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1% fluctuation is normal. Tethering is stabilized through arbitrage.



The only way Tether can be stablized through "arbitrage" is if there is a risk-free way to trade 1 Tether for 1 USD.

For the average user, there is no direct way to cash out your Tether for 1:1 USD. I imagine that big clients do have the ability to trade Tether for USD. Because of that, they will buy up discounted Tethers on exchanges and redeem them to Tether Company for 1 USD each.

HOWEVER, this clearly relies on Tether Company providing that exchange. If Tether Company STOPS allowing the big guys to do this arbitrage, then suddenly the house of cards would collapse very quickly. The longer Tether stays below 1 USD, the more pressure is being put on their company by arbitrageurs.

Furthermore, we know that Tether has made a loan to Bitfinex for $900M. The Tether Company therefore only has cash on hand for about 2/3 of the outstanding Tether, assuming they had 1:1 reserves prior to lending cash to Bitfinex.


There are plenty of ways to arb without actual settlement to USD. Look up "statistical arb".

Even without stat, all you have to do is go USDT <> USD <> BTC or similar and take the arb across multiple pairs. It's a game of musical chairs until someone with enough cash decides to break the peg


Not true. You can trade USDT for USD on Kraken.


That's not arbitrage though. Kraken has a market rate. The only way to arbitrage the USDT / USD rate is if you have a reliable place to sell USDT at 1:1.


You can definitely use Kraken's market to arb:

- buy BTC with your USD on Coinbase Pro.

- sell your BTC into USDT on Binance.

- Sell your USDT back into USD on Kraken.

It really doesn't matter if the last step is 1:1 or another rate. If the price between Coinbase and Binance is big enough you can profitably arb this.


You are right, but it's a tiny market though.




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