When Tether Blows Up
paranoidenough.com
paranoidenough.com
It’s hard to predict when things are going to fall apart. Archegos capital worked for quite a while until one day it didn’t.
I'm pretty sure if they had damning evidence, a single hedge fund could single-handedly force the market to collapse in a couple weeks.
Keep in mind hedge funds can manage billions of dollars, cryptocurrency market caps are manipulated and the true order book depth is much smaller, and many cryptocurrency people are trading 100x leveraged perpetual futures on dodgy exchanges.
At some point it's disrespectful to even allow the market to exist.
Exactly, like they did with GME.
Oh wait.
How would you do that? If you knew that Tether had, say, only $10 billion of assets backing it, you'd need to get 10 billion USDT and demand conversion to USD. If you bought those tether, well, it now has $20 billion of assets thanks to you and you lose. Borrowing seems risky, because the people you're borrowing from likely have a vested interest in Tether not collapsing and are going to work against you. So the only safe option is to convince people who hold 10 billion of USDT to cash out for USD pronto.
I will point out that the current drawdown of Tether is consistent with the scenario where liquid fiat assets are fast disappearing from the cryptocurrency ecosystems, and the cryptocurrency companies are fighting among themselves to claim as much of those assets as they can. (NB: There are likely other scenarios that are consistent with available evidence).
No idea how that would end up panning out but you don't necessarily have to accept new tether in exchange for your USD.
They would have to liquidate a lot of Bitcoin into USD at once to satisfy a big request for withdrawal, which is a problem since tether's raison d'etre is to provide that liquidity because the dollars weren't there.
Rather than holding US$ to back USDT they have been holding commercial paper ie. loans which pay interest. High quality corporate bonds pay something like 4% so say they invested their $72bn in that they'd be making $2.8bn a year for doing nothing.
They may have invested in iffier stuff but they are on such a nice earner they will be quite motivated not to break it. This is not like Madoff when he was paying 10% interest that was unsustainable. They are paying 0% interest which is not so hard to sustain.
If something gets them it'll probably be anti money laundering regulations, not running out of money.
That said, my vague understanding of Tether is that since it's completely opaque and basically rigged, rather than collapsing entirely, the controllers of the "currency" can make it gradually harder for just select customers to remove their money and so support its apparent value without it seeming to collapse (I remember an article a while about a guy who couldn't redeem his tether for reasons unspecified by whatever the exchange, etc).
If Tether wants to maintain the peg they have to keep letting people redeem as long as there's more sellers than buyers.
At the same time if HN had been around for Enron and year after year month after month there was a post about how Enron was going to collapse for being fraudulent eventually it 1) stops being interesting and devolves into "Enron haters" vs "Enron supporters" in the comments as everything useful has been said years ago 2) starts getting more "they've said that for the last 5 years they must just be wrong" reactions than actually having any positive or actionable impact on the situation.
More seriously, it's mostly seething while reposting the same stuff with this article potentially holding the record for being short enough to not even repeat most of the usual let alone add anything compared to the pages and pages of previous posts on the topic[0]. Which doesn't mean it won't blow up, just that those discussions are particularly motivated and low quality.
People predicting stock market declines have thus far been predicting something which declines and then eventually bounces back.
This will not happen to Tether - when it blows up, like Mt. Gox, or a host of other crypto scams have - it will not be coming back.
As someone else here said, markets can remain irrational longer than you or I can remain solvent. Bernie Madoff's Ponzi scheme collapsed in 2008 not due to Harry Markopolos talking to the SEC in 2000 (or after) - it collapsed because everyone started withdrawing their money at once, and then the whole house of cards collapsed.
That may be happening to Tether now. Take a look at Tether's market cap chart.[1] Click on Overview->Market cap-> 1 month. You can see the cashouts. Between 5:09 AM and 5:14 AM on May 27, 2022, the market cap of USDT suddenly dropped by $750 million dollars. There have been five huge cashouts like that since May 13th. About 12% of Tether has been cashed out in the last 3 weeks.
This never happened to Tether before. Until now, market cap was "line goes up". Biggest previous drop in market cap was about 1% in mid-2021.
So, how long can Tether pay out 4% of its market cap per week? Looks like we're going to find out.
While Tether may be technically insolvent there looks like there would need to be another $40 Billion in redemptions to really test the peg based on the latest attestation. (They had $82B MC & now have a $72B MC. Cash Equiv. - Comm. Paper & COD = $50B back in March).
My guess is they may have weathered the storm for now. Probably need a few more weeks to fully confirm, but high price today was .9995. If redemptions fully stop or MC goes back up slightly then peg probably returns.
Watch this. [1]
This will also blow up arbitrage bots that move tokens between exchanges, as they quickly and automatically pour coins into a defaulted exchange. A fun “picking up pennies in front of a steamroller” risk in what’s supposed to be a risk free trade.
Tether and other stable coins came along and said: we'll keep $1 USD for every token we have, so you don't need to cash out your crypto as fiat to see how much it's worth — just trade it for a stable coin!
So, Bitcoin isn't actually worth $30k+, it's worth $30k+ in stable coins because that's what it's traded in. It's only connection to fiat is stable coins.
if ($1 !== $1) // i.e. Tether is a scam that's not fully backed
All crypto will experience a MASSIVE crash
When the fiat inflows stop and instead try to reverse, it's going to be wild.
That started 3 weeks ago. See my post above.
This is simply wrong. There are several exchanges that trade Bitcoin directly with fiat, even USD. It may not be a majority of volume, but it is significant.
The Curve "3crv" pool (which allows large volume low slippage conversion between USDT, USDC, and DAI) has been at >50% USDT for a long time, going up to as high as 80% when people are truly spooked: https://curve.fi/3pool
/sarcasm
A trillion years is a long time. :D
https://www.coindesk.com/tech/2020/12/04/solana-devs-call-al...
https://solana.com/news/04-30-22-solana-mainnet-beta-outage-...
https://www.theblockcrypto.com/post/149112/solanas-blockchai...
There are so many interesting things to discuss about Tether, for instance, I would like to know the insides of how Tether is providing shadow banking to crypto exchanges and how does it mean for future scenarios
Anyone has anything shareable?
As long as people use USD effectively, who cares whether or not it is backed by actual gold?
Because unlike all crypto coin asserts, its backed with guns.
It's true that value is set by supply and demand for both crypto and USD, but there's a key difference.
Yes, crypto and USD both have a limited supply (at any given time). But the demand for crypto can fall to zero with the only real-world change being a change in people's feelings. But USD demand is more than just feelings. There is a floor in the demand for USD because anyone who wants to live or do business in the United States are obligated by law (and ultimately, guns) to pay taxes in USD. For this reason, USD demand can't go to zero until the entire US economy collapses (and with the aforementioned guns, US economic interests will likely be protected).
Obviously that floor in demand doesn't represent 100% of the demand for USD, but it's a floor on which a lot of confidence and subsequent demand can be built.
A quick google search says there’s 14b tether in circulation - if that’s true and it falls 50%, who is going to put in multiple billions to try to prop it up?
Doubt that. I’m sure almost anyone here could wow me with technical reasons why they are correlated…
In the end because this is all illusionary and not backed by anything tangible, it’s faith-based speculation.
When Tether pops, Bitcoin probably goes up. No one will have learned any lessons, just that they picked they wrong one, but this one over here is “safe”. It’s all what people can be made to believe, and I’m pretty sure the average crypto gambler can be made to believe lots of things that aren’t rational. Who hasn’t seen that themselves?
> if that’s true and it falls 50%, who is going to put in multiple billions to try to prop it up?
Anyone who has information on the backing assets. If Tether embezzled or lost 30 billion and were able to buy back all USDT at 50 cents, they would make billions in profit as well as erase that shortage.