since then and they hold more cash or "cash-equivalent securities" (another iffy point), they still have never been properly audited so everything boils down to a very big "trust me"... US$80b of value is under that trust premise.

I wouldn't trust these people but I'm just a lowly drone in the bigger scheme of things.

It could be those, but nobody outside knows whether any Tether was actually redeemed though. They are alleged to have insider connections with a bunch of different parties so they could just have burned Tether that had been created from nothing and lent out to an insider.

Tether is pretty much another arm of Bitfinex, and Bitfinex is where all the whales trade. Its a huge insider game.

I wouldn’t hold Tether long term even if I was being paid for it

This really dips into conspiracy levels: Tether has many customers who can redeem USDT for real dollars. Many companies do this and are very open/vocal about this. Our company has done this as recent as late last week.

Something I’ve been wondering is how Tether, which has a very difficult history of banking, has been able to pay out billions of dollars in USD in a few days (regardless of having it — even if they had it, I assumed it would be very difficult).

Can you share how your USDT was redeemed — was it to USD from a US banking institution (a wire?) or some other mechanism?

Thank you!

Their are principally using San Diego-based Silvergate Bank

https://www.silvergate.com/

thank you! Very interesting. According to their latest financial reports, their volume of deposits doesn’t marry up with the claims made by Tether. Will be very interesting to see what Silvergate report as inflows/outflows at the end of the next quarter.

For future reference, Silvergate CEO has denied any relationship with Tether in a podcast: https://open.spotify.com/episode/02VtOivOHp3spZ2qOxMhdC

The last I heard no-one could name a single independent customer who had actually cashed out. Has that changed?

The most concerning thing to me about Tether is they appear to own Chinese corporate debt for some unknown reason. Isn't that an insane amount of risk?

In what universe is Chinese corporate debt even remotely liquid? It could be invested in Evergrande-adjacent companies for all we know. And you know when push comes to shove the Chinese government will throw foreign investors under the bus first.

The “too big to fail” businesses ended up being the best investments in the US. Commercial debt in China is guaranteed by proxy of the whole Chinese economy, because the government has direct ownership. The Chinese economy is in turn stabilized by the fact everything from your toothbrush to your car tires are made in China or using raw materials they control.

China has the factories but they are hugely dependent on imports of materials and energy; technology from overseas companies; and overseas markets to export to. Throw in their demographics - which are less suited to manufacturing every year - and there could be serious problems for China on the horizon. I hope it leads to a more humane CCP.

> Commercial debt in China is guaranteed by proxy of the whole Chinese economy

There is zero chance China prioritises offshore creditors in a crisis, a cryptocurrency exchange no less. This has precedent [1].

[1] https://www.wsj.com/articles/evergrande-is-leaving-foreign-b...

Who's saying it's Chinese debt? It's more likely to be loans to crypto ventures. Until it's disclosed, it's anyone's guess, but anyone claiming anything with certaintity, is full of it.

It was a rumour but seeing as the biggest holders of USDT are incorporated in Hong Kong it is very believable.

https://protos.com/tether-papers-crypto-stablecoin-usdt-inve...

Most likely the commercial paper was issued by crypto companies who all simultaneously seem to be incorporated in Hong Kong and the biggest borrowers of USDT.

I have absolutely no way to substantiate this, but I feel like if you needed to be able to say that you technically had a few billion in reserves as cheaply as possible but didn't actually think you'd ever need to liquidate it, buying the riskiest debt you could might be a great way to do that.

I'm not following your logic. $1 worth of debt is worth $1 no matter how risky it is. The risk is built into how much it is worth. Risky debt is high risk high reward. Since these funds are backing a stablecoin it doesn't make sense to go for high risk plays with that much money.

Risky debt asks way fewer questions where the money is from you lend them.

I'm not very well versed in how selling debt works, but the way I assume it works is the following: Say someone still owes me $1M over the next 10 years, but I think that there's now only a 50% chance of the debt being repaid. It would make sense for me to try and sell that debt for at least $500k to get a guaranteed immediate return, right? And then that person could say that they hold $1M dollars, even though it's only worth half that much if they priced the risk into it. I may be misunderstanding things though.

Yes that's basically how it works. When a corporation holds a loan as an asset on their balance sheet, they're supposed to mark that asset to market reflecting the risk of default. But if marking to market isn't actually enforced by auditors or regulators then the company can pretend that the asset value is the same as face value. This can appear to work for years until there's a recession and a bunch of borrowers default.

Ah, that makes sense. I'm curious though, how would auditors ensure the asset is marked to reflect the risk? If one organization thinks the risk is substantually lower than another, what do they mark? Or is there generally enough arbitrage that this doesn't happen.

Well it depends on the asset. If it's regular corporate bonds that are being actively traded on an open market (liquid) then just use a recent market price. If there's no market then valuation becomes highly subjective. If the borrower has some kind of credit rating from a trusted rating agency then that can be used as proxy for default risk. Or if the borrower is publicly traded and releases audited financial statements then you can estimate based on those. But if you don't have any of that then pick a number and try to get the auditors to swallow it.

>And then that person could say that they hold $1M dollars

You don't own $1M dollars, you own debt which is an asset. Considering you just bought it for $500k it sounds like the market price for that debt is $500k.

Am I correct that it’s not necessarily $10B in withdrawals, as it is that the total market cap (valuation * total coins) dropped by $10B?

Seems like an important distinction?

Isn't the point of a stable coin is that it is always worth $1 each? So market cap is a valuation of $1 * total coins has gone down by $10B. So that means 10B coins were redeemed.

Only if the stablecoin operator isn’t lying about the backing.

Since the valuation is steady at $1, that means the total amount of coins must have decreased by 10 billion. Since the only way to remove coins is to convert them back out to USD (ie, 'withdrawing') there is not much of a distinction there.

It's tether. It did briefly detach from its peg at USD $1 but the "valuation" of a coin has been roughly constant. It's $10bn out of originally $83bn, and it's still trading at $0.998 or so. So yeah, people have taken a big chunk of money out. That's called a withdrawal. We do not know that it is a cash withdrawal.

It's still detached, and it's been the longest period it's been unpegged from US$1 since it started to have high volume. Look at any graph (coinmarketcap.com is an easy one), since early 2019 when volume picked up it was never more than 6-7 days below US$1. It's been for 14 days and counting this time.

Tether is stable coin. Number of coins is valuation. Each coin is always 1USD (unless they loose the peg).

So if 84 billion coins are there in circulation . 84 billion of dollars had been exchanged for coins . If the coins reduces to 73 billion then 11 billion coins have been redeemed back to dollars

It’s a stable coin, so valuation is expected to be close to $1 as long as it works.

Tether is pegged to the US dollar, so it's valuation (rarely) differs much from $1.

Therefore it's the number of total coins which is falling.

Since Tether is a stable coin™ allegedly backed by and pegged to the price of 1 USD.

So if the price is still $1 but the circulation has gone down by 10 billion, that means $10B worth of it has been cached out

> if the price is still $1 but the circulation has gone down by 10 billion, that means $10B worth of it has been cached out

Tether being caught lying is practically perennial. Unless we have records showing someone receiving $10bn from Tether, it's safe to be sceptical of the claim.

Exactly why I used the word "allegedly", lol

I still think that Bitfinex is operating as a central bank and primarily loaning out Tether against bitcoin (and eth) cold wallets.

Instead of $10B of tether being converted to USD and taken out of the crypto ecosystem, what I suspect has happened is that $10B of loans have been paid back in tether and the collateral has lost value so the borrower cannot re-borrow the tether. Bitfinex doesn't ever redeem tether for USD and that isn't how tether is burned.

This means that it is predominantly crypto backed, which will at some point collapse if crypto collapses, but it is much more intrinsically stable than Terra/Luna up until crypto fails.

Maybe I'm wrong and we're about to see Tether bolt for the exits and crash and take out all of crypto with it. But crypto has been through a worse crypto bear market before, and Tether has been burned before without a systemic panic.

Yes, it just means tokens were removed from circulation. Doesn't mean someone has redeemed them. It might have been action by Tether itself also.

That is before they printed tokens without backing, used them to prop up market prices. And now they are pulling those out after likely making some gains when prices were high.

All the people responding to you are missing the distinction too... They can create/destroy coins at will. They say that they only do this when customers receive/withdraw fiat but we all know that's not the case and they aren't truthful about it.

EXACTLY. What people miss the point about tether is that they can claim anything, at the end of the day there’s no transparency to what is really going on behind the curtain. And keep in mind US citizens cannot legally redeem tethers for USD either.

Did anyone do an analysis on which wallets had the most coins destroyed?

if tether is backed 1:1 with dollars, how is it not withdrawals?

I.e. either the number of total coins in circulation has dropped (unsure how that is different than withdrawing) or its valuation has dropped (i.e. it lost its peg).

If they are just destroying coins, then they weren't 1:1 (possibly more than 1:1 before, but also possibly less).

Nobody, not even tether claims that tether is backed 1:1 by dollars.

They did once, but changed their tune.

People then get all hand wavy and point at the fact banks have fractional reserves too.

In tether’s case this is the same - withdrawals through it’s operator for fiat cash take tether off the market and lower it’s market cap.

A more accurate description would be „withdrawals minus deposits”, but it’s quite obvious that this is what is meant.

It depends. Tether lies constantly, and has lied many times. We have NYAG and CFTC settlements to that effect.

The point parent is making, AFAIK, is that without actual audits (that they have promised for years were only months away) we have no idea if they actually processed $10B of withdrawals. Or whether they simply nuked $10B of unbacked Tethers from orbit. Maybe they printed $10B, used it to buy Bitcoin, then sold the Bitcoin back for USDT and nuked the USDT? We have no way to know without a formal audit.

Important to note that they can only nuke that is under their control right now, and presumably Bitfinex' (and perhaps some other entities). Everything that is in wider circulation can only be removed through actual withdrawals.

That's assuming they were paid dollars for those USDT by exchanges.

An exchange could borrow the USDT, and when returned, they could be burned - with no dollars changing hands.

Yeah absolutely. Wouldn't surprise me in the least if the likes of Binance, Tron, and FTX issued Commercial Paper in exchange for USDT.

well it's not due to price changes, 1 USDT = 1$, so yes there are less coins in circulation.

Poster below says Tether can create and destroy coins at will. They can certainly create them, not sure they can destroy them if in others wallets (and doing so would be a huge adverse news event). If they have destroyed coins can only be their own (in their own wallets) but I suspect that would also be transparent. My feeling is that yes there have been $10bn of redemptions.

1 USDT has been less than $1 ($.998) for the last two weeks on coinmarketcap.

sure. but that's immaterial to the discussion here.

No, it's not. Because that could be a possible motivation for tether to remove supply, to artificially increase the price again, to get close to peg. And as far as I understand, nothing in Tether is transparent, so I'm not sure if they can't just destroy their own tokens without someone being sure that this is happening.

They most certainly can't destroy USDT sitting in other people's wallets.

They can mint a quadrillion Tether today and that would do the job pretty well. The Tether would still be in the wallets, but at that point it would be quicker to just read from /dev/urandom if you wanted some random-ish bits.

Actually they most certainly can and have. The ERC20 contract for USDT has a blacklist function and the administrator can block transfers for arbitrary addresses, rendering it worthless. Same with USDC.

More importantly how is 70B still in it…

Not opposed to crypto in general but tether always struck me as rather questionable even pre Luna Tera collapse

If you look at the timeline for tether it seems even more suspect. In late august of 2020 there are 10 billion tethers in circulation. They supposedly grew 8x in less than 2 years while being under investigation for bank fraud and a litany of other problems. They've never had an audit of their reserves, and the public behavior of their executives does not inspire confidence.

Here's how this plays out in the next few months. Tether had a first mover advantage, but now there are other competitors that are functionally equivalent but have better guarantees of their asset backing. So now anyone who holds tethers should prefer holding a purely superior product. Why would anyone take any additional risk without upside? So they now enter a death spiral, since there is no reason for them to exist. The best possible outcome is that all of their assets are liquidated and somehow everyone is paid in full. The more likely outcome is that we find out the extent of the fraud when they halt redemption of tethers to their customers.

How much liquidity entered the financial markets since 2020....?

About 265 billion USD entered circulation during that same time period.

https://fred.stlouisfed.org/series/CURRCIR

This is just the total paper/coin in physical circulation. Actual money supply (M1) grew far more: https://fred.stlouisfed.org/series/M1SL

perhaps the 70B only exists denominated in USDT - ie, the only people not pulling money out are people who never put money in

and by people i mean exchanges who benefit from the printing of counterfeit dollars

They could easily pull it out against real USD though. So if some of it is ahem fake that person knows for sure it isn’t backed by real assets and should be running for the exits first.

On that basis I’m inclined to believe the majority of the 70B is real. And really do t get what that gang is thinking to stay in

Eventually, the US will figure this out and make a USD crypto that will be used as THE stablecoin.

It seems obvious to me that a stablecoin needs a solid governmental backing, since there is no profit in it and you need unlimited deep pockets in case of a run.

The advantage is then that the USD remains the world's premier reserve currency, even into the digital age.

W...why do you want something more digital than the existing system ? I dont want each dollar to be tracked from its infancy to where I spent it, I m quite fine with withdrawing my digital money back to cash at the ATM and spending it anonymously thereafter.

The system is perfect, why change it to liquefy the dumb investment a few crypto lunatics made ?

The existing system would stay the same. A USD stablecoin would be something new - a cryptocurrency that is backed 1:1 by the USD and the US Government.

It's too big of a job for private finances and too prone to corruption because there is zero profit if you do it properly.

But why should the US government build something just so crypto folks have something to gamble with? Why does the government need to enable their habit? What benefit is there to its people?

What value does "cryptocurrency" add to a centralized currency? I can see that we'd be better off with a standardized protocol for sending money around, but plenty of countries have done that fine. The US is stuck in a technological backwater, yes, but I fail to see why "cryptocurrency" would decrease the number of problems.

> W...why do you want something more digital than the existing system ?

> The system is perfect

Still amazes me how conservative the HN crowd is when it comes to finance. Move fast and break things... except not the monetary system; that, is perfect.

What could you do with a USD stablecoin that you can't do with a regular old dollar? Other than let everyone see your transactions and account balances.

Exchange it for another coin in less than 3-5 business days

My Dad sends me money via Zelle. It shows up instantly in my account, with zero fees, even if it's 10pm on a Sunday.

https://mashable.com/article/ethereum-gas-fees-skyrocket-bor...

> If you were trying to complete a transaction on the Ethereum network last night, you might have been taken aback by the ridiculously high gas fees you saw. For example, one user purchased a $25 NFT on Saturday evening. Their total price? $3,325. That's $3,300 just in fees.

I'll stick with USD, I think.

Zelle has strict limits on how many transactions you can do and how much you can transfer.

Yeah, ETH has high fees. Don't use it directly. Use an L2, Polygon, or something else where fees are pennies or less. ETH is not a good chain to be on for the average user, unless you have a lot of money to waste on gas.

So don't use ethereum because the fees are too high?

Yes

Those "L2s" are the same kind of entity as something like Zelle, and equally able to exercise controls on what kind of transactions you can do and for how much.

What are the limits and who they were ever applied to?

Personally, I'm most familiar with other chains like Polygon, Aurora, Harmony, etc. Dealing with large sums of money is a non-issue. Ever.

And within the next few years, the FedNow service will be live and render Zelle and a lot of other systems obsolete;

https://www.frbservices.org/financial-services/fednow/about....

Why do you think any stablecoin exists? What need do they solve?

Right now they seem to mainly be used A) as a proxy for US dollars on crypto exchanges, and B) by their creators, to pump up the crypto markets.

> by their creators

Who often are the exchanges.

"When in a gold rush, sell spades" is old hat. Now it is "sell spades but also denominate everything in the SpadesRUs Prospecting Emporium in SpadeCoin scrip" and relieve people of their dollars at the door before they've even laid hands on a spade.

at least somewhat its evading taxes/regulation

Many things. A stablecoin that implements ERC20 interface can be used across Ethereum ecosystem and it’s smart contracts. You could even program your own smart contracts around the token, such as to setup a time lock or auction.

Examples: converting it to another token on a decentralized exchange, purchasing an NFT, holding the token in a non-custodial wallet, holding the token in a multi-signatory wallet, participating in DAOs, using a smart contract to handle decentralized escrow, interacting with decentralized lending protocols and liquidity providers.

Most of these are just "do a thing you can already do with money, but shittier"

You know when theres a tech bubble when people are pushing pointless products

I would guess that you have never been made to remit money to someone living in a different country. There are multiple uses for a CBDC but this one is a low hanging fruit example. I have had headaches doing because of existing infrastructure. Wire fees + exchange fees

Why aren't stablecoins already used widely for remittances? Is it the gas fees? Or lack of technical sophistication on the receiving end?

“But without permission”. Shittier might be acceptable if you do not wish to seek permission. Which is the whole point.

So, for crime? Like, what is the legitimate use-case where not needing permission is the defining requirement?

We do you need to seek permission by default to save, spend and transact over the internet? Do we need permission to send TCP packets? To send an email?

Consider that the internet works because it is permissive in what it accepts. What if money was abstracted from the states monetary policy, and it was as frictionless as any other internet protocol. The internet experiment changes our lives every day, in ways we cannot fathom.

So, for crime then.

Stupendous remark.

I'm old enough to have lived in a cash society. We got paid in cash and paid for things in cash. You can send cash to others. Without a cap. We didn't own some government an explanation on what we do with our money, as it's none of their damn business. "Guilty by default, prove me that you're not" is to be rejected.

Society had less crime not more. Moreover, things like capital controls do nothing at all. Criminals with half a brain are quite obviously going to work around publicly known limitations.

> Society had less crime not more.

Citation needed, at least if you're defining crime in the sense of what's experienced by regular people. Being a victim of violence was much more likely in those days, and the fact that you could easily spend the money of someone you mugged was a significant factor in that.

> Moreover, things like capital controls do nothing at all. Criminals with half a brain are quite obviously going to work around publicly known limitations.

The point isn't to eliminate it entirely but to make it more costly, and in that regard they seem to have been quite successful.

Only if you believe anything done without permission of an authority is criminal, which IMHO is no way to live the finite days we have trapped on this rock.

Peer to peer and permissionless does not mean criminal. It is how the web, email, end to end encryption protocols work. Most of HN would probably agree that E2EE and open source communication protocols are a good thing despite these tools also giving criminals an easier way to communicate without oversight.

This point always comes up, and it typically shows a lack of knowledge about what you can do with a smart contract. E.g. with a smart contract, you can implement an option on anything and sell the option to a counter party with very little work. How would you do that without a blockchain? One way would be to sell an option on a listed security through your brokerage, but the blockchain democratizes this ability and makes it so anyone can do it for a different set of assets then would otherwise be possible.

Like why have digital banking infrastructure at all? What new thing was enabled by digital banking infra? The answer is that nothing new was enabled, but the tech made banking operations faster and more accessible to more people. The same thing applies to blockchain tech.

You're starting to get it.

A government-backed crypto currency would come with a wallet. The central bank becomes both the issuer of money as well as host your account. This makes other banks largely obsolete.

Assuming it to be the main and only currency, transaction privacy fully ends. Transaction blocking and censorship would be the push of a button, pretty much your entire digital existence and access to things can be wiped out at will. Given that the majority of the world lives in an authoritarian regime, not at all a far-fetched scenario.

Money would also be programmable. The central bank can apply its monetary policy directly to your wallet. Stimulus money. Interest rates based on your behavior. The blocking of purchasing particular categories of products. Anything, really.

Algorithmic enforcement of social norms to confer an ideology of the state. I recall a historical tiff between Jefferson and Hamilton on the powers of the central bank a few years ago. Unfortunately CBDC is how a majority of humans will transact in 2030, history has demonstrated this. What we have up our sleeve is specific codified internet protocols that allow state-less money. Really, this point is still lost on most people, in that they have the ability to transact over the internet with no trusted third party. Blows my mind every day.

Auctions already exist. Time-locking your own money is a very niche case but I'm sure you could find a way to do it with regular dollars. You can buy other tokens with dollars. You can set up trust funds, corporations, and non-profits in dollars. Escrow exists. Loans exist.

The difference is the decentralization of it, but why is that an advantage? We've had hundreds/thousands of years working out the kinks of, say, how to operate an escrow provider. Replacing that all with "smart" contracts just opens you up to hacks of poorly written code, of which Ethereum itself is a prime example.

Crypto does not need to replace all financial activity. But it may be used in place of some activity, and opens up some new use cases that we did not have before. Somebody can purchase their coffee with fiat and their NFT (which may be an ENS domain) with an ERC20.

Take decentralized escrow, which underpins auctions, crowdfunds, markets, atomic swaps and more: it does not require a private third party.

Most traditional escrow are companies that will do data collection, long settlement windows, arbitrary thresholds, high take-fees, and restrictions based on locale.

A decentralized, open source, forkable, global, instant-settlement, ownerless, and feeless protocol to handle escrow of digital assets is rather novel.

You’re gonna use nft’s as your example for a crypto use case?

ERC721 is a great example. A group of people defined an open source standard, and then a variety of clients began to support and build on top of it. It is now a multi billion dollar industry shaking up the art world.

If you think you can write a better spec for a transferable non-fungible record of ownership, like a domain name asset, that works across any EVM blockchain, go for it. It’s an open system, hence why other specs like ERC1155 exist and find traction to meet different needs.

These kinds of open source and decentralized standards and protocols is also what gave us the web. It is valuable to have a system that is built on open protocols rather than a closed and highly permissioned infrastructure.

Well for one you can give the government full control to freeze your funds whenever they want

Don't forget: waste tons of energy, dump tons of carbon into the atmosphere, and generate tons of e-waste from fried GPUs.

This really only applies to POW coins, not so much stablecoins

That's what Circle is for. Only a matter of time before it becomes an arm of the Federal Reserve.

The US government already backs a stablecoin. It's called the dollar.

Important context if you want to start spinning what might happen if X:

> Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves.

https://tether.to/en/legal/

OK so Tether went from 83bn to 73bn... what's the big deal? It's not like LUNA.

> what's the big deal? It's not like LUNA

It's not yet like Luna.

Just yesterday the Financial Times ran this story: "Binance promoted terraUSD as a 'safe' investment just weeks before the stablecoin and its counterpart luna collapsed in a $40bn wipeout that shook the crypto industry"[0]

[0] https://www.ft.com/content/d459f435-edff-412c-85a5-0961d50ab... / https://archive.ph/OQmjW

The big deal is that it's highly likely that Tether is backed up by way less than 83 billion in actual dollars. Let's say, for argument's sake, that they were 50% backed a week ago and had $40B in actual dollars.

If $10B was pulled out, that was into actual US dollars or equivalent, meaning they now have $70B backed up by $30B. If another $10B drains in the next week, it'll be $60B vs $20B. This incentivizes other holders of Tether to also pull out so they're not left holding the bag (= Tether's stash of dodgy loans etc), basically kicking off a slow-motion version of the same death spiral that we saw for UST/LUNA, until Tether runs out of assets and the whole crypto economy goes poof.

I don't know if it will necessarily cause crypto prices to crash

I'm a complete layperson when it comes to crypto, but from what I have heard a good bit of the recent bitcoin volume has been done via tether. if tether crashes, I don't know how this doesn't cause a crash when volume dries up?

Crypto is priced on the exchanges in terms of USDT, USDC, etc.

If USDT dies then BTC goes to like $500 on Binance. The cascade effects will cause runs on other exchanges, and then you're betting that they have enough reserves to cover a run. I'd want to be far away from the scene when that happens.

The fiat banking system is backstopped against this behavior by the FDIC, which guarantees your funds are safe even if the bank holding the funds goes under. This prevents customers from mass withdrawals in times of crisis. Crypto doesn't have anything like that, therefore it's going to look like the bad ol' days of 19th Century financial panics when a run occurs.

Yep. A good old 19th century bank run, happening at the speed of light around the world simultaneously. It truly will be breathtaking how fast the entire crypto ecosystem will implode. I fully expect that when the dust settles multiple banks will be bankrupt and have to be bailed out too.

> If USDT dies then BTC goes to like $500 on Binance.

Do you just mean that confidence will be so low that people will try to shun cryptocurrencies and dump their positions, or are you talking about another mechanism?

When people say that BTC is worth $30,000 on Binance right now, what they are really saying is that BTC is worth 30,000 Tether dollars (USDT) on Binance, because there's no mechanism on Binance to exchange BTC for US Dollars in a direct swap. You have to buy USDT and then use that USDT to buy BTC.* Basically USD -> USDT -> BTC. Today the ratio is 1 -> 0.998 -> 30,000, so in theory BTC priced at 30,000 USDT is currently worth 29,940 USD.

If the USD -> USDT relationship breaks and "USDT dies", then what happens is the prices goes 1 USD = 0.05 USDT, which means that 30,000 USDT worth of BTC on Binance [1] is now worth just $1,500 USD.

[1] https://www.binance.com/en/trade/btc_USDT

* You can buy directly with a credit card, but that's likely settled off-chain with a banking relationship. If you want to use a direct bank transfer, you have to buy a stablecoin first on Binance.

But to your original comment, shouldn't BTC go to 500 USDT but stay at a constant USD price (assuming no contagion to the rest of the crypto market which I mentioned above)?

Basically if you buy BTC using USD going through a random currency RC (USD -> RC -> BTC), the exchange rates BTC:RC and USD:RC shouldn't matter as long as they're constant. If they become volatile, I'd expect exchanges to stop trading these pairs, making these rates undefined. But if Tether ends up being stable at say $0.1, I don't see why the BTC:USD rate (going through Tether) would change.

There are also other stablecoins, I'm assuming that USDT is not the only one in use, so why would it impact the BTC:USD rate (again, forgetting about the contagion)? E.g. on https://coinmarketcap.com/currencies/bitcoin/markets/ there are several pairs defined, some directly with USD, some with DAI.

Edit: maybe you mean that as long as they pretend the peg still holds, people would just buy BTC with USDT, making the run worse?

No, literally. The price of lots of coins is specified in USDT on lots of exchanges so if USDT crashes then the price of coins relative to USD also crashes.

Now, would there be lots of manual intervention by exchanges to fix this as fast as possible, absolutely but that's the parents point.

I know it’s probably too simplistic, but this interview really resonated with me:

https://www.currentaffairs.org/2022/05/why-this-computer-sci...

In all honesty I can see people being enthusiastic about crypto as a “get rich quick” scheme (at the expense of less fortunate people but soit) - but how people can see crypto as the future of money with a worldwide ~10 TPS throughput and every transaction on a public blockchain is beyond me.

The transaction limit and public-ness of transactions are implementation details of certain blockchains. There are blockchains with much better TPS, and blockchains where transactions are not public.

Okay so how can you have a payment system where:

- Transactions are on a decentralized blockchain

- That blockchain is however not public

- That blockchain allows for high(er) TPS

- That blockchain isn’t vulnerable to easy fraud

Am I missing a trade-off here?

Yes - you're missing "mathemagic" :) And a variety of independent engineering solutions which are largely independent of the mathemagic(think sharding or something like the lightning network).

Check out ZCash for an example of non-public, decentralized block chain.

Decentralization (and therefore fraud risk through things like doube spend).

Reeve Collins interviewed Monday morning on CNBC. I won't editorialize and just leave it as a data point for others to interpret. https://www.youtube.com/watch?v=3GsMPMXGzAg

> Tether, the world’s largest stablecoin, has seen its circulating supply plunge from a record $84.2 billion on May 11 to around $73.3 billion as of Monday, according to data from CoinGecko. About $1 billion was withdrawn late Friday evening.

At first blush this looks bad. That's about 12% of Tether's market cap.

On the other hand, the exchange rate is at this moment is 0.999:1. So the drawdown did not "break the bank." This means that Tether had at least that much capital that it could cough up in the space of less than 30 days.

This may seem like a good thing for bulls because Tether is demonstrating resilience under stress.

Or it can be viewed as a bad thing for bulls because it means that Tether is getter closer to the limit of its (widely-ridiculed) reserve claims.

Given that Tether has every incentive to cheat and has demonstrated sleazy behavior, it's safe to assume they're cheating.

The question is not whether or not they're cheating, it's how much.

It will be very interesting indeed if Tether manages to keep its peg given another 10, 20, or 50% drawdown.

This essay [1], discussed on HN a few days ago, claims to have made some predictions about Tether worth preserving for posterity. Conspicuously absent from those predictions was the market capitalization at which Tether falls days-on-end below 90% of its 1:1 dollar peg.

For those who claim to know exactly what's happening behind the scenes at Tether, I think that's a prediction worth making.

[1] https://www.kalzumeus.com/2022/05/20/tether-required-recapit...

Don't listen to the haters, Tether is going to the moon! Now is a great to invest, so you can get in on the ground floor. /s

No, no, it's stable coin. You see 1 USDT will always be 1 USDT. That is what stable coin means and is doesn't it? That is you can always redeem one USDT for one USDT(terms and conditions might apply)...

Nah you can also redeem 1 USDT for some Evergrande debt as well

They said 1 USDT is tethered to 1 USD. They didn't tell you if it was positive 1 USD or negative 1 USD.

Whoever got to offload their Evergrande debt for USDT sure was lucky! That trade have made Tether some friends in high places.

Holdl the dip.

You know, messing with crypto anarchists never gets old despite the karma dip.

You have an extremely lucrative career as a youtube finance guru in your future.

Remember to only lease the Lambo for a few hours just to get the b roll you need. If you adjust the lighting you can keep using that footage for months.

And in the past 2 weeks, USDC has added $5B.

The much more trustworthy USDC looks like its soon going to surpass the shady OG stablecoin Tether.

Wasn't Tether the one that was revealed to have only had enough backing for like 3% of its coins a few months ago? Surely that must be drying up now.

They likely have backing of more than 50% probably more than 80%. Although how much is liquid is unknown.

They only had $4.2B in cash during their last attestation. The rest was unknown treasuries and commercial paper.

Who cares about their attestation? It is not a proper audit. They could just borrow money from Bitfinex, take a screenshot of them holding the money, saying "see, we have money" and then return to Bitfinex on the same day.

Their attestation is as worthless as their word.

Totally true. That's just the closest thing to actual information we have.

They probably didn't have more cash than they claimed during their attestation, though, so it's a reasonable upper bound.

Upper bound, yes. Reasonable, no.

They are not a reliable narrator, and they have been convicted in multiple jurisdictions over fraudulent statements. There is no "reasonable" argument that this time they should be trusted.

This will only be solved when completely implode or in the miracle shot that they pass through a rigorous independent audit.

This exodus doesn't really prove anything about the composition of the assets, same way the money coming onto the books originally proved nothing.

Tether admits that most of their assets are made up of commercial paper (aka bonds issued by companies). Suppose the minted USDT was given to the companies issuing those bonds themselves, then to reverse this, you don't need USD. You can simply cancel the debt and burn the USDT without a single dollar changing hands in the entire process. But dollars do change hands -- as payment for Tether's service of continuing to keep USDT going so those corporates can exit cryptocurrency at some point, in the form of interest on the commercial paper.

If a major counterpart was Binance, for instance, Binance could offer no cash upfront, issue a bond for a billion dollars to Tether, accept USDT1bn in exchange, use USDT to buy bitcoin, sell the bitcoin as USDT1bn + profit (and convert that profit to e.g. USD), and hand back the USDT1bn + interest, & cancel the bond. That's essentially the running theory of Tether's operation. Money flows overall from whoever bought Binance's cryptocurrency, to Binance, and to Tether. And Tether maintains very little cash whatsoever, as there is no need unless everyone wants to redeem at once. And in this situation their plan is just to throw up their hands and say "we prioritise our customers" which is basically Binance and whoever their actual customers are, i.e. the issuers of commercial paper, not you.

>Tether admits that most of their assets are made up of commercial paper (aka bonds issued by companies)

No, at their attestation 2 months ago, "Commercial Paper and Certificates of Deposit" was 24.38% of their assets. This is much less than the "U.S. Treasury Bills" which was 47.56% of their assets.

Sure, maybe now it isn't, but in June 2021 that figure for commercial paper was 49%. Their most recent claim is a few days ago, during this big exodus of money off their books, and it involved a reduction of at least $4bn worth of commercial paper. So I think it's a very relevant thing to point out that this $10bn didn't necessarily mean they allowed for $10bn of cash withdrawals but rather some cash and some cancelling of debt denominated in USDT. Overall remember their reporting is not particularly trustworthy given how little (non-existent) outside scrutiny they allow it to receive. These are all just numbers they could be making up to explain the things we can see.

No, that's UST - TerraUSD, which collapsed 2 weeks ago.

1 month chart on Tether price pretty clearly shows that Tether is struggling to hold it's peg: https://coinmarketcap.com/currencies/tether/

Terra / Luna had $3b in reserves, either used to defend the peg, and/or laundered elsewhere (Do Kwon claims they only have $9m left, rest went to defend peg, with no verification. "we're checking if we can show we made these trades with a market maker." I'll let you be the judge if you think $3b got blasted into upward support of UST). The result was the same; a worthless stablecoin. Tether is no different here, just larger reserves. They will be depleted trying to hold the peg until they can't and/or they will be ran off with.

Found this explainer video it's quite good as someone who never heard of tether. https://youtu.be/-whuXHSL1Pg

What’s the concern here? Seems like Tether actually did have the money to fulfill the withdrawals, so this seems like a nothingburger.

The bigger concern is whether there will be funds to process the next $10B of withdrawals.

Well they had the first $10B, but Lehman also probably had the first $10B when things moved south.

It's the final $10B that really matters here. They may have burned their real currency reserves first to avoid really sparking a panic, and are just standing naked hoping the crypto meltdown subsides before they have to start selling their less liquid/valuable reserves.

glad to see hn isn’t buying it but retail investors may not be so lucky.

Crashes are ultimately almost always sad.

Reality just is, it isn't fun or nice. It just exists.

Reality is that which, when you stop believing in it, doesn't go away. - Philip K. Dick

HN’s track record on stuff like this is really bad.

This is a place to get interesting news on startup valuations, Rust, and what the current FE framework of choice is.

For everything else it might as well be Reddit.

My guess is these were exchange IOUs or "commercial paper" and no USD was involved in this burn.

I can't really see a scenario where they aren't fucked, and it's going to make Terra look like a blip whenever it plays out. Unsure whether it'll be regulation or a rush to redemption but it really can't be that far out.

Every article I read about this says something like "Unlike tether, UST wasn’t backed by fiat currency held in a reserve".

Which assumes tether is actually backed by enough real value to cover its calls in the case of a selloff, which it absolutely is not.

If I had any money in crypto (I don't), I would get the hell out of tether ASAP.

I think it's worth distinguishing between "they say it's not backed and it's definitely not backed" vs. "they say it's backed but it's probably not". These are different problems.

I'm sure this is all just fine and we just aren't sophisticated enough to understand the big brains behind the upcoming blockchain revolution that's going to decentralize all the things and grant freedom to everybody while also making us all rich. Hell, just today I read about a new coin that was going to behave as a stand-in for gold so that we could invest in that instead of destroying the environment to pull the actual stuff out of the ground. Maybe our hopes and dreams are the conductors of the future.

One of the brains Giancarlo Devasini, Italian chameleon, plastic surgeon, got sued from Microsoft and Toshiba for "patents issues", got accused by UK courts of to"fraudulent tax losses",joined Bitfinex soon after its founding that year, running its trading and risk management operations [0]. Truly a self-made/self-taught men, representative of Italians business ethics.

[0] https://www.ft.com/content/4da3060c-8e1a-439f-a1d7-a6a4688ad...

Still hoping on a rebound

what kind of interest income that this 70billion generate ?

How can I short this

The Blockchain created a new generation of capitalists, and this is their third or second baptism.

Their first was mtgox, I think?

> “Whenever there’s a failure or a catastrophe in crypto, the fear is always that someone will misread the situation and overcorrect in a position that’s not helpful for the entire community writ large,”

This statement is all kinds of amazing:

* Casual use of the phrase "whenever there's a catastrophe in crypto", since there really is one every few days

* "Misread the situation and overcorrect" --> read: taking their money out of the casino and turning it back into filthy fiat

* "Not helpful for the entire community" --> read: taking money out of shitcoin X damages the valuations of all other shitcoins, so the owner of one random blockchain would very much prefer that you didn't do that

> This statement is all kinds of amazing:

> Casual use of the phrase "whenever there's a catastrophe in crypto", since there really is one every few days

in some sense crypto's resiliance against so many catastrophies is amazing. if this was USD we would be at WW10 and two October revolutions by now

Yeah, but notice, it isn't.

there is a crisis in the usd though. it is fast losing its status as world reserve currency and coincidentally today we are at a footstep of ww3 ;)

Well - define fast. It's amazing to me that USD has been the world reserve currency for so long. Historically only silver has done better.

> define fast

as in the order of things in the world is changing so fast we have little time to analyze root causes. some examples

we went from being too scared to visit family because of a flu virus to pumping our chests against a super power in a blink of an eye

the us just approved a massive military package to ukraine that dwarfs anything given to israel and at a time us has trouble getting baby formula

forget crypto ... the world economy is on the verge of total collapse

and this all is tied to the is dollar because ... well ... of its current status as world reserve currency

None of these things matter at all. Thanks to the US military, USD as the reserve currency remains.

Agree - the power to open markets, guarentee acccess and obtain resources is what underpins it. As the Russians are showing us, no one else has a fraction of that capability.

whether we like it or not the us ability to carry on unchallanged has noticably diminished in comparison to the period from 1990 to 2010

also ... if ukraine-russia conflict is showing us anything it is that the natural resources question is far from certain. if we are to learn from history we would hastily take note that it is the question of resources that brought about the first world war

of course it matters. it devalues the us dollar as a stable reserve

How does Ukraine aid devalue USD? If anything, it helps keep it in power by weakening Russia and furthering the US hegemony.

its a massive investment and if you look at it this way you have to ask, is ukraine such a sure bet and what are the consequences of that investment going south. and the failure to ask these questions is indicative that too many people see the usd as being in unlimited supply, which by itself devalues the usd

Nothing is a sure bet but leaving Russian aggression unchecked destabilizes the region. The world counts on the US to maintain the peace and status quo. As long as there's still confidence in that, the US currency will continue being the world's reserve currency along with all the benefits that come with that.

> The world counts on the US to maintain the peace and status quo

Reducing the use of the USD as a reserve currency has been US policy for a while now. It only accounts for 60% of global reserves right now and has been trending down for a long time.

> in some sense crypto's resiliance against so many catastrophies is amazing. if this was USD we would be at WW10 by now

Because USD is actually used as a currency...?

I think the kids call this "copium".

The only reasons crypto is so "resilient" is that there are so many of them to fail and most of the money invested is from speculation and crime and both sources kind of expect to lose it.

It's not resilient. It's worthless. The same grift keeps working on bigger fools and it hasn't been outlawed yet. Ergo, it stays and cycles from one catastrophe to the next.

> if this was USD we would be at WW10 and two October revolutions by now

This is the farthest reach I've ever seen someone make to state a positive about crypto.

* "Someone will ... overcorrect" would mean that someone has a lot of power to set outcomes. Does not sounds very decentralized.

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