Well, it's possible "backed", in the sense that there are dollar-denominated assets backing it. They've already admitted that it's not actual dollars, and that some of them at least are foreign assets.
Which probably means it's Chinese dollar-denominated debt, perhaps stuff like Evergrande bonds that you could get for $0.05 on the dollar. So, it is "backed", perhaps, in that there are dollar denominated assets.
But, functionally, it's probably not backed in a way that does anyone any good. So your basic point is correct. At some point, people rush for the exits, and when they do, BTC may collapse with it.
A close friend of mine does banking in Nassau, Bahamas and works with Tether, and according to him Tether is where they sling all of their lowest rated junk chinese bonds.
He has been telling me to go nowhere near it for the last 5 years and I have not.
I have seen detailing, possibly on HN, a few years back of how tether's asset base was fabricated. The report used intra-day banking movements to show that it was fiscally impossible for tether to be backing their assets at the rate they were minting using the banks they claimed. The report further correlated tether minting to Bitcoin price action. It showed in fairly clear and granular detail how tether was used to pump and subsequently dump Bitcoin and other cryptos. This was back at least 3 years ago. The pump and dump works to allow tether to profit enough to actually get the assets though. And it works until it doesn't. USDT can support Bitcoin price long enough for the minters of tether to extract USD for what they minted as long as their are other buyers getting in.
It is a traditional ponzi scheme but with an additional layer that makes it far more resistant. It's essentially the same thing as government central banking but for crypto and without the threat of violence to control valuations.
Thanks for the reference. Although I'm not able to judge the validity of the report, looks like around half of Tether's assets (not necessarily half of their market cap) are held in dollar-denominated securities (T-bills and cash).
I believe Tether's claim is essentially "We can't tell you what dollar-denominated assets we're backed by, or get any competent auditors to sign off on our accounts, but the reserves are there. Trust us. Would a cryptocurrency company lie to you?"
Could be a piece of tissue paper with an IOU for a trillion dollars from Deadbeat Dan. Could be a deed to lovely waterfront property on the moon. Could be a controlling interest in Bitfinex. We don't know.
We've all been saying this for literally years now and yet here we are. The crypto market doesn't make any sense at all.
It has to crash sometime, right? I mean it is obvious to anybody paying any attention that tether is a scam. How has it gone on this long? What will finally do it in?
1. The people using it don't care if it is, as they may be trying to grift each other anyway, or be using it for short term holding, transferring between crypto accounts.
2. We would only see this on a massive sell off when Tether can't prop up the price fast enough with their reserves (by buying USDT with USD). This almost happened on May 11 of 2022.
3. The Madoff scam went years and years before finally being outed in 2008. Decades perhaps?
Tether is hard coded to bounce between their float. Tether made a mega fuck ton of money when that float widened and so did all the hft firms. Most of the tether is held by insiders and they can utilize that tether to obtain 100x leverage. You can literally see on chain when the yield widened back in may 11th, that sythetix and other leverage platforms got a huuuge influx of USDT and they used that USDT to purchase more USDT on the low… and guess what? Made a killing.
They are too powerful with too much money and too much centralized collusion to fail on their own. And the US policy still can’t define crypto, let alone police it properly. Only the full might of the US judicial system will make tether fail.
> We would only see this on a massive sell off when Tether can't prop up the price fast enough with their reserves (by buying USDT with USD). This almost happened on May 11 of 2022.
This did not almost happen. Do you enjoy writing fiction?
That or you were just straight up wrong and bought into the fantasy that gets played out on HN every month.
Tether was taking other end of bitcoin shorts for 5 years. Its fantastically profitable and you bought the manufactured story that they are about to collapse any moment.
A ponzi can keep going indefinitely if all the investors HODL without cashing out and no regulators check the books to trigger a run. As soon as enough people try to cash out their paper returns, the scheme unravels very quickly.
I agree, but we can't all cash out all of our money from US banks either. That much money simply does not exist. These comments have a lot more faith in FDIC than me, so maybe I'm missing something.
Maybe you have missed the US government's reputation of paying its debts and the FDIC's near 100 year history of paying out? It's hard to miss but I'm sure for some people it's possible.
Everyone has cashed out all of their money from US banks? Yes, I did miss that. Your insult is that FDIC has worked when this or that bank goes under before, and I never negated that.
There's no way it's fully backed. I doubt that if Tether liquidated all their assets, they could cover even 90% of outstanding Tether. But they can spin all kinds of BS about how those assets are really worth more on paper...
Stocks aren’t pegged to the dollar, you’re comparing apples and wrenches. Tether is much more like a money market fund than an equity or bond.
If your point is that there isn’t infinite liquidity at the current market price for an equity or bond, you’re correct, but it’s irrelevant since tether is nothing like an equity or bond.
+1 on all of the above, and to add: there isn't infinite liquidity on securities, and that's ok. And that's exactly the problem: Tether is pretending not be be an security, even though it transparently is.
Heck, to generalize on this, this is kind of the ur-problem with crypto generally: a bunch of things pretending to be currencies but are actually securities. The whole subterfuge is intentional, to foist risky assets on people by lying about their nature, and to avoid the (hard fought and hard justified) regulations around said risky assets.
Can you explain why USDT is a security but the US Dollar is not? It seems like the only real difference is that one has a wealthier and more powerful issuer than the other (which, obviously, is enormously significant still)
It is almost a rule of banking that pegs are made to be broken.
If you say that one of something is worth one of the other, you are promising that you have a bottomless supply of the currency on both sides of the peg. This almost never actually happens and whoever is running the peg will inevitably be caught with their pants down. Bankers specifically love breaking pegs and have the means to do so.
If USDT was run by the Federal Reserve nobody would question the system; because then they'd have the capability to issue both the USDT token and the dollars backing it. They would be considered as fungible as dollars in the bank versus dollars in your hand.
For one, currencies are issued and backed by sovereign nations generally, and recognized as legal tender somewhere. USDT is not on either count, as far as I am aware.
It might technically count as a ‘crypto ecosystem currency’ since it is often used to exchange value between different chains/coins/exchanges. But it is very difficult to convert to a recognized currency, so a lot of folks also get unknowingly stuck with it thinking they have dollars. There is a reason USDT is the ticker they pushed for, not TETH or whatever.
> But it is very difficult to convert to a recognized currency, so a lot of folks also get unknowingly stuck with it thinking they have dollars.
When Voyager entered bankruptcy, quite a few people suddenly discovered that the USDC they held on the platform was not the same as USD, did not enjoy the same legal protections USD would have, and that much of it had been loaned out to 3 arrows capital and was not coming back.
The distinction became even more significant when the bankruptcy judge agreed that the bank accounts that were holding actual USD customer deposits were not part of the bankruptcy estate and had to be released back to those customers.
> US Dollar is a currency. USDT is a security backed by things that aren't US Dollars
Meh, plenty of currencies—from the Emirati dirham to the Hong Kong dollar—are pegged [1]. International investors would just shit bricks if any of them dared the lack of transparency Tether pulls on crypto users.
They’re not pegged to assets though and as such can’t lose value. Currencies can only go down vis-a-vis each other. When you buy an HKD you’re not buying a slice of a USD, you’re buying an HKD.
> When you buy an HKD you’re not buying a slice of a USD, you’re buying an HKD
You're also buying a commitment from the Hong Kong Monetary Authority (HKMA) to convert between Hong Kong and U.S. dollars at fixed exchange rates [1]. That promise is backed by the HKMA's reserves [2]. Tether closely resembles a pegged currency, albeit a banana republic's.
Hong Kong's central bank prints their own currency. They defend the value of it by engaging in open market operations. If they fail, you can still pay your taxes in Hong Kong with it.
Tether does not print their own currency. If USDT goes to zero, you have nothing. It's good nowhere.
> Tether does not print their own currency. If USDT goes to zero, you have nothing. It's good nowhere.
Tether prints Tethers. The HKMA prints Hong Kong dollars. They both derive their value from the U.S. dollar. If the HKD goes to zero, one has as much as if Tether goes to zero. (This is tautology.)
The Hong Kong dollar is backed by the Hong Kong government. Tether is backed by no government. Tether is probably lying about its reserves. Hong Kong could just as well convert everyone's HKD to renminbi overnight.
Point is, there isn't something fundamentally currency-like about one versus the other other than state backing.
>They both derive their value from the U.S. dollar.
No, they don't. The HKD is pegged to the US Dollar. They engage in open market operations to buy and sell HKD in order to keep the value of it around 7.8 HKD to a USD. This can be very expensive for them to do sometimes, such as right now. There is nothing fundamental about the HKD that makes it worth 12.8 US cents. Its intrinsic value is derived entirely from the fact that you can pay taxes with it in Hong Kong. It can't go to zero because demand for it will always be higher than 0.
On the other hand, the USDT is ostensibly $1 because you bought it for $1. They claim to be backing it with $1 worth of assets allowing you to sell it back to them for $1. This entire thing is about how nobody actually knows what its backed with. It has no other intrinsic value. If Tether doesn't (or wont) buy it back for $1, it's worth nothing. It does nothing.
> They both derive their value from the U.S. dollar.
No, they don't. You are either genuinely confused or engaging in that tiresome crypto game of "well, if we pretend sovereign states (or even Hong Kong like entities) were the same as a corporation, then logically..." Sure. But they aren't, so it doesn't matter. Wishing this weren't true isn't really interesting.
As said elsewhere, the difference is a currency reserve, the assets of a government, and a military. If tether goes down, there is a a much smaller reserve to push it up.
I agree they are functionally similar, it is just a matter of scale. I can write IOUs pegged to the dollar. The only difference is the confidence others have in me.
> Point is, there isn't something fundamentally currency-like about one versus the other other than state backing.
I'd say that's as fundamental as you can get. One is backed up by guns, the other is backed up by literally nothing.
Isn't that effectively like saying "there's no fundamental difference between my three friends who like to talk about how democracy works and the Hong Kong government"?
The fundamental difference between Tether and HKD (or any other currency) is that Tether is not a legally recognized currency.
That may mean nothing to you, or to various other people who think that laws mean less than code, but it means a hell of a lot to most of the world.
This really is the root of all of this, and why we will really never be able to get through the lineup of sealions that will say "please explain to me..." every time you try.
The reasons something is a currency is because it is backed up by the power of the state. This includes (but is not limited to) the recognition of its status as legal tender within a the realm of a state, the ability to pay taxes in it, and also the very real guns and batons wielded by said state to enforce said authority.
There is no such thing as a currency that is not backed by some state, or at least some entity enjoying the broad authorities of a state. Tether (along with literally every single crypto product out there) does not.
But because primarily crypto was invented to snooker people who find the entire concept of state authority to be objectionable, this fact will never quite land.
yes, the distinctions you make are relevant; my point is exactly that there is NOWHERE NEAR the liquidity in ordinary markets.. I was too quick to object and with insufficient distinction, I stand corrected
Wouldn't Tether have unraveled during the huge amount of withdrawals during the Luna collapse? I thought it was going to, but surprised that it appears to have made it through processing everyone's withdrawals.
Tether (and the various exchanges that use it) has enough liquidity to process withdrawals, and likely has enough slack in the system to process periods of higher then normal withdrawal amounts.
As long as Tether has some liquidity, things will keep operating as normal. However, if the amount of money withdrawn is greater then the amount deposited, eventually Tether's reserves will dry up. Once that happens, anyone with outstanding USDT will be stuck with a worthless asset. Only Tether knows how close we are to that point, and they aren't saying.
They are likely not solvent (i.e. they have enough liquid funds to cover everyone withdrawing their money all at once), but they apparently can cover a high percentage of USDT withdrawals. It is still very fishy b/c if you look at the lending rates on Bitfinex there is currently an 18.825% APR for USD. If there was really zero risk with USDT I think you'd see a whole lot more volume pumping through that system.
There was sufficient pressure on USDT, as well as cashing out to the point of USDT briefly dropping in price by a few cents, so this isn't quite accurate.
I think a good way is to check out CoinMarketCap's Market Cap tracker. Let me elaborate.
I think Market Cap = (value per asset) * (total # of assets in the market). So the Market Cap of USDT SHOULD BE roughly equal to the number of Tethers on the market (assuming the price of a single Tether is stable, which isn't a bad assumption right now).
Since "every Tether is backed 1:1 by USD" and Tether is (more-or-less) pegged 1:1 to USD, if you see the market cap drop by a significant margin, it's likely that the drop was an outflow to currency. If we check the Luna crash event (~early May - ~early June 2022), we can see that USDT lost ~18B in market cap over that period. So (I think) we can assume that there was (roughly) 18B of dollar outflow over that period.
If any of my statements here are incorrect, please correct me. I'm a software engineer, not a finance artist or an MBA, and the last business class I took was summer school in High School in like 2006.
This is a good point - the issuer of Tether (iFinex?) could burn USDT that they hold without paying out to currency. I'm not sure how holding Tether would benefit the issuer of Tether, though, since anytime anyone transferred USDT to the issuer they would expect a cash payout. So I guess my statement "USDT is backed 1:1" should actually be "circulating USDT is supposedly backed 1:1 by USD." Any "burnable Tether" should be subtracted from the Market Cap to find the actual "backed Tether."
I don't know of any way to find how much USDT is held by the issuer of Tether (or their coparties) and how much is held by other wallets at any given time. I suspect that calculation would require a significantly greater knowledge of the blockchains that USDT is on than what I have.
USDC is the only reliable stable coin. Some dislike it because they have shown that they will use the blacklist feature (which USDT has too, to be fair) but frankly, I'd prefer my bank backed stablecoin is compliant with US law.
> There's a chance that Tether has been pumping BTC.
A chance? It's an absolute certainty.
Not only most exchanges have only a USDT:BTC pair and not a USD:BTC pair, but if you look at recent (~1.5 years) sudden spikes in BTC price, they correspond almost always to a new supply of USDT being released by Tether.
The only upward momentum Bitcoin has had since the last ATH has been due to Tether printing money, so it's safe to say that not only it's pumping it, but it's probably contributing 80%+ of its value.
If Tether dies, it's the end of cryptocurrency, period.
I agree that Tether has certainly been pumping BTC with money they don't have, but
> if you look at recent (~1.5 years) sudden spikes in BTC price, they correspond almost always to a new supply of USDT being released by Tether.
is what you would expect to see even if Tether was 100% legit. As you say, most BTC liquidity is in USDT, so people buying Bitcoin would first buy (mint) USDT from Tether, and then use that to buy BTC.
Or maybe it's just the most brilliant scam to ever be conceived? A ponzy scheme with a built-in rinse and repeat function that also put the final nail in the coffin of the war on drugs. Scam or not, it was a revolutionary idea which was executed perfectly.
It's not even that! It's just that most people seem to have no idea how long most scams are able to run. Bernie Madoff was operating for 17 years before things fell apart, and he was just one man. The layers of scam involved in crypto will take many, many, many more years to unravel.
Just wait until you read about John Law's antics in the early 1700s in creating fractional reserve banking & central banks... No way that ponzi scheme could hold up!
It’s end of cryptocurrency as a wild speculative asset. Ethereum and decentralised apps will still exist, which is all that matters.
Bitcoin is a failed open source project turned Ponzi. I can’t wait for tether to take it to the absolute bottom and end the current epoch of crypto-as-speculation. Crypto will have its uses as a decentralised application platform.
I’m really tired of people assuming decentralized = eth derivative. The practical use cases of federated and decentralized apps have been shown (no one source of truth, tampering or failure) but practical apps aren’t going to use a cryptocurrency why the hell would they.
At scale we’ve been building completely decentralized applications for a decade and a half. They’re just internal to some organization not public. Taking this and placing the database in the users hands is an interesting way to go but not exactly an order of magnitude more complex at that point.
But this doesn’t require some dumbass blockchain currency and ethereum is super forced.
Yes. NFTs have actually solved a real problem in the art world. I've said it many times before here so you can browse through my comment history to see why.
Spoilers: - saying "but there is fraud" is not an argument agaisnt NFTs, because actually an automated solution for NFT fraud is conceivable. And the fact that there is fraud does not take away from the thousands of artists using it legitimately. Plus, authenticating you are buying from a real artist in the NFT space is actually not that hard.
Work to do what? Prove ownership? They don't. Attribute IP rights? They don't. Persist the art in an immutable state? They don't. Bundle any other perks with the art? They don't. Provide a channel for artists to 'sell' their art? Okay, I guess they do, but so do a million other services, ranging from websites to the coffee shop two blocks down from my apartment.
They are signed URLs that you can trade around on an exchange. This solves no problem that anyone making art has ever had.
> Provide a channel for artists to 'sell' their art? Okay, I guess they do, but so do a million other services…
Yeah NFTs did exactly this and they’re doing a decent job. If you’re a digital artist it was really really hard to get people to buy your art without a gatekeeper/art gallery certifying it. Now it’s easy. So yes they work for specifically that purpose.
If you think coffee shops are a substitute for digital art to be sold in a permissionless global open market I don’t know what to tell you.
> Ethereum and decentralised apps will still exist, which is all that matters.
Will they, when ETH collapses to being worth less than 10 bucks because you can't exchange it for funny drug money and it's only usable as funny slow distributed computer coins ? When users can't speculate on it, when stakers lose money on running a node because they're getting 5 bucks worth of rewards every other month ?
Thankfully for the Ethereum Foundation, they conveniently prevented people from taking out their stake then did the merge, so that now that someone is in Ethereum, they cannot back out of it. Some might say it was something that only a malicious actor would do, but then again, the crypto community has never really been that bright when it comes to detecting scams.
This is essentially FUD, since it's obvious that withdrawals are the next thing in the list for the Foundation. No one forced anyone to stake either. Users did that knowing there was uncertainty on when it would be activated.
In my crypto investing thesis, I simply can't explain what role Bitcoin and its outdated technology can play. But I know not to bet against it. It's still the music to the merry-go-round.
You say that, but the only plausible non-substitutable use of bitcoin I've seen is sending money overseas or buying drugs. If its monetary value collapses, I don't see these other uses at all replacing it. It could just die, though more likely some marginal stuff will continue indefinitely trying to recapture lost glory.
NFTs have actually solved a real problem in the art world. I've said it many times before here so you can browse through my comment history to see why.
Spoilers: - saying "but there is fraud" is not an argument against NFTs, because actually an automated solution for NFT fraud is conceivable. And the fact that there is fraud does not take away from the thousands of artists using it legitimately. Plus, authenticating you are buying from a real artist in the NFT space is actually not that hard.
I actually think there is a huge potential to decentralized applications, but this is essentially faith for now so I won't add much more to the discussion.
I don't actually believe there was anything technical there in the value prop for art over simply having a centralized organization attest to purchases.
My feeling is that the odds of anything useful coming out of this are small. After insane money and over a decade, nothing useful has resulted. Perhaps conditions will be right in another decade for something useful to emerge, but at this point it's all scams imo
Isn't correlation also what you would expect in an honest scenario as well? If there's demand for acquiring tether to trade Bitcoin, and it has to be printed, so it is, and then it's used for Bitcoin trading, I don't understand where the fishy-ness is. At least not from that one timing perspective.
People buy Bitcoin with regular money, not with USDT. People exchange from cryptocurrency to USDT because they really want USD, but that is significantly harder to convert to.
Sure, but that's irrelevant as far as the scam goes. What matters is real money entering the markets for fake money, e.g. USD for cryptos. That people after that can trade back and forth between different fake moneys is irrelevant, although it naturally keeps the illusion alive that these are valuable assets. USDT stands out because it's marketed as almost the same thing as USD, which it of course isn't.
I also do think Tether is dodgy, but even if they weren't, the illusion would be the same – real money enters the market through the usual fiat onramps, then it gets traded for BTC. Since BTC/USDT is one of the most liquid markets, this often can result in new Tether being issued to trade with (potentially in a transparent way to the user) and as long as the other party does not redeem these new USDT they inflate the market cap
The question then becomes whether the fiat going in matches the new Tether being issued, and that can't be answered without a proper audit.
Researchers estimate that from 2006 to 2016, the total amount of money spent by Americans on these four drugs fluctuated between $120 billion and $145 billion each year.
Which is not the same as backed 100% by real dollars. It’s just another level of guarantees, just like the guarantees given by Tether. Obviously it’s very reasonable to trust one more than the other, but neither are backed 100% by real money.
Dollars are created by the Federal Reserve, not Congress.
Banks are backed by FDIC insurance which, although it has been able to pay each claim ever filed, did get cold feet in the 2015 crisis and obviously does not hold a dollar for each insured dollar. In fact some cursory research shows they hold about $6 for every $10000 and in a major collapse like the 2015 crisis, which could have been even worse, they could very well get in trouble.
> Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category
If you want have more than $250k insured in regular accounts, spread it across multiple banks (or put some in a joint acct, but that has its own risks).
Opening a chequing account and a savings account at the same bank doesn’t give you $500k of coverage if you were to put 250k in each.
Thank you for this. I was under the assumption one could open any number of accounts at the same bank and get the same insurance guarantee. It is good to read the specific language.
Isn’t tether USDT built on ethereum? How does it affect btc exactly? Can you buy BTC with USDT or am I missing something about the connection between the two?
Fractional reserve banking means that banks must reserve a fraction of the deposits. They lend out the rest. The deposit is still on record and the obligation to repay it still exists.
If a bank never takes deposits, they have nothing to lend out. If Tether was printing Tethers without having deposits in place, they're not doing fractional reserve banking.
> As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
---
Feel free to correct me on this; my financial knowledge is only just a bit higher than that 0% rate noted above.
The reserve requirement was removed because banks were holding too many reserves for the feds liking.
Every US bank still has asset & liability requirements including having at least as many assets as liabilities and stringent rules on what the assets are. Further they have reporting requirements as well.
Fractional reserve banking still means having assets that cover your liabilities; those assets simply may not be liquid (i.e. they are loans that will be paid back over a period of years).
If you don't have assets on your books, and have instead either walked with or lost a large portion of the money, then you're not doing fractional reserve banking, you're running a confidence scheme.
If Tether, as suspected, was largely "backed" by crypto assets and Bitfinex shares, then they're gambling with the bank funds... and the recent losses in the crypto markets mean that they have been losing those bets.
(I edited the last portion of this substantially to make it more concise.)
1. You deposit $100 in the bank. It keeps $30 as cash and lends out the rest to someone. The money is still there on the balance sheet (but with a risk that it might not be returned)
2. You deposit $100 with Mr. Paulo in return getting 100USDT. Mr. Paolo spends $70 on private jets and ho*kers. If you ever want back more than $30, you're out of luck.
Stop spouting lies and non-sense. There is no evidence whatsoever that Tether is a "scam" or that it has been "pumping" BTC. You might as well claim that 911 was an inside job and we didn't go to the moon. Same type of people spout these "truths". Claiming something to be true in the complete absence of evidence, or contrary to existing evidence, makes you a nutjob.
Tether is an integral part of the whole cryptocurrency ecosystem, and it's insane to claim that the global industry operates closely with a "scam that soon unravels" without the industry players being worried at all. Large exchanges are not some shadowy operations which can just close their eyes when they are exposed to risk.
You'd think that after 2008 it would be obvious that even experienced financial institutions can be fooled into ignoring red flags when money is on the line. Greed is a hell of a drug.
This same comment could have been posted about LUNA and large crypto investors like 3AC 6 months ago.
> LUNA/UDT is an innovative part of the whole cryptocurrency ecosystem, and it's insane to claim that the global industry operates closely with a "scam that soon unravels" without the industry players being worried at all. Large investors are not some shadowy operations which can just close their eyes when they are exposed to risk.
The red flags around Tether are many, but the biggest is that it would be easy for them to prove that USDT is backed 1:1 with USD if it actually was. The fact that they've consistently avoided offering such proof is all the evidence I need. It's the same reason no one believes Craig Wright is Satoshi.
The difference between what this transparency report provides and what a money market fund provides (cusip level detail on everything it holds) is not evidence it’s fabricating numbers but it’s certainly alarming.
If you had a fund that provided that report instead of their normal reports it would have investors headed for the hills (independent of the regulatory requirements).
There's a chance that Tether has been pumping BTC.