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Comment by nikhizzle | Hacker News Reader

Armchair economist here - one implication of this is that a crypto liquidation will cause global interest rates to spike at a time when they will need to be lower to calm the markets.

Selling massive amounts of debt with no additional demand means the required return must be higher.

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Stablecoins are now a regulated industry with laws in place to address this very concern. Tether is currently not compliant, but as the largest player in the space, has a great incentive to maintain its dominance.

Regulated industry.. like banking, stocks, and mortgage origination!

What would the regulation ... enforce?

Some sort of behavior by Tether and others?

Regulators also have enforcement functions.

Are you asking how laws work?

I’m just curious what is being enforced to prevent what exactly.

I think I’m missing what scenario people are thinking of in general.

I'm not sure I see that, depending what you mean by crypto liquidation. If you mean the prices of dogecoin etc. falling then that mostly just effects the number of Tethers changing hands between one speculator and another and wouldn't really affect the bond market.

If you mean Tether holders redeeming them for US dollars, that would involve selling treasuries but I doubt it would drive the price down that much. That's a very liquid market.

I mean tether redemptions. Hedge funds liquidating treasuries last year significantly distorted yields for a short while.

Good point but it seems like Tether is very healthy, it has the double of daily volume than Bitcoin now and doesn't really depend on crypto rails [1].

[1] Stable Coins ⊄ Blockchains: https://www.linkedin.com/pulse/stable-coins-blockchains-seba...

that's very armchair indeed

a crypto liquidation results in more people going to Tether. "tethered" and "tethering" has been a verb in the crypto space for like 10 years

when market demand of tether is too great the value goes about $1.00 and the organization relies on arbitragers to deposit more to cause the minting of Tethers at $1.00 and selling it into the open market if the price is above $1.00 pushing the market rate back down to $1.00

Tethers in existence still continue to grow in that scenario

Its nearly 1:1 backing, most of the time, even a mass redemption event of Tethers will be orderly and fine. those crisis of confidence have alreay occurred, those stress tests have already happened, far faaaar beyond what any bank would survive

all fiat collateralized stablecoins function the same way and there are many case studies, actual events that happened, that show it occurring orderly, uneventfully.

> when market demand of tether is too great the value goes about $1.00 and the organization relies on arbitragers to deposit more to cause the minting of Tethers at $1.00 and selling it into the open market if the price is above $1.00 pushing the market rate back down to $1.00

I'm not sure of this. USDT can only be minted by tether [0] (line 406), hopefully when they acquire more treasuries.

I am not exactly sure where the price of USDT come from and I am pretty sure there is not only one. But I would guess it is an aggregate of the prices on exchanges.

The chainlink oracle [1] is probably the most authoritative one.

- [0] https://etherscan.io/token/0xdac17f958d2ee523a2206206994597c...

- [1] https://data.chain.link/feeds/ethereum/mainnet/usdt-usd

Nobody is “setting the price”, people trade. supply and demand. on many venues and contracts. the oracles just read from those (and sometimes the venues and contracts read from the oracles)

when tethers and trading at $1.04 or anything higher than $1.00

arbitrageurs wire money to their account at the Tether organization (bitfinex, otc services) to instruct the organization to mint Tether

the organization does everything necessary: takes the deposited money and buys US treasuries, mints the equivalent amount of Tethers and gives those tethers to the customer

The customer deposited $1 and received 1 tether. Some exchange venues have people rushing to buy 1 Tether for $1.04

Customer sells their tether to them and has some other form of crypto that they can try to get back into dollars and do it all over again, until flooding the market with Tether supply back to $1.00

this happens all day every day for a decade, more pronounced during panic selling periods

The USA is going to have a fantastic fiscal reputation if/when that has happened.

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The US Treasury market is BY FAR the deepest most liquid market in the world.

The US housing market is the largest market in the world.

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