4 ms·
Can somebody ELI5 this?
by jmkni 9y ago
Can somebody ELI5 this?
- bandrami 9y agoBitfinex is a company that produces a cryptocurrency called Tether. Tether is in terms of the tech just like any other cryptocurrency; the big difference is that Bitfinex has pegged its value to the US dollar. This is great in theory, because transactions between two types of cryptocurrencies are (relatively) easy and cheap, and with one coin pegged to a real currency, it means the crypto ecosystem is much more liquid. Now, the downside: you may have heard of the macroeconomic "Impossible Trinity"[1]. One outcome of that is that it means Bitfinex has to keep US dollars on hand equal to the total value of Tethers created. Now, the real downside: over the past couple of months (and even more over the past week), Bitfinex has issued a quantity of Tethers that most people don't actually believed are backed by US dollars, meaning they are vulnerable to a "It's a Wonderful Life"-style run. And worse yet, the liquidity Bitfinex provides has been "baked in" to the price of other cryptocurrencies for a while. At any rate, the accusation the Tweet is making is that Bitfinex is now significantly overextended, and can no longer promise to convert all the issued Tethers, meaning the Tethers (and thus all the other cryptocurrencies) are not nearly as liquid as "investors" thought they were. As many predicted[2]. Most irritatingly, this exact thing happened over, and over, and over again when countries were on the gold standard. It's why fiat currency is such a good idea. 1: https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity 2: http://fortune.com/2017/12/05/bitcoin-btc-price-usd-tether-limited-bitfinex/ http://fortune.com/2017/12/05/bitcoin-btc-price-usd-tether-l...