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People have been yelling that Tether is a ponzi fraud since it launched in 2015.

And yet it still trades 1:1 to USD today, after the court filing was released.

So is there some magic force that keeps the fraud running, and prevents market participants from cashing out their Tether in the mother of all bank runs?

If you hold Tether why wouldn't you sell?

Or is there more to the story than just "Tether is an obvious fraud"?

I don't understand cryptocurrency markets at all, but, could there be something where the only people participating in the USDT market are those who are at least somewhat confident that USDT is what it claims to be and therefore are pricing it at $1?

What do you get out of participating in the market if you expect Tether to be fraudulent? You'd personally price it at zero, then, right? Can you profitably short it, or does everything just break down if you're right?

That is, if you hold USDT and want to sell it for cheap, who is going to buy it for cheap-but-nonzero?

> if you hold USDT and want to sell it for cheap, who is going to buy it for cheap-but-nonzero?

The market price for one Tether is currently $0.9984 because traders are buying at that price.

So if anyone holds Tethers and believes there's greater than 1% probability that it goes to zero, the rational trade is to sell.

The fact that the price holds at parity tells me that Tether is not an obvious fraud.

There is complacency among the exchanges though. You really believe all that volume and price action is legitimate? Exchanges want tether to be worth what they say it’s worth, 1 USD. The alternative is a massive crash in tether and therefore bitcoin price therefore altcoins price therefore profit (trading fees) for exchanges. The scam can go on much longer than you/anyone can imagine.

It's basically a giant game of chicken AFAICT, because tether is so endemic to the market that if the market as a whole gives up on that valuation then everything goes boom.

It's basically a giant game of bullshit - just the latest iteration of "Never give a sucker an even break."

When you have nothing to trade but trust and hope, people who take advantage of trust and hope are always massively rewarded.

Occasionally someone crosses the wrong people and jail time ensues, but if you're politically adept enough to avoid that - at least until you die and/or disappear - no career pays as well as financial fraud.

How do you think this would work exactly?

If traders begin to lose faith in Tether, wouldn't they sell Tether and buy BTC, ETH, XRP, BCH, LTC, EOS etc.?

So wouldn't that cause the USDT price to decline to $0.97, $0.95, $0.90, $0.75, etc.?

And at the same time the demand for BTC, ETH, XRP, BCH, LTC, EOS would cause their prices to rise, wouldn't it?

I suppose at some point, after the $3B of Tether is liquidated, people could lose confidence in the entire market, but until that happens wouldn't cryptocurrency prices increase rather than decrease?

Something like 80% of trades on the market currently involve tether, and tether accounts for ~$3 billion of (presumed) cash-like holdings. If it collapses then liquidity of the market is going to be severely hit, and the people trying to exit to fiat are likely to cause a variety of bank-run type situations.

These will be exacerbated by exchanges which have been run in bad faith and which do not have either the cryptocurrency or fiat reserves they claim (see Quadriga CX for a recent example).

Either way, it's going to be interesting to watch.

> it still trades 1:1 to USD today

On exchanges of questionably integrity. And where it is impossible to reliably short the instrument.

> impossible to reliably short the instrument

I see this a lot, if you can't sell short then the price can't decline?

If I held Tether and thought it was worth less than $1.00, I would sell it.

If most people think it's worth less than $1.00, they would sell it and the price would drop to reflect the risk.

Why doesn't this happen? Is is just crooked exchanges posting phantom orders? If so, why don't smart traders sell into that and liquidate?

The problem is beliefs aren't homogenous. If 99% the world that tesla was worth $0 and 1% thought it was worth $100, then without short sellers the price would trade much closer to $100 than 0. But if there are short sellers than the beliefs of the market start to average out more.

Also there is empirical proof short selling matters because during the banking crises they banned short selling which causes certain bank stocks to jump up, and then when they allowed it again the prices fell like a rock.

You mean Kraken? There are many OTC lending markets that allow for tether shorting.

Seems like counterparty risk would make this a bad trade; if Tether collapses, the whole system is likely to follow.

I don't think many people assume it to be this binary: if Tether doesn't have have dollars behind every USDT. Buying USDT below $1 is simply buying debt. If you believe they will at some point in the future be able to give you a dollar for every tether, buying under $1 is very smart.

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