Just ask yourself honestly..... do you really believe that there is a reputable bank anywhere in the world that would allow them to hold $1.7 Billion in an account and additionally make a deposit of $450 million in a single week?
They could be printing tether when BTC collapses to allow themselves to buy more BTC to try to pump it back up. This would make it in essence backed by BTC since it's what they are holding.
when they print it doesn't matter really since whenever BTC drops they are suddenly running a fractional reserve. the whole system is unstable if the theory is true.
I can almost guarantee that they’re not doing that.
This would be explicitly against their own T&Cs, even the new ones. If they’re going to lie, why bother backing it with anything?
As second guessing Bitfinex is now a popular sport, my totally unsubstantiated guess is that they do have fiat to cover external, primary purchasers. Specifically, if you go to the site and buy tether with real money, they may well keep the reserve.
Their T&Cs don’t actually say they’ll honour the secondary market, just account holders. So, as long as they can meet that demand, they can print as much as they like themselves because they’ll never try to redeem it.
Dodgy as fuck but quite clever. No idea if it’s correct of course.
Maybe even more, if they invested ALL the dollars into bitcoin since their inception. That would be smart of them in hindsight. If that's the case, they could be sitting on $5B+ worth of BTC (or maybe a basket of cryptocurrencies).
That would be lucky, not smart. If a bank took my deposit to a casino and put it all on black, they'd go to jail whether they won or lost.
The risk of holding a tether should be reflected in its price. If the underlying asset is bitcoin, the risk profile of a tether would be the same as bitcoin, and thus the price should tightly correlate with (or be tethered to bitcoin, rather than USD).
If Tether tells people the token is backed by USD when in fact it's backed by bitcoin, that's fraud.
You realize your bank does exactly that? It's called fractional reserve banking. If I remember correctly, banks are only required to hold ~10% of the deposits. The rest gets invested. That's why your checking account is free, the bank makes profits off of your money.
Its different, because you need to get a banking license to be a bank and use fractional reserve and controlled by central bank, and then the reserve is in the governments money. Bitfinex has no "banking license" and is not overseen by another actor.
Fractional Reserve Banks currency also usually exhibits natural demand on the account of being the currency required to pay taxes and accepted by stores/businesses in that country.
Yes, fractional reserve banking is bad. But at least the central banks have somewhat a clue how to control it and a legal framework to do so. Whereas for bitcoin exchanges, they just make it up along the way.
Whenever people compare Tether to fractional reserve banking it ignores important details.
Some important differences:
- Your bank tells you it's fractional reserve, Tether tells you they're full-reserve (deception for financial gain is fraud)
- Bank accounts are protected from bank insolvency by FDIC insurance
- Bank risk appetite is modulated by the rates they pay for that FDIC insurance
- The Fed acts as a lender of last resort, guaranteeing the liquidity of your deposits, in order to prevent a bank run
The Fed has the muscle to keep fractional reserve banking propped up. Tether may be lying about being full-reserve, and don't have the muscle to stop a tether run, which could get ugly.
There's alternative explanations for a lot of the very strong accusations made against Tether.
People always refer to Tether 'printing money out of thin air', but they never consider the prospect that investors are wiring money to exchanges, having Tether printed for their use, and then using that USDT to purchase cryptocurrencies.
Bitfinex is huge. Bitfinex also has an OTC counter, which has been known to broker trades in excess of 10-50M USD. USDT is often the medium for which these trades are executed, so it makes sense that a lot of Tether needs to be printed when BTC is crashing, as that's when the larger players decide to buy in the most.
There is a lack of transparency, and I wouldn't be surprised if things don't look perfect behind the scenes, but that doesn't mean the entire thing is a billion dollar scam conspiracy that the largest exchanges are all in on. Not all transparency is in the users' advantage in this area either. Do you know why Bitfinex doesn't tell you exactly where their servers and wallets are located? Probably because they hold over a billion USD in BTC in a single address.
Keep in mind that the market clearly values Tether at around $1USD, almost always. That's a good sign that the market as a whole does not think Tether is going to suddenly collapse and take the entire ecosystem into it at any point in time.
It's important to read criticism like this and consider it, but not believe it blindly. There are a lot of feasible middleground scenarios between "is a complete fraud and scam" and the exact opposite.
"Keep in mind that the market clearly values Tether at around $1USD, almost always. That's a good sign that the market as a whole does not think Tether is going to suddenly collapse and take the entire ecosystem into it at any point in time."
This is not the industry to make some sort of "efficient markets" argument. Bitconnect was an obvious ponzi scheme and was valued highly up until it collapsed a few days ago. Same for any number of these coins. And for Internet stocks in 1999. And housing in 2007. People are FOMOing and flooding money into the sector, buying random Alts that a friend told them about, without any clue of what they are. It's not surprising that nobody is thinking critically about Tether.
> People always refer to Tether 'printing money out of thin air', but they never consider the prospect that investors are wiring money to exchanges, having Tether printed for their use, and then using that USDT to purchase cryptocurrencies.
If you have USD you can just buy BTC directly, you don't need to deal with Tether. There is no reason to wire $100,000,000 to a mysterious company to get USDT to then buy BTC. I think it's much more likely they're simply making up new Tethers and using those to bid up the market during downturns--that's why Bitfinex won't give you USD when you sell and instead gives you USDT.
>People always refer to Tether 'printing money out of thin air', but they never consider the prospect that investors are wiring money to exchanges, having Tether printed for their use, and then using that USDT to purchase cryptocurrencies.
This isn't an alternative explanation. This is the same explanation.
Investors are printing USDT and using it to buy BTC.
People are wiring $100mn a day into an exchange that has no known banking facilities?
> OTC counter, which has been known to broker trades
How do we know this?
> clearly values Tether at around $1USD
It's currently slightly above $1USD, which makes no sense for a risk-bearing asset. Tethers probably correspond best to an open-ended zero-coupon $1 bond. Why do they have negative yield? I can just about understand CHF gov bonds having negative yield but negative tether yield? Really?
If tether can be used for trading in venues where real USD can not be used, they have additional value to a certain classes of users (who will bid up the price) on top of the value as a “thing that can maybe be redeemed somehow at face value for USD”, which could support a premium price.
> It's important to read criticism like this and consider it, but not believe it blindly.
The article made provably true observations about Tether. You have made the most stretchingly feasible counterpoints that have no demonstrable proof or transparency. Who is believing something blindly here?
You have $1M in dirty money. Wire it to Tether for some Tethers. Go on Bitfinex and buy lots of bitcoin. Transfer the bitcoin to a legitimate exchange. Sell for clean USD.
This could be a very valuable (and lucrative) service in certain circles, I have no doubt. One thing that could jeopardize the livelihood (...and lives?) of people running a business in this space would be a steeply falling Bitcoin price. They would probably do anything to keep the price up. Like issuing more magic tethers and buying Bitcoin with them.
What does the extra layer of USDT really add legally, except for some added obfuscation that a few extra "intra-bitcoin" transactions would add as well?
(Genuine question, this is one of the more fascinating stories I've heard in a while :-)
It's my understanding that Tether transactions aren't traceable because there isn't a public blockchain...and possibly not even a blockchain at all. So the obfuscating step is the USD->USDT transaction. The rest of the process is getting clean money back.
Bitfinex doesn't accept USD, so if you want to buy on Bitfinex you have to use USDT.
I can imagine that there are bank accounts out there full of USD that, let's say, wouldn't pass KYC/AML. Those people can't use Coinbase/Gemini, but maybe they are welcome at Bitfinex.
This is a pretty good primer of what looks to be the most obvious scam in cryptocurrencies (of which there is plenty of competition!). It seems to be the glue holding the market together and has rapidly gained scale. When the scam crumbles it is going to be epic and tons of exchanges are going to go with it.
In the meantime (if you like gambling), wait for another big down day and watch for Tether issues. The market will start to climb shortly afterwards. Just make sure you're playing with USD and not USDT!
Why did this get flagged as a dupe? This particular article hasn't been linked yet, and it seems to have more substance and analysis than the other two posts today.
How about this theory: I can print USDT (by fiat) and buy BTC with it. Now I have a large amount of BTC and propped up price. Then CME starts trading BTC futures against real USD, coincidentally the trading starts at the very top of BTC price. Then I start selling both BTC for dollars AND BTC futures again for dollars (cash settled on expiry). I am making real USD and only started with USDT (supposedly backed by nothing, best case by my BTC wallet). Now that prices are 50% lower and I have tons of USD (or just print more USDT) I can start buying again keeping the price acceptable and ready for another pump before I start selling the next BTC futures contract.
Good question. I'd say either the vast majority of tethers are held by the people behind Tether, and/or the non-Tether people who hold it are massively stupid. Any non-Tether people holding Tether are running a risk, with literally no long term upside. They say cash is the worst long term investment, well, Tether "cash" is even worse.
Nominally I'd think it's because they can, theoretically, be exchanged for $1 USD. Practically that's not possible currently (by the sounds of it), but it's the same reason people don't go around selling $1 USD bills for $0.90 USD.
Some relevant info for those of you looking into it. I heard that back in 2016 tether ran out of capital and basically the assets and IP sold to a bunch of folks under some pretty bad circumstances, and most of the core team and early investors got screwed. The buyers seemed pretty shifty.
Before you ask, I learned this through one of the engineers who worked on it. He was a good guy and pretty standup. My point was only that the people who started it are no longer the people running it.
Then he should file a complaint with the regulators. Knowingly participating in and profiting from a fraud isn’t something good, or simply law-abiding, people do. Absent such a report, you are posting unsubstantiated rumours.
I'm not sure what there was to report? My opinion was that the people working on it seemed legit up to that point, but it ran out of money and sold to a set of people who didn't care about the orginal team and more or less got rid of them. There is nothing wrong with that. But would you get rid of the people who built the sophsticated operation you just bought? That seemed questionable.
It was more than a rumors. I knew two of the people who were involved in the sale of the company. Both disheartened. And let me ask you this.. who buys a sophsticated operation like this and only keeps a single member of the original dev team?
If you know facts firsthand but refuse to pass them on, that's the definition of a rumor. You're not spreading a rumor, you're actually creating the rumor. Especially since you're posting from a green account.
I've seriously considered making a cryptocurrency backed by something.
The problem is when it changes value and fees are taken. The math can get pretty insane when taxes between the crypto organization are taken and users realize their gains.
I did some math, looked alright. But I'm worried about the unknowns, unexpected fees that MUST be taken by the users, and mostly taxes.
How could a cryptocurrency be backed by something?
If I need to "trust" you that I can get <something> in exchange for my cryptocurrency, then that's not much of a cryptocurrency is it? It may as well be a MySQL database controlled by you, as that's what it amounts to anyway.
I've been toying with the idea of a computation-backed currency. Any computer can obviously pay another computer in computer time. This means that any node in the system can issue currency backed by computer time. This would require trust, but it would be trust between neighbors rather than trust in one central exchange.
The problem is that that's not really a currency. It's zillions of IOUs. I don't know how to make transactions between two nodes that don't trust each other or how to come up with one number for someone's net worth.
Some economists would argue that "zillions of IOUs" is basically the precursor to currency/money. Then you just need a consistent unit, and that ability to trade/transact (which is a solved problem).
> Graeber proposes that money as a unit of account was invented the moment when the unquantifiable obligation "I owe you one" transformed into the quantifiable notion of "I owe you one unit of something". In this view, money emerged first as credit and only later acquired the functions of a medium of exchange and a store of value. [1]
The difference between a cryptocurrency backed by something and a MySQL database is that in the former case, underlying value is indeed centralized, but in the latter, both underlying value and the exchange of stake in that value is centralized.
Like chips in a casino can be exchanged with the house for cash, but I don't need to tell the house that I'm giving some chips to my friend.
But fiat is generally trusted with a long track record and is backed by the word of the government, a powerful and trustworthy organization to a decent extent.
I'm very curious to understand this. Who is buying this? What is the real purpose? Who benefits in the end? Why is the daily volume 5 times market cap?
I wonder if it would be possible just through statistical or network analysis of all tether transactions on omni layer, without knowing the full narrative of Tether, to get some idea of the game.
1) Invent a centralized cryptocurrency which you control the generation of, announce that one of your currency is equal to one US Dollar, and claim to actually have said dollars in a bank. You must stonewall all attempts to verify this claim.
2) Set up an exchange on which customers can buy into crypto with fiat currency, but can only cash out into your invented fake-fiat currency. Do not under any circumstances allow them to cash out into real fiat. Don’t worry, they really want to believe they’re going to be billionaires, so no one will ever question their total inability to realize their paper gains.
3) Wait for a drop in crypto prices, print a bunch of your fake-fiat, and put it in your pocket.
4) Buy a ton of crypto with fake-fiat while the crypto price is low. This infusion of demand will pump the price of crypto.
5) Once you’ve sufficiently pumped the price, sell the crypto you just bought, preferably in exchange for real fiat from the customers on the exchange that you own.
I'm having a really hard time trying to understand how Tether can be used to buy Bitcoin if they are being made of thin air? Does anyone have a link to a good explination of how this works?
1) Tether is supposed to be backed 1:1 by USD.
2) There are now $1.7 Billion in tehters outstanding
3) They were turned down by all reputable banks they approached.
4) They have printed $450 million of tethers in the past week
https://coinmarketcap.com/currencies/tether/historical-data/...
Just ask yourself honestly..... do you really believe that there is a reputable bank anywhere in the world that would allow them to hold $1.7 Billion in an account and additionally make a deposit of $450 million in a single week?
Ocams razor says this can't possibly be true.