Reminder: If you want a "legitimate stablecoin", get a savings account and/or money-market account and/or money market fund.
Prime money market funds are kept at $1 as long as "all is well", while the bank responsible buys and sells dollar-based instruments (such as commercial paper and US Treasuries). Also the whole SEC regulation thing to ensure proper liquidity levels (30% must mature in a week), and other such guarantees.
Savings accounts have additional requirements that allow for FDIC insurance. Money market is "risk" but not much risk (one fund dropped to 97-cents per dollar back in 2007 for example). So its possible to "break the buck" but very very rare. And US Laws/regulations changed in response to that 2007 failure.
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Real life money markets are yielding about 2.95% right now. Anyone offering more than that is taking on risk and/or lying to you. That's what highly ranked commercial paper can get you today.
In a few weeks, the Fed is expected to raise rates. We'll be at 3.75%, then 4.5% probably by the end of the year (?? Hard to tell the future though). So we're back into a realm where cash holdings can generate returns.
Anyone seeking 10% to 20% returns from a "Stablecoin" is taking on some kind of risk. Much like Celsius, any one returning that much is lying about something (or trusting somebody else's money and that someone else is lying to them).
All great US-centric points!
If you're living in Venezuela, Turkey, Argentina, Russia, Poland or other country with anywhere from 15 to 167% inflation, you might just be happy to have access to USD via easy to get stablecoins.
I'm glad you wrote this. It's eroding to constantly see financial advice that is impossible to apply in countries like these except for crypto and are mostly US/Europe centric. Sometimes, there simply is no other choice and that's crypto's killer use-case.
What are you talking about? I have direct access to buying USD via my Turkish and Russian banks. Rates and comissions are quite reasonable. Of course there are risks right now, especially in Russia, but they are incomparable with risks of putting your money into some virtual bytes someone told you should just work (and we have real life examples of some of them doing quite opposite).
The important bit about savings accounts and MMFs isn't specific to a country. Its about openness, regulation, and public trust.
I can confidently buy Schwab, Capital One, Vanguard, or other funds in the USA (without any research) because the US Government regulates the words "Money Market". Anyone claiming to be "Money Market" follows strict regulations and guidelines.
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This is NOT true for stablecoins. Stablecoins attempt to recreate the same thing but without openness, without regulations, and without audits.
They work because people "want" them. Everyone wants a bank, especially one tied to the US Dollar. Unfortunately, the easiest way to get one is to simply lie about your connections.
Do we truly know that Tether is tied to the US Dollar? No. We don't. There's been no audits. The yields generated from such loans are innately at risk. I recognize that people in other countries want that kind of trust, but you can't just fake trust. You have to rebuild it up from the ground up.
In those other countries, other entities must build that trust for themselves. Tether obviously wants to be such an entity, but I have my doubts to their legitimacy and safety.
If the argument it allows these people more stability / wealth to circumvent currency controls of their country, I don't see why the argument can't be extended to first / wealthy worlders as well. To note, I'm for deregulating these currency controls and deregulating the banking system, but giving 3rd worlders a pass while being harsher on those richer than us just seems like crab in a bucket mentality (not accusing you of that, but I've noticed HN exhibiting this duality).
You can open USD nominated checking account in almost every bank, for example[0]. You can exchange PLN for USD bills ( no coins) with spread 3% in any city[1].
For Russia and Venezuela you may have a point. But the others in that list still have much better (in terms of risk/reward) options for protecting their wealth than stablecoins.
Is this a joke? Russia literally restricted foreign currency usage, you can't get USD with you anywhere and you can't transfer it overseas. And no-one is able to use banking obviously. I bet in other countries there are the same issues and many people are unbanked.
This is blatant lie. I can show you my SWIFT transactions out of Russia. There are restrictions on USD cash, so you have alternative rate for paper money, but you still can legally exchange RUB cash to USD cash.
> Anyone seeking 10% to 20% returns from a "Stablecoin" is taking on some kind of risk.
Acceptable to me. Consumer/investors just need to be more discerning and pragmatic. There is nothing wrong with risk. There is something wrong with obsessing over there being no risk till you get duped by a fantasy you wanted to hear.
Fortunately, many crypto interest rates are really just shares of a revenue stream - usually transaction volume where some value is being extracted - and this revenue collection velocity is repackaged as "interest rates" because it is familiar to passive-income obsessed people. on top of that, the "rates" are juiced by the issuance of an additional new token. So that will remain attractive as a human and capital coordination mechanism.
Depends what you want to buy. Asset prices (property, stocks, bonds) are deflating right now, so your purchasing power is actually increasing in regards to those investments.
Yep - asset price deflation, consumer price inflation. But there's only so many consumer goods you need to/want to buy.
Things to buy with currencies experiencing inflation - hard assets with steady or increasing demand will probably do well over the next decade, but even those still have downside market risk as recession starts to bite, central banks keep tightening and all assets get repriced lower - likely lower than than current inflation.
With cash the only downside risk is persistent inflation - holding cash is ok for some time, but not forever. The value will get eaten away with inflation over time.
This is assuming you have available access to financial markets and US dollars. If you don't, I can see how stablecoins like USDC become attractive, perhaps even crypto like bitcoin and ethereum. Just stay away from the dodgy stuff - if it looks too good to be true, it probably is.
>If you want a "legitimate stablecoin", get a savings account and/or money-market account and/or money market fund.
In my state, I can walk into a bank and legally carry a concealed firearm without any ID whatsoever -- and yet not be allowed to open an account and put $20, even with a valid US passport (it doesn't show proof of address).
Want to put a damper on stablecoins? End KYC/AML/FATCA. If you can be trusted to carry a gun in the bank you ought to be trusted to put $20 into a new account.
I fail to see the connection between carrying a concealed weapon and opening a bank account. How does one correlate to the other?
If I am a licensed pyrotechnician and have legal access to high explosives, does that also mean I should be able to open a daycare with no additional checks or licenses?
Since you conveniently removed the correlation so you could complain the correlation is missing, lets re-insert it.
If I am a licensed pyrotechnician and am allowed to bring high explosives in the bank, does that also mean I should be able to deposit $20 into a new account at the bank? I would hope the answer is yes; if you can be trusted with high explosives in the bank you ought to be trusted to open the account and put $20 in.
Why? What does holding a pyrotechnician's license have to do with opening a bank account? Can you get a driver's license automatically as well when you are a pyrotechnician? The reason that bank accounts need proper identification is not something that I can comment on with authority, but whatever the reasoning is, it has nothing to do with whether you can carry and operate a firearm responsibly. The two have nothing to do with each other.
Allowing a patron to enter a bank with high explosives is trusting the patron with your life. I can't think of a single person I would be happy to welcome in my home/business with high explosives or a firearm, but would refuse to take $20 from in my ordinary course of business offered to the general public. Perhaps the correlation is not 1:1, but it is pretty high up there. If you can't see the connection between trusting someone with your life and trusting them with much smaller fractional pieces of life, like an hour's worth of life it may take to earn $20, then I'm afraid I don't expect you'll ever see the correlation and you are not part of the audience which I expect to benefit from my comment.
>The two have nothing to do with each other.
And yet they do have something to do with each other. If they had absolutely nothing to do with each other, you wouldn't become a prohibited possessor (can't have/carry guns) for committing bank related fraud and other account related felonies. The state has decided they're connected so intensely that you can go to jail for 10+ years if you committed felonies against the bank and then carry a gun. The trust, by fiat, is interconnected.
> I can't think of a single person I would be happy to welcome in my home/business with high explosives or a firearm, but would refuse to take $20 from in my ordinary course of business offered to the general public.
A person feeling safe around another person does not satisfy the government ID requirements for anything. Does it work when you show up at the DMV asking for a license? Are you upset that it doesn't?
Opening a bank account is not a trivial matter. A bank account has the potential to do a lot more damage to society than a single firearm.
> you are not part of the audience which I expect to benefit from my comment.
What is the benefit of your comment? In my opinion false equivalencies and over-the-top rhetoric are rarely beneficial.
Yes I am upset the ID requirement for a bank account is higher than the ID requirement to bring firearms into the bank. IMO even those without proof of address and other KYC deficiencies, which commonly disproportionately limit access to poor and vulnerable populations, should be permitted banking access.
>A bank account has the potential to do a lot more damage to society than a single firearm.
I think there is a strong argument there is a lot more day to day damage from not having a bank account than not having a gun. When we use your damage-based approach I think we may find KYC creates more damages than it prevents.
I appreciate at least you can have an opinion on this matter without pretending like somehow my point cannot be understood, even if you disagree with it. Your rebuttal shows you understand what was written and even are able to make counterpoints building on that understanding. Thank you for that basic respect, which sadly is not shown by the other counterparty.
> I think there is a strong argument there is a lot more day to day damage from not having a bank account than not having a gun. When we use your damage-based approach I think we may find KYC creates more damages than it prevents.
Are you advocating for removing KYC completely, or for making it on par with getting a concealed weapon, or that having a concealed weapons permit should qualify as KYC? This is the problem with using the kind of rhetoric that appeals to emotion -- it doesn't actually get your point across, it just gets people upset about something.
In my state you can carry concealed inside a bank (and indeed, the vast majority of places) without having a permit or an ID. There is no need to interact with the state in any way before doing so.
Perhaps to you. You can confess your crimes here if you like. Where I live, in the United States, there is no requirement to conduct KYC to create a wallet that holds stablecoins and thus creating such a self-custody 'account' is not evidence of crime.
Basically, the reason is that the Government print a lot of money which result in high/hyper inflation, but then create all these obstacles for the locals to run transactions in more stable currencies (e.g. USD). The locals use Stable coins to facilitate transactions that would otherwise be very hard or impossible to perform in local currencies (e.g. buying a house).
> why Stable coins are supper popular at places like Argentina
People want to hold dollars without following KYC. Stablecoins temporarily fill this niche. (There is zero chance this is allowed to persist. But it won’t be a priority until we catch serious bad guys laundering money with stablecoins.)
“ Basically, the reason is that the Government print a lot of money which result in high/hyper inflation”
Incorrect, Argentina has problems with currency stability because they issue debt denominated in a currency they do not issue in order to satisfy import requirements
The difference is that ponzi are normally offering good rate of return on the investment that are difficult/impossible to get consistently. When your company/coin don't offer any interest on the investment, it's very easy to just buy something super safe with a return of 0.25 - 1% and pocket the profit while not touching the main capital.
Don't get me wrong, they can still be scams. The only difference is that unlike a typical ponzi, it is possible to have a sustainable and profitable business model with a stable coin.
> it is possible to have a sustainable and profitable business model with a stable coin.
I guess it's possible, but only within the limits of the current general interest rates. there is no magic world of safe investments returning higher interest than the safest bonds
Note that all the parent post claimed was "profitable", without specifying how profitable. Thus unless interest rates go to zero, it should still be profitable. Negative interest rates has happened with some currencies, but for USD it has yet to happen.
I don't know how much people is required to run that type of operation, but even 0.5% can pay for a lot of people when you are sitting on a pile of cash worth >20B.
The other thing about this transaction is that it, like all crypto, ends up being inflationary if they are able to be used as currency and don't end up collapsing. IE, there's $100 worth of currency in the system. Everyone gives it to Stablecoin Co. and they get $100 worth of stablecoins. Then Stablecoin Co. invests the money back into the system. Now there's $200 worth of currency in the system, leading to inflation.
What's weird is that crypto folks often complain about people printing money and causing inflation. But that's the whole crypto ecosystem. If something can be used as currency, it doesn't matter if the U.S. government is printing one dollar and handing it to somebody so that they can buy goods or if a crypto project is printing one NotDollar that has the same amount of worth and can be used to buy the same amount of things.
Like any currency. If the network has others buying that coin for 1 dollar (and there is enough liquidity), then yes.
If you want to call this a Ponzi scheme, then you have to be fair and consistent and call the dollar system "the other Ponzi" scheme too (because your 1 dollar purchasing power is not the same as todays).
The person holding the last 'dollar' in the 'dollar' Ponzi is the US Government. The person holding the last 'dollar' in the 'tether' Ponzi is a shady businessman who won't reveal his books.
It’s offshore USD not controlled by the US government. That’s the whole point. Its users may transact USD completely outside the US’s financial tendrils. That’s the unique selling proposition, and why it’s commonly used by offshore exchanges.
It’s not the fact that the government owes you that makes USD valuable. It’s you owing the government (taxes) that makes USD desirable for you - or go to jail.
This financially illiterate meme needs to die. It's like MLM scammers saying 'well all companies are structured like a pyramid'
There's a massive difference between "we issue a token which has purchasing power because people are legally required to obtain it to pay their debts and taxes. Its purchasing power is allowed to slowly diminish over time, but it will continue to be demanded because people need it to meet obligations" and "we issue a token and lie that it's worth a dollar because it's backed by an equivalent quantity of dollars. Its purchasing power will collapse at the time we stop redeeming them for dollars, whether that's because we run out, get arrested or move on to the next grift with lots of un-redeemed dollars in our pockets"
I think the most common use-cases is to sell your crypto and get an almost-dollar without triggering a taxable event, since you're changing from one security for another.
It's interesting that you formulate your argument so specific to exclude all the risk in the middle while arguing for it.
Just assume you really don't know: you bet that 1. This has some advantage for you while the company bets it has some advantage for them. Great bet everyone wins?!
2.also with every bet the company makes with others does what to your bet?
What's the difference between a stablecoin and cash app or paypal? Stablecoin is just a fancy term for fiat as tokens but any non-bank entity that holds fiat and gives you access to it.
Note that you can't go to Tether and demand your $1 back as an individual. You would have to use an exchange and hope that you can trade 1 Tether for 1 dollar on an exchange where you can cash out.
Note that the company that owns Tether also owns and exchange, which further opens the door for a lot of fraud and shenanigans as they co-mingle exchange deposits with their Tether reserves. It's possible for exchanges to run for a long time without actually having 100% of funds in reserve as long as the customers don't all withdraw their funds at the same time.
In other words: A hypothetical fraudulent stable coin could "work" for a long time, until it suddenly doesn't work at all and the value plummets.
> In other words: A hypothetical fraudulent stable coin could "work" for a long time, until it suddenly doesn't work at all and the value plummets.
Sounds exactly like what happened to the dollar itself, which once upon a time used to be a "stablecoin" pegged to gold.
It was pegged soundly to $35 per ounce of gold for decades. It was even ok with the one time 'repegging' from $20 to $35 in 1932 to deal with the Great Depression. But then when we finally broke the gold peg in 1971 and then all the pent up cheating broke free and the price crashed to ~$160 per ounce in only 3 years, and then all the way to $630 after 10 years.
Pegging one currency to another is fundamentally impossible in the long term.
If you don't believe me, keep your eye on the foreign exchanges for the next, oh, year or so. Hopefully that's a generous enough time frame, since trying to guess how long the paper mache coverings can be slapped up and held together is always very hard, but there's a lot of "pegged" currencies in the world that are not going to be pegged for much longer because they simply won't be able to be.
Tether claims they cut $30B in commercial paper holdings to zero without any losses, which is simply not credible during these market conditions. It's yet another fantastical claim from an organization that's been repeatedly caught lying.
US commercial paper maybe not. Chinese? Sure. but if so there is zero chance they got out without severe losses unless they were holding all 30B in Alibaba AAAA bonds or something.
Yes. The title article literally is all about how Tether was making collateralized loans of Tether to Celsius where the collateral was crypto:
> How do we know this? Because we can see Celsius borrowing from Tether. And we now know those loans were collateralized.
> We do not know the precise collateral arrangements except that Alex Mashinsky told the FT:
> If you give them enough collateral, liquid collateral, bitcoin, ethereum and so on . . . they will mint tether against it
It isn't USD, it isn't treasuries, it isn't commercial paper (Chinese or otherwise). At the end of the day it is going to be 90% crypto collaterialized loans that makes up Tether.
It is so weird to clearly read an article about the funding mechanism behind Tether and people literally refuse to read it correctly and start yapping about commercial paper.
1. Celsius calls up Tether and asks for $30Bn to buy Bitcoins.
2. Tether says, sure, prints 30 Bn USDT out of thin air, gives it to Celsius, and Celsius uses that to buy Bitcoins.
3. Celsius collects a bunch of money from retail investors.
4. Celsius steals all the Bitcoins and files for bankruptcy - and, oopsie, the retail investors lose everything.
The Celsius insiders obviously get something out of this. They got Bitcoins for nothing. They can and did sell those Bitcoins for the miniscule fiat liquidity that exists for Bitcoin.
What does Tether get? They're printing funny money out of thin air. Sure, it doesn't cost them anything. But they have to know that none of that funny money is going to get paid back with real money.
So why lend Tethers to someone else, so they can sell Bitcoins for real money - instead of just printing Tethers for themselves to capture all fiat inflows?
1. Celsius has closer to $500M in BTC in a cold wallet that for security reasons they do not want to touch and trade with on a daily basis.
2. They call up Tether who loans them $500M worth of USDT which they can use as a more liquid security to loan out or trade crypto with.
3. They pay interest to Tether on the loan in crypto.
4. Eventually they have to pay back the USDT loan with USDT, although if their BTC value hasn't declined they probably extend the loan period instead -- although sending the USDT back is probably how Tether gets burned.
5. If the loans are denominated in $USD and Tether accepts USDT at the market rate for paying back the loans that would be a mechanism that would naturally pin Tether to the $USD via arbitrage by people who want to buy a cheaper USDT token to pay back their loans with whenever Tether falls, and don't want to be actively paying back Tether with their USDT when the price has fallen.
> But they have to know that none of that funny money is going to get paid back with real money.
To first order, none of it is about $USD so literally nobody cares, and its all just funny money collateralized by other funny money.
It is very much like someone sitting on a vault full of Gold (the BTC cold wallet) that wants to borrow money (the USDT in the crypto space) in order to have liquidity (buy crypto shit with it).
there's also a bit of a difference between 90-day CP from IBM or Amazon, and perpetually rolled over CP ("loans" that never in fact get paid back) from Honest Jan's Crypto Casino and Bait Shop
You don't need to trade with an intermediary in the commercial paper market, companies could directly issue the paper to Tether, no one would ever know about it. They could then reduce their holdings to zero by holding the paper to maturity and buying treasuries with the proceeds. By definition this being commercial paper means it would take just months to do this.
You're assuming the commercial paper market is much bigger than it is.
You can't go out and find $30B worth of commercial paper that no one else knows about and buy it in 3 months.
When governments around the world were stuffing everyone and every company to the brim with money - and banks couldn't find anyone to borrow money beside people to buy third homes in Ibiza - how did Tether find a bunch of companies that wanted to print $30B of commercial paper in 3 months that no one in the market was competing for?
Oh - and also - this heretofore undiscovered market was bigger than the previously known commercial paper market?
the quantity of paper they claim to hold would mean having major stakes in at least a dozen very big organisations. the probability that not a single employee or ex-employee leaked anything is very low, especially since such a leak would obviously help tether
Commercial paper has very short maturities, so unless there is a wave of bankruptcies it is hard to take losses. You don’t sell CP, you just stop rolling.
Tether has an easy fix here: release the "frequent professional audits" they claimed on their website as far back as 2015 (https://archive.ph/mVPmL). They've provided various excuses and called attestations audits for nearly a decade now; their credibility is shot.
After doing some research I agree with you. It is known that tether was buying Chinese trash paper.
Read the tweet again. What they wrote is perfectly true if they rolled off 30B and are sitting on 10B of trash that needs a huge loss provision. They never say they liquidated all their CP holdings. I suspect that tweet is truthful but completely misleading.
As far back as 2015, their website claimed "frequent professional audits" (https://archive.ph/mVPmL). To date, no audit has been completed; after years of falsely representing attestations as audits (despite those documents openly stating they weren't audits), they finally removed the claim.
Similarily, their website lied for years about 1:1 USD backing in their accounts, and they faked it by moving money that wasn't theirs (likely Bitfinex customer holdings) in and out of their accounts. https://ag.ny.gov/press-release/2021/attorney-general-james-...
> The OAG’s investigation found that, starting no later than mid-2017, Tether had no access to banking, anywhere in the world, and so for periods of time held no reserves to back tethers in circulation at the rate of one dollar for every tether, contrary to its representations. In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’
> On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
My understanding is that Tether have repeatedly refused to allow an audit of their holdings, therefore everyone assumes everything they say is a flat-out lie.
> We are aware of online discussions about Tether’s lack of publicly-available audits. Periodic audits of our bank balances have been performed by the Taiwan-based auditing firm TOPSUN CPAs & Co. The results of those audits were for the benefit of shareholders and were not in a form suitable for public consumption (to begin with, they were in Mandarin).
They have repeatedly been forced to admit in court that they lied in the past. They have also had reserves invested with a fake bank whose CEO stole money from them and is now convicted in bank fraud. They claimed to be one of the largest holders of specific asset classes, but nobody trading those has any memory of trading them. And so on and so forth.
The refusing to allow a real audit is just icing on a cake consisting of a mountain of evidence of fraud.
As Matt Levine memorably said, they are "practically quilted out of red flags."
Yeah, I found Tether resilience incredible indeed, but Madoff and his Ponzi scheme went on for decades too even when JP Morgan figured out it was a scam and still did business with him while informing neither the SEC nor the US government.
It's possible but it's extremely dangerous. The exchanges that you'd use to short Tether are the ones preventing Tether from collapsing. These exchanges could invent an excuse to liquidate you before they allow Tether to collapse so even if you were right you'd still lose all your money.
Still his reason to make that bet was the comedy of being proven right about how broken crypto is when he lost his money. And not for the opportunity to be proven right and make money.
I believe something very similar to the above commenter, with the proviso that it might not be "the exchanges" engaged in market manipulation but rather Tether or a co-conspirator. Tether has printed trades far above a dollar before on various exchanges; the only reason to waste money doing that (as the buyer) is to liquidate shorts. Playing in a rigged casino seems even more -EV than playing in a fair one. But this is not top of mind or hugely relevant to the comedy gold thread.
If the issuer is well-regulated and the funds are kept in a regulated bank (or held in US Treasuries) then what you're doing is "tokenizing" existing banking infrastructure. This makes it easier for participants to quickly settle transactions and move fiat balances, without having to work through slow ACH-type networks or place major trust in their counterparties.
There are still some risks (company will get hacked, executives will go rogue, banks won't be prepared for a major run) but these are fundamentally the sort of risks that the US banking industry has some experience with. These risks have nothing to do with what's going on at Tether: they don't seem to be regulated at all.
A stablecoin acts as a pegged currency, which is useful because the exchange rate between non-stable crypto coins and USD is highly volatile. For instance, let's say I wanted to implement something akin to a bond on a blockchain. It would be nice to have that smart contract pay out in a stablecoin to avoid any currency exchange risk.
The point is (1) to make trades denominated in USD when you're banned from actual USD and (2) to be able to transfer USD quickly between different crypto exchanges.
Commercial banks experience runs when they write illiquid loans that they can't sell at cost as fast as people cash out. If they never write loans or only write completely liquid loans that never default they will never get run. Tether could park all their assets in short term government debt and they would never have a problem, but they want to get higher returns.
Two use cases for businesses that have nothing to do with avoiding KYC or currency controls etc which other people have mentioned
1)say you are a business who wants to accept crypto but doesn't want the volatility associated with holding crypto
2)...or say you want to sell something for either dollars or crypto and don't want to have to reprice your product every time USD/ETH moves
In either case offering a price in USDC for example would meet your needs. Your customers can pay in crypto but what you get is essentially the same as dollars (excluding transaction fees), so goods can be priced the same in crypto and cash and you're not exposed to crypto volatility on your holdings for the most part.
So if you have a use case for businesses to price things in a stablecoin, then it follows that there are use cases for people to get stablecoin to use and therefore usecases for creating stablecoins, exchanging them for other crypto etc.
Did you ever have issues sending money overseas? It is almost always painful and even sometimes money lost. Transact USDC/USDT is so much easier than anything else on global scale.
It's possible for something like Tether to be resilient against a run, if the coin issuer redeems at ~0.999 to 1.
The problem is not one of theoretical possibility, the problem is one of perverse incentives. Tether's operators have no reason not to go to Vegas and put all that money on a coin flip. Heads they win, tails their 'clients' lose. They'd be idiots to not do something like that.
Because blockchain, bitcoin and cryptography! You just don't lose money with bitcoin. It's mathematically impossible. Even if you lose money with bitcoin - it's good for bitcoin. It's free currency. Democracy. Bank the unbanked.
My goodness I hope they are not burning enough money to do that, it would be a cure worse than the disease. But since not much crypto is used as actual currency, probably not. If people spend their fiat currency more freely because they think they are rich due to holding Tether or whatever, possibly so.
Because the bear market isnt consisting of people exiting crypto for fiat, it consists of people selling their other crypto assets for stablecoins like Tether and waiting for opportunities. (There are over $120bn in stablecoins, about 50% of that is Tether, and this is a fairly stable figure as the bear market progressed.)
This is functionally similar to selling the stocks in your brokerage account but keeping the cash in your brokerage firm, with the addition of brokerage firm’s total cash being publicly reported in real time. It is unlikely that number goes down because people dont really withdraw from their brokerage accounts, they continue to add more cash and wait for opportunities.
If anyone had a reliable method of determining _when_ something which is unsustainable will collapse, as opposed to just knowing _that_ it will collapse, they could make a lot of money over the years. But, they probably wouldn't want to tell the rest of us their secret.
In the world of Crypto, Tether is actually one of the least sketchy players.
Not because Tether is fully solvent, there are just a lot of straight up ponzi schemes and various other scams and frauds that have collapsed first. Tether having any % of actual dollars makes them more resilient to market pressure than schemes with zero real backing.
Tether will collapse when withdrawals of USDT exceed the amount of assets they have. So all that's needed is another Luna-style shock to the system that trigger enough whales to withdraw.
Why? They may have acted reckless up to now with the commercial paper etc. but unless they have taken massive losses and somehow covered them up, they can just convert to risk-free assets and take the yields.
Why? Because if Tether has $10 billion in actual assets, hands out $20B worth of USDT, and whales redeem $10B, the remaining $10B USDT are worth nothing.
And, yes, it is virtually certain that they have taken massive losses (seen the state of the crypto markets and ecosystem lately?). The big unknown, as ever, remains how much actual assets they have and how liquid they are.
Tether is not backed by crypto so why would crypto market losses affect it? They publicly state what their assets are and how much they're worth. People just think they're lying for whatever reason.
People hate on Tether because they have a thing against crypto. Also these sort of headlines are click-bait and attract readers.
What they don't know, as someone involved in this space, is that Tether is insanely profitable. Putting the legality of their business aside, Tether generates mad yields on their assets; which made them able to absorb lots of losses. It's profitable business and that's why they keep doing it.
Also Tether is not completely the wild west as some people here assumes. They have lots of scrutiny from different US government institutions. The US could have shut them down overnight but they didn't. The US probably had its reasons for that.
> There were over $10b in redemptions over a couple days in may.
This demonstrated they had at least $10B of the claimed $80ish at the time.
Bernie Madoff was able to fulfill fairly hefty redemptions, too, until he ran out and the whole thing collapsed. Tether has yet to hit that point, but it's not evidence they've got all the money they claim to possess.
We don't know how close to collapsing that $10B took them.
We also don't know how much of that $10B redemption resulted in real cash transactions, and how much might have been redeemed to Tether-affiliated business without a cash transaction taking place.
> There were over $10b in redemptions over a couple days in may
The number of Tethers outstanding went down by $10bn. That says nothing about redemptions. They could have just cancelled Tether held in affiliated or random peoples’ wallets, we don’t know.
> You mean illiquid, not insolvent
If I have a $10bn debt due and $10bn of real estate, I’m illiquid. If I have a $10bn debt due and my real estate is worth $8bn, I’m insolvent. All evidence to date points to Tether being insolvent.
Terrible start with that first sentence "Canonically a stablecoin is only issued in return for fiat currency."
What about DAI that is backed by ETH and other volatile assets? What about OUSD, which is a yield-bearing stablecoin that is backed by other stablecoins?
If they were borrowing stables against their BTC, they could deploy those into Anchor for 20% APY which was far higher than they could have gotten lending out BTC directly. It was still a terrible idea, but it's not accurate to say the collateral was not being used productively to generate yield.
For a deeper look into stablecoin mechanism and performance of them during May 2022 event, I would recommend [1] which I think is much more interesting for curious readers.
The modeling of convenience yield looks way off. Some actors get way more utility; there’s an impact cost to purchasing large amounts; bounding utility by r makes no sense in real-world markets.
Prime money market funds are kept at $1 as long as "all is well", while the bank responsible buys and sells dollar-based instruments (such as commercial paper and US Treasuries). Also the whole SEC regulation thing to ensure proper liquidity levels (30% must mature in a week), and other such guarantees.
Savings accounts have additional requirements that allow for FDIC insurance. Money market is "risk" but not much risk (one fund dropped to 97-cents per dollar back in 2007 for example). So its possible to "break the buck" but very very rare. And US Laws/regulations changed in response to that 2007 failure.
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Real life money markets are yielding about 2.95% right now. Anyone offering more than that is taking on risk and/or lying to you. That's what highly ranked commercial paper can get you today.
In a few weeks, the Fed is expected to raise rates. We'll be at 3.75%, then 4.5% probably by the end of the year (?? Hard to tell the future though). So we're back into a realm where cash holdings can generate returns.
Anyone seeking 10% to 20% returns from a "Stablecoin" is taking on some kind of risk. Much like Celsius, any one returning that much is lying about something (or trusting somebody else's money and that someone else is lying to them).