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Why would you expect the price on a DEX to differ from the price on a CEX? Any substantial price difference would immediately be closed by arbitrage.

Exactly my point. There is nothing really "decentralized" about DEXs --- in reality, they follow CEXs more or less in lockstep. CEXs exercise control over them in the same way they control the rest of the marketplace.

That doesn't prove your point at all. The CEX isn't setting the price. The price is set by people trading. If the price on an exchange, centralized or otherwise, is too high, no one will buy. If the price is too low, no one will sell. That has nothing to do with whether or not the exchange is centralized or decentralized.

The price is set by people trading.

That's the idea but follow along with me now --- what if one of these "people" trading is the CEX itself. And unlike most "people", what if they have an unlimited supply of money (stable coins they can just mint at will) to trade with.

This would be like combining the NY Stock Exchange with the Federal Reserve --- no real conflict of interest there, right?

As you still convinced the CEXs aren't setting or manipulating or influencing the price that you pay?

I'm not saying no one has ever tried to manipulate the price of a cryptocurrency before. But the scheme you describe is not sustainable for a long period of time.

not sustainable for a long period of time.

Really? What will stop it? Regulation maybe?

Remember --- they have an *unlimited* supply of money --- they just print/mint the stuff at will. Nothing currently in place to stop them.

Over the course of 8 years, Tether has gone from $0 to over $65 trillion --- all minted out of recycled electrons. $65 trillion is a lot of marketplace influence --- and there is plenty more where that came from.

For starters, I believe the number is 75 billion in USDT, not 65 trillion.

And Tether doesn't have an unlimited supply of money. Tether allows USDT to be redeemed for USD. If Tether was minting unbacked USDT, then Tether would eventually be shown to be insolvent.

Second, if you're manipulating the price upward, it becomes more and more expensive to maintain the price. Like let's say Tether issued USDT to pump the price of BTC. If they wanted to maintain that long-term, they'd need to print more and more USDT to maintain the price, which gets us back to insolvency.

Third, the CEX would need a reason to pump the price. Usually, people pump prices to execute a "pump and dump" where low-value assets are dumped on unsuspecting consumers at a high price. It's possible, of course, but executing a pump and dump scheme is a lot of work and very risky for very little reward with such expensive, highly traded asset like BTC.

> If Tether was minting unbacked USDT, then Tether would eventually be shown to be insolvent.

Tether's has been shown to be technically insolvent every time they've been forced to open their books.

> Second, if you're manipulating the price upward, it becomes more and more expensive to maintain the price. Like let's say Tether issued USDT to pump the price of BTC. If they wanted to maintain that long-term, they'd need to print more and more USDT to maintain the price, which gets us back to insolvency.

This is literally what they seemed to have done though. Tether's market cap hovered around a few billion for a few years and then suddenly shot up to almost 80B.

Tether allows USDT to be redeemed for USD.

It is only allowed for verified customers --- those with $100,000 or more to redeem. This severely limits any exposure to a bank run.

If Tether was minting unbacked USDT, then Tether would eventually be shown to be insolvent.

By whom? Lots of people think it's always been insolvent. Can you prove it's not?

executing a pump and dump scheme is a lot of work and very risky for very little reward with such expensive, highly traded asset like BTC.

When you have control and influence over both the pump and the dump, it's easy. And price is pretty irrelevant when you can just mint money and "loan" it to select others (aka "whales") so they can participate.

https://www.wsj.com/articles/rising-tether-loans-add-risk-to...

   The company behind the tether stablecoin has increasingly been lending its 
   own coins to customers rather than selling them for hard currency upfront.

I think you're "begging the question." You believe that Tether is a fraud. You're using the fact that the price on a CEX and DEX are the same to justify that belief. "See, the price on a DEX matches that on a CEX, therefore Tether is a fraud."

Whether or not Tether is a fraud has nothing to do with the price match on a CEX and DEX. The price on CEXs and DEXs will always match due to arbitrage.

(This isn't a statement on whether or not Tether is a fraud. I'm just pointing out that the price on a CEX and DEX will always match with sufficient liquidity in the market).

Whether or not Tether is a fraud has nothing to do with the price match on a CEX and DEX. The price on CEXs and DEXs will always match due to arbitrage

Agreed.

The point is --- any market manipulation will affect DEX the same as CEX. People often erroneously point to DEX as a way to avoid CEX influence and control. It's not.

I'm still not understanding the correlation between a centralized exchange and perpetuating a scam. Tether doesn't rely on a centralized exchange. If an entity, centralized exchange or otherwise, is willing to pay off the entire market to perpetuate a scam, then yes, DEXs will be impacted. That doesn't seem related to whether or not an exchange is centralized.

An exchange doesn't have the ability to mint unlimited token and to expect it hold it's value any more than a central bank doew.

An exchange can keep minting as long as people believe, and people still believe in tether.

As the saying goes – markets can remain irrational longer than you can remain solvent.

The different CEXs would have to coordinate such price swinging. When the price swings in a direction on one exchange, arbitrage bots will put a pressure on the price to converge back with the other exchanges.

It'll get really expensive, and you'll be paying a lot to the arbitragers

The different CEXs would have to coordinate such price swinging.

No they wouldn't.

All they would have to do is "loan" tethers to their "whale" friends with the understanding that they will invest it in bitcoin and hold until they are told to sell. See article from wsj referenced below.

It's easy to time the market when you're manipulating the timing.

you'll be paying a lot to the arbitragers

Exchanges don't pay arbitragers anything. People who sell their crypto too cheap do.

I actually know a few crypto enthusiasts who claim to use DEXes. When pressed further, you realise that it’s to avoid KYC/AML and taxes, not for decentralization principles…

In other words, "decentralization" is just a talking/selling point that evaporates on closer inspection down where the rubber really meets the road in the crypto market.

By going all crypto, you're rejecting fiat central bankers with some transparency and oversight in favor of crypto central bankers who have none.

For crypto people, the problem with 2008 wasn't that big banks got bailed out on tax payer's dime, the problem is that they as individuals weren't the ones getting the bailout

Avoiding centralized custody might get a little more popular in the wake of FTX.

Holding your own crypto wallet doesn't eliminate the influence CEXs have over the value of it's contents.

> their unrestricted ability to mint stable coins and use them to manipulate the market as they see fit

What stable coins do Coinbase or Kraken mint?

Coinbase has USDC.

Kraken doesn't have one that I am aware of.

Is this supposed to make them immune to external market manipulation and influence?

Does Kraken ever "front run" customer orders? How can we verify your answer?