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Comment by joosters | Hacker News Reader

Tether skeptic here. This is not a depeg. Most likely this is just because of the current sell-off of crypto currencies - there are a lot more sellers than buyers out there right now.

Right now, when you can buy a tether at $0.997 and (in theory) sell it back to tether at $1, there's not much scope for profits after costs. So there's not going to be a lot of money pushing the price back up. IOW it's kind of 'expected' that a stablecoin might drift tiny amounts away from its theoretical peg. It's just not worth it. (n.b. even Tether themselves charge a 0.1% fee to redeem their coins)

If/when tether drops below (say) $0.99, and there's no influx of money trying to support it, that's when USDT is in trouble.

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Stable-coins should be drifting slightly-high during mass-selloffs of the more volatile cryptocurrencies, as more people try to get onto stable ground. And if you check the "slightly" more reputable stable coins like USDC, TUSD and BUSD, they are indeed drifting slightly high.

But instead Tether is drifting low, quite low. I agree it's not quite a depeg, but it shows that many people distrust Tether and want to get rid of it at times like this.

It depends upon where you think the money is going. If you believe people are parking their assets in USDT, then yes, you'd expect there to be upward pressure on the price of tether.

If instead, people are getting out of crypto altogether, they won't be holding USDT, instead they will be getting hold of actual dollars (which, depending upon the coins, might involve selling a random coin for USDT and then trading that for USD). In that case, there would be selling pressure on USDT.

Sounds right but if there was a general departure from crypto, I don’t expect Phire’s observation that “USDC, TUSD and BUSD, they are indeed drifting slightly high” to hold.

Departing from crypto is generally done in two steps, first convert from speculative to stable then convert from stable to fiat.

If some exchanges are making the second step much harder than the first, then a lot of people attempting to depart crypto could have the effect that we're seeing.

Sounds plausible

To elaborate tether is making the switch to dollars harder so people are preferring other stable coins?

No, I think the prices are going up because that's where the money gets stuck.

People don't want stable coins, or any coins, they want fiat (they got into unstable coins as a way to get more fiat).

You’re right in the abstract, but in the specifics, Tether is deviating from the market in a worrying direction.

Just a worrying signal.

"as more people try to get onto stable ground"

Stable ground is not a cryptocurrency, what is stable are USA national bonds. The Federal bonds of the USA are the safest asset in the world, and it is what all traders go for when they need safety. No national government of a English speaking country has defaulted on its debt since the Stop of the Exchequer in 1672, and the USA has a huge military which further protects its bonds

https://en.wikipedia.org/wiki/Stop_of_the_Exchequer

To be fair, part of this is that since around that time the major English speaking countries of note could print the money the bonds were issued in (first the British Empire, now the American one).

This means that there may have been "effective defaults" where instead of defaulting on the bond, the currency was weakened.

There's also the question if the CSA were ever really a "major English-speaking country" because they did default: https://en.wikipedia.org/wiki/Confederate_war_finance

> There's also the question if the CSA were ever really a "major English-speaking country" because they did default: https://en.wikipedia.org/wiki/Confederate_war_finance

If I'm reading the sources correctly, the CSA never technically defaulted until it ceased to exist as a meaningful entity. The CSA never paid the interest on the junk bonds, but those bonds appeared to have a clause permitting it to defer any payments while the war was ongoing; the cotton bonds were actually serviced in full throughout the entire war.

Yeah, this. You can’t go broke if you can print the money. What is going to be interesting in the next 10y is BTC denominated bonds. Then we will see exactly who can and will default.

Why would anyone want bonds that make default more likely? The idea is insane.

Yes, depegging is an instantaneous event that happens when Tether fail to redeem a Tether at "face value". As long as they continue to do that, the value of Tether on an open market is only relevant in that it expresses the concerns of traders that they will eventually depeg.

Obviously as the price drops it becomes increasingly profitable to buy on the open market and sell back to Tether, depleting their fiat reserves and bringing closer the moment when they stop exchanging at face value, and it all ends.

Why does tether not “buy back” all of those coins that it would be a loss to redeem? It seems like that would drive up the price and reduce their reserves by less than the alternative.

I've no doubt they are doing that right now, they would be insane not to. It is presumably what they did to restore confidence during last month's price dip. The problem arises if (my guess is when) they no longer have the funds to do so.

They probably can't move big money into the exchanges fast enough to keep up. Possibly quite a lot of panicked exit from so-called stable coins going on.

> Right now, when you can buy a tether at $0.997 and (in theory) sell it back to tether at $1

No, you can't. Not even in theory. You have no right to redeem. They can choose to buy it back from you for $1, but it's not a right of the token.

Look, I said I was a tether skeptic, but I think it is undeniable that Tether are buying back tethers from some people. If they weren't doing that right now, we'd see a whole lot of stories like "I tried to redeem $100M of tether and they refused!" out there.

Tether undoubtedly has several large trading partners that buy and sell large volumes of coins from them. If they stopped redemptions, you can bet that everyone would soon hear about it.

Now, it's absolutely true that their crappy terms & conditions give them complete freedom to refuse redemptions from anybody at any time for any reason. And that (in my view) makes it a very dubious company to rely on. But you are completely and utterly wrong to say that "No, you can't. Not even in theory".

> we'd see a whole lot of stories like "I tried to redeem $100M of tether and they refused!" out there

If I had a $100mm Tether they refused to redeem, the last thing I’d do is talk about it.

Yeah, it would be the last thing you do:

1. dump on the market

2. take out a huge short position

3. tell the world that Tether refused to redeem

I would try to sell it on the open market at 0.997

This isn't the same thing though. They may be buying Tether. I'm not aware of evidence that they do this, but I'll believe it because it seems logical that they would.

You cannot REDEEM the coins. Which may look a lot like just selling it back to them for $1 but it's not the same. That's a problem. They can stop buying tethers whenever they want and, theoretically, you have no recourse. It's only going to keep going while it suits them.

edit: and, importantly, you cannot even SELL tether back to them for $1. They just won't do this right now. They'll do market price at best.

"I think it is undeniable that Tether..." Yes, we can tell from their regularly audited published financial statements.

There's no guarantee that Tether will continue to do this in the future, but as of today you can in fact redeem your USDT for USD on tether.to

With the large caveat that you must have at least $100k in it.

This is a minor caveat. Whats the problem with just selling your USDT on the market if you have less than 100k?

Everyone in the developed world can sign up for kraken right now.

Why are mistruths like this always presented so strongly and at the top here? Are you all so heavily invested in this belief?

You can sell tether for usd, all day every day, I guess screaming into the void and getting upvotes is more valuable on an emotional level.

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

You’re referring to selling the USDT back to the market at the market rate. OP and GP are referring to selling USDT back to Tether at its face value when that face value has deviated from the market price.

That's not redeeming. Redeeming is sending your Tethers to Tether and receiving a USD wire transfer. Fairly few entities can do this. We can't do it yet.

So imagine you get what you want here, and tether open trading for all customers down to those who want to redeem 20 cents...

Ignoring that the last person who tried to create a digital token pegged to USD.

Ignoring all the AMC/KYC risks

You'd actually be happy? You truly wouldn't just move onto accusing them of facilitating money laundering on a massive scale as tethers can move across borders for a few cents?

I doubt this.

>Fairly few entities can do this

What do you mean? You just have to complete the fairly simple KYC process and you can start redeeming.

Perhaps you mean that fairly few entities have bothered to do this?

It's not clear that we will succeed at the fairly simple KYC process. A lot of exchanges have fairly stringent requirements around customers' directors' citizenships, and those that do not often like to play 100 round matches of email tag with us.

If you work for Tether and you created a new Hacker News account to offer to onboard us, that sounds great :)

The average trader does not have 100k USDT lying around unfortunately. Though I suppose Mr Paolo has no time to talk to poor people, just like Mr Kwon

https://www.businessinsider.in/cryptocurrency/news/terrausd-...

100k USDT is a small amount of money for anyone trading professionally.

If you buy/sell $100k USD and pay the relevant transaction fees; and if tether doesnt run of out capital just as you are doing it.

Which, at <1$/$, tether should now be bankrupt. It's presently advertising free money: just buy at <1 and sell back at 1. If it were actually possible to do that, tether would be out of capital tomorrow.

That's not really true. The amount of redemptions needed to restore the peg is capped at the size of their reserves, and in reality is probably a lot less.

I think a lot of commenters get confused about why big crypto firms don't defend the peg more aggressively. The reason is that defending the peg less aggressively is more profitable.

the argument is not that you can’t exchange 1 usdt for 1 usd today.

the argument is that nobody, not tether and not any exchange, is committed to maintain this exchange rate peg. in fact the topic of this thread is a discussion on how (long) and whether the peg can be maintained.

I have a question on this. If the redemption fee is 0.1%, then that makes a USDT worth $0.999. Why is it assumed that a tether should be worth $1.00 and not $0.999?

You're correct. To expand a bit, in general, when demand for crypto trading is going up, Tether should be worth about 10bps more than a dollar (because this is what Tether will charge you to create new Tethers, and the supply is mostly expanding), and when demand for crypto trading is going down, Tether should be worth about 10bps less than a dollar (because this is what Tether will give you for your Tethers, and the supply is mostly contracting).

That's exactly the case, and I would consider a price below $0.999 or a price above $1.001 to be a depeg. It's just that few people cared enough about such a tiny fee so Tether can earn $2m out of every $1b minted. At its worst times Tether charged 3% redemption fee, making 1USDT equal 0.97USD, but by disguising it as a fee they could claim that 1USDT is just 1USD.

Where can you redeem tether for $1? If the answer is “nowhere” it’s a depeg by definition.

If you can trivially redeem tether for $1 why is it trading for less than that?

Money market funds are considered to have broken the peg the minute you can’t get a dollar for dollar out of them, why are we redefining the term for crypto?

You can get a dollar for a dollar, it's just not worthwhile to do so yet for arbitrageurs due to the tiny magnitude of the drift. Tether actually depegging happens when someone tries to redeem with them and they can't do it, the market price is misleading.

An analogous money market fund example would be if I can't redeem until tomorrow noon yet need to urgently meet some financing need today, I could sell to someone for a tiny discount and they can redeem tomorrow.

Where can you redeem it for a dollar? Tether doesn’t promise they will redeem it. Have there been large redemptions?

Day traders generally can't redeem Tether, you need to be a "verified customer of Tether". Most Tether redemptions are done by large institutions.

So why aren’t those large institutions arbing the spread right now?

If the answer is that they don’t have faith they can get the redemptions to cover their positions that’s also breaking the peg.

Because the spread is too small, when it widened a few weeks ago the spread was heavily arbed.

Ok, so a $1 peg doesn’t exist or it’s been broken.

If Tether is pegged to a range against the dollar that’s fine and normal! Just claim that.

Or better yet don’t claim a peg at all if you have no mechanism to actually defend it.

The peg breaks when Tether refuses/is unable to redeem USDT for USD. Obviously in any secondary market whether order book or AMM based there is going to be trading within a range.

Day traders can redeem tether on tether.to, as long as they aren't US based.

With the Tether organisation themselves. They have enabled redemptions well in excess of 10 billion dollars since the start of the market crash.

>Where can you redeem tether for $1? If the answer is “nowhere” it’s a depeg by definition.

Tether.to, although they will charge you a 0.1% fee unless you negotiate a better deal with them.

>If you can trivially redeem tether for $1 why is it trading for less than that?

It's also trading (very slightly) higher than $1 on other exchanges, such as Bitfinex. Such is the nature of order books.

Not only is there a 0.1% fee--and so of course USDT can easily be sitting at $0.999 without it even being strange--but it will take a day or two to round-trip the money through the antiquated legacy banking systems with Tether, so you have to additionally take into account the lost opportunity cost.

Just because the incentives to reassert the peg don't work out because of costs doesn't mean this isn't a depeg.

Tether charges you 10bps. So you make money from buying here. We'll buy some.

It amazes me that HN consistently falls for fear mongering and conspiracies when it comes to anything finance related. Quite remarkable for a forum full of tech savvy people. That site OP linked to doesn't even load currently. Apparently their servers got fried. Looks like today, someone's not making bank... man.

Edit: Apparently it can do Chrome but has issues with Firefox.

Hacker News is somewhat good for Tech, especially if the commentor actually is a domain expert, but outside of it can be quite woeful.

Ironically, every once in a while an article or post about something like the Dunning-Kruger effect comes up, everyone is suddenly fully aware of how this applies to them.

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