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PragmaticPulp
nwah1
This all hinges on exchanges reporting USDT trades as if they are USD trades. This is only plausible if the spot price of Tether remains at $1. They will need to regularly inject money to keep the spot price of Tether at $1, but as you say the fees and ponzi can allow this as long as the number goes up.
The problem would come if the number stops going up and there isn't enough money to cover all the people dumping the Tether IOUs simultaneously. I assume they cannot cover $25 billion dollars of worthless IOUs. Even more if their assets are also simply bitcoin, which in such a scenario would also be collapsing in price.
washedup
My first reply was rather terse, so trying again, and I have a couple points:
1. Tether, even if fraudulent, has very little impact on bitcoin. How do I know this? There are currently 24 Billion dollars worth of tether in existence. The daily volume of bitcoin in dollars is almost three times that much. Even if tether wasn’t backed by dollars on a 1:1 basis, it would have a small impact on the current market cap of bitcoin. This is important because many people say tether is proof that bitcoin price is heavily manipulated and inflated. The reality is that selling $24 billion dollars worth of bitcoin won’t move that needle that much.
2. I have no reason to not trust tether. If it is one day revealed that there are no dollars backing the minting of tether, then so what? See point #1. People have been curious about Tether for years, and for good reason: it’s the first successful stablecoin (success in the sense that it actually gets used).
genericacct
Yes but the volume of traded tether has been higher than the volume of traded BTC for months by a significant margin. Look this up on coinmarketcap if you don't believe it.
Also let me remind you that market cap is really just a made up number. If only 1% of your company is floated and I buy all of it for a million dollars your market cap is 100 mil even though only 1 mil has moved.
floatingatoll
Do you have any conflicts of interest with respect to cryptocurrencies and/or stablecoins, such as personal investments in or employment in regards to them? Your comment history seems to indicate that since 2019 you’ve primarily commented at HN only to speak positively about cryptocoins, and so I’m curious if your financial welfare depends on them somehow.
washedup
Thanks for digging. Yes, of course I am invested. If I believed the things I say about them, it would be ridiculous not to be. Could you please instead address my response? What about my points do you disagree with?
Edit: I have no exposure with Tether and honestly don’t care what happens with it. But it is not artificially propping up the value of bitcoin or other currencies.
mekster
> Even if tether wasn’t backed by dollars on a 1:1 basis, it would have a small impact on the current market cap of bitcoin.
Are you joking? You seem to think the world works only by mathematical formulas but in fact if the crypto market is run by a shady stable coin, I'm sure there will be a huge panic sell with hundreds of news sites stating crypto market was run by fraud and bunch of blogs mentioning "told you so" further upsetting all investors.
I wish other legitimate stable coins gain more market cap to replace tether before it explodes in the face of traders.
atian
This may be a similar strategy to Binance's BNB token, where Binance operates BNB in a way similar to Bitfinex's "bailout" LEO token by committing their exchange revenue to token buybacks, forcing the token value to go up.
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Triv888
> If they can continue to pump the value of Bitcoin higher and higher, any potential fraud may never be exposed.
https://marketinsider.net/why-tether-might-tank-the-crypto-m...
> Bitfinex and Tether have till the 15th of January to submit documents to the New York state attorney general about their financial relationship.
washedup
I think you don’t really understand how Tether works.
PragmaticPulp
Could you please elaborate rather than giving a drive-by dismissal?
I'm explaining the fraud angle that everyone is concerned about.
Of course, if Tether works exactly as the Tether corporation claims (but has yet to prove) then there's nothing to see here. Seems that they would be quick to try to prove this to regulators, though.
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geerlingguy
Every time I read about Tether, it seems patently obvious there's something fishy about it. Yet every time the price of BTC just goes up and Tether keeps appearing out of thin air.
Will there ever be a consequence or endgame, or do we all just like watching things get pumped forever?
f430
The game of musical chairs will end at some point and somebody will be caught holding all the bags.
This is just how ponzi scheme works. I've seen people who I respected become Gordon Gekko pushing shitcoins and trying to get co-workers to buy their crypto
PragmaticPulp
> or do we all just like watching things get pumped forever?
The real problem is that so many people are invested in Bitcoin that they're not just watching, they're benefiting. At least on paper. People are too excited about the prospect of doubling or quadrupling or 10x-ing their money that they don't want to believe anything could be wrong with the system.
aeternum
And what fraction of USD do banks need to keep in reserve? What's the rate at which we 'minted' USD in the last year?
Even if we assume that Tether is 100% fraudulent and has zero reserves, that still only represents 24 billion of bitcoin's 600 billion market cap. Nothing compared to the USD that was 'minted' recently.
spiralx
The "market cap" of a cryptocurrency is a meaningless value. If I create a million coins and sell one for $1 that doesn't mean there's a million dollar market suddenly.
If the BTC market was really $600bn you wouldn't see the price regularly rising or falling 10% or more in a single day based around small numbers of trades.
xiphias2
For me it was quite the opposite. In 2014 I was so angry with the banking system just taking away money from Cypriot pensioners, I wanted to get out of it as soon as possible, and get into a system where I can verify that I'm the owner of the asset.
I went to Bitcoin and gold, but later got rid of my gold reserve, as it is manipulated even more heavily than Bitcoin price.
washedup
What seems fishy about it? Each tether is created when someone gives up a dollar. That’s why the conversion rate of dollars to tether is (almost always) 1. There is no mystery here. The only concern is that maybe they don’t have enough reserves to cover all the tether they created. They say they do, but there was some audit drama in recent years.
Anyway, this and other comments here all point to how much the Hacker News community grossly misunderstands markets and economics.
PragmaticPulp
How do you reconcile this:
> Each tether is created when someone gives up a dollar.
With this:
> The only concern is that maybe they don’t have enough reserves to cover all the tether they created
If they're accepting dollars and creating Tethers in exchange, then they should have 1:1 reserves as they claim, right?
The concern is that they're creating Tethers without having the cash to back it up, indirectly using those Tethers to prop up the price of BTC, and hoping that no one tries to withdraw Tethers beyond their ability to pay out.
For comparison, consider that Bernie Madoff ran his ponzi scheme out of his bank account for almost two decades. He created imaginary "profits" on paper and paid out "returns" to investors who wanted to cash out. The scheme worked as long as no one tried to withdraw enough returns to take his bank account balance below $0. The fear is that Tether is a similar scheme to inject fake money into the Bitcoin ecosystem, which can't realistically be proved unless people try to withdraw more USDT than Tether has in their bank account, at which point the system implodes.
im3w1l
The way I would reconcile it is:
1. Only create tether when someone gives up a dollar
2. Treat the "reserve" as your wallet, and use it to cover operational expenses or yachts or escorts or whatever
CamelCaseName
> Each tether is created when someone gives up a dollar.
This is an opinion, not a fact.
trhway
>Each tether is created when someone gives up a dollar.
> The only concern is that maybe they don’t have enough reserves to cover all the tether they created.
So, it sounds like selling 1 USDT for $1 the Tether people put, lets be optimists here, $0.1 into the bank as reserve and pocket $0.9. Or do i miss something here?
spiralx
More that nobody buys any USDT with $ at all, and then Tether announces that there are two billion new USDT, which are then used to buy BTC.
The trick is that lots of exchanges don't have any way to convert from crypto to real currency at all so use USDT as a stand-in, USDT's supposed backing 1:1 with $ means it's a stable place during crypto volatility, and it's next to impossible to actually get $ from directly exchanging USDT.
mekster
> Anyway, this and other comments here all point to how much the Hacker News community grossly misunderstands markets and economics.
And you think you're right that running a fractional reserve would not create any consequences if spotted?
cwhiz
Bitfinex and Tether have to submit documents to the New York state attorney general about their financial relationship.
These documents are due no later than tomorrow, January 15.
dheera
At the same time, why do people insist that money needs to be "backed" by something?
Ultimately if people cooperatively agree to trade USDT at around USD1 it is working as intended and that's really all that matters, considering USDT isn't something you'd hold for an extended period of time.
I wonder if it would be possible to design a token such that if any trader caused its value to crash from the prescribed function (where in this case it is a flat USD1), that trader's wallet is banned from trading, as a digital punishment, leaving only the players who respect the rules of the game and maintain its prescribed trading value. Is that possible to encode such logic in a token? (I haven't coded for crypto before, so honest question)
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shp0ngle
Hey there surely is 24 billion USD sitting in an undisclosed bank in Bahamas or St Kitts and Nevis or Panama or somewhere
ckastner
This is exactly what I was thinking.
This is an immense amount of cash to manage, and management is not as trivial as it might seem, especially since it has to be kept liquid.
And accepting $2bn of new inflow in just one week, given how frequently and strongly crypto has been connected to illegitimate business (Silk Road, etc.) is borderline unbelievable.
electriclove
I don't know if this is FUD or legit, but something might take place with Tether on Jan 15? Anyone have more insight into these things? https://www.reddit.com/r/CryptoCurrency/comments/ksdfne/why_...
washedup
There are many stablecoins. Right now tether continues to get most volume due to access to some major exchanges, but others could take its place. I don’t think it would be anything to write home about, though.
Scoundreller
> What happens on Jan 15th?
> Bitfinex and Tether have till the 15th of January to submit documents to the New York state attorney general about their financial relationship.
msoad
Amazing how unregulated this stuff is. What happens if USDT falls bellow 1 by a lot? Who's going to win and who's going to lose?
dcolkitt
If/when that happens a major casualty will be all the people yield farming stablecoins on DeFi platforms like Curve and Compound.
Right now staking dollar stablecoins looks like a pretty risk free way to make 5-10% per annum on your USD positions. The way you do that is by providing liquidity for trading back and forth between USDT/USDC/DAI and other stablecoins. If USDT ever breaks a buck, then there will be a run on the pools and all your USDC/DAI will suddenly convert to now worthless USDT.
ed25519FUUU
Questions like that are meaningless to greedy people.
anonymouse008
I struggle to avoid the knee jerk reaction to classify Tether as the Federal Reserve of BTC.
Can someone please explain how this either right or wrong?
alexmingoia
It’s an apt comparison for the US dollar before they abandoned fractional reserve banking in 1971. The US went bankrupt, having more foreign dollar holders requesting their gold than they had gold.
But now the US dollar isn’t redeemable for anything, so they can’t go bankrupt.
anonymouse008
So I guess Tether is ‘on that path’ — if it ever goes bankrupt it’s perfectly situated to knight itself crypto-inflation czar.
alexmingoia
Sure, Tether may become worthless but I doubt Bitcoin will. Bitcoin gained a lot of value before Tether existed. Tether could disappear and Bitcoin may still continue to strengthen.
conception
Tether has no actual money to back its valuation.
ineedasername
Well, they do seem to have reinvented fractional reserve banking.
The "fraction" is unknown though, with unwillingness to provide details and a vague assertions from someone that it's "fully backed". But, you know, you have to take his word for it.
spiralx
They claimed 74% a while back IIRC, with the rest being in some unspecified combination of loans and other assets.
biot
So it's a bit like the realization of this insightful comment? https://news.ycombinator.com/item?id=16242224
ed25519FUUU
Or aircraft carrier.
DSingularity
Last I checked, tether is created when USD is deposited in a bank in Hong Kong.
That makes tether something very different than the federal reserve which can just conjure money and give it to the banks.
40four
Here't another post I made that does a really good job at explaining the whole Tether history and current situation. There is a rapidly approaching deadline for them to provide documents to the New York Attorney General, folks are very anxious to see how this court situation plays out and hopefully illuminate their relationship with Bitfinex.
Coincidence that there is a huge bitcoin ralley, and massive Tehter 'printing' going on right now? We shall see :) Get your popcorn ready!
1experience
They are the equivalent of an unregulated bank in the 1900s before deposit insurance, they will stay afloat as long as they keep up appearances and don't make stupid mistakes.
However the moment they create a catalytic event, the entire house of cards falls down. The equivalent of a bank run.
BelenusMordred
The New York Attorney General proved in court they had at least 95% in cash deposit backing.
How much does your bank have again? Last I looked in most places on Earth it's a few percent although the US removed any cash requirement so no one even has to report it anymore. I guess you folks will argue "well we have guns" but step and think about how that looks. Sounds like the mob to me.
Hating crypto is fun and cool yeah, but being wrong over and over again for so many years must really hurt. Please put your money where your mouth is, no one seems willing to do so these days and I truly wonder why. Playing that "market can remain solvent longer than you" nonsense is ridiculous, the overhead on buying bitcoin futures going short is a fraction of a percent, supposedly "low-cost" ETF's charge nearly a magnitude more.
Shorting bitcoin tether is literally a few clicks away for everyone on the planet, why not go bet everything you have on it. Watching all these people so proudly sure of themselves yet somehow you aren't all the richest people in the room? Please consider the very real possibility you are completely wrong and have been for years while mindless repeating this crap.
Tether itself is a short on bitcoin, billions are stashed away in it, if it collapses all the coins will rise as people race for the exits.
You could rolling in it right now or you could just be another one in this list:
https://hn.algolia.com/?q=tether
Choose your own adventure friend.
throwaway9d0291
> The New York Attorney General proved in court they had at least 95% in cash deposit backing.
I think that's a deceptive mischaracterisation of what the NYAG has done, unless you have more information than what I found.
The NYAG has accused [0] Bitfinex/Tether of misappropriating up to $900M (which I'm guessing where your missing 5% comes from) of Tether's reserves to cover up some other dodgy stuff they were doing.
But absence of lawsuits covering the other 95% doesn't mean that the NYAG has "proven" that the rest of the money is there.
> Please put your money where your mouth is, no one seems willing to do so these days and I truly wonder why.
> Shorting bitcoin tether is literally a few clicks away for everyone on the planet, why not go bet everything you have on it.
Speech isn't pay-to-win. Nobody has to bet their life savings shorting Bitcoin futures in order to participate in a discussion.
[0]: https://www.bloomberg.com/news/articles/2019-07-29/crypto-ex...
1experience
The New York Attorney General proved in court they had at least 95% in cash deposit backing.
Can you provide a source for this claim?
copperwater69
Seems weird to me there are institutional investors in BTC when there are things like this going on.
dumbfoundded
The FOMO is real. Everyone will continue to keep a blind eye to the actual dynamics until the bubble pops. No one wants to crash the party.
There is a lot of value being created in the BTC ecosystem. Very little of the price changes reflect this. Probably the best course of action is to sell 30 to 50% and then buy the dip in 9 to 12 months. That's my personal plan.
freebuju
Except the dip is coming sooner rather than later. History has always taught us BTC to come down after Dec/Jan.
Gotta have the engines of the market ecosystem churning somehow. Also like you I plan on adding more when it dips low so I can cash out later this year when it historically moons again.
PragmaticPulp
On the contrary, this might be why institutional investors are rushing into Bitcoin. It's a near-perfect venue to capitalize on fraud, and it's easy for others to ride the coattails of that fraud.
In 2021, Bitcoin is relatively liquid. They can quietly exit their positions at some point when they suspect a collapse is around the corner. Of course, you won't see announcements that these investors have sold their BTC until they're bragging about it after the next crash. They only announce BTC purchases because it drives follow-on investments, which drives the price up for them.
spyder
And this too: US Federal Regulator Says Banks Can Conduct Payments Using Stablecoins
Acrobatic_Road
the people putting down deposits for tether are institutional investors.
riku_iki
Are such investors allowed buying unregulated securities?
DSingularity
Why do you think such regulations would apply to such institutions or apply in a way they cannot legally circumvent? These regulations were made for a reason and it is not to limit investment to those sanctioned by the federal government.
PragmaticPulp
Why are they buying Tether instead of simply buying Bitcoin?
It's 2021. It's not hard to buy BTC at the institutional scale any more. Why arbitrarily go through a middleman to buy USDT, then use that same middleman to sell your USDT for BTC?
Scoundreller
It's usually exchange driven. A lot of the "no-KYC" ones don't have any banking relationships, so if you want your money in not-crypto, USDT a way to do it. Either on the exchange, or to move between exchanges.
Geee
Tether does not appear from thin air. It appears when new money is deposited on exchanges and OTC desks. It's simply a database for USD deposits. Some exchanges use MySQL to track their deposits. Tether allows transfering deposits between exchanges, in contrary to MySQL-dollars. There's way more MySQL-dollars being "printed" than Tethers. People pay attention to Tether because it's a transparent system.
If Tether is not fully backed, it's a problem for those who own Tether. Tether is not a problem to Bitcoin.
accountofme
I think you need to qualify these statements with proof. Otherwise everything you say is speculation.
mekster
Its time to learn about the economy than just MySQL.
chaostheory
What happens to tether if USD suffers massive inflation?
romland
A tether decrease in value (it does not get inflated per se, but the outcome is the same). So, not much. Perhaps you are asking how people (and Tether themselves) will behave in such a scenario? Could be an interesting thought experiment, perhaps.
That said, I've never owned a single USDT, but rest assured that if I did own one, I'd not hold it when I went to bed.
rajacombinator
This clown show is still going? Yikes...
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The Tether situation is even more suspect when you consider that Tether and Bitfinex are operated by the same group of people. The two companies have tried to publicly distance themselves from each other at times, but the Paradise Papers leak revealed that the two companies are, in fact, closely related ( https://news.bitcoin.com/paradise-papers-reveal-bitfinexs-de... )
Keep in mind that Bitfinex profits from trading activity. They benefit substantially from both increased prices and increased volume, both of which occur after each Tether-driven surge in Bitcoin. The concern is that the Bitfinex operators are using Tether as a convenient pump to drive the market into a frenzy, from which they profit greatly by skimming trading fees off of the top. If only a fraction of people ever try to withdraw Tether, it's entirely possible that they could cash out those few requests from trading profits, indirectly. If they can continue to pump the value of Bitcoin higher and higher, any potential fraud may never be exposed.