The thing that I think some people miss about Tether is that it's not about whether it is backed enough it's either fully backed or it isn't. If it's not, it's not a question of whether it's back enough to weather this storm, it's about whether the people running it think they can weather this storm. If they think they can keep it running they'll sell whatever backing they have and keep the peg. But if they even think there's a decent chance they can't permanently sustain the peg then the best thing for them to do is take the backing and run, not sink it into a stable-coin they now know isn't going to work. That's going to happen way before they run out of money.
Let's say for example, Tether is 20% backed and there's $100Bn of coins so the backing is $20Bn, and people start flooding out of it. Let's say $10Bn floods out. So the guys running it have handed out $10Bn. They now have $10Bn left, and money is still flooding out. Do they really continue to hand over the cash or do they say "Well, the whole thing is about to explode anyway, I'd rather keep the $10Bn cash I've got left". At which point the holders of the coin have to play "Find these fuckers and sue them" which will be difficult since they've got $10Bn to fight/flee/hide.
> Tether reserves the right to refuse registration to, to bar transactions from or to, or to suspend or terminate the administration of Services, Digital Tokens Address, or Digital Tokens Wallet for or with, any user for any reason (or for no reason) at any time
> Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.
They can be sued if they claim that they hold more assets than they are issuing. If you tell everyone that it's a dollar per coin, and suddenly there are 5 billion coins, you better have $5 billion to your name somehow.
Not sure if there have been similar lawsuits in the crypto world yet.
For that to be true, that coin needs to abide to the same laws as real currency.
If I say that "1 dollar = 1 virtual thingy" and suddenly there are a lot of virtual thingies and their price fall, then what's the crime aside me personally being a lying f*ck that can´t be trusted anymore?
I don't see how "legitDollarCoins" is legally more legit than, say, lootboxes.
It's basically all uncharted waters. Yesterday's freakout over Coinbase saying that all customer assets could be seized in the case of bankruptcy was basically them saying they have absolutely no idea what would happen because no precedent exists. In reality, regulatory agencies have broad authority and can seek more when needed to deal with unexpected events. If they think Coinbase or Tether represent a systemic risk, they will find a way to bail out investors because the downside risk of doing nothing is too great. It's possible some of the major crypto institutions have reached Too Big To Fail status regardless of whatever statutory authority exists to protect them. The biggest problem is simply that ownership is anonymous so we have no idea which countries have the most exposure or who to rescue.
> If they think Coinbase or Tether represent a systemic risk, they will find a way to bail out investors because the downside risk of doing nothing is too great. It's possible some of the major crypto institutions have reached Too Big To Fail status regardless of whatever statutory authority exists to protect them.
That's silly. The only people who actually believe this are the ones who have so bought into the hype that they don't realize that crypto is not a functional part of our system of currency that underlies our economic production. Crypto is an asset that is prone to bubbles that provides little to no actual economic production. The "major crypto institutions" will have to be bailed out privately, if at all.
It doesn't matter if it's a scam or if it provides value. Lots of activity leading up to the 2007 crisis was scammy but once enough people and institutions were exposed it had to be dealt with. If Moderna says they put all the cash in Tether and now they're broke and can't produce vaccines, they'll get bailed out.
All that being said I don't actually think that we'll see anything like that. There will be some negative wealth effect but unlikely any systemic risk. Traditional financial institutions have been leery of crypto from the start and they still control the vast majority of capital.
Moderna might get bailed out...though I am skeptical how they would justify having so much cash in Tether rather than an actual bank and as such I highly doubt they would get terms as favorable as the banks got in 2008.
Tether itself certainly would not get bailed. There is literally zero chance that the US Government would decide to help keep Tether pegged. Tether simply isn't important enough to the broader economy, it only exists so that sketchy businesses that have trouble interacting with banks can have an easier access.
You don’t get to just decide that regulation doesn’t apply. The SEC can decide to regulate you, for offering a security or fraudulent statement later for instance
I'm certain that with billions of dollars on the line a creative lawyer will find some avenue to attempt to get the money back. At the very least there's an arguable case that they've committed some level of fraud by mis-stating how well backed it is. The question of whether you'd win, and whether you'd be able to enforce any judgement are different issues.
That'd be great to watch. It is amazing how quick people turn on each other once shit hits the fan. They'll all be pointing fingers at each other full circle.
Well not completely, in the sense that they seem to be exchanging USDT for USD at a 1:1 ratio if you show up with 100k or more. There have been no reports of people that tried to get that and didn't get it.
On the other hand maybe people holding a lot of USDT wouldn't not want to tell anyone else if they were unable to redeem it before they had sold it all on the exchanges...
That last part is key: you’d only publicly share bad news if you had unloaded – and if the news isn’t good they’d have an incentive to offer a major holder a better deal with an NDA.
Even that never really happened, did it? Madoff was never not able to make a payment.
His kids reported him to the police before they could be found out by anyone else. Of course, as part of the reporting, they also got immunity from the consequences of the company they worked for being an elaborate ponzi scheme.
I suspect it's highly likely that this was a scheme they came up with to ensure that no one in the family, other than Madoff himself, would have to suffer the consequences of their crime.
If it is 20% backed, haven't they pocketed the other 80bill already anyway? Therefore the 20B left is just a lottery ticket you might as well pay to have a chance to klept some more hundreds of bills?
What am I missing here? That the 80 bill has been badly spent on papering over some exchange losses?
People use USDT to buy and sell other tokens, it's like an on/off ramp to all things "crypto". You give them 1USD, they give you 1USDT, and you can buy whatever fake coin you like.
The issue is that it's true that for every 1USD you give to Tether, there's 1USDT, but it's not true that for every 1USDT Tether mints, there's 1USD in some bank. Estimates are in the low 10%, but it's probably less.
They have essentially a money printer.
(Some) people really believe that USDT is pegged to the dollar, so they really believe that if they have some ETH for instance, and they sell that ETH for USDT, that the translation ETH -> USDT -> USD is maintained, but that's the whole problem, nothing stops them from minting USDT without the real USD existing. So nothing stops them from "buying" your "hard earned" ETH/Bitcoin/whatevercoin with USDT pulled out of thin air.
That's why New York said essentially "these people are liers and nothing they say is true". It's just that people continue to play this game. And why is that? Because no financial institution would give you Bitcoin/ETH/whatever for dollars, because if they do, they are essentially banks and all the KyC rules / regulations apply.
So they came up with this charade, these "stable coins" are nothing more than a workaround for on and off ramps, because people have FIAT money (real money if you ask me).
This is why Bitcoin doesn't go lower than 30.000, because there's huge amount of Tether being used to buy Bitcoin and keep the price up. Once this money printer charade goes bust we will see the actual price of Bitcoin, Ether, NFTs and so on.
If they give you 1 USDT for 1 dollar that's fine as long as they can return that dollar when you return the USDT. The problem is when the number of coins in circulation not held by Tether is not backed with 1:1 cash or currency equivalents.
Not entirely unexpected to see a dip of that magnitude due to limited liquidity at nighttime when most USD payment rails are offline (market makers don't have infinitely deep pockets), but also not exactly confidence-inspiring.
Isn't Dai crypto-backed? That would give it a risk profile, but also not make it risk-free: Counterparty risk (Tether) vs. exchange rate risk of the backing assets (Dai).
It's multi-collateralized, so backed by crypto, but also backed by crypto that is backed by actual paper (ie. USDC counterparty risk) and is overcollateralized (so the backing is more than how much $ DAI there is by a substantial margin - ~166%). It has a number of additional clever tricks to keep the peg (burning MKR, etc.), but unlike Terra is not only clever tricks.
Lol, sounds like the mortgage backed assets before the housing crash.
"Back it up with enough securities that are backed up by enough securities that are backed up by enough securities, you will turn the literal shit the eventual security is backed up by into gold".
I encourage you to do your own research, there is more than enough information out there.
The basic jist is that there are two ways of getting Dai, either
1. buying it from someone else with Dai (no extra $0.66)
2. minting it as a loan collateralized by your holdings in some other crypto (which requires $1 + X% backing) where X varies depending on the crypto. I believe you also get paid some "stability" fees for doing this, but I don't remember the detail. Because your vault gets liquidated if your collateral value goes below $1 + X%, people usually go considerably above $1 + X% in their collateral so there is no chance of that happening.
Some DAI is also minted by corporations that the DAO has voted to form a relationship with (so it's secured by actual loans into real-estate), but I believe that as of now this is a very small percentage of the whole.
All dai that you would buy from someone else is minted by #2 . You can see the backing here: https://daistats.com/#/
166% collateral doesn't seem so safe in a market where swings of 20%+ are not uncommon and 50%+ are not unheard of. Plus the value of many cryptocurrencies seem to be correlated and they will shed value together in a bad market. I think the thing that would give me the most confidence is the large portion of USDC collateral - but why not just use USDC then?
> 166% collateral doesn't seem so safe in a market where swings of 20%+ are not uncommon and 50%+ are not unheard of
If vault gets below the $1 + X%, then it is automatically auctioned. You can imagine quickly being able to switch the collateral backing to USDC by voting to raise the X for ETH while vaults are being liquidated in auction.
basically, if ETH falls like this, demand for Dai will skyrocket due to the auctions, and the only collateralization left will be the stable collateral.
The people most likely to be screwed are vault holders whose collateral is auctioned at a discount to boost the price of Dai, but the Dai will remain stable.
> why not just use USDC then?
Because being diversified is good and USDC is entirely centralized.
Yep, this fractional reserve scheme they're running sounds shady. Almost like what banks are doing when they create book money out of nothing. Which is of course perfectly legal if you're rich enough to set up a private bank but the difference is they're doing it on a public ledger where everyone can see exactly how much emission there is, while bank books aren't public. Doing it in the open clearly goes too far, they're giving away the bank secrets.
That’s actually a bit of a misunderstanding of how banks work. “Fractional reserve” isn’t really actually a thing in the real world (just a textbook model). The confusion stems from a rule in the US, where banks were required to have a particular type of asset (central bank reserves) in an amount equaling at least 10% of deposits. People misunderstood this to mean that banks only have 10% of deposits backed with any asset, which is completely wrong! Banks have to have assets backing 100% of deposits, or else they’re insolvent! The reserve requirement was a liquidity thing, and I don’t think it’s actually a requirement at all any more. Most other countries don’t have a reserve requirement either.
Now, it is basically correct that banks create money (when they lend, because the created loan (debt to the customer) is an asset to the bank, and at the same time they create a liability (to the bank) that is the deposit (the money loaned)), as you can read about here [1] from the Bank of England. But that’s not a secret, it’s just not commonly known.
What Tether is doing, of course, is different, because they seem to create money out of nothing without having the assets to cover them, and/or without the licensing to create assets (loans), which of course carries with it obligations like capital adequacy requirements to be able to cover expected losses with capital (not deposits, a real bank isn’t actually allowed to use customer deposits for lending, but they are used as part of the liquidity that the bank needs).
> Banks have to have assets backing 100% of deposits, or else they’re insolvent!
Yeah, by asset you mean "loan to other person", and that person will often deposit their loaned money in the same bank, where it will be loaned out again.
Banks do not have 100% of "assets", otherwise bank runs wouldn't be so catastrophic when enough people try to withdraw their funds in actual currency. Because it's not there. Your misunderstanding is that you're focusing on your average savings account, these types of accounts are inconsequential in the grand scheme of things, in fact many banks don't even want these customers since they can't make much money that way if at all.
Now as for credit it is not fully backed and they do create money out of nothing, any econ 101 course teaches you that. That is actually how most new money is created, though bank credits. The "money" is book money which is not legal tender, which means yes, they literally just make an entry into their books (today digital), same as Tether minting money out of thin air.
The most fatal aspect is that many people do not understand the complicated legal situation when giving money to banks. They imagine it like their money is sitting in a virtual safe just for them and the bank can't touch it. In reality once it enters the banks books you have lost custody of the actual asset (government money), which is why insurance is needed in case the bank goes under. In the EU for example all savings are insured up to 100k€.
>What Tether is doing, of course, is different, because they seem to create money out of nothing without having the assets to cover them
This is what banks do, you simply do not understand.
>"Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer's bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank's economists, ""this refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant credit using funds placed with them previously as deposits by other customers"". By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money)."
The entire concept of a "stablecoin" reminds me a lot of something from SIGBOVIK 2014. Keep in mind, this was written in 2014, before any stablecoins actually existed, and that SIGBOVIK is supposed to be a joke conference where people present extremely silly ideas as if they were real breakthroughs.
> DollarCoin: We propose skipping the middleman and providing direct proof-of-dollar with a blockchain that consists of videos of burning US $1 notes. Each video will be unique as the hash of every block header is required to be written on the dollar bill to be burnt; the block header includes the previous block’s hash, which means that each block is forced to build on every previous block, forming a valid blockchain
The fact is, people have convinced themselves that this is somehow a good idea. And then half the time, the person behind it doesn't actually burn any money and just arbitrarily mints coins. It's absolute lunacy.
DollarCoin is the best summary of proof-of-work that I've ever seen. Just replace "burning US $1 notes" with "burning [x] Watts-hour of electricity" and it describes Bitcoin to a T.
that isn't actually at all the function or purpose of PoW though.
in the example, the burning of "real" dollars represents the validity of a single "DollarCoin" existing. the "burning" of electricity for bitcoin is the result of finding a schema that promotes verification of the network by awarding coins by consensus.
PoW is a /validation/ pattern, and while burning dollars on video and linking the hashes together can comprise a blockchain, there is no actual decentralized validation going on.
it's alright as a snarky line, but outright saying "the best summary of proof-of-work that I've ever seen" is misleading to people that didn't actually know, and now have a completely incorrect idea of what it is.
This is maybe a bit of a tangent, but the fact that transaction validation happens as part of Bitcoin’s proof-of-work process is incidental. It’s perfectly fine to mine an empty block, and the only incentive to include transactions is transaction fees. You earn rewards even if you conduct no transaction validation.
The analogous option for DollarCoin would be letting you put a placard in the video with some (valid) transactions on it and recoup a fee from each.
The point is that, it’s not such a bad analogy of just “proof-of-work”, which is a meaningfully separate concept than decentralized transaction validation. Though I agree, I mean a regular person might definitely be more confused than helped by the ‘dollars on fire’ analogy.
The difference between Tether and DollarCoin is that you can (if nobody is lying) exchange a tether for a USD. If each USD that bought a tether was burned as in DollarCoin, then it wouldn't have that property. You're not supposed to "burn any money" when you mint tether, you're supposed to put aside $1 that can be exchanged for that tether at a later date. I think what you're missing is that backed stablecoins don't involve burning any money at all, so whether or not that'd be a good idea is irrelevant.
Tether itself is shady and I have my doubts about them, but the concept is simple.
You mint some coins and sell them for $1 each.
Then watch the exchanges and any time the price is above $1 you mint some coins and sell them. Any time the price is below $1 you buy some coins and burn them. Doing this and only this you should always have more dollars in hand than the amount of coins in circulation.
If I want to pay Bob $100, I will buy 100 coins, never mind whether they currently cost $0.998 or $1.002 each on my particular exchange.
So the issuer needs to constantly mint or burn tokens to match the market demand in such a way that it stays as close to $1 as possible.[1]
>For someone to sell something someone else needs to buy the same thing.
That someone is not some rando person, that someone is marketmaker whose business is in filling out the orderbook.
[1] https://www.coingecko.com/en/coins/tether – see the chart for market cap, since the tokens costs $1 it is almost the same as the chart of total number of tokens over time
I don’t think there’s any serious risk of the price getting stuck above $1, because there’s no reason for anyone to buy at that price. Unless it de-pegs completely and becomes a totally speculative asset and everyone just ignores the offer to buy them for $1 I guess?
Considering that no serious and credible audit has ever before verified the backing of USDT, I think we all can agree it is a Ponzi scheme, through and through.
Here's a question for tether "investors": why are you investing in something whose stated goal is to maintain a peg to the USD instead of, you know, just holding money in US dollars?
You're adding a bunch of risk for literally no upside.
The only thing you gain is to to trade that on the blockchain, which is really a response to the oracle problem.
So you've greatly increased your risk with no upside to slightly increase your utility. That doesn't seem like a good deal.
My understanding is that people don't invest in stable coins (like you don't invest in USD when you have USD on your brokerage account).
Stable coins can be exchanged against other crypto currencies on chain. So if you are willing to trade crypto currencies, stable coins are more practical than USD.
There are also tax implications: Depending on where you live, crypto-to-crypto profits are not taxable. You will be taxed if you sell crypto currencies for USD, but not if you sell crypto currencies for a stable coin.
> There are also tax implications: Depending on where you live, crypto-to-crypto profits are not taxable. You will be taxed if you sell crypto currencies for USD, but not if you sell crypto currencies for a stable coin.
At least in the US, this is not true.
e: Not sure why I'm downvoted - crypto to crypto conversions are taxable in the US.
As a US citizen try to send dollars to a Hong Kong or Singapore registered exchange.
I think the "investing" in tether is really only the best match to "Let me see, where can I park my money in the least volatile way on this crypto exchange".
EDIT: Interestingly, if tether breaks, then USDC is the last man standing and will have to work hard to maintain the peg. Under such circumstances it's quite possible that BTC is the next best "stable" coin.
If USDC is truly backed 100% as stated then it shouldn't be a problem. In fact it might help them gain market share if coins with less backing de-pegged. Though I guess it could also lead to a general loss of faith in stable coins and folks as a whole would shy away from them.
Either way, most stable coins are built on some form of trust, and I'm much more inclined to trust Coinbase than most others. (Disclaimer: I have no dog in this hunt, I don't own any crypto whatsoever.)
There aren't Tether investors, it's just used in exchanges. It wouldn't make much sense to "invest" in an asset which has the primary goal of never changing price.
>The only thing you gain is to to trade that on the blockchain,
Well, yes? Isn't that enough to explain it? Normal US electronic dollars can't interface with Blockchain smartcontracts. So if you wanted to invest in e.g. a vault or liquidity pool, you would need to turn it into a stablecoin first.
> You're adding a bunch of risk for literally no upside.
You mine a Bitcoin that 'should' be worth 5k USD, but is instead selling 60k USDT. So instead of selling that Bitcoin for 5k, you instead sell ~8% of your Bitcoin for 5k USDT, pay your expenses, and keep the other 92% of the Bitcoin you mined.
How is that in any way not a scheme? Barring endless minting, market efficiency would guarantee either unlimited funds or the collapse of the currency.
Mind that... it actually was a good idea. Until people started cheating with it, exactly as you say.
Tokenized dollars allow to benefit from the tech (smart contracts), which is itself great and opens a lot of possibilities.
What's not is: Ponzi schemes (Terra), crooks (Tether?).
Edit: There are valid stablecoins like USDC (they hold sufficient reserves) and even valid algorithmic stablecoins e.g. LUSD, backed by Ethers and with a legit protocol for ensuring over-collateralization that is also immutable.
> There are valid stablecoins like USDC (they hold sufficient reserves)
Those reserves are sufficient until they are not. There are always risks of losing the peg and anyone investing in them should be aware of and track the main ones. My 2c.
(I live in a country with well done digital currency regulation that is comparable to what banks have to do - let's not limit this to the case of Tether only).
Depends on the country. In the US, FDIC insurance requirements mean that depositors will be reimbursed up to $250,000 if a bank collapses, so there's very little risk. If you need more than $250,000 in cash then you should probably have multiple accounts at different banks or park the money in some other highly liquid low-risk assets that are, as much as possible, uncorrelated.
Which country and which stablecoin do you have in mind, if I may ask; just curious.
A big difference with banks is that in most countries with well regulated banking the government will step in to bail out the account holder in a registered bank if that bank goes under. While most government officials will sing and dance if a stablecoin (which complicates their monetary decisions and, if big enough, can even arbitrage those away) fails.
Government support is not the only thing that matters, but it is an important thing to consider when comparing a stablecoin vs fiat.
Burning US $1 notes could not provide backing for minted coins. A better analogy is currency backed with gold without enough in reserve to handle a run on the bank.
It could provide some level of scarcity, so if there was demand you could achieve some sort of value. It wouldn't be stable though - you couldn't make a stablecoin on proof of work either AFAIK. I guess it'd have an upper bound at $1 (why buy it for $2 if you can just burn $1), but no lower bound. So.. maybe it is a stablecoin :)
It's useful mostly because the traditional system hasn't adapted. It is ridiculous that our large banks still basically use FTP transfers of text files to move money, and those transfers typically take 48+ hours to settle.
Waiting 2 days isn't good enough for many applications, that's a lot of risk to take on.
Tether is back up to around $0.98, but volume is high. Somebody is pouring cash into Tether to support the price.
Similar over at UST. Price is back up to $0.60, but volume is far above normal.
Remember, with a stablecoin, there is no upside to holding. Any indication of risk means it's time to get out. Even if Tether has enough reserves to get the price back to $1, there will be substantial cashing out.
That's why a stablecoin has only two stable points: 1 and 0.
There were more people wanting to sell the pound for Euros at the rate mandated by the ERM than resources the UK had to maintain the arbitrary exchange rate and "it did not end well".
The entire point of Tether is that you can absolutely trust them with $100K, $1M, $10M, or whatever. It's backed, it's robust, it's tethered, and they guarantee payout. The promise is essentially the AAA security of the crypto world, the equivalent to US Treasury bonds or whatever.
Meanwhile, the sentiment I keep hearing is yours: "You'd have to be absolutely nuts to trust these guys!"
Which is not only diametrically opposed to the picture Tether is trying to paint, but it's saying that AAA is actually a CCC− and hence that there is nothing in the crypto world that's above, oh, I dunno, B- or thereabouts.
But the entire point of Tether hinges on it being perceived as AAA.
Take for example the US dollar treasury bonds. Even countries and people opposed to the United States and everything it stands for agree that it is AAA. People that hate the US agree that the USD is a stable currency and their bonds are secure. Literal enemies, legally at war will prefer to use USD over their own currency for many transactions!
Meanwhile it's hard to find anyone that hasn't apparently drunk crypto Kool-Aid that thinks Tether is anything but a trash fire.
> The entire point of Tether is that you can absolutely trust them with $100K, $1M, $10M, or whatever. It's backed, it's robust, it's tethered, and they guarantee payout.
"Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves."
So, instead of redeeming your $1M in USD fiat, they can give you an equivalent amount of Dogecoin or Chinese commercial paper.
Furthermore, they say: "In order to cause Tether Tokens to be issued or redeemed directly by Tether, you must be a verified customer of Tether." You are not a "verified customer" of Tether if you exchanged USD for USDT at Coinbase or Binance.
Strongly analogous to the eurobond crisis, and the mortgage tranche issue; there was a period in 2008/9 where all sorts of things were downgraded overnight.
> Take for example the US dollar treasury bonds. Even countries and people opposed to the United States and everything it stands for agree that it is AAA. People that hate the US agree that the USD is a stable currency and their bonds are secure. Literal enemies, legally at war will prefer to use USD over their own currency for many transactions!
Yes - and this is why Americans panicking about financial mismanagement always come across as so out of touch. USD is the currency everyone else runs to for safety.
>
But the entire point of Tether hinges on it being perceived as AAA.
No, the entire point of Tether hinges on everyone pretending that it's AAA, and just letting the Tether money printer lift all crypto boats.
Anyone paying attention knows its a fraud, but are happy to look the other way, because it's the reason BTC is $30K, instead of $600 right now. Sure, they'll lose whatever they have invested at the moment when the house of cards collapses, but if you can't predict when the music will stop, the smart move today is to keep playing.
If you can double your money every 6 months, and the music was playing for the past 3 years, you'd have been a fool not to play.
It's why bubbles grow. The optimal move for anyone but a precog is to keep playing, right up until the end.
Very few people in this case actually mint and sell tickets, most of them are hangers-on who are either hoping to dump to a bigger fool, or are also selling tickets (but are also utterly dependent on the music to keep playing.)
It’s perceived as AAA until it’s not. Easy as that. Like WireCard that was a "good business", which turned out to be a fraud and the stock price crashing 70% in one day and 99% within a week.
What people here don't seem to understand is that the people who actually hold significant amounts of Tether basically all know each other. It really is more of a social contract than anything else. It was an early stablecoin, and it only exists so major exchanges could interoperate without having to rely on banks.
This is what killed MtGox, their over-reliance on banks to hold the collateral needed to make them solvent. Carl Mark Force IV was a DEA agent who was basically blackmailing MagicalTux, forcing him to invest in fake crypto projects, and if he didn't play along, Karl would use his DEA powers to freeze MtGox's bank accounts. This prevented people from cashing out, which was a problem. Major exchanges learned that touching actual US dollars in bank accounts is poison, and something that major exchanges can't really do without devoting massive (crippling amounts) of resources to legal and compliance teams.
Better stablecoins exist now, from a US regulatory standpoint (USDC) and from an algorithmic pegging standpoint (DAI), but the people who run exchanges still like using Tether between themselves for historical reasons, which is fine. I will never hold Tether, and probably every person who reads this should never hold Tether, but not because it's necessarily bad, but because it's not for you. It has a very specific utility to certain crowds, and IMO that's fine.
The question which has to be asked here is: what do Tether's open market operations look like? Since they're roleplaying "be your own Federal reserve", they shouldn't have to transact at par against people who bought at a discount, they should be hoovering it up directly from the open market at a smaller margin.
Were you redeeming at Tether, or were you redeeming at Bitfinex and they were selling the Tether on the open market to someone else and sending you the proceeds?
I think what the OP is saying is that there is not a reliable account of someone going to Tether with 100k USDT and having Tether give them $100k USD.
> Remember, with a stablecoin, there is no upside to holding.
As always people around here tend to see the world from their point of privilege. If you are in Turkey, Sudan or Venezuela right now there is a huge upside in holding a stable coin pegged to the dollar. Only 13% of the world population is lucky enough to live on a stable democracy with a stable economic system.
If you live in a country with an unstable currency but without strong capital controls, the upside can be had by holding dollars. And that comes without the risk that your known-to-be-a-bit-dodgy nearly-dollar collapses.
That's a rare situation. The first thing a government does when their economy starts to colapse is to force the population to use and save in their dying currency while restricting access to foreign currency to prevent capital flight. Just look at Russia and Argentina.
Can you? I've got to imagine that transacting in a runaway inflationary currency is going to get you bad rates no matter what.
If you want to buy crypto using rubles, Lebanese pounds, Venezuelan bolivars or anything else, you need a counterparty who will accept that currency as payment. And if your currency is losing a lot of its value every day, with no end in sight, your counterparty will not give you anything approximating the official exchange rate, even on an open market, because accepting payment in that currency immediately exposes them to that currency's inflation.
That doesn't make sense. The black market (being illegal) would have significantly higher risks and transaction costs, so even with arbitrage the prices could still be significantly different.
Oh that's a different question IMO. Crypto is making it easier to bring dollars from abroad so I get it does lower the black market cash dollar's prices in that sense. Big international crypto exchanges like binance aren't yet regulated here so technically the crypto world IS part of the black market anyway
Unless your bank kicks you out by some reason (incompetent compliance).
Unless foreign bank refuses your transaction because the bank doesn’t like the color of your passport.
Unless somehow banking system wants to cut extra from your transaction (2.5-4% for transaction) because of double currency conversion you didn’t ask for, because you didn’t specify correct correspondent bank and your bank didn’t tell you about that.
> Unless your bank kicks you out by some reason (incompetent compliance). Unless foreign bank refuses your transaction because the bank doesn’t like the color of your passport. Unless somehow banking system wants to cut extra from your transaction (2.5-4% for transaction) because of double currency conversion you didn’t ask for, because you didn’t specify correct correspondent bank and your bank didn’t tell you about that.
These are all problems invented by Crypto bulls to build a narrative for why Crypto is widely useful.
There are a handful of small, very poor countries where Crypto might have been better than holding local currency. But you also had to be poor in those poor countries for it to make sense for you to buy Crypto instead of hard assets like land or housing - if you were merely interested in bypassing monetary devaluation - and not interested in EXTEMELY risky speculation to get absurd returns.
The total money for people this might even have made a little bit of sense for is maybe $1Bn. Considering Crypto had close to a $3T market cap at some point - this is not a talking point. It's noise.
The real story - and the only story - is that Crypto is and always has been speculation.
I disagree. As someone from Argentina which has a high percentage of crypto owners I can say poor people in poor countries aren't literate enough or don't have the resources (ie: liquidity, bank account) to get cryptos. It's more of a middle class thing here. Real estate isn't cheap in the big cities if you take into consideration the average salary and barely any financial aid to buy property. Besides, being a landlord isn't profitable enough given the initial investment because rental prices are heavily regulated. Also not good for reselling because price have been going down in the last years and it looks like it will keep going like that. Stocks options are heavily limited and also (obviously) regulated. A lot of people here are afraid to invest in stocks here anyway. with an estimated inflation rate of 60% people save money by buying dollar cash, crypto and classic bank instruments (fund investments and fixed term investments)
IIUC, it's quite easy in Argentina to convert pesos to dollars and store them in an Argentine bank with a US correspondent bank - ditto for Euros and Yen.
There are many downsides to Tether. Why is it worth the risk in comparison?
Additionally, there's simply not enough money in Tether compared to the $80B to talk about. It's a distraction.
Again, it's a matter of resources. Not everyone can travel to US and have the money to open a bank account there. Anyway to "easily" convert from pesos to US dollars (which you have to use some financial instruments which aren't trivial for the average citizen) you need to justify all your earnings which not everyone can do because people try to avoid taxes as much as possible.
For instance, most devs I know that work remote jobs for companies abroad, they ask for them to pay in crypto because if you try to get paid in the legal way you get 50% less off the bat in the forceful conversion from usd to pesos and then you get an additional 20-30% less due to taxes
It sounds like it would be worth it to get a US bank account and be paid in USD at that point - assuming developers are making $50k+ USD per year. Virtually all non-small employers would prefer that as well.
> These are all problems invented by Crypto bulls to build a narrative for why Crypto is widely useful.
These problems happened to me and still happening.
Swift transactions in USD from US to UAE are getting double converted (at cost of 2.5-4% of the total amount) and it’s very difficult to get meaningful answer from the bank support about what’s happening
Nothing you wrote makes any sense. We are talking about stable coins. Where does speculations fits here? Also could you make an argument without making accusations?
1. Stable coins make no sense for anyone outside of a handful of small, poor countries.
2. Stable coins make no sense for anyone who has meaningful wealth even in those countries because they have other, better options available.
3. The amount of money in Stable coins is >$100Bn - this is far more than what would go in to resolve any of these problems. Mentioning these problems is noise / a distraction.
4. The primary purpose of stable coins is for people to get in and out of / time trades in cryptocurrency (speculation).
Do you honestly believe people collectively parked >$80Bn in a shady company using it purely as a bank account - because that was really their best option? If not - then these talking points aren't really worth talking about. My whole point.
The "stable" part of the -coin is all marketing. It's true while enough people believe it's true... and if at any point enough people disbelieve it, it'll be everything but.
Yes, BUSD & USDC have regular attestations that their holding of USD in bank accounts backed by the US government & US treasuries are real.
Tether on the other hand has invested mostly in commercial credit, who’s counterparty they decline to identify. Given that they constitute something like the 5th largest commercial credit fund in the world on that basis & the other funds deny seeing them in their markets, it seems that they’re lending to ... lets say unorthodox counter parties.
Some have suggested that they’ve been lending to Chinese builders, but it seems more likely to me that they’ve been lending Tether to cryptocurrency trading houses and marking it up on their books. This would create a self-feeding circular dynamic at one or two removes; if so the whole thing could unwind quite spectacularly.
It seems to me that some gold coins would work even better in this situation (for longer term savings, not something you move in and out every month). Did you consider this? An honest question.
You can buy small quantities of coins off dealers for a very modest spread plus the cost of insured postage. I have a few sovereigns at the back of a drawer from the 2008 crisis which have basically held their value. There's no magic to it, it's just a nice shiny object.
Converting back to cash at a reasonable rate is probably a lot harder.
You compare the convenience of a download against having an asset with a few millenia of history in your physical possession (which is not without its own risks) and pick your poison.
Gold is one of the easiest things to smuggle: it is compact and can be easily melted, painted over, made to look like a cheap tourist souvenir, mixed with other components, etc. and then recovered at the destination.
That does not mean that it is trivial to smuggle gold out, but if you need to do so, the chance of success is pretty high. Much higher than smuggling out fiat money held in a government-regulated account during capital controls. My 2c.
In principle, there's no reason someone like Revolut can't just offer virtual (but backed by segregated client assets) accounts with "real" USD to people living in those countries.
It may be a compliance issue, of course. If you want to stay on the good side of the US Treasury, compliance could be expensive, especially in certain countries.
But the basic premise here is that USDT's risk premium is worth it as the cost of avoiding compliance, which, sure, I guess.
There is an upside of holding USDT (although not a monetary one): it serves as a "stable" store of value on non-USD-banked exchanges when trading other cryptos.
Especially right now, with the market going down rapidly, a lot of people probably sold coins on the way down with the intention of buying back into the market at a later point in time. A substantial number of these traders temporarily hold their value in USDT in the meantime, because that's easy to transfer between crypto exchanges.
Volume on USDT/USD is going down right now btw, while it stabilizes at around 0.986. I wouldn't bet on this drop having been the last one in the current market disturbance, but I'd bet on USDT not collapsing the same way UST did, at least not within the coming days.
There is nothing "instant" in the process of buying millions of USDT, then sending them over to Tether for redemption against USD. The redemption process of such sums is a manual process which takes at least some days, even if it works out in the end (assuming Tether is liquid).
It is guaranteed - by Tether. But the effectiveness of this guarantee is what's questioned, and the only way to fully validate this guarantee is to wait until the USD have left any accounts controlled by Tether and arrived in your bank account. You are inside the danger zone and outside of the profit zone until this process has completed. And this process is not instant at all.
[edit] Indeed, as dgellow commented, Tether actually does not strictly guarantee the redemption of USDT to USD. They use sleazy legalese in their Terms of Service to reserve the right to "delay" a redemption in case of illiquidity, without specifying how long that delay may last, so effectively they can simply "delay" your redemption for an infinite time.
It essentially means they were moving large amounts of USDT supply around. Presumably there was not enough liquidity on Ethereum and Avalanche mainnets.
Imagine you have multiple games of monopoly in progress but all the monopoly money is managed by a single monopoly money bank.
Two monopoly games (Ethereum and Avalanche) both needed more monopoly money for the game to go on smoothly, so the banker transferred some money from their main bank (Tron Network) to these other games that are in progress. The total amount of monopoly money in circulation did not change, but the amount of money available in each in-progress game has changed.
Tron has huge backing and is essentially one of the "defacto" standards when centralised exchanges want to transfer huge amounts of USDT between one another.
Presumably it is due to cost efficency of TRON but I suspect it's also to do with highly effective marketing or strong industry contacts etc.
For reference there is 42.7B on Tron and 39.8B on Ethereum. Tron is not a "main bank", there is just more demand for Tether there. Compared to Ethereum Tron has 0 transaction fees for USDT and has much shorter block times.
> Remember, with a stablecoin, there is no upside to holding.
The people running Tether has a stake in the upside. It's this moment where they need to convert their supposed holdings to sustain the price. It's not going to be expensive (maybe even profitable) given the high yield of USDT right now.
Tether and UST are not comparable. Tether is a token you can redeem for USD with a questionable past. UST is a project started by a scammer. An algorithmic stablecoin. A Ponzi uses a Ponzi to prop up the price. And then head scammer used personal money to keep the charade going
If Tether isn’t a Ponzi scheme, why have they never subjected themselves to a real audit on their reserves? You know the one thing that you’ll find in common with every Ponzi scheme? There is no auditing.
Pentagon has never passed an audit, and the Fed manages to have giant ($Trillion) "secret" activities that manage not to hit their audits [1]. Are they a Ponzi too?
Still they are very different projects. UST is transparently a scam with slick marketing while Tethers real financial state is unknown but claims a plausible redemption scheme
They can display (if they are not DEXes) though any arbitrage bot will be triggered literally in milliseconds to sell at that price, in which the exchange either has to authorize the trade (so it really is at that price then) or fail the transaction with some error which would instantly smell fishy.
It's hard to overemphasize how big a deal the Tether peg breaking would be (is?). At $78B, it dwarfs UST/Terra, and it's supposed to be an asset-backed stablecoin, not a risky algorithmic boondoggle like UST. If Tether plunges, it will take the broader crypto markets with it.
Emphasis on the "supposed to be", since many, many, many unanswered questions have been raised about Tether's reserves and they've previously been caught straight-up lying about them.
Do people in crypto sincerely believe Tether is backed? I'm not being sarcastic here, I'm genuinely asking. I'm a bit of a skeptic of how the crypto market has developed overall, and the intentions of the major players, so I keep reminding myself that I'm biased, but I haven't believed Tether is even remotely close to being fully backed for a long while, and I've just sort of assumed everyone who's 'bought in' to the crypto space also knows and just doesn't care, or they think it's 'too big to fail'.
Is that the case or is there genuine belief it is fully/mostly/partly backed?
The pinned top post on reddit.com/r/tether is titled "Tether has always been fully backed and the assurance opinion made available today confirms it once again, and puts Tether ahead of the industry on transparency."
"Tether is fully backed but we won't show you what the backing actually is and we won't allow audits just attestations from some rando Cayman island" didn't quite fit in the title, I suppose.
Financially literate people see that tether might be backed by thin air. They're pretty clear on their homepage that "Every Tether token is 100% backed by our reserves, which includes traditional currency and cash equivalents, and may include other assets and receivables from loans made by Tether to third parties.".
"receivables from loans" can be worth nothing if it's a loan to someone with no assets.
I believe the whole thing is intended to be sufficiently backed to not collapse easily, but is by no means 100% backed with actual cash.
The thing is that someone will know, if someone does know what the level of backing is then they can figure out what the point of collapse would be and that will allow the construction of a scheme to make it collapse. If they can do that then there is a bunch of money to be made.
> If they can do that then there is a bunch of money to be made.
Hoping to make money by betting on Tether collapsing is like taking out insurance against the event of a combined global thermonuclear war & genocidal alien invasion of the Earth.
If you win the bet, you won't have anyone to collect from.
You could make money off Tether's collapse if you shorted it the simple way (and managed to time it very well) - borrow units of Tether from someone, sell them at $1 (ka-ching) later purchase the same quantity Tether at $0.00001 and return them to your lender for a tidy profit.
I suppose if Tether collapsed to the extent that it was impossible to trade it at all, you'd have a hard time buying the worthless Tether back. What happens if you're short a stock traded only on the NYSE and the stock exchange itself disbands? Or maybe the better analogue is, how do you fulfill your end of the deal as a short seller and return the shares owed to your counterparty if the company disbands in the meantime?
>Or maybe the better analogue is, how do you fulfill your end of the deal as a short seller and return the shares owed to your counterparty if the company disbands in the meantime?
If you're short a company and the company goes properly bankrupt then the shares are literally worthless paper, you just throw them away.
I've been in this situation with interactive brokers and the position just disappears. (You get the profit as though you closed the position at a price of zero.) Shares of something that doesn't exist similarly don't exist. They just vanish.
Generally Western people do not believe in Tether. People believe in it regionally.
The counter argument is that Tether's growth is the exact same as USDC's growth and other stablecoin's growth, especially those that are structured in the exact same way, with 1:1 redeemability for fiat somewhere. Some of those, people like the level of validation they show, others have undermined trust and never show the level of validation that people want.
Tethers are primarily created upon deposit into Bitfinex. Any fiat deposit. And are only destroyed upon redemption, but people rarely do that because they often just trade out or sell the Tethers. This is akin/analogous to Robinhood creating a RobinBucks whenever a deposit hits. We would see the growth of RobinBucks redeemable 1:1 for dollars. We don't see that because Robinhood and other exchanges don't do it that way. But if a popular exchange did that, we would see what that really looks like and say "ah, this isn't strange actually, we just weren't used to this level of transparency". Redemptions would be low because people don't really leave their brokerage/investing accounts, they just sit in cash waiting to buy a dip... in their brokerage accounts.
Finally, multiple US authorities have looked into Tether multiple times. Typically their fines have been about a combination of A) not being 100% backed by dollars at some point in time and B) not disclosing that. Meaning that at one point and subsequently, Tether did match their level of review, and at one point was backed 100%. Tether has had skepticism from the day it was created nearly 10 years ago, and a US authority got all the information was like "well that one time in 2018 we didn't like that". Tether is not 100% backed by dollars, it mostly is though. The standard is better than other respected financial institutions.
Let there be a run, I don't like to use Tether. I don't like algorithmic stablecoins more. There are options now, those options are holding up. Regardless, Tether isn't as complicated as people think. There are other reasons to avoid Tether and all centralized stablecoins that can be frozen address by address, or by losing access to their bank account. Remember when that was the criticism? Probably not.
Its also easy to see how and why it does work so swimmingly, despite all the questions and criticism. And thats because someone can arb really well and reliably.
> Meaning that at one point and subsequently, Tether did match their leel of review, and at one point was backed 100%. Tether has had skepticism from the day it was created nearly 10 years ago, and a US authority got all the information was like "well that one time in 2018 we didn't like that". Tether is not 100% backed by dollars, it mostly is though.
This is some serious spin and misinformation. I can't believe you'd post this with a straight face.
The "100% USD backing" was at best more like 67% at the end of 2021, the rest is "commercial paper".
The "US authority" (OAG) was more like: you lied repeatedly about how you were backed, here's a big fine and you aren't allowed to do business here (New York) anymore.
Edit: The only reason we know that Tether was 2/3rds backed at the end of 2021 is because they are required to share that information as part of the settlement with the OAG.
Yes, I was referring to the NY one, and I'm referring to how they were like "okay you went unbacked in 2018 and didn't disclose that to our standard, but at least disclose that its not USD". So now they paid a fine and disclose that. So at one point they were 1:1 USD, which is actually a major revelation because from 2014-2018 the same Tether FUD existed the same as now. In any case, now they aren't backed 100% USD, which is more relevant. Dollars and commercial paper isn't... horrible. Maybe they have a liquidity issue if 2/3rd of Tethers were attempted to be redeemed, maybe they don't.
> So at one point they were 1:1 USD, which is actually a major revelation
Is it a revelation or something you made up? NY OAG was confident they were able to prove that that Tether lied about backing in 2017, 2018, and 2019. Just because they don't have sufficient proof that Tether lied prior to 2017, doesn't make it a revelation that Tether was telling the truth. Indeed, given the trend, it seems quite reasonable to think that Tether was lying about backing at some point in 2014, 2015, and 2016. Who knows how much, they certainly aren't trustworthy.
I'm curious why you feel the need to try to distort and spin stuff to benefit a company like Tether? They don't deserve your loyalty and they help give the crypto community a bad name.
It was actually my understanding of the situation, I feel I gave a balanced view. Not everything bad, not everything good. Like most things: somewhere in the middle and everyone is too emotional to look. It was new information to me that NYAG simply didn't investigate prior years at all, that's not the impression I got when I was reading that case. I think its an interesting way of reading it, like I said, a perspective.
Tether also grows in the same trajectory as USDC. or said another way, USDC grows in the same trajectory as Tether. That means if we were willing to assume it is actually functioning as detailed, then the same global sentiment perpetuates stablecoin growth.
What part of anything I wrote gave you the impression I have any loyalty to Tether. I was pretty explicit about the opposite of that.
> Let there be a run, I don't like to use Tether. I don't like algorithmic stablecoins more. There are options now, those options are holding up.
You're grasping just because I'm not auto-admonishing them. That's not necessary. It mostly works because its mostly dollars, the western-retail trader fud is not matched by western institutional sentiment[0], and is definitely not matched by eastern retail or eastern institutional sentiment. There is no surprise untethering, it would come from redemptions causing a liquidity issue after the dollars are all redeemed, or a crisis of confidence when redemptions are actually cut.
If Tether's $25bn of commercial paper needs to be sold during a redemption run, after its $50billion of tethers were redeemed for dollars, then at that point there would likely be a liquidity issue spreading further to the all the Defi apps as Tether confidence shrinks, and some contagion to the "money markets". But the money markets should be able to absorb this size, commercial paper is a huuuuuuuge market.
The boogeyman stuff just is ... overblown. There is an objective reality, its not that bad, and doesn't mean you have to use it either way.
> It was actually my understanding of the situation, I feel I gave a balanced view. Not everything bad, not everything good. Like most things: somewhere in the middle and everyone is too emotional to look..
In what way was it balanced? It completely misrepresented the findings of the NYAG in the best possible light for Tether. If you were acurately representating your understanding of the situation, you need to seriously re-asses your sources.
> It was new information to me that NYAG simply didn't investigate prior years at all, that's not the impression I got when I was reading that case.
I never said that. What I said is that not bringing charges isn't evidence that Tether wasn't lying about their backing during those years.
> You're grasping just because I'm not auto-admonishing them. That's not necessary. It mostly works because its mostly dollars, the western-retail trader fud is not matched by western institutional sentiment[0], and is definitely not matched by eastern retail or eastern institutional sentiment.
The concern isn't that the peg can't be held through large downturns, with the assets that Tether has, it would take an extremely large down turn to _force_ them to break their peg. What the question comes down to is trustworthiness because there is nothing stopping the people running Tether from walking away with all the backing assets if they don't think it is worth it to hold the peg anymore.
Thus I think it is extremely important to not whitewash Tether's previous shady behavior since their trustworthiness is the prime concern.
What do you think the financial standing is of a company that since 2015 has taken bitcoins and given people tokens valued at the current btc/usd price?
They are essentially taking shorts on bitcoin over the last 7 years.
There are people "in crypto" who believe the FDIC will make good any losses on their investments; which they hold because "crypto can't be controlled or monitored by governments!"
I'm expecting the talking heads to have to spend time on "why there won't be a bitcoin bailout" today or tomorrow.
Can someone explain stablecoins to me? Most online explanations talk about how the currencies are "pegged" to various assets/real world currencies/physical objects/algorithms/cryptocurrencies, however they never explain how the pegging is done.
What is happening right now that is causing the price to fall, what prevented it from falling over the last few years, and why isn't that thing preventing it from falling now?
You give me a dollar, I give you a digital currency equivalent. When you need your real USD back, you tell me and I give it to you. That means in an ideal world, you have your stable coins backed 1:1 with real USD.
Of course, this isn’t always the case, and with Tether, there has been much scrutiny over the years that they do not have the USD collateral to back their stablecoin.
Ok, but let’s assume Tether has the USD. Why is it depegging? This is most likely due to sell pressure and Tether’s ability to liquidate their USD holdings. I think Tether has more than enough real USD to deal with the sell pressure we’re seeing now, but the system is having a hard time keeping up.
How does the sell pressure play out? Is this other people willing to sell for 99 cents, 98 cents on exchanges because Tether can’t fulfil orders fast enough? I assume they are always willing to buy at $1 else it all collapses?
AFAIK, Tether will not convert to USD for you unless you register and have >100k Tether. Therefore, most holders only ability to “cashout” is on exchanges. Obviously, this is problematic.
Compounding with this is that when you move money to exchange you have some USD there. But then to actually trade either you receive some stable coin or have to first trade for one...
Probably applies only to some, but still a real insane thing...
That explanation is not correct. Algorithmic stablecoins rely on a pairing with another crypto, in UST’s case LUNA. 1 UST can always be swapped to $1 US dollar of LUNA. It is interchangable, so $1 US dollar’s worth of LUNA can also be swapped for 1 UST. Hence, the “algorithmic” in the name. This way traders are always incentivized to keep the price of UST at $1.
There is no collateral requirement. In UST/LUNA’s case they had collateral, mostly in Bitcoin, in the Luna Reserve Guard but their collateral proved insufficient. Some algorithmic stablecoins are entirely uncollateralized.
I still don’t follow why the second currency is required?
They will always swap a UST for $1 of LUNA so a UST is implicitly worth $1.
LUNA itself doesn’t have anything behind it though apart from concidence. So we have a stablecoin manufactured from a volatile unbacked asset where the market cap can fall arbitrarily low.
I know it failed, but it’s not quite clicking for me what they were even trying?
fyi ampleforth is an example of a algorithmic stable that doesn't pair with another crypto. Some algorithmic stablecoins incorporate a rebase mechanism when the price deviates from the peg.
I removed the section on Terra. Like I said, I didn’t want to get into complicating the explanation, but point taken on the nature of algorithmic stables as opposed to collateralized one. The point I was trying to make was that Terra actually did have collateral, in the form of BTC.
Tether the company guarantees it will buy all tether for $1 each. The drop in price reflects people suddenly realizing they can’t do that if everyone tries to turn in their tether at once.
Surely it is very difficult for a company to "guarantee" anything about the price of a commodity sold in a large open market. There are all sorts of reasons prices go up and down, it seems hubris to imagine you can tether anything.
It would not be that difficult to guarantee Tether price if tether actually did what they originally claimed. Take usd in, store that in diversified bank accounts/liquid treasuries, and if there ever is downward pressure on the Tether price, use your high quality liquid reserves to buy Tether back (while making profit!). And of course, if you are open and audited on your operations, there is very little reason for a downward pressure for the price.
Now, of course, if you decided to _not_ be open and _not_ hold your reserves in safe assets but instead decided to invest the reserves to speculative gambling tokens or shady commercial papers, then it really is difficult to keep the guarantee if the gambling token loses value.
Theoretically, they could guarantee it by just holding all dollars they are given originally.
A price is just an abstraction for the willingness to buy and sell. If you know there are 1000 of some token in the world, and you have 1000 of some item, you can guarantee that people will always be able to buy one item for one token - by selling your items to them at that price.
But of course, just holding the dollars makes it hard to profit.
In theory you should be able to do it if you always have reserves worth more than the total number of outstanding tether. If you distribute 40b tether and have $50b in liquid cash, you can guarantee that you will pay exactly $1 for each tether. Obviously everyone holding your coin is exposed to changes to the value of your dollars, but you can always give them $1 for 1 tether. The problem is of course that you can make a great deal more money for yourself if you invest in riskier ways than holding liquid cash.
I don't think the Black Wednesday situation is similar, because the UK was never going to be able to hold enough of the currencies it was supposedly pegged to to make that same promise. Definitely not my expertise there though!
Market pricing and arbitrage pegs it, is how I understand it.
It's "worth" whatever price the bid-ask spread meets at.
It's exchangeable for USD to the company. As long as there isn't a bank run where they'd stop fulfilling exchanges, when the price drops below $1 anyone can arbitrage it. It reached like 95 cents earlier, anyone could've bought millions of it and got USD for it at like 6% profit. It creates buy pressure/price support as the price falls.
They are backed by real dollars that they have in cash reserve in a bank. At least in theory.
What is currently happening is because of too much volume they have hard time putting more money back into the ecosystem (which is the good scenario, it means they have money but things are going just a bit slow), or they are running out of money (which is a bad scenario that would cause many things to go down with it).
"1. You wake up one morning and invent two crypto tokens.
2. One of them is the stablecoin, which I will call “Terra,” for reasons that will become apparent.
3. The other one is not the stablecoin. I will call it “Luna.”
4. To be clear, they are both just things you made up, just numbers on a ledger. (Probably the ledger is maintained on a decentralized blockchain, though in theory you could do this on your computer in Excel.)
5. You try to find people to buy them.
6. Luna will trade at some price determined by supply and demand. If you make it up on your computer and keep the list in Excel and smirk when you tell people about this, that price will be zero, and none of this will work.
7. But if you do a good job of marketing Luna, that price will not be zero. If the price is not zero then you’re in business.
8. You promise that people can always exchange one Terra for $1 worth of Luna. If Luna trades at $0.10, then one Terra will get you 10 Luna. If Luna trades at $20, then one Terra will get you 0.05 Luna. Doesn’t matter. The price of Luna is arbitrary, but one Terra always gets you $1 worth of Luna. (And vice versa: People can always exchange $1 worth of Luna for one Terra.)
9. You set up an automated smart contract — the “algorithm” in “algorithmic stablecoin” — to let people exchange their Terras for Lunas and Lunas for Terras.
10. Terra should trade at $1. If it trades above $1, people — arbitrageurs — can buy $1 worth of Luna for $1 and exchange them for one Terra worth more than a dollar, for an instant profit. If it trades below $1, people can buy one Terra for less than a dollar and exchange it for $1 worth of Luna, for an instant profit. These arbitrage trades push the price of Terra back to $1 if it ever goes higher or lower.
11. The price of Luna will fluctuate. Over time, as trust in this ecosystem grows, it will probably mostly go up. But that is not essential to the stablecoin concept. As long as Luna robustly has a non-zero value, you can exchange one Terra for some quantity of Luna that is worth $1, which means Terra should be worth $1, which means that its value should be stable.
All of this is, I think, quite straightforward and correct, except for Point 7, which is insane. If you overcome that — if you can find a way to make Luna worth some nonzero amount of money — then everything works fine. "
An important distinction between Terra (what is being described there) and Tether (what this thread is discussing), is that Tether claims to be backed by real assets.
There is no strong distinction in backing: USDT just has a slightly more believable story.
Also the price of a stablecoin can shift from it's peg, even if it has 100% backing, when there is latency/congestion/spread/volume for the arbitrage trade.
That said, there is a whole heap of plenty of evidence that USDT is not backed by dollars 1:1.
One thing I don’t understand here: where does the smart contract get the information of the current luna/usd exchange rate? It can’t be an api call surely, it must be on-chain somehow.
Do I understand this correctly: there's no inherent incentive to put the "correct" price, they just need to agree with each other. Essentially playing "Guess 2/3 of the average" but it's just "Guess the average".
Miners put the price (in dollars) in the blocks, and the medium price is taken as the price. You get penalized if the price you put in is 1 standard dev. or more off. You get 1% less of the block award you would get normally.
I know the thing is crashing and burning as we speak, but that seems like a crazy single point of failure for something claiming to be decentralized...
There is also the point that once trust in this ecosystem erodes, there will be tremendous pressure on Luna as people try to get rid of both their Luna and their Terra, and whatever you did to achieve 7 may just suddenly disappear. The spiral that's happening now.
And what coins do is in effect marketing for all other coins. If one stablecoin crashes, trust in others will erode.
> All of this is, I think, quite straightforward and correct, except for Point 7, which is insane. If you overcome that — if you can find a way to make Luna worth some nonzero amount of money — then everything works fine. "
Their solution was to staple a HYIP scheme to the side of it-- a service where you can deposit coins and get a 20% annual return.
> If you make it up on your computer and keep the list in Excel and smirk when you tell people about this, that price will be zero, and none of this will work.
This made me genuinely laugh out loud! But not just because it's funny, but it's also the essence of all digital coinage.
How do you ensure you have enough Luna to maintain the exchange? If you hold enough Luna but then the price of Luna goes down, where do you get your extra Luna from? A run on your promise kills you.
Eh, but minting Luna increases the supply of Luna and thus devalues it, therefore a run means that the price of Luna increasingly drops as you mint more, meaning you have to mint more Luna, it heads to zero, you're dead. It's the opposite of stable, because a run actually accelerates itself. What am I missing here?
The balance is ostensibly that you do get some tangible rewards for Luna. But when the expected value of those drops below the outstanding balance as well, you still have a death spiral.
You print luna and 'burn' terra. Or when people get terra you print terra and burn luna. The luna tokens supposedly have value because they get a share of the transaction fees.
The printing of luna when people sell terra should be offset by luna having been burned when the terra was printed. Ideally (when the price of luna is growing) then you print less luna at sale time than you burned earlier when the terra was printed. This decreases supply of luna, making luna worth more.
So why would one want to have Luna when you got Terra? I know Terra is backed, I know Luna is speculation, not any different from doing a roulette game.
Because it's an intentionally obtuse Ponzi scheme. You can stake Terra on Anchor protocol which was advertised as up to 20% yoy return for lending your Terra. This creates demand for Terra, which in turn creates demand for Luna, as you can only mint new Terra by burning Luna. As long as there are newcomers buying into the ecosystem, Luna will increase in value.
Luna gets the returns from the assets the 'real money' was invested in. Terra doesn't.
The people using Terra give up their returns to Luna holders for the convenience of a universally acceptable exchange medium that is pegged to something else of value that isn't universally acceptable.
As with all leveraged investments to problems occur when the underlying real assets fail to perform as expected. Or at worst don't exist at all.
But could I trade Terra outside of this system? And say to my buddy, here is 50 Terra, and he expect it to be 50 dollars? And wouldn’t that also create an economic impetus to trade it a like a stock?
>So why would one want to have Luna when you got Terra?
There are 3 different things: Governance related, market module related, and staking related.
You can spend 50 LUNA to submit a governance proposal. The second is to stake your LUNA. When your LUNA is staked the first benefit is that you can vote on governance proposals. Proposals can be onchain changes such as modifying a parameter or an offchain change which people should respect even if there is nothing technically forcing them to follow it.
There is a limited amount of UST that exists so what happens if more people want UST? You can burn LUNA to mint new UST. In times where the demand for UST is strong enough to make UST go above $1 it may be profitable for someone to burn their LUNA to mint UST.
Every transaction has gas fees. Any swaps between stable coins have a tobin tax. Using the market module to exchange UST for LUNA has a spread fee. All of these fees are collected and then distributed to the stakers. To help protect against times when the protocol is less active the fees are actually spread out over time. Right now every 5 blocks 5/9400000 of the reward pool is paid out to people staking. 9400000 is how many blocks there are in 2 years.
The vote is still proved by maths. Sometimes you want to just be able to poll the community. For example you may want to have your project translated into Spanish so you create a proposal to pay someone from the community fund $500 for translating the project's site and documentation.
The promise of a stablecoin, in this case Tether, is that you can always change 1 USDT into $1. When people buy Tether, they pay then $1 and believe the promise that they will get $1 when they want to.
There are exchanges (such as FTX) where you can trade USDT/USD. The basic premise is that USDT/USD will always be around 1, because Tether (the organisation) stands ready (always) to give you
a) 1 USDT for a USD, and
b) 1 USD for a USDT.
Any USDT/USD deviation from 1 thus gives rise to arbitrage opportunities. Tether can guarantee
a) because they can issue an unlimited amount of USDT, so when you give them 1 USD, they can definitely give you 1 USDT, and b) because
b1) they do not issue USDT without someone giving them the equivalent amount of USD, and
b2) they keep those USD safe in cash, deposits, or equivalent, without price, credit, and FX risk.
a) is undisputed. b) is the tricky part, both
b1) - they could just issue USDT without having received USD. Who's checking?
b2) - they could just take the USD they've received and buy a yacht, or put it in shares (price risk!) or commercial paper (credit risk!) or Chinese Yuan (FX risk!) or anything else. Who's checking?
90% of the value is allowong people to dump crypto to anltber asset that is crypto-osh but is "pegged" (the truth of which is more like a consensus of biased investors) to USD but doesnt trigger tax problems the dame way axtjally cashing out would.
the backing by a physical dollar is whats supposed to peg it to make the fiction that holding $1m in tether is equivelant to holdong $1m.
The big fear with stable coins is for them to go into a death spiral and become worthless. Stablecoin are only worth $1 if people believe they are worth $1. When fear sets in and people no longer believe they are worth $1 it can cause the price to tank. Having a stablecoin be backed means that you can trust your stablecoins to not become worthless because they can be redeemed at anytime at a $1 price point even if the market says otherwise.
USDT is the worst in this regard since you have to deal in massive volume. The minimum withdrawal is $100k and fee on that is the greater of $1000 or 0.1%.
That seems like a fair policy to avoid getting DDoSed by withdrawals in periods of high demand (i.e. bank runs). Presumably they mainly intend to serve exchanges which are doing withdrawals in the $millions.
The fact that they've been minting billions of tether without collateral should make it abundantly obvious that this isn't a stablecoin and never had been. Anyone can pretend to have a peg in the good times, that doesn't mean there's really a peg or that the peg will remain in bad times. And if you can't count on the peg in bad times, it's not a stablecoin. If you've been honestly working on the assumption that it is, then you deserve to lose your (real) money to some crypto VCs on an island somewhere.
And this doesn't only apply to crypto, look at how many countries with currency pegs can maintain that when their economy turns down, and then look at how many people actually seek to own the currency at that point rather than a currency backed by something (like a gigantic economy).
> If you've been honestly working on the assumption that it is, then you deserve to lose your (real) money to some crypto VCs on an island somewhere.
The sad reality is that many poorer and financially illeterate people have been tricked by VCs and other grifters into this with billions of dollars spent in advertising. So, no, they don't deserve to lose their money to these assholes. These assholes need to be prosecuted, fined and put to jail if necessary.
I actually hate people disavowing themselves of responsibility here. While there is definitely some shady stuff in Crypto (particularly NFTs, which seem to be 99% scams), there's a certain level of personal responsibility required here.
People saw the meteoric rise of Bitcoin and got a serious case of FOMO. Everyone wanted to be on the next Bitcoin. This, ultimately, is the American Dream: to get rich by doing nothing other than getting lucky and being able to say how smart you are. Not by creating any kind of value.
People should be honest and admit (at least to themselves) that they didn't understand what they were investing in let alone believe in it fundamentally. They just wanted to get rich.
First, I have never actually seen any comments here disavowing themselves of responsibility. It is always aimed at protecting others and this is rooted in the obvious fact that a very large number of people are not (and we do not expect them to be) experts in investment. That assets can go up or down is one thing, and nobody can be protected from that, but there is an extensive body of law intended to protect people from outright falsehoods. So I can say, "you should invest in ConCoin, it's going to the moooon" and that maybe is allowed. I cannot say "we have pegged this to the value of the dollar if I know that I have taken no care whatsoever to even try and do that".
Second, refusing to set a floor on falsehoods using regulatory tools makes doing business much more expensive for people who are not scammers. This is a classic "market for lemons" effect. If I have a great idea that I would like to raise money for using, say, a utility token [n.b. not currently allowed] then if the last few such tokens have been exit scams, I will raise no money. Maintaining a certain level of trust is a pool from which we can all draw. It has in fact been shown that growth in low trust economies is systematically lower than in high trust economies.
It's amazing the gymnastics people will do to shift responsibility off the supply side and onto the demand side. No, lying should not be rewarded. Ponzi schemes should not be rewarded. Currently, they are. Yes, we need more responsibility -- on the supply side.
Demand side already has responsibility and correct incentives: the fools have been parted from their money. Done.
This goes for small things, like NFT ponzis, and big things, like turning housing into an asset class.
I don't think saying people need to take responsibility for their actions removes blame from the supply side. I think the underlying point trying to be made here is that both are at fault. I mean, with crypto, you are the supply side the moment you buy in, and are just as complicit in the Ponzi scheme as the guy you bought from. Being more ignorant than the other players buys very little sympathy from me when you're both playing the same game with the same information available to you.
That's not what the post you replied to said at all and you are being intentionally obtuse. There is a reason the SEC exists. It's not to keep people from making bad decisions.
Well, it sort of is. The rules about not lying to investors, having accurate financial statements, and so on, are to help them avoid making bad investment decisions. The "accredited investor" limitations are supposed to make it harder for unsophisticated investors to lose their money.
I think the issue is assuming people who get scammed are at fault for something, just because a more paranoid person would have avoided the scam.
Regulation will not stop me from selling a potato for $100. it will stop me from selling a regular potato for $100 while claiming it cures cancer.
Buying a potato for $100 would be dumb, and nothing stops me from doing it
Buying a cancer-curing potato for $100 is not dumb. Believing a potato can cure cancer because someone else is publicly selling it to me that way in full view of the entire world is not dumb. I would think "oh wow, something about this potato must be cancer-curing because surely this guy knows that if he scams me in front of the public then the public will hold him accountable."
So no, it's not. The SEC is there to protect investors from malicious actors to allow them to make informed decisions not based on lies & manipulation.
Now one can be informed but also choose to make stupid decisions. People do this all the time on penny stocks, options, etc... The SEC has no interest in trying to stop them, just making sure they know up from what they are getting into.
Non accredited investors aren't allowed to invest in many things where the seller of securities is telling the truth. Most startups in the US under most scenarios cannot go around pitching non accredited investors.
Other than that, lies and manipulation are part of the equation. It's a bad decision to blindly trust anyone or anything. You can't separate smelling bs from judgement.
The whole concept of an accredited investor is basically saving people from themselves.
Why are they gatekeeping? To protect people from themselves.
The SEC has a pretty ill defined set of risks they are trying to protect people from. People will find ways to lose their money if they don't have a general "wait, do I have a clue what I'm doing here?" filter.
this is about as logical as saying "just because we signed a contract doesnt mean I need to uphold my end of the contract. you should have known I wasnt going to be able to fulfill my end of our agreement"
I agree with personal responsibility but not at the expense of communication.
Imagine if every single person who moved a package was required to open the package and confirm the contents. It may be the only way to accept personal responsibility for its contents, but it's dumb. I am telling you what the contents are and if I am lying to you then I need to be held accountable. Especially if the contents are dangerous and I told you they are safe.
Yes but the thing is that you know that this "asset class" is unregulated - in fact it's one of its strongest selling points and one of the traits people tout as a benefit - it should be abundantly clear that "non-scams" are the exception not the norm.
If I write "i owe you a billion dollars for your 64 diamonds" on a minecraft sign you shouldn't be surprised if I don't hold up my end of that.
Regulation has almost nothing to do with it. Regulation is a means to make accountability scalable. you could write a never ending list of possible regulations, but the ones we settle on are the ones we need due to the ways people end up abusing a lack of regulation. It does not absolve the abusers of accountability.
The more a community holds itself accountable without regulation, the less regulation the community needs. If people always avoided unregulated assets because of your logic - we wouldnt have any regulated markets today.
Non-scams are the norm where I come from and with the people I interact with. Maybe it is cultural. Some cultures held people accountable for their bullshit and some didnt... and now the expectations for responsibility are different. "you should expect to get scammed" vs "if you find a scammer we will deal with them"
>If I write "i owe you a billion dollars for your 64 diamonds" on a minecraft sign you shouldn't be surprised if I don't hold up my end of that.
If you take my 64 diamonds, deny me a billion dollars, and then refuse to give the 64 diamonds back.. that is theft. In minecraft, I would then proceed to remove your health bar, take what I want from you, pour lava buckets on your house, etc. And you should not be surprised by that.
Abusing a lack of regulation causes chaos, and hinders the ability of communities to grow stronger. Weak communities enable unnecessary suffering. There is an ethical responsibility to make an example out of people who manipulate communication to scam others. It is one of the few things nature allowed us to have to enable building communities in the first place.
If scamming is currently the norm, then it is currently hunting season.
Regulation or lack of it doesn't fundamentally change contract law. So, it's not the same thing. People who say financial markets shouldn't be regulated are not saying you shouldn't be able to litigate.
We need laws protecting people for malicious actors with significant funding who target people that lack knowledge on deeply technical topics like investing.
I get reminded of the crypto.com commercial with Matt Damon that pretends as though buying Bitcoin is some grand adventure for those brave enough and looking to prove their masculinity.
We might not. People could learn from the long history of people being conned. I know zero about cars - if a guy knocks at my door tomorrow telling me I can sign a contract and get a brand new porsche delivered next month for an upfront cost of $10k, my lack of car knowledge isn't a problem. It's a no.
The empathy goes both ways. Many people who oppose regulation like this don't oppose it because they are happy for "dumb people" to lose money. They truly believe that there is so much regulation these days that people aren't faced with conmen often enough to wise up to it. A person offering you "product insurance" at the checkout is conning you. The car dealer is trying to con you. Anyone suggesting you can double your money fast is conning you. If you are a woman, there is a decent chance the random guy buying you a drink is just trying to bed you. It's useful to come across enough folks trying to con you so you realize it's a thing. Then when the guy proposing some complex financial proposition knocks at the door, you don't need to know anything about finance to know there is a good chance it's a con.
That's not empathy though. The thing is, a lot of folks will get conned over and over, especially as the times change and the cons evolve.
You're still thinking of it as something people can learn, but psychology / history says otherwise.
This is why I say empathy is important. For you, it's obvious. For others, it's not.
In addition, there are other factors at play, like desperation (when you're living paycheck to paycheck, you _want_ to believe there's a way out).
Everyone has different experiences / situations to grapple with, and as a society we should try to help folks find the happy path and protect them. Especially so for those of us who recognize cons!
So I guess I wouldn't understand the "empathy goes both way" statement.
You also didn’t mention his idiotic statement of equating the “American Dream” to getting lucky and getting rich when in fact the American dream is about having the opportunity to work hard, buy a home and have a decent life for you and your family.
They are not that different. The "exit plan" for the American dream is retirement and trying to save a lot of money for retirement is perfectly normal. It's very sound, conventional, boring financial advice to save and invest for retirement.
The "get rich quick" folks are doing basically the same thing but faster and sometimes with less sense. But hopefully with only a small portion of their savings.
There is room for many versions of the American dream, America being a big place and all. America has a rich history of both hard-working middle class aspiration and con-artistry and get rich quick schemes. They are both pretty resounding cultural themes here.
Unfortunately it's not an idiotic statement. Look at all the people playing the lottery and buying crypto. It does appear to be the true american dream.
> First, I have never actually seen any comments here disavowing themselves of responsibility.
Pulling from the comment I was replying to:
> ... many poorer and financially illeterate people have been tricked ...
That's quite literally disavowing responsibility.
> ... but there is an extensive body of law intended to protect people from outright falsehoods
This is true and the law hasn't quite caught up to crypto scams but think about it this way: even if the scammers get prosecuted--possibly even go to jail--you're 99% likely never getting your money back. And even if you do it'll probably be after wasting years on the effort. Obviously there's a deterrence value to prosecuting scammers and I support that hpappening but you'll almost never get your money back.
> Maintaining a certain level of trust is a pool from which we can all draw. It has in fact been shown that growth in low trust economies is systematically lower than in high trust economies.
I 100% agree and this is something that libertarians and anarchists gloss over completely.
No, half of this thread believes we should protect people from predators. The other half feels that people who can't recognize predators are natural and deserving prey.
I want protection from myself because society is impossibly complex for a single mind to understand.
If I buy edible stuff I trust that it won't poison me or kill me. If I drive a car I expect it respond to my commands and I expect other drivers to have a minimum amount of knowledge that they can actually assume and understand the risks of driving.
The protections that the SEC and other bodies expect in this area are quite reasonable if you understand that there is no such thing as "personal" freedom; your well-being and successes and failures tie into the rest of society at large. Maybe if you lose part of your savings that might be tolerable for all, but if in the process of making a bad investment you leave yourself and your family homeless, get into drug addiction, and create a large burden to those around you, it's hard to consider that to be a simple personal issue.
Look, if someone comes to my house claiming to be raising money for charity and I givethem money, the following statements can all be simultaneously true:
1. I should take responsibility for checking that they represent a genuine charity;
2. If they are a genuine charity, I should take responsibility for checking that most of my gift will go towards the recipients of the charity and not to operating the charity itself;
3. They should take responsibility for being truthful about who they represent and where the money is going.
Responsibility isn't a zero-sum game. We can encourage everyone to have more financial literacy and awareness of scams and frauds while simultaneously holding grifters responsible for their crimes.
I'm not taking either position here, I'm taking both positions. See also "the difference between advice for individuals and codes of conduct for communities."
Our personal advice is to protect yourself from fraud. Our society's code of conduct is, "don't commit fraud."
> even if the scammers get prosecuted--possibly even go to jail--you're 99% likely never getting your money back
The point of prosecuting scammers is not restorative justice[0], but instead punative. You want the penalty for scamming people to be high enough that even the scammers that don't get caught move onto a different grift.
Whether or not punative justice works is very context-sensitive. It requires the crime itself to be something done because it makes money - opportunistic crimes or crimes of passion will not be deterred by high punishments[1]. However, I absolutely do buy the idea that scammers are highly-calculating thieves that can be deterred in this way. They operate highly organized criminal enterprises with their own internal and external security concerns, and respond highly to perceived risk of prosecution[2]. This is why they like to target old people, the marks are easier to scam and less likely to admit being scammed.
That's not to say that we should fall back upon the "personal responsibility" angle, either. It's easy enough to say that it only happens to the financially illiterate, or the elderly, or what have you. This is wrong; there are plenty of scammers out there just waiting to push whatever button you have that will make you send them money. The problem with pushing "personal responsibility" as an angle is that it's a victim-blaming narrative, and one that makes it easy to fancy yourself invulnerable. "I can't get scammed, because I took personal responsibility."
DO NOT DO THIS.
You will laugh at the people who bought into FOMOCoin or sent thousands of dollars to a refund scammer... only to click on, say, a fake FedEx tracking link you got e-mailed and wind up getting hit with some 0day malware that drains your bank account or encrypts your files in seconds. Personal responsibility will not save you from your own sense of invulnerability, because there is no level of responsibility one can take that will ensure that you never, ever get scammed. You can only ever make yourself a less desirable mark.
[0] i.e. putting the thing you stole back
[1] Related note: governments love to insist upon high punishments for crimes more often committed by people on the margins of society (e.g. poor/black/Mexican/some other power minority). At one point, we at least punished businesses the same way, but then Enron happened and the US decided killing an entire accounting firm just to prove a point was going too far.
[2] In one revealing case, Youtuber Mark Rober was able to shut down an entire tech support scammer group on Telegram by merely saying he had their dox[3] and was planning to drop them on a few law-enforcement agencies.
[3] 4chan slang for "personally-identifying information".
> You will laugh at the people who bought into FOMOCoin or sent thousands of dollars to a refund scammer... only to click on, say, a fake FedEx tracking link you got e-mailed and wind up getting hit with some 0day malware that drains your bank account or encrypts your files in seconds.
Terrible comparison.
FOMOCoin is not pretending to be something different than FOMOCoin. When somebody invests in a shitcoin, they know exactly what it is they are investing in.
When you click on a fake FedEx link, you believe you're clicking on a FedEx link. You've been deceived by blatant deception.
A better comparison to your FedEx example: Investor believes they're investing in FOMOCoin when in fact they are investing in SHITCoin or no coin at all. It was a trick.
>I 100% agree and this is something that libertarians and anarchists gloss over completely.
I assure you, libertarians and anarchists, or at least the ones who have actually bothered to go beyond the surface, are not unaware of this. You're wielding those monikers as if anyone to bear them would be a fool by definition. It is clear low trust has adverse effects on growth. What is not clear is that unbounded rapid growth is a desirable state of affairs, or that an equilibrium is so important everyone must bow before a central authority/planner with a hand on a brake.
There is nuance your comment as written completely neglects.
It’s true upending our system would be the death of it
But it’s unfalsifiable gibberish itself to believe our system is some pinnacle of human society
Many problems that plague states that lean into socialism can be traced to capitalists meddling in their affairs through international politics
More rules for thee not for me policy by nations of people who would meltdown over externalized forces dictating their way life. Hardly proof in a vacuum socialism is a sign of the end times when it’s held up apes who can’t communicate except by throwing poop
Your truth is rooted in the empowerment it provides you. No one else has an obligation to your figurative sense of power
Is it the casino foult that their customers loose money
Casinos are very strictly regulated and must post the exact rules and probability of winning for all their games. If the casino lies about the rules of the game or your chances of winning, then yes it is absolutely their fault and they will be held liable.
I failed to see any of these warnings you're talking about in any of the Superbowl ads.
I'm pretty sure if I followed the Superbowl ads to crypto.com, I would fail to see these warnings.
Yes, for everyone deeply connected online, who has been following crypto for the last several years, of course we've talked about plenty of warnings many times. But the current marketing campaigns are not aimed at such people.
> Yes and everyone warned everyone investing in crypto that it could go from hero to zero instantly. I cant believe anyone didnt know this risk.
Clearly not. There's a pretty clear pattern where many (most?) cryptocurrency enthusiasts avert their eyes from anything except the most transient and limited downsides and are can be quite hostile to anyone who's bearish on cryptocurrency. It's got a strong "power of positive thinking" vibe.
There's a slight problem in your use of "everyone". You, personally, don't know or have sampled everyone. You are using it as a indication that "people warned" and "people should know", given people warned other people.
Saying you can't believe people didn't know is just showing lack of empathy in how others form trust. Many of those people form trust by looking at a screen and seeing a nice website with nice logins and nice charts. They look at things with dollar signs and say, "that's a good number there". Others dig in and are curious about how things work. Some laugh when people complain about how much power proof-of-work takes and believe it is the eniventible conclusion to why we don't see aliens out there.
Don't be the wurst person. Be the best! See that all humans need our help from an understanding technology perspective. Know that software can be implemented to take away their choices, or give them more choices than they had before.
It should be pointed out that casinos are only required to post odds for perfect play in games that have skill (e.g. poker, blackjack). Therefore, your poker odds would be based on the rake.
Black Jack is playing against the house and you can calculate perfect play. Poker is played against peers and perfect play does not exist. I think poker is a lot closer to speculating on crypto or stocks. Companies can disclose their transaction fees but it is impossible to calculate your expected return on investment. This is why there's almost always terms of service or disclosure to that extent
The best poker ai, as far as I’m aware based on things shown on hn, don’t consider past opponent behavior when making decisions. It’s effectively just a lookup table of hands and bets. Not perfect play but generally better than humans.
Perfect play, by definition, evens out. If everyone plays perfectly, then the ev should be zero (modified by position around the table). So it should balance to zero if everyone plays an equal number of hands from every position. The payoff would be adjusted by the rake.
To your question above, the answer is better than all levels.
The meta idea is what I first thought. It’s hard to evaluate though. The ai does not adapt, but continues to beat pros, who are welcome to try and adapt.
I’m curious if there are some zany cheese strats against this kind of AI that work reliably but the answer may be no. The only really practical tool you have that could work is a crazy bluff, but I doubt that’s sustainable.
It doesn’t really matter if perfect play is considered though. Games should be rated assuming equal competence. It’s not misleading if in fact your turn out to be a worse player in a game of skill.
Perfect play would take into account the meta game as well.
My point is that if the casinos have to post odds, the only odds on a poker table are flat (any deviations from 0 coming from skill differences) minus any rake (with maybe some slight variation if the button doesn't go down an even number of times).
The fact that we cannot define perfect play is irrelevant.
That word "fault" is doing a lot of work. Strictly speaking, no, that bit isn't a fault, it's a great success. They did exactly what they set out to do.
But there's always that separate question of whether it's a moral failing to set out to do what they did in the first place.
And then you dig a little deeper and you can ask, even if we grant for the sake of argument that it's a moral failing, is it the state's responsibility to do anything about that?
And then you can dig even deeper, maybe ease off on the deontological ethics a bit, and instead ask, "What's worse for society in the long run: this behavior, or whatever enforcement mechanisms it would take to curb it?" I'd argue that that's a much more edifying way to frame the question.
It's a relatively mainstream opinion that yes they are. Casinos are not allowed in some places, many individuals who could choose otherwise explicitly choose not to work for companies involved in gambling.
My morals don't personally draw that line but it's common enough that you can't dismiss it as preposterous.
> I actually hate people disavowing themselves of responsibility here.
I believe that everyone should do their own research etc but there's a reason there are laws against fraud. There are a lot of people who would get taken advantage of by the unscrupulous if we just decided that it's all about personal responsibility. Yes people should not have the expectation that they will get rich quick but there is also no reason to allow them to be blatantly ripped off either.
If tether haven't maintained the level of reserves they need to maintain the peg (and honestly I can't see how the possibly could have adequate reserves) then it seems a pretty straightforward case of fraud.
> and honestly I can't see how the possibly could have adequate reserves
Not even close, even now. And the earlier stuff was almost insulting. Like the claim in 2019 that they were depositing $3.5 BILLION, per WEEK, into a bank, a deposit rate that would exceed AT&T, Samsung, Alphabet (Google).
Hah. No. The bank "deputy CEO" (who was 33) in an interview noted that the Bahamas had two banking licenses. But couldn't name them. And in any case, wasn't sure which his bank had, but he knew they had one of them. "And possibly the other".
The American dream is to make it through hard work, what you are referring to is simple greed and laziness and it’s been around since humanity attained consciousness.
> Now that's the actual con, or at least a pipe dream. Hard work is never enough.
This seems like a bad faith, intentional misunderstanding of the concept of hard work. You're right, mindless hard work (with no proactive consideration for your own life trajectory) is not enough to "make it". If you take the first minimum wage job you find and you work hard at that job for 40 years, you're not going to make it. That doesn't invalidate the American Dream. The American Dream isn't "if you work hard, the American Dream fairy will appear and present you with a house, a car and a white picket fence", it's "if you work hard at making it, you can quite easily make it". This presupposes that a given worker will take responsibility for their ability to earn, and be willing to course correct if they are not on a good path toward "making it".
> Luck plays a huge factor but few who get lucky, and then rich, will ever admit to that part.
Nonsense. The goal of the American Dream was never to be Jeff Bezos. It was to live a comfortable life. In that sense, the American Dream is being realized by the vast majority of Americans every day. The median income of a middle-class household in this country is 78K,[0] which puts them in the ~94th percentile in global income.[1]
The Pew Research article you are quoting show a considerably shrinking middle class over the past decades with a stagnating income: „Median income of the
middle class in 2016 is
about the same as in
2000“.
I admit it. Many of my peers do. Luck is fickle and hard quantify. Effort and decision making less so. It is at least obvious why people have such a bias.
This is propaganda based on a mix of the Protestant work ethic and stoicism in an effort to keep the populace compliant and malleable. This is why political parties are constantly in the business of creating wedge issues to distract people so they don't figure out their lot in life is determined by their material conditions.
Which is itself propaganda from other religious sects of note who got so fast and loose with doctrine they allowed salvation to become pay-to-win (indulgences), and corruption to become so endemic, even members of the faith started nailing protests to doors, or schisming due to overreach by the theocratic edifice.
If uou're going to make a historical argument, please follow through.
From wikipedia [0]: "The American Dream is a national ethos of the United States, the set of ideals (democracy, rights, liberty, opportunity and equality) in which freedom includes the opportunity for prosperity and success, as well as an upward social mobility for the family and children, achieved through hard work in a society with few barriers."
I suppose I'm wondering if the definition of "hard work" has shifted. In the '50s and '60s was "hard work" like 60 hour weeks and "hustle economy" type of stuff? or was it just "doing a good job" 40 hours a week?
I think to some extent it's always depended on who you talked to, but "hustle culture" as we know it today definitely wasn't part of the ideal of the American Dream at any point before the '90s, at the very earliest.
The Steinbeck that your are (mis)quoting is from the 30's.
Misquote because Steinbeck was talking about how the majority of the ""socialists"" at the time were "most of the so-called Communists I met were middle-class, middle-aged people playing a game of dreams. I remember a woman in easy circumstances saying to another even more affluent: 'After the revolution even we will have more, won't we, dear?'"
So the feeling of entitlement is much older and across political lines.
I think thats another facet of the dream. The theoretical starting point of the American dream is probably the immigrant who comes to the country and has nothing. So that would be an achievement compared to that starting point as well.
This is how almost every con works. The people who fall for advance check scams think they’re getting easy money and the greed clouds their judgement. It doesn’t absolve the perpetrator.
I'm honestly surprised at how many people have this overly simplistic binary view of the world.
If I openly leave a gold bar in the back seat of my car and don't lock the car and then park it in a major city it will get stolen. Is the thief to blame here? Absolutely. Could I have done more to protect my valuables? Absolutely.
So with any scam, you can say the scammers are bad (which is true) but the scammed could also have done more to protect themselves. Both of these things can be true at the same time.
I've seen no better example of this than Russia's unjustifiable invasion of Ukraine. Is Russia the bad guy? Absolutely. Have the US (through NATO, primarily) and Ukraine made mistakes along the way too? Absolutely. Does this make the US and Ukraine responsible for the invasion? No.
Please, for your own sake, get out of this binary thinking.
Disavowing responsibility from the scammed actually does people a huge disservice. It's not victim-blaming. It's a teachable moment.
I didn’t mean to deny that the victims don’t bear any responsibility, just that, because time is zero sum, time spent on an issue tends to be better spent in a “binary” fashion (fluctuating through time though, so that integrated it is non-binary).
E.g. instead of having a never-ending discussion on how exactly a perpetrator/victim share blame, we can shelve the discussion on what share of the blame goes towards the victim, and instead focus on how to best deal with the scammers.
If we get trapped in a never-ending discussion on blame sharing, we never get to deal with the scammers through action (this is what I meant by muddying the waters, it’s an involuntary and voluntary phenomenon that can delay action indefinitely).
Victim blaming is wrong, I agree with that completely. But a lot of 'coins' are just paper dreams, and live somewhere on the spectrum of the Nigerian Prince scam. (that, I realize, being the extreme example) I have a hard time feeling sorry for someone that wires $10,000 to a foreign country so that a wire transfer of $20,000,000 can be processed to their bank.
People just don't go around handing out money. Early Bitcoin miners went through the effort of setting up mining rigs (which is no longer practical for an individual). They actually did something, and had some skin in the game. Did they hang on to those early coins until this year? I have no idea.
But people that just buy into coins because OMG its the next big thing, are purely speculating, which is nothing more than a form of gambling. Do I feel sorry for people with a gambling addiction? Yes I do, and I know someone that 'retired early (35)' to play poker professionally.
To much of the coin and NFT space to me smells of a combination of pyramid scheme and MLM. By its very nature it rejects regulation, it is decentralized. Which is one of the reasons, to me, that it is suspect.
Playing poker professionally is not a retirement, and no one really playing poker for income is addicted, I can assure you (at least not for long).
These days, playing live is the only way to get an edge (correct me? Been a while), and that would be a boring, nauseating job, right around the pay scale and routine of “club bouncer” if you’re good.
I played poker for my sole income for three years after college, traveling the world playing online. It was occasionally a lot of fun, morally painful, so stressful and not very well compensated. I would be rich now if I’d gone straight into programming instead of spending my 20s “avoiding work” by working my ass off to monetize my hobbies.
While I’m sure there are live players that earn more than club bouncer levels of money, the only way to do this that I know of is to have access to really big games on an almost daily basis.
At peak covid, all the games dried up and even the pros went slumming. I personally saw Phil Ivey at a 2/5 game (!) at the Aria on a random Monday because that was the only game going and he hadn’t had any live practice in quite a long time.
> But a lot of 'coins' are just paper dreams, and live somewhere on the spectrum of the Nigerian Prince scam.
If social was full of people showing off all the stiff they bought with the Nigerian Prince’s money maybe. Seems more like a lottery to me, but even that feels like a poor analogy.
The difference is crypto has made people wealthy, probably with a large luck component and others want in on that.
Grifters should be punished for their scams, and it's also acceptable for "investors" on these scams to lose their money i think (that's a hard punishment already; no need for anything extra). Thinking of it the other way around: as a society, it wouldn't be nice to bail out or compensate these "investments", as doing so would encourage people to keep doing throwing their money on things they don't have any clue about and expect to be compensated if it turns out bad.
One of the ways that a power structure discriminates against low-IQ people (born that way) is by ignoring their suffering because ‘they deserve it for being stupid/easily taken advantage of.’
Insurance agencies are wrestling with this because as society ages, there are known drops in IQ the make the elderly more susceptible to scams, because low-IQ behavior correlates with high-trust behavior (because they have to rely more on others for survival). Some agencies are offering scam insurance for the elderly.
As we age, the likelihood that we are scammed approaches 1. Scammers take advantage of this situation and society would be better off if scammers were taken care of by the state.
Matt Levine seems pretty popular here and his dumb investment certificate idea, while ofc a joke, expresses the sentiment that maybe it's not possible to regulate everything but some investments (eg nfts) are transparently dumb and if you lose your money on them it's annoying to complain like "how was I, a simple dentist, supposed to know I'd get swindled?!":
1. Anyone can invest all they want in a diversified portfolio of approved investments (non-penny-stock public companies, mutual funds and exchange-traded funds with modest fees, insured bank accounts, etc.).
2. Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.)
3. To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”
4. Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate.
5. Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling.
6. If an article ever appears in the Wall Street Journal in which you (or your lawyer) are quoted saying that you were just a simple dentist, didn’t understand what you were buying and were swindled by the seller’s flashy sales pitch, then you go to prison.
"Normal" investing is complicated, and stacked against regular people. Now we're asking people to understand blockchain and cryptography as well as investing. Yet it's sold as democratisation of investing. I mean, seriously.
> "Normal" investing is complicated, and stacked against regular people.
You buy a low-cost index fund (either S&P 500 or total market (Russell 3000, Wilshire 5000)), and depending on your risk tolerance, a bond fund as well.
You can have global diversification with one ETF or mutual fund:
You just delegated the choice of winners and losers in your economy to an elite cadre of individuals, completely disconnected from boots on the ground life problems.
Symptoms of your decision may include:
Tendency to centralize.
Preferrntial treatment of large incumbents for ease of implementing regulations.
Higher barriers to entry over time.
Decreased feedback loop with regards to reigning in egregious business malbehavior.
Index investing does nothing but perpetuate a small handful of winners, and divests the majority of people from their most important role of being capital allocators.
Part of it, is being bad at it at some point. That's how you get better and increase overall world awareness.
> People saw the meteoric rise of Bitcoin and got a serious case of FOMO.
Something about the chance of life changing returns in intoxicating. Personally I'd be thrilled with a 20% annual return in "normal" investments, but somehow crypto doubling or even tripling in a year is boring because we're all after the 100x+ return. Maybe it's because psychologically it just feels like more of a lottery ticket.
I have a relative in wealth management and went through a period where clients asked about bitcoin frequently. He told me his rule of thumb is: "If you've heard of it, it's probably already too late."
I assume that based on this, you oppose the legal consequences that Elizabeth Smart is facing, and think it's 100% the investor's fault they wrote checks to Theranos.
>People should be honest and admit (at least to themselves) that they didn't understand what they were investing in let alone believe in it fundamentally
But only bitcoin bidders need to admit that they love lording their “smarts” over others? Seems like you are doing it yourself.
Totally agree. We have a regulated financial system. Jumping out and then asking for a public bailout is ridiculous. Those injured should absolutely sue the promoters who encouraged them. But I am strongly against engaging public resources to prosecute.
I think you're overestimating humanity here. There's a reason gambling is typically so controlled / limited. Have some empathy for those who might be a little less "smart" than yourself, ultimately we're just fancy animals.
Our society has made a different call. We have decided that without being restricted investment cons will cause massive harm to society. We decided this because it happened over and over and over and over again.
I guess it's like the 99.999% label effectiveness of hand sanitizer. We all know it's really 100%, but the best we can say is "we see no evidence of one that's not a scam".
Or perhaps every single one has a core of 1% sincere intention at its heart. After all, you can rather confidently say you have a receipt.
>This, ultimately, is the American Dream: to get rich by doing nothing other than getting lucky and being able to say how smart you are. Not by creating any kind of value.
Holy projection batman. I agree that much of crypto is rampant speculation, but pretty much all of the legitimate uses of crypto is done in stable coins. People don't have money sitting in tether because they wanted to get rich.
Not least because stablecoins were meant to be the place to park your money without being subject to the huge +/- swings or risks of almost any other asset. If people are suffering, it’s because they believed the operators of stablecoins when they said funds were in the safest place going. And now look at today: Tether says it is honouring all redemptions as usual — which, as usual, means only redemptions over $100K are honoured. The small fish can go cry, apparently, or try an exchange at the market price whose detachment from $1 is the whole reason for a run on Tether. Take the concept of FDIC insured bank deposits, turn it completely on its head, and that’s what this policy is.
> many poorer and financially illeterate people have been tricked
I’m sorry, but it’s worse than that. Whenever I’ve said “Tether is a scam waiting to blow up, and the evidence is obvious”, none of my smart peers had anything to say, either.
The BTC price is hells high by this fake USD money printer.
The religious (for a lack of better word as it is a religion to believe that cryptocurrencies are inherently better than other assets (outside NFTs) but they do believe that if you read twitter/reddit) people are hodling but all the 'saner' people I know went out in december. There was enough writing on the wall to know that 2022 would not be a good year for some assets (and it's just beginning). Only the real believers are still holding and it's a drama; a friend of mine went 'all in' on Terra and is staunchly 'hodling' because he believes it's the greatest project in finance since humans invented currencies. He has 30+ years work of money in it which is his families money (his brothers and parents gave him their savings to 'invest') etc. But he is not depressed; he firmly believes it is coming back as it's decentralized. There are many of him. MANY.
I mean there are also other stories; an acquaintance (he invested in my business with cash in 2018) got out end 2017 with around 60m$ in cash; he was a waiter making minimum wage who borrowed 50k$ from his family who remortgaged their house (not rich people but at least house owners) in 2014 and gambled his families future and accidentally (he was a real believer, but the 'business scams' around blockchain made him a non-believer) gambled right. It's a weird casino.
Maybe it is my circle (but I read it on reddit all the time the past 10 years though) but the financially illiterate seem far more likely to 'invest' with borrowed money, do not diversify and put 'everything on red'/all-in kind of thing and then don't know what to do when that goes wrong (lie to their spouses and kids about it). An senior sales guy of my (then) company invested ALL his money and borrowed more (totaling many millions) in a Dutch web stock (worldonline) and lost everything; his wife, son, house, cars; basically life.
My issue is that these people are smart, but not "I work at Blackrock as a day-trader smart". In Finance, there are laws against a lot of the easy wins, and now the professionals are entering the Crypto space they're going to run circles around the amateurs.
As in, it's easy to be the best in your local club, but it's a real wake-up call when you try out at a regional.
I'm not sure about that--or at least, the reality seems more complicated.
Terra certainly has an element of complicated financial dynamics behind it such that people who know a little--but not a not--may think it's the greatest idea since sliced bread, and get eaten by the professionals. I agree with you there.
But a lot of the crypto ecosystem seems to be much more mundane than that. As far as I can tell, there isn't any financial wizardry behind NFTs; they're just a sort of weird social phenomena (is it a game? is it a market? is it sports betting?) where you can buy a thing at a price that has no basis in reality except insofar as someone else might buy the thing at an even higher price. I think that many--most?--people "investing" in NFTs realize and embrace the greater fool theory.
But, importantly, it seems to me that a random yahoo might actually be better able to predict when the gravy train will stop than an elite trader. So in some sense, it's quite egalitarian (if also stupid)!
The financial wizardry behind NFT's is the wash trading. A lot of average people looking to get into NFT's simply don't understand that many of the 'success stories' they see of people making big money on NFT's are just wash trading trying to lure in the marks.
I mean, yeah, but wash trades aren't wizardry. Like, you go on eBay, it's always possible sale prices are someone selling to themselves and just paying the transaction fee. I hope/assume that's fairly widely understood.
The Luna "automatic peg" stuff is genuinely clever, but with genuinely surprising implications (at least for me, a casual observer/layperson) for dynamic instability.
Yeah I mean wash trading isn't that sophisticated, but it is wizardry to the people gettinf fooled by it. The algorithmic peg and other stablecoin shenanigans aren't necessarily that sophisticated either, and yet...
Still, 'smart' is usually not buying at ATH (even a local high) or not having a stop loss if you don't have time to stare at your screen all day and night. I don't know how many people 'woke up' to a 90% dump in terra and were too late to act; that's not smart and you don't have to be blackrock smart for that. This is not exclusive to cryptocurrencies of course; I don't have any, but I do trade other more traditional assets as total amateur.
But yes, I agree with you; they will be taking most the winnings because it's their job. That doesn't mean you cannot make money as an amateur. The real naive people can just send their money directly to the Blackrock bank account; saves a lot of stress.
I completely get your point, and you're correct, but there are layers to it, especially in crypto. And I guess that means layers of fishy stuff.
If your luna stop loss was done in UST, you are also effed, even if you took the precaution of stop loss, because the "stable"coin dipped. Not saying that this was "safe" to do, but there are surely people out there who did this and got screwed, and I guess that would feel terrible.
Absolutely; there are proud whales saying they lost millions and laughing (not sure why) but I am very sorry for the people who lost a few k$ and now are in deep shit because they didn’t understand what they were doing. The ‘how can this be; I will get my money back right?’ type of thing.
You're perfectly describing the sunk cost fallacy. The naifs who overcomitted on a "guaranteed win" investment can't walk back from it because that would mean giving up on a lot (e.g. 50% or more) of their investments, which often as you said isn't money they really had "lying around" (even your retirement fund isn't really disposable once you actually need to retire on it). The failure to achieve the promised growth paradoxically converts them into true believers because they see no way out without admitting they ruined their lives.
A lot of crypto grifters (and even mainstream celebrities) have been actively encouraging these people to sink literally all their capital in coins or NFTs with unrealistic promises and FOMO. They did this because they knew it would work and drive up prices enough for them to be able to cash out by dumping their worthless void money on the unwashed masses.
I think the prevalence and scale of criminal activity through crypto was under appreciated in the mainstream.
Let’s be real, much of the market activity is money laundering, ransomware and other payoffs, and Chinese people bypassing currency controls.
It’s no coincidence that China cracked down on miners and the price dropped a few months ago. It’s plain as day now that with Russia being removed from the internet and most markets, buy-side demand for crypto is sinking.
Indeed. I also have no doubt some early adopters got real rich. But they were the top of the pyramid. The merry go round plays as long people keep joining. Looks like we hit some sort of limit at the bottom of the pyramid.
Now they might find some new investors, but it will only delay the inevitable.
I think religion is exactly the right word. Humans build story's and meaning around otherwise innocuous things. And that didn't just stop with the rise of the secular world.
Yeah, this is the dark side of all this "diamond hands", "to the moon" bullshit. A handful of winners, a majority of losers, and some people going complete bankrupt because they are foolish.
Well, if your 'advisors' (usually indicated in reddit/twitter as people 'much smarter than me' by which they mean devs who work on blockchain projects and 'financial gurus' who post a lot of charts with arrows pointing 'in the right direction' (which wasn't hard the past few years as it was generally just 'up' unless Musk posted something)) say it's a sure thing and suddenly you are at the start of a recession with massive inflation and your entire savings wiped out... It is hard to blame them; saying 'it is only money' works when you have money. Luckily there is quite a bit of help and helplines to talk them down.
I have a hard time feeling sorry for these people. Sure, they may have gambling tendencies, but at some point, one must reckon with the consequences of their actions, and reap what they sow.
Not to mention that many of these supposed victims are arrogant assholes, whom I and others tried to warn in every possible way and we only got mockery and disdain in return.
It doesn't mean many of them are like that because you have dealt with some arrogant assholes. You dealt with a vocal group and that is usually a tiny minority.
> The religious (for a lack of better word as it is a religion to believe that cryptocurrencies are inherently better than other assets (outside NFTs) ...
Outside NFTs? C'mon. Signed JSON blobs with a URL you pay for? All equally worthless.
That's not what I meant; I meant 'they' believe cryptocurrencies are better than other assets (outside NFTs) as in; they ALSO believe those are better than other assets. I wasn't saying NFTs are better; I was actually saying (well meant to say) they are equally superior in 'their' belief.
I believe they're saying that cryptocurrencies aren't inherently better than most assets - but NFTs are such inane garbage that you could argue cryptocurrencies are 'better'. Very much damning with faint praise.
Well now you're getting into what 'worth' means. As a kid I had a bunch of baseball cards that Becketts said were 'worth' $X. I took them to the local shop and they would only pay some value < $X. "But it says right here they are worth $X!" My grandfather was smiling and said you learned a valuable lesson that something is only worth whatever someone will pay.
NFTs are a bit like celebrity signatures. They are worth what someone will pay. If a celebrity verifiably digitally signs something and they only do it once, that is worth something to some people as a collectible. It is not worthless as long as someone is willing to pay something. And, like other collectibles the market can have huge swings and sometimes never recover (like all my baseball cards lol).
IMO most NFTS have a significant amount of flaws that weaken any potential value as a collectible, at least in the current popular implementations.
For one thing, they're by definition tied to a shitty blockchain and you have to deal with any potential bullshit affecting said chain including fees, slow transactions, potential scams, etc. For another, they're not really an object, just a bit of json pointing likely pointing towards a flat image hosted somewhere else (that anyone can freely access via the link). Sure, they enjoyed a brief popularity and lots of media attention, but already the NFT marketplace seems to be waking up to the reality that most of these "investments" will never turn a profit. And that's the real issue I see: most of these purchases were not someone who wanted to collect something, they were made by someone who wanted to invest in an asset that would later be worth something. And so the actual value as a "collectible" has been inflated and is due for a huge crash, which is already happening.
I know some are meant to carry benefits towards the holder, like exclusive access to X service or community... that is a small minority currently though, and many of those benefits are shaping up to be just empty promises, and even then an NFT seems like a poor vehicle for systems that could have been done better without any "decentralization" or crypto integration.
You are aware that nft are a link stored in a database and not the picture or whatever. The picture is on a server and can be deleted.. btw did happen en mass.
They have some value relative to the system they are found in. Consider some fungible tokens which still have value. Say gold coins in online video games. These have some value, even when trading them is against ToS and will get you banned. Their value is relative to their usefulness in the game, and as long as the game in enjoyable, people will assign them so value relative to the enjoyment they can extract. Nothing about the game must be engaged in. There are people who live their entire lives without ever touching an MMO, much less a specific one like WoW or Runescape. Yet fungible tokens still have some value within those ecosystems.
Mobile games have taken this much further, with people buying fungible tokens for hundreds of dollars for the enjoyment they get, though this has become questionable as more of the game is engineered towards feeding an addiction which will cause players to pay more for their enjoyment.
The issue is the approximate cap on this value. Even by the inflated standards of whales paying for mobile games, we still see a cap of value around $1,000s for a month of value. Thus an NFT that provides value in a similar ecosystem should be able to max out at a similar evaluation, assuming it is tied to a system with as much investment in the fun as the big hit mobile games (which is often quite a lot of investment compared to what any single player, even whale, is spending).
We see NFTs going for much more than that in systems that have far less investment in being enjoyable, which I think can be contributed to people investing to get rich by selling at an even higher price.
In conclusion, I think that NFTs can have some inherent value, as much as fungible tokens in a game can, but that such value would be far below where the market currently is. Someone should only spend as much on NFTs when the enjoyment they get from spending on NFTs matches the enjoyment that similar amounts of money would bring from their other hobbies.
One of the big appeals from crypto people is essentially “all money is bullshit, so buy my bullshit”. The even nuttier people would position Bitcoin as gold.
> none of my smart peers had anything to say, either.
It's because they know. I think everybody knows that crypto is a bubble. I think everybody believes everyone else that buys into it is dumb, financially illiterate, whatever. The crypto market has been propped up and boosted by an influx of people like that, each one knowing it's a bubble, believing everyone else is an idiot... but still wanting a slice of the pie, just in case there's another big wave coming and they will make it rich themselves. It's an interesting study in idk, doublethink? Self-delusion? Wishful thinking?
Savings accounts are not speculative investments that are expected to appreciate over time. They are for people to store easily accessible money in, so that they can spend it in the future. Nobody is banking on selling their USD to someone else at a 2x markup in the future.
> > none of my smart peers had anything to say, either.
> It's because they know. I think everybody knows that crypto is a bubble.
You're conflating 2 different things. Your parent poster was talking about Tether specificly and why it's a scam. Whether the whole asset class is in a bubble or not is a whole different discussion.
I have been saying this for over five years and never had even an attempt at a rebuttal. Most people in crypto with a clue simply accept it as a fact. USDT needs to die for the market to have any sensibility at all.
Six years ago daily usdt volumes would not break 3 percent of bitcoin trade volume. Now they routinely break three hundred percent. It is an indisputable scam and needs the flush it so richly deserves. And I say this as somebody pro crypto who honestly wants to see legitimate crypto do what it can for the world. Transparently manipulating this market the way it has for so long now is not doing that. We need real prices.
Yeah it's a tricky one. It seems obvious that "digital money" is going to be very useful in a lot of ways, and in the future is almost certain to appear.
There was a very brief period when bitcoin might have been the start of such a thing. When companies were adding support for it, and people were spending 200+ bitcoin on pizza, actually doing useful things like transferring money internationally, etc.
But these days? It's all speculation, gambling, and HODLing to the moon.
Maybe in the future we'll have a cryptocurrency which is actually usable as a currency, spent, and being in circulation, not being mined and hoarded by people who expect 1000000% returns.
This. Bitcoin is essentially the USD + US stock market in 1922. Hard money and unregulated securities markets already broke the world once. The crypto wizards somehow managed to forget a century of hard won lessons.
It was hardly "hard money" in 1922, as the Fed was created in 1913, and the dollar started plummeting. If you want to see what a hard money world looks like, look at the 40 years or so prior to 1913, when most civilized nations were on a gold standard.
We have constant booms and busts now, even though we have more liquidity, people who should know better, math to describe what's going on, 'tools' to try to prevent it...
But the gold standard has its own issues. The gold standard is effectively a system of pegging all participating currencies to one another.
A dollar is X milli-ounces of gold, a Pound Stirling is Y milli-ounces.
They are effectively pegged at an X:Y ratio. But currency pegging has issues in practice, with Governments only able to keep it stable within certain limits. Outside those limits bad things will happen if you don't update the peg ratio. But when using a gold standard, if you have to adjust how much gold your unit of currency is worth, it makes people upset. If you make a dollar worth less gold people with dollars get quite upset. Also if people expect such a redenomination will be occuring, it can cause on run on the gold reserves.
Meanwhile, if you make a dollar worth more gold, you piss off anybody holding gold.
The changing of the ratio is even worse if you are using precious metal coinage that have the specified amount of gold (or silver, for the silver-standard) in them. If the ratio needs to change, now you have all this money with a face value, precious metal content mismatch.
And all this is on top of the fact by using the gold standard, the rate of gold mining can heavily impact the economy.
You mean a half century of closing the wealth gap (while healing from the labor disruption of freeing the slaves), and somehow still managing to go from being a war torn country to world superpower?
Even the ones with disinflationary supply suffer from a large wealth concentration as they distribute all or the majority of supply in just the first few years.
If the population doubles, and the 100 dollars remains fixed, the value of the dollar has increased.
If more dollars are not printed to maintain some inflation, people will slow spending hoping for 300 people the next year.
Now, in the case of BTC, it’s not global population that matters, but the population of interested users, which could go from 10,000 to 100,000,000 in months. If BTC can’t be mined fast enough to maintain a balance of coins/users as interest skyrockets, it is, by definition, deflationary.
Why would people slow spending due to a fixed money supply? The money they have now could potentially buy more in the future, but at some point you have to actually buy the thing you need or want. Conversely in in an inflating currency scenario yes I might spend the money sooner than I would otherwise, but then in the future I won't be able to spend it again, why is it so much better that I buy today instead of tomorrow?
I have heard the argument that deflation is just an unthinkable disaster for my entire life but I'm not convinced, rather it seems like a convenient excuse for countries to print their way out of budgetary problems.
> The money they have now could potentially buy more in the future, but at some point you have to actually buy the thing you need or want.
That's the key. With a deflationary currency you want to keep the money, but need to buy goods. With an inflationary currency you want to buy the goods, so you only keep as much money as you need. This means that an inflationary market has shorter dependency chains, less disruptions (because value is more easily predictable) and generally runs more efficiently. Deflationary value incentivizes consuming less; inflationary value incentivizes consuming more. This is why economies grow and produce more value.
Of course this can be overdone by having an inflation that's so fast that deep production chains become impossible to manage, so you generally want inflation that's low enough that investment-based value gain is not affected, but high enough that money is not a viable investment vehicle.
Remember that money is what you have instead of something useful.
edit: For instance, if you have hyperinflation, you cannot buy a fabrication machine for your factory, because the monetary value of the machine grows faster than your ability to save money. The best use of money is always consumptively spending it immediately. This is also inefficient. So you want to balance between those two problems.
> The money they have now could potentially buy more in the future, but at some point you have to actually buy the thing you need or want.
This might be true for food, but a lot of our economy is based on investments and things we don't strictly need. Why would I give money to a startup if I can simply leave it on my bank account and have a guaranteed return?
> Conversely in in an inflating currency scenario yes I might spend the money sooner than I would otherwise, but then in the future I won't be able to spend it again, why is it so much better that I buy today instead of tomorrow?
Because it keeps the money in circulation. You might spend the money, but that money then gets to a business. This business also doesn't want money lying around, so they might, for example, build something. Which gives the money to a building company. Which then gives the money back to the worker. That's a lot of movement and value creation. Also, you really want to spend or invest the money sooner, since you won't get as much for your money if you buy something tomorrow instead. With deflation, this whole reasoning is reversed - why would you spend any more money than necessary, if you can buy much more with it tomorrow? You wouldn't and this kills the economy.
To me the issue is the supply of tokens is not correlated to the actual underlying supply of goods and services in the economy. Tokens should be minted/burned according to the fundumentals of the underlying economy. Hard to do with a single digital currency as there is a whole economy. But viable with ERC-20's, which can be turned into micro-currencies. The great thing about ERC20 tokens, is you can swap them pretty effortlessly. And on a chain like Avalanche, it's cheap and scalable.
The only thing it's useful for is financial crime though - if your problem is just making a payment you can do it in dollars relatively easily and safely.
Payments here in the EU, even between countries, are pretty straightforward.
Transferring money from the EU to UK, or EU to USA, Peru, or Canada get more complicated and expensive though. Those are the kind of transfers I had in mind.
There are transferwise, and similar services, but even so it's not as cheap as it should/could be.
The problem of transferring currencies is that you are always buying through currency traders, who are attempting to make a profit on knowing current exchange rates and predicting near and long term exchange rates.
I was visiting Montreal from the US a couple decades ago, and I wanted to exchange some US dollars for Canadian, and in the financial center, I found five different exchanges with five different rates. I had to walk about six blocks total to hit them all, but the difference between the lowest and highest was significant.
The problem that international fund transfers require currency brokerage is not solved by introducing another currency.
Why do you need to convert currency when transferring to someone in another country in the first place? Because the banking infrastructure in that country is denominated in their currency. Because their bank account only permits them to hold balances in that currency. And because only funds in that currency are guaranteed by the banking laws in that country.
If it weren’t for that, currency conversions could be ignored! If everyone in the world had bank accounts that could handle euros, say, you could transfer funds globally; people could make purchases by transferring euros, etc etc.
In fact there’s not a lot stopping you from doing that. You can have an account denominated in whatever currency you like. Provided you don’t care about things like deposit protection.
And that’s all Bitcoin and other crypto really add to the mix - a uniformly available currency for denominating non-deposit-protected balances.
Yes I thought that so many people that it’s so obvious but they didn’t believe it and still did Invest in crypto. Their FOMO had total control of them. They didn’t want to understand the concept they just wanted to be part of something bigger
or you're just gullible enough to think crypto.com and Inter fan are "the crypto space".
pretty clutch on crypto.com's cringy part, to name themselves crypto dot com. its like they looked at all the people confusing any random bitcoin servicing company for "bitcoin" and was like "you know what would be better than arguing on hackernews about reality? just helping keep confusing them for fun and profit!"
one exchange, a highly lucrative one, bought a bunch of sports sponsorships, due to the fact that they already made a bunch of money, and then advertises itself, like every other company with vertically integrated ad space does.
Every good con relies on greed. The fact that the con artist is a criminal doesn’t make the victim of a con any less greedy. I am thinking of the many crypto fanboys here who have been repeatedly told this is a large ponzi scheme. They had plenty of warnings. I don’t have a huge amount of sympathy for them loosing money. Doesn’t mean the con artists shouldn’t face criminal prosecution (if they broke the law, it’s not a crime to sell tulips to people who think the tulip is worth all of their savings).
> So, no, they don't deserve to lose their money to these assholes.
Yes they do. But for reasons other than that. They also typically have extremely poor risk management (or are completely oblivious to it), and more importantly, they are buying a financial instrument they don’t even understand.
They deserve to lose and those who have 'tricked' them should be prosecuted. We can have both. Culpability of one side doesn't make the other side innocent victims. It's not bad people against good people, it's bad people everywhere in this situation.
There is also an amount of blame on our government and the shameful treatment of educating society. In a Capitalist driven country, as the USA is, the education system's complete lack of common sense financial literacy is a classic recipe for creating scams.
I have a graduate economics degree. I seriously investigated bitcoin and crypto back in '07-'08. There is no "there" there. Cryptocurrencies use an artful abuse of financial terms with their own separate definitions in the cryptoworld. The confusion is intended and part of the scam.
Yes, but.
There were voices of reason and caution the whole time. People would ask me “you know tech stuff what crypto should I invest in”.
“None, it’s not investing. It’s speculation”
You know how many people listened to me? None of the people who asked me for advice, and got the above advice indicated in any way that it would keep them away. There was a lot of greed pushing the clueless into poor choices.
So now who do we blame?
His involvement seriously reduced my impression of him, as in I no longer see integrity in his behavior, more like a skilled actor projecting integrity, and his own being suspicious.
Assholes need to be jailed and we can feel for the greedy people losing their money. On the other hand they wouldn't have shared their gains with us if it went well so they can't expect us to bail them out when it goes bad
This. Exactly this. In some ways, this mirrors the current student debt crisis.
Only 13% of the US population holds student debt, and 80% of student debt is held by earners in the upper 20% of income. But suddenly, we are supposed to cancel all that debt. ?????
Same thing with the market crash in 2008. Oh, we have to bail out all those banks because otherwise pension funds will lose value. Not close completely, but lose value. So a bunch of people with no hope of ever having a pension have to be taxed to bail out existing pensions (in effect). And then AIG having the gall, after effectively failing, and only being propped up by Federal dollars, complaining ten years after that the government unfairly held back some of their profits because the government backing came with stock holdings to back the loan, and AIG had to buy the stock back.
So yeah, Crypto is an issue, but the major banks are also an issue, and people that are stupid (or greedy) about money are an issue.
Agree. The median student loan burden is very manageable-- less than a new car -- and the issue is manufactured for political purposes on the left to turn out younger voters.
I’m not that old, but I’ve already realized that get rich quick schemes sometimes work but ultimately fail for most participants.
People who engage in this stuff get very little sympathy from me. They were complicit in an obvious lie because they thought they’d make some easy money.
There should be a law that currencies are used for legitimate payments for more than X% and otherwise the currencies should be marked as gambling money. How to measure? I don't know, but I'm sure the IRS can come up with something.
To the extent that Tether is anywhere, it's in notorious financial law evasion island Grand Cayman.
It's already illegal to supply overseas gambling services to Americans (Pokerstars). Quite a lot of the crypto world would arguably be ruled illegal under existing law if it was prosecuted before an American court - or a British one, or many other jurisdictions. It's just that there's so much of it, it moves so fast, and has enough legitimate-looking political cover that it's escaped so far.
It’s not illegal to play Pokerstars in America. Its a states rights issue. Some states allow it and some don’t and the ones that don’t could allow it using their various mechanisms for changing the laws (like California’s props or Florida’s citizen ballots) if they wanted to but they don’t. Probably a strong correlation between lottery revenue and online poker being illegal but that’s just a theory without facts backing it.
I think a ban can work quite well as a deterrent. If ThePiratebay/PopcornTime was not illegal, we wouldn't have Netflix&co.
It's not perfect, but I think a ban can be very effective.
Also, I'm tired of hearing cryptocurrency-related stories at social events and in podcasts. If it were illegal, I believe people would be more reluctant in spreading these stories.
There are individual investors who were misled by institutions and grifters. There are also individual investors on this very forum who laughed, taunted, and turned their noses up whenever someone pointed out the fraudulent nature of the entire ecosystem.
The latter are not financially illiterate; they just thought (incorrectly) that they could time the scam better than the other little guys. I have correspondingly less sympathy for them.
>>The sad reality is that many poorer and financially illeterate people have been tricked by VCs and other grifters into this with billions of dollars spent in advertising.
I'm a consumer of tether. I know the risks, and I take a calculated risk in using it for some applications. I perceive almost everything in the space as an experiment, and I'm willing to run that experiment. I personally believe that my sentiment is common among those who use and hold crypto assets. Cryptocurrencies are widely perceived as experimental and subject to large unexpected rice declines, hacks and other risks. That goes for stablecoins too.
I don't want you to forcibly prevent people from making any offer they want to me. By doing so, you are violating my right to free association, and assuming you know better than me what's best for me. I am not a child.
Maybe we can give people an option to suspend their rights as free citizens, and subject themselves to your political camp's centralized control, and leave every one else alone to decide for themselves, in accordance with the basic principles of liberal democracy. Is that a fair compromise, or are you going to presume large sections of your fellow citizens are not only financially illiterate, but also are too poor in judgment to realize they are better off under the control of people like you?
The problem is one of ethics, though: It's one thing to say "I've used it to move money" and "I believe and trust that they have the reserves they claim to have and I'm willing to hold USDT forever". If you just use USDT as a hot potato, your "calculated risk" is meaningless and you should be calling out that Tether is a fraud.
>> And this doesn't only apply to crypto, look at how many countries with currency pegs can maintain that when their economy turns down
> These assholes need to be prosecuted, fined and put to jail if necessary
Who gets put in jail when assholes running a country swindle their people's currency and the peg slips or otherwise they steal from the social wealth of the nation?
"Deserves" is a word with variable meanings. You learn early on not to touch hot stoves. Do you morally deserve to get burned if you touch the stove anyway? Arguably no, but in the other meaning of "you should've known better", you kinda do deserve it.
There's a very natural feedback mechanism to a hot stove.
When former world leaders are turning up and crypto conferences and the industry remains largely unregulated, then can you really blame people for investing?
Yes, you can. You don't have to dig very deep into the crypto world to realize that a lot if not most of the participants have are not plain ol' honest folks making a big ol' mistake giving their hard-earned savings to a slick-talking salesman. They are conscious participants in what they know to be a get-rich quick scheme. They know it is shady, and they don't care, because they think they're going to get out before it crashes. They're motivated by greed, not innocence.
You can recognize this and still support regulation of the industry. One of the big reasons you need regulation is to protect people from their own stupid greed.
Not if it was investing. But they are not investing. Investing requires restraint, calculated risk-taking, and understanding of what it is exactly that you're buying.
"yolo all in on Terra" is not investing. It's gambling.
Would you feel sorry for someone who put his entire monthly salary on a single spin of a slot machine? I certainly wouldn't.
The big problem is Tether's minting has driven the market for crypto crazy so even if you've been avoiding holding Tether for longer than it takes to transfer your assets or to buy new assets your holdings are going to be inflated by the fake money injected by Tether's money printer.
Financial speculation is a zero sum game. These "victims" were hoping to gain from the loss of others just like the supposed crypto VCs that have made out well. They're not victims just the losers.
I think the people who we would describe as victims here don't have a sophisticated mental model enough to understand that financial speculation is a zero sum game. (Or indeed that in a liquid enough market, the risk-adjusted expectation of any deal is zero.)
This is why I think we'll see some extensive crypto regulation soon enough, forcing companies that turn real money into crypto to filter out people who don't understand that crypto is a speculative market first and a payment platform second. You can't realistically prevent people from mining or trading shitcoins but you can put regulatory pressure on the ways people access them.
Thr only way to do this effectively is blanket regulation on all cryptocurrency, as otherwise you'd end up with an endless cat and mouse game chasing new coins people use to trick people into entering the market and exchanging entrycoins for the latest scamcoins.
This is all pretty terrible in my opinion, because cryptocurrency could've been so much better. Sadly, the idealists who wanted an independent currency were drowned out by the ruthless speculators who are only in it for their personal profits.
I think that's over-simplifying it just a bit. Many people are conned into thinking it's a safe asset for their spare cash, or it's helping some cause, or it helps them send money overseas to people in oppressive regimes, etc.
There are real victims, but the people dismissing those who constantly warned them, they're not victims, they're idiots.
You’re entitled to quite a lot. It is those delightful moments, enjoyed quietly and within one’s own head out of common courtesy, that make all of life’s problems worth it. There are few feelings as remotely good as that one, and we’d all feel better admitting it to ourselves. Doesn’t speak to caring.
The weird thing about having been on the internet so long is how nobody listens any more - for any idea, no matter how bad, you can find a community built around it, defending it against outsiders. A million micro-cults.
It wouldn't be so bad if there weren't serious negative externalities to the rest of us from this.
> Nobody deserves to be exploited, robbed or otherwise for any reason.
Well they tried to exploit, rob or otherwise me, that is, getting money from thin air without creating any value. How is that fair in any moral system?
Gambling is an addiction, and doesn’t just come down to poor judgement. There’s a short circuiting that occurs in the pleasure centre that we simply haven’t evolved to handle properly. It’s why even if you’re the most seasoned, calm, financially secure and stoic of people, if I told you that you suddenly won $100M with clear proof, you’d almost shit yourself in excitement, your heart would race. None of us are immune to the physiological effects of winning money, by chance or skill.
I’m not saying people getting suckered aren’t ultimately responsible for their actions, but at the same time just like a drug addiction, an objective and problem solving perspective is more productive than just judging that person for simply being weak, stupid, gullible, greedy etc.
It's quite a jump to go from my comment to "gambling is an addiction".
Gambling is not an addiction. Gambling might become an addiction for some people, like many other things might.
The vast majority of people who 'invested' in crypto (or who go to Las Vegas for that matter) are not addicted. They think it's a way to get rich quick, and some did. They may also not have done their homework.
Sometimes when people make bad decisions and lose there simply isn't anyone else to blame. That's life.
> convince yourself that 20% interest is a safe investment
So what you're saying is people shouldn't expect to be able to massively multiply their wealth, but that directly contradicts the narrative that "anyone can make it" instead of the wealth and opportunities you're born into determining the likely upper limit of what you can hope for.
I'm not disagreeing, but it's absurd to condemn people for falling for "get rich quick" schemes (and as far as those go 20% is unusually low) when the entire society is built around maintaining the lie that getting rich quick is possible as long as you "work smart" (i.e. don't rely on your own physical labor to make money).
> that directly contradicts the narrative that "anyone can make it" instead of the wealth and opportunities you're born into determining the likely upper limit of what you can hope for.
It depends on what we understand by "anyone can make it". I would argue that, if understood in terms of "anyone can [become orders of magnitude richer just by picking the right investments]" then that indeed is a narrative that is harmful and should be contradicted. Yes, of course outliers happen, and anyone may become stupidly rich from a low income if they're lucky. That doesn't mean it's a good idea to try, and people on an individual level should be discouraged from taking such huge risks unless they are very consciously aware of the consequences of their likely failure.
The other side of the issue is a systemic one. If a society finds it traumatic to accept that there is a likely upper limit as to what people can hope for based on their wealth and opportunities at birth, there is deeper problem. The problem may be cultural in that a society's members are too instilled with self-centred and unrealistic expectations (i.e. a culture of temporarily embarrassed millionaires), or it may be a deeper economic issue regarding inequality of incomes that makes surviving at certain levels of income without any hope of the smallest improvement leads to greater desperation and dreams of "breaking big". It may be a mix of both.
Coming back to "anyone can make it", it should be defended, but in the sense of "anyone can [reach a level of economic security to live a fulfilling life]". That however is not a principle to encourage the individual through dire straits. Rather, it is a principle that should guide public policy and cultural attitudes as a whole, so as not to have a society like I described earlier. In such a society the population won't feel the need take unrealistic risks only for a chance to get out of a rut or satisfy cultural fantasies. That's not to say it won't happen, anyone can be an outlier.
I'm not disagreeing, I'm just saying the far more nuanced "anyone should be able to live comfortably if they put in the work" (along with the realization that this may not currently be possible for some people as "living comfortably" still requires a magnitudal improvement of their current situation because there is a very high floor thanks to the costs of living including healthcare) directly contradicts the popular narrative that considers systemic problems irrelevant to individual success (e.g. the usual talk about guaranteeing "equal opportunities not equal outcomes" falls apart if the opportunities simply can not be equal under the current systems).
> when the entire society is built around maintaining the lie
Maybe the part of society that contains the crypto enthusiasts. Every part of society with a shred of financial experience has been pointing out that 20% is really really high compared to the risk free interest rate. Of course, pointing out that something is unsafe will not make you popular with the people dreaming of getting rich.
Okay, if 20% ROI is extremely unrealistic and physical labor is for fools, what's your story for the guy trying to come out of poverty and willing to put in whatever it takes?
Are you saying that the poor are just destined to remain poor?
I'm not saying the narrative they're told is correct, I'm saying the wealth disparities in society are undesirable and if just telling poor people to pull themselves out of poverty is not viable, we need other solutions to address those disparities.
I don't have a story for the poor guy trying to come out of poverty in the way you mean. The chances of becoming 0.1%-style rich are extremely slim and likely the best shot they have is to slowly work their way up so their children can be middle class and (if the children also work hard towards generational advancement) their grandchildren relatively rich. Getting Kardashian-style rich is unlikely to ever happen for more than a few thousand people in the world at a time. Telling people the truth (becoming extremely rich is very very unlikely) seems better to me than a beautiful but untrue story that might harm them financially (ie: invest in this shitcoin and we're all gonna make it).
Like you I think large wealth disparities in society are undesirable, but if those come from the way society is set up then society is what is going to have to change. If you really want to change society then set up a movement and convince large groups of people about your viewpoint, but be prepared for hostility from anyone with a vested interest in the status quo.
> And you had to be very greedy indeed to convince yourself that 20% interest is a safe investment
I think there is more nuance that this. People have been burned by many 'safe' investments over the years (housing, stocks) that they incorrectly view the risk profile as similar so look for higher returns. Much has been written on how we under appreciate actual risk, especially in 'safe' investments.
There's also some YOLO here, but in a calculated way. A safe investment making 1% still means the wealth gap is widening and that person is still eating ramen. Why not swing for the fences, otherwise it doesn't matter anyway.
> I think there is more nuance that this. People have been burned by many 'safe' investments over the years (housing, stocks) that they incorrectly view the risk profile as similar so look for higher returns. Much has been written on how we under appreciate actual risk, especially in 'safe' investments.
I've got extremely financially literate friends who are adamant that 30-year variable rate mortgages are 0 risk.
It's not that they don't assess the risk, but the excuses are always "Inflation will eat it away", "There's no way EURIBOR can climb so high I won't be able to afford payments" and "Negative equity? In this housing market?"
Makes me shiver. Especially now that 12 Month EURIBOR rate is above 0%.
Sure, a mortgage is 0 risk if you're buying yourself a home for the next 30 years AND have the cash to buy it outright. If you're buying a financial product, perhaps you should reconsider, because it shouldn't be both. Your primary residence is not an investment.
Where greed comes in is where people dive into a market precisely because it is going up like crazy, which you only know after it goes up like crazy, then when it takes a down turn, hang on too long because they don't want to give up that expensive thing, then finally sell in a panic.
Buying high and selling low is a sure path to being poor.
It's not necessarily that people thinking 20% interest is safe is greedy. It's that many people don't have the financial literacy to understand that something paying that high of an interest rate is going to be risky. And that if someone 'guarantees' an interest rate of 20% then it's probably a con.
So many people just lack the basic literacy to recognize when something sounds too good to be true. And in the crypto market it's worse than that, because all of the memes and in-group behavior functions to drown out warranted skepticism.
If you knowingly put money in a scam where you send the previous person 2x the amount they sent and the music stops on you, you deserve it because you know the risk and choose it. So there is a line where it's acceptable to victim blame.
I don't understand how you bodge a stable coin startup.
Surely you just mint the tokens in exchange for dollars, and then put ~50% of the dollars in zero risk investments (some form of treasury bonds), and then take the 0.5-1% interest per year as your revenue. Tether currently has $81b marketcap so you could be making $400-800m per year doing basically nothing?
It’s hard to find a bank to take your money, since you’re something that rhymes with money laundering. Tether had a bunch of money stolen from them because the money launderer they used turned out to be a crook.
It also takes a long time to get this going and there are moderately high costs to a minimally viable financial entity (reporting, compliance). A few years ago they only had a couple billion which makes it hard.
And all of that sets aside the allegation that tether has been printing tethers it’s entire life — that it’s basically never been fully backed by dollars.
Oo, sign me up for some "bunny conjuring", please!
Alternately, "sunny wandering" and "honey squandering" both sound like they could be delightful ways to pass an afternoon. But I can tell you right now that "funny pondering" is hella overrated.
> Surely you just mint the tokens in exchange for dollars
Step 1: find someone willing to give you dollars in exchange for a token that's guaranteed to be worth something between 0 and 1 dollars.
Step 2: find a bank willing to let you be a money transmitter for millions of anonymous pseudo-dollars whose owner you have no idea of, setting off every single money laundering alarm in the building.
> Step 2: find a bank willing to let you be a money transmitter for millions of anonymous pseudo-dollars whose owner you have no idea of, setting off every single money laundering alarm in the building.
This was the biggest red flag behind Tether to me, where we are talking about not millions but billions of pseudo-dollars.
The risk profile is beyond anything reasonable that a bank could or would accept. Tether minting $2bn in a week means $2bn cash inflows from mostly people that the bank probably doesn't know, all for what can only be a negligible fee.
> again - who is on the CP desk at Tether? Who is their account manager at Goldman Sachs? Who do they talk to at, say, the GE corporate treasury? Commercial paper is a short term money market that has to be managed and rolled - you can't just buy and hold the bonds anonymously.
Dan's argument is that the alleged size of their holding implies doing a lot of business, which should be being done by humans making phone calls to each other, and the gossip network doesn't seem to be able to locate any such people. Given that there are market participants whose job is e.g. "today I need to sell $100m of three month commercial debt to someone, time to start calling", one of them ought to know who's running the Tether business.
That nobody can see them in the market is a red flag.
Hell, their bank's supposed* Deputy CEO in an interview couldn't even name the two types of banking license that are applicable in the Bahamas, or which one they had, but he knew they had one, and "possibly the other, I'm not sure".
* He was the Deputy CEO according to the interview and his LinkedIn (though there was all sorts of hilarity there, like claiming he graduated HEC Lausanne at 15, and becoming a Professor of Finance somewhere in Lebanon while running multiple funds all over. But after the disastrous interview, he was quickly deleted from the bank's website. And then re-added when people started questioning that. And then removed again when the bank hurried to "revamp" their website (to a WordPress installation, no less, and gaining 15 years of experience in the process).
From what I heard, Tether had invested heavily in "emerging markets" instead of the established US markets, which explains why nobody at Goldman Sachs has dealt with them.
What do you mean by “emerging markets”? Goldman Sachs has tons of people whose entire jobs are dealing with those in the common meaning of the term – they manage dedicated funds for their customers! It seems highly unlikely that they wouldn’t have at least some basic awareness of anyone doing business at that scale.
Given the space and the degree to which they refuse to reveal normal financial information, I assume they’re either directly involved in fraud/money laundering or are treating other cryptocurrency companies’ debt as far more stable than it actually is. This is such a common criticism and there’s no reason why you’d keep it this secretive if the news was good.
Emerging markets? Which of course means that even if they started with $X of collateral a year ago, they're exposed to the wider market crash which is happening and therefore have much less.
Not to mention currency risk. I heard they were invested in china which if they were their yuan are now worth 6% less to get the same amount of USD which customers are expecting USDT to be in.
Coinbase and Circle were certainly able to pull off both steps for USDC. They require KYC to purchase USDC from them, or redeem USDC for USD. USDC can be traded on the secondary market without KYC.
Great, you've invented a boring old bank. That's not innovation. (Well, technically an unlicensed wildcat bank, but still)
Literally the only new thing about blockchains is an ecologically destructive brute-force solution to the byzantine generals problem. However, it turns out nobody except CS students cares much about that, so they have to dress it up with cartoon apes and web3 buzzwords.
Anyone making $500m/year legit could rug for $20bn+, so they walk away before that point.
Tether have a great business model but seem to spend 90% of their time falsifying reserves instead. It certainly gives the impression they're planning on taking the capital rather than interest. They're already in breach of the NYAG agreement, with three+ more cases pending.
It actually seems like a great project for e.g. Fidelity or Vanguard to set up a mutual fund that doesn't pay interest. With the name recognition it would be immediate #1 stablecoin assuming they offered the same level of audit scrutiny and reserves breakdown as their other products (i.e. 100x anything offered in the cryptocurrency space currently).
Btw, not only sovereign nations have these issues. Your bank also tries to maintain a peg between one dollar in its account books and one dollar in government money. Similar (but more roundabout) for things like Amazon gift cards.
For a country without an established, credible central bank a currency board can be a big economic improvement over trying to issue their own native fiat currency.
(Even better from an economic point of view is for the country not to issue a government currency at all, but let the market handle that.
When the government is particularly inept, you can see the (black) market trying to fix currency issues even when the government actively tries to prevent that.)
No, pegs are nonsense. If you want something USD-denominated, buy USD. The cardinal sin committed was pegging in the first place, which always was doomed to failure because the scale of the effort would attract either a bank run or raid, guarantied.
Let's say you're a hedge fund looking for a one-way bet that will profit massively in a crypto crash (that stablecoins can't survive) and has no downside except carrying costs. Enter Tether, Terra, etc. Risk of loss at initial sale of 1, very low because tokens will not increase in value to 1.5 or 2. Profit potential? 100%. Everyone with a dash of creativity and a fund probably already is short these coins and has been for some time. "The Big Short" of 2022.
"sure, my house's foundation is made of cardboard, but have you considered that the empire state building could also be destroyed in a large enough earthquake?"
This suggests that we need to look into the engineering details of a building (or peg arrangement) to determine whether we can trust it, instead of just declaring all building (or all pegs) 'nonsense'.
Pegs fail at the worst possible time. You can transfer or store value via oak tokens flown by trained pigeons, because that might be convenient (to you) and doesn't involve the Fed. But if someone tells you the token/pigeon method has the same attributes as a bank-to-bank USD wire, that person would be mistaken. The methods would be no closer to equivalence if one were to stamp "USD" on the oaken rounds and train the birds to collect a receipt.
As long as the guys who issue the token have sufficient assets to redeem them, and regularly redeem them to any comer, I don't see much of a problem.
If there's oak and pigeons involved, that doesn't change much---apart from being might inconvenient.
The problem algorithmic stable coins is that the backing is either non-existent or at best really suspect.
Tether is a bit better in that they at least claim to have real world backing, but they don't tell you what it is, so you can't trust it.
Btw, the backing for a token denominated in USD doesn't have to be USD.
Eg most banks back their deposits with all kinds of assets and bonds, not just physical cash (or balanced at the Fed).
Having a few reserves in USD on hand is important, but in the longer run it's more important that the worth of your backing assets is reliably higher than your liabilities. The difference between the two is your equity cushion.
To have a zero-risk peg you need to have as much reserve currency as you have issued currency; if you issue 1e6 fun-bucks that are pegged at 1:1 with the USD, you need 1e6 dollars.
If your country has banks, and you allow those banks to engage in fractional reserve banking, and you make guarantees to depositors that you will make them whole no matter how terrifyingly bad those banks are at their job, then holding dollars at 1:1 is insufficient. And depending on what kind of reserve requirements you have, the multiplier can get very large very quickly.
If you allow commercial banks to operate, then, as they say, you can fuhgeddaboutit. No amount of assets backing your peg can possibly be sufficient. You can push the tail out further, but such guarantees will only make your commercial banks more aggressive and increase the systemic cost of a failed peg.
If you choose to issue sovereign debt in your pegged currency, or support pension funds for your citizens, or anything like that, then ... don't peg your currency. Issue your own sovereign currency and get yourself some nuclear weapons.
Yes, I am suggesting that fractional reserve banking is a good thing. You hold reserves for short-term convenience, so that in the normal course of business, you can redeem immediately on demand. You hold the rest of your balance sheet in different assets, so you can earn a return. (And you make contractual arrangements with your token holders that you have the option of taking your time to redeem, in return for a prohibitive interest rate. At least that's what happened historically in eg Scotland. This was called the 'option clause'.)
You are right that if your liabilities are in thing A, and your assets are in thing B, there's always a non-zero risks that the value of B might drop below the value of A. Even if at the moment, B is much more valuable than A.
You can make that risk pretty small. Small enough that it's comparable to eg the risk of all your computers being hacked, the risk of your CEO running away with bags of cash, the risk of the government just seizing your business, the risk of an asteroid impact hitting your cash vault, etc.
What makes you think this particular risk is special? It's just one of the risks holders of your liabilities take. I don't see how this particular risk should make banks more aggressive?
Btw, commercial banks (and other companies) in most countries are allowed to have liabilities in foreign currencies. Or liabilities in assets that are not currencies at all.
> If you choose to issue sovereign debt in your pegged currency, or support pension funds for your citizens, or anything like that, then ... don't peg your currency. Issue your own sovereign currency and get yourself some nuclear weapons.
Many countries get lower interest rates when issuing debt in a currency they don't control. The creditors weigh both default risk and inflation risk. It's not obvious to me why eliminating all default risk in favour of inflation risk would be an unambiguously good thing?
Before the USD became a full fiat currency (but was instead pegged to gold, silver or a combination of the two at various times), the US issued debt just fine.
Also keep in mind that even if a sovereign issues debt in a pegged currency or a foreign currency they don't control, they can just decide not to pay anyway. That's what Argentina did a few times.
Of course, your creditors won't like that. But they won't like excessive inflation either. Six of one, half a dozen of the other.
I think Tether can get away with less than 100% collateralization. At the current market cap of 82bn, even if they are only 20% collateralized, it takes 16.4bn one way movement to deplete their reserve. Is that likely event? Guess it depends, but I think market makers would be more willing to backstop them than UST shitshow. UST has "death spiral" structure that makes MMs less willing to backstop them once it goes on a path, which is exactly what hedge funds attacked against these past few days.
All that Tether really need is for enough people to believe that they probably have enough collateral to handle any potential bank run. Those people will buy up discounted tether and prevent the bank run from even happening.
Though, the mess with TerraUSD has clearly knocked a bunch of people's confidence in Tether. I wouldn't be entirely surprised to see it crash.
Isn't that what the banks said before their first bank run and then the government had to step in to back peoples deposits to ease their worries. The government isn't backing these deposits.
A lot of people have looked for conspiracy or motivation around the Terra Luna crash, but the real answer is if you can legally make money by making something crash, then someone will make it crash.
Attorney General of NY looked at their books and found most of the collateral was there, although in the form of commercial paper. The risk is really in which companies debt they hold. If we see a perfect storm of something like 2008 where correlations go to 1 resulting in massive defaults AND a significant number of redemptions then I'd be worried.
There are so many ponzi schemes and other scams in crypto. In hindsight it shouldn't have been surprising that an unregulated tradable contract scheme would have immediately turned into this. One item that no one has spoken about yet, how much real money is actually tied to Crypto? Some of these coin implosions are as bad as Madoff's mess on paper ($36 billion).
They do have collateral. There has never been any evidence that they don't. The peg is already re-converged.
Just as it has quickly every other time this has happened. It reconverges, unlike UST, because they actually redeem your Tether for dollars when you ask.
Only if they're drinking their own koolaid and not constantly cashing out the fresh, real money that new marks bring to them as their stake in the market.
VCs don't make all their money from exits. A lot comes from fund management fees. Investing (someone else's) money in a business and then charging 5% from managing that investment is quite lucrative when the values are high enough.
Your idea was basically to short tether at high leverage and wait. But margin trading with high leverage isn't free. You are essentially borrowing the money at a very high interest rate.
For example, at Kraken the margin cost is currently typically 0.02% per 4 hours. This is not something you want to maintain while waiting for an event that could take years to materialize. And that's for modest leverage (up to 5x), I imagine it's even more expensive for the 100x leverage you were looking for.
If that is meant to be a joke, it’s actually quite funny. Good job.
If you meant that seriously, it’s extremely poor quality advice. Leverage is neither free nor cheap. And taking 100% leverage is obscenely risky. Your characterization of it as ‘risk free’ is the most dangerous part. At 100% leverage, small swings could lead to calls you simply cannot afford.
BTW, the assumption that Tether would not go substantially above $1 is incorrect. Tether has occasionally traded as high as $1.32 — of course these were only brief glitches, but sufficient to completely wipe out short traders.
Any suggestion that such glitches could have been engineered by the exchanges who are closely connected to Tether is, of course, nothing but malicious slander.
You’re misreading. That comment is a powerful, personal realization he’s had and shared with us and a really, really interesting thing to watch happen. I’m serious. You’re explaining to him what he’s just realized so hard that I can taste the holy-shit bile through his comment. Welcome him back to the fold. Don’t lecture him.
I never thought I’d see it actually happen, and I’m kind of blown away I’m in the same thread. It’s actually possible for the hardcore believers to snap out of it, and that’s the unquestionably greatest thing I’ve heard in three long years. There is hope. I was genuinely starting to wonder.
Note that this isn’t personal and I had no idea who he was until five minutes ago. I just type some shit in the username box every time I sign up.
If Tether is backed, then Bitfinex could buy currently-discounted tethers off the market and redeem them for face value, pocketing the difference. The fact this is not happening means they really don't have the money, do they?
In the short term, they have the reserves for sure.
In the short term, this is more of a classic bank-run. The Terra-coin + Luna scared a lot of cryptocoin holders, and now they're running away from another stablecoin.
Even if Bitfinex had the money, the amount of traders leaving USDT has to be a colossal amount. The amount of money Bitfinex can transfer at any given time is limited, so the peg will bend and buckle.
-------
The big question is: does Bitfinex have enough reserves to weather the storm? Not just this short-term storm, but the whole shebang that's about to happen? We will find out... eventually.
UST / Luna had substantial reserves. But it clearly wasn't enough. Probably because Anchor promised 20% gains and there was simply more UST in existence than the amount of USD put into that system.
Did they, or did they just claim to while minting stablecoin in order to pump the price of Bitcoin? Which these guys (Tether) would want to do because the owners of Tether are a massive exchange, and they depend on Bitcoin being high to attract customers to the market, and the first thing news customers so is bring the real objective with them: actual cash.
USDT, Tether, is a completely different coin. the one we're discussing today.
---------
UST + Luna had substantial reserves. They proved it with their actions this past week. They weren't *enough* reserves mind you, but they were posting their BTC-wallets on Twitter and showing the movements.
Yes, sorry that wasn't clear, and I said Tether when I meant stablecoin in general. I meant that they didn't have the reserves they needed ("substantial" isn't good enough) and now Tether has an even bigger incentive to run uncollateralized because of who they are.
"stablecoins in general" doesn't really apply here since the two in question work radically different. Collateralized vs Algorithmic. Theoretically the Terra UST stable coin didn't need reserves to keep the peg at $1, unlike Tether USDT, which does.
The idea behind UST was that if it falls below $1, you can redeem it for $1 of Luna instead. The idea being that UST is "backed" by the activity on the terra Blockchain (fees are paid in Luna)
Of course, that means if UST is below $1 there is an arbitrage loop. buy UST at a discount, redeem it for Luna, sell Luna for USDC, repeat
This causes downward pressure on Luna's price. As Luna drops so does the faith in UST recovering, you end up with.... Luna dropping from $100 to $0.01, there's nothing backing UST effectively and it's still trading below peg (around $0.40)
Short term, USDT kept enough reserves to hold the peg steady for years.
I'm not saying USDT was 100% backed. They probably could have accomplished all of this with just 20% backing, maybe even less. But in the short term, only 20% of people would ever "test" the reserves so to speak.
Now I don't know how much USDT was fraudulent... I do believe a lot of it was fraud. But there's clearly a nugget of truth, a nugget of backing that kept the price steady last year and the year before.
Once that "nugget" of stability runs out, its all over.
This alone suggests you don't know what you are talking about.
Compare to reserves backing Dai, or the reserves USDC claims to have. UST/Luna had nothing and they were also highly correlated. It was a stupid stablecoin to hold in, which is why I never did - despite having holdings in Dai & USDC.
"Substantial reserves" meaning that UST / Luna was able to keep the peg for 1.5 years.
That's a reserve for sure. Is it enough for this current storm that the cryptocoin community is having? Obviously not, it all collapsed. But it was substantial enough to perpetuate its own myth for over a year.
That's the thing. You have to admit that these things can last months, or years even if you want to be honest about discussing the nature of these cryptocoins.
They are actually redeeming them on their website for anyone that wants to.
> @paoloardoino
GM
Reminder that tether is honouring USDt redemptions at 1$ via http://tether.to .
>300M redeemed in last 24h without a sweat drop.
12:38 AM · May 12, 2022·
You need to show up with $100k to do the redemption. Granted if you did the round trip with only $10k you’re looking at peanuts in arbitrage but it _is_ a way for them to prevent real arbitrage that feeds into itself.
I bet the fact that people wanting to short don’t believe they have the funds doesn’t help. But hey if you are a millionaire short tether might be worth setting up the recurring trade out!
It's not "they" as in "the people behind Tether" who are paying the 3%. The 3% returns - assuming the exchange works out in the end and you get your 100k USD - are paid for by the random guys who owned the 100k USDT that you bought on the open market. Effectively those were people who assumed the peg would break and they would be better off selling their USDT while they still got 97k USD for it.
Right the idea here is that somebody paid 100k to Tether for the tokens, those got into the market, being sold around, in the end I buy for 97k, then I hand those back to Tether for 100k - transaction feels (which would be ~250 USD). So in theory at the end of this whole operation Tether is up 250 USD
Though I think the cynical view for Tether stuff is that they have not been doing things by the book here and either they have been siphoning deposits, or printing Tether on their end. But hey, if they still got big deposits no problem for your original trade right?
But they get to buy and sell tethers themselves, right? If a T costs less than a dollar, and Tether's owners know that it's perfectly backed by a liquid dollar, why don't THEY buy it?
If they don't, it suggests it's not, and they actually agree it's worth less than a dollar.
Maybe they are buying them? Just not at enough speed to avoid a decrease in price.
To buy them they would need to take their real USD, probably spread across investment instruments (e.g. in an ideal case where all they say is true, they would sell some government bonds they're holding), and bring it to an exchange where USDT is below 1 dollar. Then on that exchange they would go and buy, and make a small profit.
Based on the fact that they have managed to keep this thing around 1 USD for a long time, they have probably been doing this. But we don't know how fast they can do it (have to be faster than the others selling it), and we don't know how much cash they really have so they may have to stop doing it at some point if enough people try to sell.
There are rumours, for example, that quite some of Tether's reserves are in bonds (treasuries etc.) or commercial paper. There is secondary market for bonds and even commercial paper, but it is rather slow (OTC, not on an exchange), and if you need to sell bonds or paper in distress, guess what sort of price you're going to get...
Well the whole point of a "backed" stablecoin is that you can do this, and arbitrage should never be an issue because the currency is supposed to be pegged to the dollar. And if the mechanism for this peg is 1-to-1 backing then it's a non-issue.
Contrast this with UST which was an "algorithmic" stablecoin, where the peg is maintained by much more complex mechanisms.
The issue in this case is (of course) that USDT are not actually backed 1-to-1 with actual dollars in actual reserves but rather backed mostly by hopes and dreams.
Not in this case. With Tether, you can "always" (so long as they are willing the to shovel the cash) convert 100K USDT for 100K USD on tether.io. What we often see here in terms of the "price" fluctuating, actually has to do with Exchange prices, and not the tether.io price. Exchange prices are based on dozens of competing mechanics, most notably, the depth of their order book. Since its just people trading with people, you need buyers and sellers on both sides. But if market sentiment plummets, you might have more sellers than buyers who are looking to exit out of the market quick and are willing to take a 1-3% hit to do so, instead of going to tether.io and actually getting the full amount.
Until its "proven" that tether.io doens't have the assets (which they obvi dont), AND they stop allowing the 1:1 swap on their platform, UDST will always "be" pegged at $1USD.
Once you figure out the practicalities of buying $100K worth of Bitcoin for cash, securing it, exchanging it for Tether, requesting the redemption, getting paid out to a bank account, etc, you will see that it's not particularly free money.
People who are already set up with crypto accounts, exchange accounts, bank accounts which won't be closed down or frozen, will do this trade all day for 3%. For a regular punter it's not a no-brainer at that level.
Perhaps they want arbitrage in this case, because once people see this opportunity, it will make folks want to buy USDT in the market, which will bring the price back up (and remove the opportunity)?
No. Banks have the problem that they can’t liquidate assets fast enough to pay people in a bank run. Stablecoins simply don’t have enough assets to pay out people.
USDT is now <$0.95, so the arbitrage opportunity is getting more exciting by the minute. It will be very interesting to see how long they can hold out against that.
"Elsewhere on the website, there’s a letter from an accounting firm stating that Tether has the reserves to back its coins, along with a pie chart showing that about $30 billion of its dollar holdings are invested in commercial paper—short-term loans to corporations. That would make Tether the seventh-largest holder of such debt, right up there with Charles Schwab and Vanguard Group."
Commercial paper is not dollars, so tether effectively admits it is not backed. The risk of default on commercial paper is huge compared to dollars held in reputable banks' accounts.
It's actually much better for tether to be invested in CP and similar paper. You can't leave $80bn in the bank, cos then you have gigantic concentrated credit risk to the bank. It's actually imperative you invest in CP, and preferably, government bills, to diversify your risk.
They don't have to stick the entire $80bn in one bank.
It is the lack of transparency around the CP that is raising eyebrows. Why can't Tether list the papers they are invested in? It is such a simple thing to do.
Could be all their CP holdings are in one company :)
Banks don’t claim otherwise for years while providing misleading non-audit “audits”, and they have the FDIC to fix things for anyone under $250k if they collapse.
And without it you get occasional massive runs on banks since they don't have actual full backing. Moreover the government will bail banks out if needed providing another but non-guaranteed layer of protection.
Maybe a better way to say it would have been that banks are safer because they're backed by the government including FDIC, bailouts, regulations, oversight, etc.
> And without it you get occasional massive runs on banks
FDIC doesn't prevent runs on banks. It only pays out after a bank is declared insolvent and there's nobody willing to buy the bank.
Banks are regulated for good reasons which make them safer. But at the end of the day banks are in the business of transmuting unsafe long term debt into safe demand deposits.
Technically, i guess they could "have a little trouble acting so fast", buying everything at $0.9 and back up to $1, and pocket the difference, scolding people for their lack of faith.
Acting shifty and buying into a de-peg could have been the business plan all along. They could be waiting for it to fall more so they can pocket more money.
Any de-peg for a stablecoin like Tether is a bad sign. It indicates that Tether's price stability mechanisms are unable to cope with the amount of people trying to sell Tether. This may indicate one of two things:
1) There are an incredibly large amount of people selling Tether. This indicates low confidence in Tether, low confidence in crypto as a whole, or both.
2) Tether's price stability mechanisms are not particularly robust, and struggle to handle spikes in people selling Tether. This calls into question Tether's claims of stability.
Of course, it also may just be a momentary dip that is fixed after a few days. But the entire crypto market is balancing on a knife's edge right now, and this could be what pushes it over.
> Any de-peg for a stablecoin like Tether is a bad sign.
Except there have been equivalent (or worse) dips for tether in 2016, 2017, 2018, 2019 and 2020 and they weren’t the harbinger of doom for tether either.
I’m not saying that tether won’t fail, just that its recent fluctuations and ‘de-peg’ is not the same as terra (tether is basically back to normal now, terra far from it).
A lot of people are using this post and news to air their completed unrelated grievances on crypto and Tether... but you are completely right. This is non-news unless the Tether company starts failing to deliver $1 for a tether.
While the graphs are different, it really comes down to sentiment and trust. Effectively something that was not supposed to happen is starting to happen.
TerraUSD's de-peg wasn't supposed to happen and combined with Luna, it was dragged it way down fast. Knock on effect being USDT which basically sold as too big and too collateralized to fail has shown weakness in the armor.
If there's a run on USDT, you would expect it to go to BTC, ETH. Then if people start saying they want their money out all together then the run on BTC, ETH would decimate the market as a whole.
USDT will be a lot harder to take down - conversely if it falls, it'll take so much more with it.
The CTO of Tether issued a statement earlier today stating that Tether has significantly reduced its exposure to commercial paper and now holds the majority of its reserves in US Treasuries. That should be super easy to verify, yet he refuses to release any details, saying to just wait for their next quarterly update on reserves (which in the past has just been a one pager someone typed into Excel).
Madoff used the same approach to tell everything was safe: "By purportedly selling its holdings for cash at the end of each period, Madoff avoided filing disclosures of its holdings with the SEC, an unusual tactic.".[0]
This way, each time the market was down, he would answer, me paraphrasing: "nothing to worry about, I was liquid".
Seen from outside, this feels the same... now suddenly backed by something way more secure, no external audits.
As somebody totally outside of the crypto currency bubble, I looked for the first time today at the official market capitalization of these currencies, these are mind blowing, I simply do not understand how they can be so.
While Tether is certainly opaque (you could say shady), it's incredibly doubtful that it's unbacked to a significant extent. Even if it's only backed at 50% (which would be really shocking to me), it would take 39B$ to flow through the system to actually cause a depeg. That's very unlikely, and just the logistics of it means it would leave a lot of time to Tether to clear the air.
Consider that being "nakedly" unbacked (no underlying assets) in any meaningful capacity would qualify Tether's leadership for a quick trip to prison — as they've repeatedly said they were fully backed.
The real risk is them sitting on "commercial paper" (short term debt) that is now worthless or significantly discounted. I still doubt they would have lost more than 50% of reserves this way.
I think it's also interesting that SBF (FTX's founder) is fairly confident in Tether (of UST he said months ago "we know how this ends"). He seems better informed than most, and it seems unlikely to me he'd stake his company (which has extensive dealing with Tether) on a system that cannot be sustained.
I have no chip in this fight, and honestly, I do agree Tether is riskier than alternative, which is why I've never even held it. But UST and Tether are vastly different beasts in term of risk profiles.
> Consider that being "nakedly" unbacked (no underlying assets) in any meaningful capacity would qualify Tether's leadership for a quick trip to prison — as they've repeatedly said they were fully backed.
They said on their website they were regularly audited, too, and never completed one. There’s years worth of clear lies from Tether.
> We confirm that the relationship with Friedman is dissolved. Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame.
> The Tether order finds that since its launch in 2014, Tether has represented that the tether token is a stablecoin with its value pegged to fiat currency and 100% backed by corresponding fiat assets, including U.S. dollars and euros. However, the Tether order finds that from at least June 1, 2016 to February 25, 2019, Tether misrepresented to customers and the market that Tether maintained sufficient U.S. dollar reserves to back every USDT in circulation with the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. In fact Tether reserves were not “fully-backed” the majority of the time. The order further finds that Tether failed to disclose that it included unsecured receivables and non-fiat assets in its reserves, and that Tether falsely represented that it would undergo routine, professional audits to demonstrate that it maintained “100% reserves at all times” even though Tether reserves were not audited.
They claim they did, but the problem is trust. If they were dishonest about their collateralization there's no reason the believe they'd be honest about the audit results. And the firm they hired is itself under investigation.
They'd have to be much more open to convince me they're as well backed as they claim.
Because if they are backed to only say 20% where did the rest of the money go? Did $80B disappear or what? And what are the reason to believe they did other than conspiracy theories? Why would they not just buy $80B worth of bonds to collect free interest on them?
Anything on any market can shift its price to the red or green. Tether and USDC are just tokens, so if there is enough sell pressure and not enough liquidity, the price on an exchange can jump to something else than $1. They are not fixed at a static $1.
It's actually almost never exactly at $1 and the reason why it's immediately pegging back to $1 is because there is an arbitrage opportunity, assuming there is enough backing so that in the worst case the custodian would just buy back the tokens for exactly $1, no matter what the market price is.
Seeing USDT at 0.97 temporarily doesn't mean much more than there is an insane amount of money exiting right now. One exchange can quickly fall to something like 0.97 if there is not enough buy power closer to $1
The whole point of a stablecoin however is that it is supposed to be... stable. From tether.to:
"Tether tokens are referred to as stablecoins because they offer price stability as they are pegged to a fiat currency. This offers traders, merchants and funds a low volatility solution when exiting positions in the market.
All Tether tokens are pegged at 1-to-1 with a matching fiat currency (e.g., 1 USD₮ = 1 USD)"
$0.95 is not $1.00 and a 5% drop is not low volatility.
"when exiting positions in the market" this statement applies only if you exit using tether.io. You can always (if they have the cash on hand) swap 1 USDT for 1 USD.
They can't make that guarantee for <insert random exchange order book>. The reason it stays "mostly" at $1 on exchanges is because arbitragers are incentivized to do so.
Redeeming Tether via the official route takes several days as I understand (in the current situation probably more like several weeks?). So if you're a large investor you have the choice of either trusting Tether to be able to make good on the promised redemption, not knowing if it will be the case for days or weeks, or you can just go to the market and sell your Tether there at a 2 % loss. As an investor I'd always go for the second route as there's large downside risk and almost no upside potential when redeeming via tether.to. No sane investor would risk losing 100 % of their assets to escape a 2 % haircut.
> You can always (if they have the cash on hand) swap 1 USDT for 1 USD
Exactly, until you can't as I outlined.
The price on a randombook is a function of many things, including "percieved" risk. Its also a function of liquidity/depth and the willingness to exit fast, ignoring the 1-3% fee.
Everyone and their grandfather knows tether doesn't have 1:1 asset reserves for their $80B market cap. But noone knows how much they do have and how long they can keep up the charade.
* And of course "Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens" (https://tether.to/en/legal/)
> I was planning on buying a couple of GPUs, but now I think I should wait a bit just in case ETH crashes lol
If you're willing to wait a few more months, I'd definitely wait. Regardless of a price drop, there should be a demand drop due to the transition to PoS.
Interesting, from watching the feed it seems most BUY orders are in the range of 100-1000 USD (i.e. small investors) whereas there are some really large SELL orders in the range of 100.000-1.000.000 USD. My naive take would be that crypto enthusiasts still believe in Tether whereas larger investors leave the ship.
I mean it makes sense, if you have many millions invested in Tether you're probably better off selling now at a 2 % loss than hoping it will go back to 1 USD. Downside risk is much larger than upside potential as Tether will never go above 1 USD, so rationally it makes sense to withdraw all your fund from the coin as soon as even a small instability occurs. On the other hand it's mostly exchanges that hold Tether if I understand correctly, and those have a strong incentive to keep the system afloat so they shouldn't sell, though not selling will increase their risk as more and more of their customers offload their Tethers. Hard to say who will win in the end, but I guess we might find out how many USD reserves Tether actually holds.
Given that markets are ripe with bots and aggregators, it's hard to say. The big money could be small investors, and the small money could be big one. It's impossible to tell without insider knowledge.
Note that while it's a good proxy this isn't same as going to the issuer (https://tether.to) and getting 1USD in exchange for 1USDT. Tether is still honouring 1-1 conversion for a minimum of $100K.
In my understanding that process takes several days at least and the reimbursement is done at the leisure of Tether, so I'd wager a lot of panicked investors won't take the official redemption route (that only works for large sums as well) and try to sell on the market instead.
Hard to say if Tether will still honor the redemption if the price falls below 0.50 USD, as they likely don't have enough reserves on hand and from their transparency report is seems that more than 50 % of their reserves are tied up in commercial paper (Chinese real estate some speculate), which should be quite hard to liquidate in the current market environment.
One trick up their sleeve could be get Bitfinex to print USD balances to buy the tether. Sellers of tether on the exchange go through “waiting period to withdraw their funds” (because the USD doesn’t exist!). That’ll keep the music going for an extra song.
If the price continues to fall and they can keep arbitraging, they could easily do quite well out of this (assuming they have a reasonable amount of reserves).
Yes, if they can make good on their promise (which I'm very doubtful about). Large holders of Tether have only downside risk now and speculators don't have much to win, so the market should mostly exert heavy downward pressure on Tether. I guess it comes down to whether the large exchanges will be willing to bail them out, which they might just do as Tether is too big to fail and no one wants the crypto party to end yet.
Every USDT they buy below 1 USD will increase their "backing level". So if they only stole let's say 5% of the funds to buy cars and boats, a price drop could slowly move them back to 100% backed.
Assuming they have all the USD somewhere, but locked in all kinds of instruments (bonds etc) they would not be able to pay out without rapidly increasing wait times. And that will drop the price more and more because it increases doubts on whether they really have the USD.
That drop further incentivizes them to use the USD that they do have quick access to to buy USDT on the market instead of pay-out their 1:1 redemption option. Which will increase the wait time even more and thus drop the price even further as USDT holders get spooked.
But in most of those scenarios the guys behind Thether will make a lot of money.
Per another comment in this thread, that is only accessible to "verified Tether customers", which means you payed them directly for the USDT. If you bought it off Coinbase for some ETH, you don't have any right to recoup it from them (though presumably Coinbase or whoever sold it to them does).
Also, they reserve the right to delay fulfilling your order indefinitely, so they don't actually guarantee anything even if you did buy directly from them.
You can transfer it from exchange to your own Wallet and then sell it back to Tether. Though you need at least $100K worth of USDT and you need to pay transfer fee to the exchange. It's bit of a hassle (and costs money) but can be done.
That's a great link! The numbers are absolutely mind boggling to me. I just still can't believe how much money is involved in this completely unregulated market.
Pretty cool website. Fun to watch in realtime how the market slowly chipped away a 10 mil Tether buy order at 0.983. And now another order of the same size at 0.982.
Load ze tether fud. I'm no fan of USDT, and don't hold it but the same thing happened in the May 2021 crash. I think it's just the high volume of people selling right now cause it to depeg.
I think if it goes too far below you will see the major exchanges go into "maintenance mode" since they're all deeply invested into keeping it alive.
Exactly. Its not even like it "technically" depegged. Just because two ppl on the internet happened to agree to trade it for $0.95 instead of $1 on tether.io doesn't mean its value isn't actually $1.
Mind you, I'm no fan of USDT, obviously not backed by anything but hopes and dreams, but lets at least be accurate when we shit on things :)
Right. It’s fairly trivial for the exchanges to disallow a sell order for a stable below a certain price. That’s an obvious thing they would do if things start to really spiral here.
It's entirely normal for stablecoins to fluctuate in minor ways like this [1], even USDC (which is literally backed by actual US dollars in a bank account) fluctuates +- 1 cent regularly. This is because these prices come from a variety of exchanges trading these currencies, with different supply pools.
Arbitrage remediates this very quickly (Tether, at time of writing, is at $1.00). Not defending Tether, it's backing is definitely sketchy, but there's no indication it's in trouble at the moment, and this being on the front page is incredulous to me since it seems to be just some random dudes pulling up Google Stocks and speculating?
That chart shows Tether hit a 3.5-year low today. Hasn't been this low since the last crypto crash. No guarantee that will continue, but there are definitely some very smart, very rich people looking at how to break Tether.
Yea not debating that, nor that it wouldn't lose it's peg if things get unstable enough. Just that the title makes it look like it's in a death spiral like TerraUSD, which there doesn't seem to be indication of right now at all.
The increased volatility (which remains in the < 1 cent range) can easily be explained by general market volatility right now.
That said, again, not defending Tether in general. I hold 0 USDT, always recommend USDC.
Or it's just the result of a massive increase in volatility in the crypto market in general. I guess it depends what you mean by increased stress on tether.
I'm feeling pretty smug right now, not gonna lie.
I have tried to keep an open mind about crypto, but generally the arguments I've encountered for crypto have boiled down to "you just don't get it" and said by people with a huge vested interest in crypto.
Tether is 0.995 cents. Bet you it will go back up.
And I don't even think Tether is a particularly good idea/stablecoin, something like Dai is much more trusted, has an incentive scheme that makes sense (ie. not Terra/Luna) and doesn't rely on a central authority
Cryptocurrency has a future and Bitcoin is as necessarily part of it as much as Netscape and Yahoo were necessary for the web. (Or US robotics and compuserve, pick your loser)
The thing itself can survive the collapse of the current winners.
That is a possibility, but I think the point is that if BTC was $2k tomorrow, then whether or not it survives in the long term, it seems highly unlikely to at least some of us that it wouldn't bounce back to substantially above $2k again whatever it's long term fate is. It's a gamble, and I certainly wouldn't put money I can't afford to lose on it, but at some threshold the potential upside becomes significant enough to justify the risk. Where people put that threshold will vary. For me it's well above $2k.
That's true, but there's a significant difference between a gamble on something like Bitcoin, and, say, putting your money in an index fund. My point was that even with that substantially elevated risk, there is a level where some will find it a worthwhile bet even in the middle of a massive drop.
I think what the poster is asking, is why wouldn't communities/darknet activites deal with other cryptocurrencies which are objectively better than Bitcoin in terms of functionality although they have a smaller community and network at the moment.
Pretty much all under the table crypto transactions are in Monero, Zcash, or other privacy coins. Bitcoin’s utility is horrible compared to most other cryptos, its purely a store of value.
Let's assume that 5 minutes from now, Tether drops to zero. Turns out Tethers were approximately 100% unbacked.
There are currently ~$80B USDT in circulation. Even if you also assume 100% of USDT holders were also Bitcoin maxis who were using USDT as a "stable store of value" when they periodically want to exit their BTC position, the market cap of Bitcoin is still ~$500B, so the $80B -> 0 drop is still only 16% of BTC's market cap (and obviously USDT is not only being used to exit BTC positions but also ETH and every other crypto besides).
This isn't how it works. You need to look at how much of the flows into BTC (supporting the price) are coming from Tether. You will find this is a whole lot more than 16%. So if it drops to zero 5 minutes from now (not going to happen, but just to use the same scenario), then all those flows which supported the price drop to zero. A comparison between the relative market caps doesn't tell you much, it's the buying volume it supplies.
The 24 hour trading volume for Tether is $175B. The 24 hour trading volume for BTC is $80B (as I write this). Tether is the money in the system.
That's not really how it works either. If the 24hr USDT volume is $175B, that just means people are trading the same USDT for other things multiple times in a 24 hour period. That's it. But two people cannot use the same Tether to buy different things at the same time, so market inflation due to USDT can never really be beyond its market cap.
Tether is a vehicle, not the money in the system. People use Tether because it can be traded against your favorite coin on your favorite exchange. For example Binance (the largest crypto exchange) doesn't offer any USD pairs, so if you are someone with a lot of dollars you buy some USDT with your USD at 1-to-1, then you go trade that USDT for whatever you want.
USDT causes a crash in crypto based on two properties: actual fraud / funny money shenanigans and market sentiment. I was only really addressing the former in my analysis, because "market sentiment" is basically impossible to do anything useful with in a future-telling sense.
If you and I both agree to trade 0.000001BTC @ a price of $1,000,000/BTC, meaning the total value of our trade is $1, and we both know that the supply of bitcoin is 19,000,000 coins. Does that make the "Market cap" of bitcoin 1.9Quintillion dollars? Obviously not.
Market cap is a historically bad metric to track when comparing things like this.
So back to your question at hand, how would a $80B USDT market cap topple a $500B market cap. Well, first we realize based on the above silly example, $500B isn't necessarily the real value. If Bitfinex (tether) has been printing USDT and using that to buy bitcoin, then the market cap of BTC is inflated by an asset effectively worth $0.
Once this realization sets in, panic selling starts, and there is an overwhelming greater number of sellers than buyers, and it doesn't take $500B worth of trades to topple a coin with a $500B market cap (if that market cap is inflated by hopes and dreams).
Market cap is not the sum of all money put in, but the total supply multiplied by the latest price. The entire market could, conceivably, be supported by only a few billion in real dollars. I won’t try and guess the correlation between USDT price and BTC price, but if USDT goes to zero, it’ll be a lot more than a 16% hit — before even considering USDTs broader role in the market.
It's more about the lack of confidence in crypto ecosystem and other second order effects (bitfinex going bankrupt, all others exchange on shaky ground etc) rather than the direct selling of btc/usdt
Given that almost all of BTC’s daily exchange trade liquidity is based on having USDT and especially for margin… you best believe it’ll implode. Not to mention every other cryptocoin.
Yeah, this shit creates chaos and makes it impossible to get a good read on the market. Wouldn't be surprised to see a record BTC ATH, though for ignominious reasons
If blocks aren’t being mined fast enough, the difficulty level automatically goes down, resulting in a higher reward for the same hash rate. So in theory, processing bitcoin should never become uneconomic.
Yes, apart from everyone's views on crypto itself.
As a programmer or system designer I urge everyone (who hasn't already) look at the "system design" of bitcoin ! It's beautiful and elegant, like a self-correcting organism ! Ja sure it's not perfect, but dammit it's a hell of a lot better than what I could have come up with :)
I'm of course ONLY talking about the system-design components here: (difficulty, mining, minting rate, consensus, ledger etc)
Come on guys, do some research, Tether now publishes audited reserve reports as part of the settlement with the US Department of Justice. ~70% of tether in circulation are backed by Treasury Bills and cash deposits, so immediately redeemable. The other ~30% in short term commercial paper can pose a bit of risk but unless they did something really stupid (and they are all but stupid) nothing to put the backing at risk.
Tether is here to stay and if you feel giddy at the idea of it going down ask yourself why you are rooting for someone to fail...
Can you please clarify what you mean by “audited reserve reports”? The best ive heard of is “attestation” or “assurance.” From the very page you linked:
> Tether Holdings Limited do regular assurance opinions every quarter
And from the latest report:
> We have examined the assertions by the management of Tether Holdings Limited that its Consolidated Reserves Report as of 31 December 2021 at 11:59 PM UTC (the “CRR”), a copy of which has been included in Appendix 1 to this report, is correctly stated based on the balances set out therein.
Thats the account attesting that yes, they were provided with a report. The report, as stated, is internally consistent. Where does it say the independent accountant audited the holdings?
This will be a defining moment for stablecoins, and will test whether Tether is truly backed by liquid assets to the $80bn equivalent.
The UST collapse will accellerate regulations, with Ms Yellen already commenting on stablecoins.
More regulations will force USDT to show its hand with its assets, likely proving that it's technically insolvent.
That will collapse it.
What about USDC? As long as they act ethically, they need 1 'physical' dollar to mint 1 USDC. If USDT is backed by mostly air, then the USDT > USDC migration can't happen without actual reserves changing hands.
This likely means a crypto collapse, as more people will learn that value < money.
There are 10114 different coins listed. Even if cryptos will deliver on the promises of the fully decentralized future, are we going to need that many different instruments?
Today practically all merchants takes Visa and Mastercard. Some even take Amex, and a minuscule amount take BTC. Does anyone take a coin from page 73 of coinmarketcap.com?
To be fair a lot of those are specialty tokens for specific services/uses. Overall, the crypto situation can be thought of as more similar to, say, "gift cards" issued by companies.
You could say the same thing about a $5 Starbucks gift card --- you'd be hard pressed to spend it directly against any other merchant, but you could feasibly try to sell it for < $5 real dollars and if Starbucks went under, it would be worthless.
Some of them give you discounts and perks and stuff. There’s real value. Many of the legit ones are created more as a way to bootstrap network effects by giving out free stuff to early adopters.
And at least 10110 are shitcoins. We're now dealing with 2nd order memecoins. Dogecoins were the original memecoin but now we have Shiba Inu coins. Is there really any reason for anything other than BTC, ETH, and maybe XRP to exist at this point? Maybe XMR since it fulfills the original intent of privacy and anonymity, if not for the fact that governments are trying to stamp it out most exchanges don't want to touch it.
The actual article has the completely different title "What backs a currency? Terra Luna drops nearly 100%"
It's from a forum shilling yet another token experiment ("Intercoin"). Zero source material presented. Zero analysis. Zero value to those who don't care about Intercoin.
This article is of abysmal quality. I do appreciate the emotions the headline induces. But if it's information ye be after, this ain't the place.
Tether didn’t lose its peg. It’s redeemable at $1 via Tether’s site as usual. The market price difference is making arbitrageurs more rich, that’s all.
These headlines are FUD.
That looks bad. The worst previous fall of Tether/USDT was down to about $0.90 in mid-2017, during which it was substantially below $1.00 for over a month
Isn't the difference now though that Tether is much more entwined with the whole crypto system than it was 5 years ago?
So as one falls each pulls the other down with it.
>Tether is much more entwined with the whole crypto system than it was 5 years ago?
That is uncertain, because the degree of entwining has always been unclear. News reports 5 years ago also contained a lot of worry about Tether's risks, maybe even more than today.
What was obvious 5 years ago, and remains unchanged today, is that Tether claims to represent an enormous amount of money, which is a difficult hole to fill if Tether turned out to be far from fully-backed, as many suspect
This demonstrates my biggest issue with the crypto ecosystem in general. We've combined financial complexity, technical complexity and a lack of regulation and created a fruitful environment for scammers and con-artists to run amok. 99%+ of crypto investors have little idea how the system works on a financial or technical level and it's one of the reasons I've personally avoided it.
I probably have reddit comments from years ago pinning Tether as a major risk to the entire bitcoin ecosystem. If you can't reliably move bitcoin to and from USD then Bitcoin's utility starts to rapidly approach 0.
> If you can't reliably move bitcoin to and from USD then Bitcoin's utility starts to rapidly approach 0.
But you can whether Tether exists or implodes or goes rogue or not. Take 5 minutes to understand why and come back with a better understanding of the crypto ecosystem? You're one of the 99%+ that you're referring to, that's just not trading.
What's the bullshit about auditors and Lehmans? Lehman's assets ended up being more valuable than expected after it went bust. What killed it was that it ran out of cash because it hadn't provided for the market conditions that cropped up . Discarding the utter nonsense that Goldman's were on about (7 sigma market shift my arse) this was in the class of understandable accidents. The problem is/was that these understandable accidents can't happen to institutions that are systemically important.
OP here. Note to everyone visiting our forum via the link… you are free to make an account and comment there, if you wish. The forum is about “Web4” — moving beyond Web3 ponzi schemes with an emphasis on social impact and utility of crypto.
I have since added a comment there, emphasizing the broader danger for crypto:
If Tether drops this could undermine the thesis that Bitcoin and other similar cryptos are good stores of value, because currently their value comes 1% from their utility and 99% from the collective belief (HODL etc.) which is circular and self-reinforcing, similar to various religions etc.
The “full faith and credit of the United States” or the exchangeability of banknotes for gold isn’t the main factor that has been backing the money we use. Real-world currencies that enjoy mainstream adoption in a given area are actually backed by goods and services they can be exchanged for readily in a certain area. Not so for cryptos (excluding services of remote workers such as software developers, which does represent a serious economy).
Here is what we would need to do in order to move the crypto space towards web4 and finally gain mainstream adoption of crypto in the real world:
The sad reality is that many poorer and financially illeterate people have been tricked by VCs and other grifters ...
The sad reality is that many poorer and financially illiterate people have become partners with the grifters by preaching the crypto religion to anyone who would listen --- knowing that every new convert would likely do the same and help push their own crypto assets higher.
This is nothing new --- it is the same marketing scheme that religion has been using for centuries.
Let's put on some tinfoil hats & speculate a bit: What groups might have the resources to attack the peg on UST & USDT? Is anyone out there bragging about the $$ they're making by demonstrating that these coins aren't quite so stable? (Personally I have no idea, and wouldn't even know where to look to find chatter about it, hence the question)
USDT actually has a cash out mechanism directly with Tether (the company), right? If it is trading at 0.9935 (coinmarketcap showing this now), what's stopping people from buying 1 million USDT and selling back to the company to make a $6500 profit? Is moving it around very slow? Is the cash out mechanism limited to X per day or something?
You would need to move 1 million into some crypto exchange, there is a bit of risk there and it takes significant amounts of time. Then go and buy 1 million of USDT, you can see the live orders here, there are several buy orders even above a million for prices between 0,98 and 0,99: https://ftx.com/trade/USDT/USD
And then you need to take your 1 million USDT to Tether, become a verified customer (I'm guessing this takes time as well) and exchange them for real dollars. Which they will then probably take a few days to deliver to you.
So I can see how that may make sense for someone that's already through most of those steps and at lower prices like the 0,95 from this morning. But at the current 0.9944 sell price I don't think it's worth it for many people.
So the most interesting thing to me, here, is that a lot of exchanges seem to denominate in USDT, not USD. And the BTC price is currently different between the two on exchanges that have both -
I wonder how long it'll take things to ripple through the ecosystem if the price of tethers continues to be other than $1.
(edit - and I may be wrong, but it looks to me like the USD price is following the USDT price by approximately that offset, so as tether regains some of its peg, the USDT price doesn't move much, but the USD price heads back up towards it. Feels like the tail wagging the dog..)
Tether inevitably drops to $0, evaporating in the order of $100B of funny money.
Crypto market collapses, trading is halted on the large platforms, big exchanges go bankrupt.
This shocks the regular markets to a significant degree.
Calls for strict regulation will follow, ending the state of crypto as we know it today.
The one thing that I can't wrap my head around with Tether is: where did it all go? Tether must have been paid tens of billions in fiat dollars, and not even their bankers can say where those are. There's only so many hundred millions you can put into villas, cars, yachts and parties before it's inconceivable that it wouldn't get noticed.
When it comes to crypto overall, my impression is that it needs to get bad before it can get good. There are benefits to being able to make binding promises to strangers using open source software, but I see that more as a public benefit than as something to become ultra rich on. BTC, and with it all crypto, MCAP grew massively on the back of largely non-existent funds (Tether), and that's the part that needs to go.
> Tether must have been paid tens of billions in fiat dollars
Do they? That's an honest question. They only provide attestations and no audits. And those only showed a lot of Commercial paper. If they sell an exchange $1B for Commercial paper related to that exchange. It costs the exchange a lot less than buying $1B in fiat dollars.
The way I understand their business model is: you pay $1 into our bank account, and we'll give you 1 USDT on one of a few chains. We'll invest it in low-risk securities, keep the gains, and give you back $1 for the USDT if you come asking. At least that's the theory, I think they've also been doing lending, it's notoriously shady. But still, a lot of people probably paid them real $ for there to be 78bn Tether.
Edit: in all likelihood, those CPs don't exist, btw. There was a good article by Bloomberg who tried to track those down.
The point I wanted to make is that many (most?) retail customers deposited USD at a CEX like Binance/Bitfinex in exchange for USDT. So your retail fiat dollar didn't go directly to Tether Limited, the exchange bought liquidity from them.
Yes, those transactions would be off chain. If Tether accepted other assets then those would be what should show up on their balance sheets or attestations. I think they actually did collateralized lending against crypto assets. But still, they should be sitting on pretty large piles of something, and that's what's so weird, anyone who's looked seriously has found pretty much nothing except for a bit of cash in some island banks.
> So those would have been the parties who paid $ to Tether.
But not necessarily in fiat USD. They could've paid in any instrument, as long as Tether accepted it. That side of the transaction is, by definition, not recorded on any chain. Or am I misunderstanding the situation?
As of 12:15:00 UTC it's back to $0.99. People in the US are just starting to hit their computers though so it will be interesting to see what shakes out there on the news it slid so much earlier in the morning.
The moment I've been waiting for way too long. Here's to me hoping that this entire thing will blow up, and that all the Tether predictions have been true since the very start.
Even if tether bought only treasuries, if people then bought bitcoin and then sold those bitcoin to buy treasuries, and then treasuries went down in price due to rising interest rates, tether will become under collateralized…
I mean you can’t just lever up 2x on treasuries risk free… a 10x leveraged position on 30 year treasuries would have blown out an account within a few months…
Crypto has become forever mired with the worst parts of banking and none of the benefits of currencies backed by entities with reserves that have value, and supported by laws, taxes, and large militaries.
Funny to see such a post from a project with a whitepaper that starts with "It enables communities around the world to issue and manage their own currency-as-a-service (CaaS), to circulate among their local population. This leads to stronger communities, greater sustainability, less poverty, and more productivity."
USDC volume is up 50% right now and even hit a 6-month high in value. Either Coinbase is doing extremely large $$$ of preemptive defense or people are flocking to a stablecoin with a more trustworthy backer whose collateralization claims are less questionable.
Stablecoins must be the must crazy investment in the modern era, right after NFTs: by buying them, you’re essentially betting that the stablecoin can maintain its peg. By not buying them and keeping dollars, you get the same outcome except safer.
Made a similar comment on other sections of this post but I'll reiterate here as well.
Most (not all) of these stable coins are asset backed. If they can "prove" they have the 1:1 reserves OR there is a readily available "official" platform/tool/service/website that allows you to swap $1 USDX to $1 USD, then they haven't "lost" their pegs.
What we see here on coinmarketcap.com is just poor market sentiment causing an overwhelming number of sellers compared to buyers that are happy to take a 1-3% hit to exit quickly. Slowing burning through the order book depth until the arbitragers out number sellers, and things stabilize.
Eg. Tether USDT, you can still swap $1 USDT to USD on tether.io despite some exchanges listing it as low as $0.95 (note that others also list it as high as $1.06 at the same time). Exchange prices are poor indicators for this kind of stuff.
But, others you have mentioned, like UST, which are algorithmic and not collateralized can (and very concretely has) lose their pegs :)
Is what's happening comparable to a bank run? Tether didn't have a 1:1 ratio with USD, and suddenly everyone is trying to liquidate? That seems to be the most simple explanation.
These traditional finance scams aren't cryptocurrencies. These are normal financial world shady dudes dressing up their scams in cryptocurrency jargon and buzzword to attract marks.
Nothing is FDIC insured. All your Coinbase assets can vanish and you'll be at the back of the line. Crypto is all speculative especially if you don't hold the keys.
It's easy to trade on crypto platforms with stable coins. A lot of people will typically buy tether and then use tether to buy other coins using the exchange of their choice. It works the other way around too when you want to store your value in a predictable form if a currency like bitcoin is doing a dip. Just convert your bitcoin to usdt and hold it there till btc starts going back up.
You absolutely can do this (I just signed up for an account). That said, it isn't 0 risk (nothing is) - they could technically fail to redeem, and then you'd lose your money.
If you think they will redeem, this is indeed a good trade.
tether have not been audited, their reserves are misrepresented, they introduced arbitrary redemption limits (100k) and all sorts of much worse stuff like losing money when their banking partners disappeared and backing tether with investments in crypto projects that rely on Tether. Very rarely do Tether ever redeem Tethers for dollars, they pretty much only print, so the question should not be “are they currently honouring redemptions” but “will they be able to honour redemptions at some point in the future when lots of people are trying to redeem because of arbitrage?” — best case you can expect it to take weeks for Tether to actually action any request you make.
The risk mitigation is that you can always sell back into the market, assuming Tether holds its value (I’m very cynical about Tether but I doubt it’ll break its peg in the next few weeks because they’ve become experts at manipulating it in a way that UST was not) which I think is a fairly safe bet (in the context of “bets on crypto” not general financial bets, compared to real financial bets this is batshit crazy).
So… relying on Tether to redeem is a terrible idea, but if you are confident the market value will hold, it’s not a bad bet to make as the downside is… a small percentage loss on selling back into the market. Not a bet I would make though, I wouldn’t touch tether with my
worst enemies money.
Tether occasionally fluctuates within 0.96-1.04 range, you can see that today at 7am it was at 1.03. The poster was able to catch a rare short lived moment when it dipped to 0.98. This is just bad faith propaganda.
There is ethereum, it processes transactions and people pay for the processing with "gas". Gas is ETH. ETH need to be mined and etc.
This could all happily work in a self-contained world, where there's no actual underlying assets reflected in BTC or ETH. But that's not "real" as in, gains/losses can't be turned into fiat currency, which is the government approved way to pay taxes and debts.
So now someone wants to be able to convert BTC/ETH/XYZ/ABC into USD (or AUD or CAD or etc "trusted" fiat currencies).
So the stablecoin is created, supposedly backed 1:1 with fiat USD. However, there's only vague assertions that this is correct and none of the bank regulation that ensures that banks actually are backed.
That stablecoin, Tether, is unaudited and no one actually knows what it holds. But for some reason, people "trust" it.
Now there's another "stablecoin" called Terra, which isn't backed by any assets in the real world. It's entirely "backed" by the fact that it can be converted "freely" into Lunas.
For an even more abtruse reason, people were "trusting" Terra.
Then the tide went out and Terra/Luna is actually naked.
Now that has focused attention on Tether and people are testing it. Because Tether has real assets, it can (for now) convert at 1:1. But it has artificial limitations on that conversion, limiting it to a minimum of USD100K.
So unless you have 100K of Tether, you're relying on finding some other buyer of it if you want to sell. People are desperate to sell, so the "price" of Tether is dropping relative to its USD peg.
Someone is buying that Tether on the market, accumulating at least 100K and then going to tether and converting to real USD.
But Tether have put a whole bunch of artificial time restrictions on that conversion, which means that the tide hasn't gone out yet.
When it does, either Tether does have 1:1 backing of all the Tether out there, in a way that can be easily liquidated so that it can pay out, or it won't, and the "peg" will collapse.
When that happens, anyone holding Tether is left holding the bag.
And that means anyone that had BTC "backed" by Tether is out of luck, so is anyone with ETH, or any of the other endless coins out there.
So the whole thing collapses, those that get out early and convert to fiat will be rich and everyone else screwed.
Gee, sounds like a standard bank run but with extra steps and without the Fed.
I don't know why i think it is a good thing that these ambivalent coins are being extinguished? It is catharsis to realize that bitcoin cannot be compatible and coexist with legacy fiat systems
Let's say for example, Tether is 20% backed and there's $100Bn of coins so the backing is $20Bn, and people start flooding out of it. Let's say $10Bn floods out. So the guys running it have handed out $10Bn. They now have $10Bn left, and money is still flooding out. Do they really continue to hand over the cash or do they say "Well, the whole thing is about to explode anyway, I'd rather keep the $10Bn cash I've got left". At which point the holders of the coin have to play "Find these fuckers and sue them" which will be difficult since they've got $10Bn to fight/flee/hide.