3 ms·

How?

Shank 9y ago
A lot of exchanges only change between USDT and other crypto currencies. If tether is insolvent, the 1:1 backing ratio of USDT to USD doesn't exist, which means that USDT is worthless. Promised USD just evaporates. The few exchanges that offer USD to crypto and back are probably pretty safe, but if the entire ecosystem crashes, it stands to reason that's not going to stand up for long.
- deleted 9y ago
  [deleted]
jameskilton 9y ago
Fake 450 million USD being used to buy up Bitcoin, artificially inflating the value. Then when people want to sell, there isn't actually the underlying USD available, so you can't actually turn your BTC back into USD, leading to a mass sell panic rush and the price craters.
hendzen 9y ago
Imagine the New York Stock exchange decided to print counterfeit dollars (electronically) and use them to buy up shares of all the stocks on the exchange. There would be a huge rally, all the stock prices would go through the roof. But if enough shareholders started selling their shares and asking for real dollars back, the exchange would eventually collapse because they wouldn't have enough money to settle all the trades. With Tether its basically the same situation, just more convoluted. Rather than counterfeiting dollars, they are rapidly printing USDT that the community, apparently on faith alone, believes are redeemable for $1 per Tether. Curiously Tethers have only been created, never destroyed, which would indicate that none have been redeemed back to USD. Many other (complicit) exchanges are also accepting these "tethered dollars" - the "USD" volume at exchanges like Bitfinex, Poloniex, Binance, Huobi, Bittrex, OkEX, etc is actually USDT based. The endgame is the same as the simplified example with counterfeit dollars. The only thing keeping it going is the rising cryptocurrency price, which is keeping people hoarding coins instead of selling back to USD. This is also why the rate of tether issuance has been increasing - they need to keep the price high so people continue to hold. Eventually the selling pressure will increase (on the few exchanges that actually handle real USD), and as people attempt to convert their crypto holdings to real dollars the fraud will become readily apparent. There will be huge distortions as the price of Bitcoin and Ethereum rockets on Bitfinex and other Tether exchanges as people try to get their money out, and simultaneously craters on GDAX & Gemeni as they try to get back in to fiat. In the end the massively decreased GDAX/Gemeni prices will be the only ones that matter since all faith will have been lost in the former tether-based exchanges. If you're reading this, you have been warned.
- ufo 9y ago
  To complement what you said, this has already happened with MtGOX in 2013. The price rise in Bitcoin up to $1000 was largely due to trading bots in MtGOX who purchased bitcoin with fake money. When MtGOX finally broke we say prices exploding inside it, as people desperately tried to cash out, and plummeting everywhere else.
- deleted 9y ago
  [deleted]
- candiodari 9y ago
  You could go even further. Let's say you are a very large bitcoin fish running an exchange and you want to cash out. Tether is the ideal instrument to let you absorb part of the market demand using bitcoin rather than dollars, protecting the price while you're continuing your cashout.
- bb88 9y ago
  Great comment.
- ActsJuvenile 9y ago
  Couldn't agree more with the endgame you described. It will be same as MtGox's last month when prices were $2,000 higher there while everyone was trying to sell off at more liquid exchanges.

How?

A lot of exchanges only change between USDT and other crypto currencies. If tether is insolvent, the 1:1 backing ratio of USDT to USD doesn't exist, which means that USDT is worthless. Promised USD just evaporates. The few exchanges that offer USD to crypto and back are probably pretty safe, but if the entire ecosystem crashes, it stands to reason that's not going to stand up for long.

deleted 9y ago
[deleted]

jameskilton 9y ago

Fake 450 million USD being used to buy up Bitcoin, artificially inflating the value. Then when people want to sell, there isn't actually the underlying USD available, so you can't actually turn your BTC back into USD, leading to a mass sell panic rush and the price craters.

hendzen 9y ago

Imagine the New York Stock exchange decided to print counterfeit dollars (electronically) and use them to buy up shares of all the stocks on the exchange. There would be a huge rally, all the stock prices would go through the roof. But if enough shareholders started selling their shares and asking for real dollars back, the exchange would eventually collapse because they wouldn't have enough money to settle all the trades. With Tether its basically the same situation, just more convoluted. Rather than counterfeiting dollars, they are rapidly printing USDT that the community, apparently on faith alone, believes are redeemable for $1 per Tether. Curiously Tethers have only been created, never destroyed, which would indicate that none have been redeemed back to USD. Many other (complicit) exchanges are also accepting these "tethered dollars" - the "USD" volume at exchanges like Bitfinex, Poloniex, Binance, Huobi, Bittrex, OkEX, etc is actually USDT based. The endgame is the same as the simplified example with counterfeit dollars. The only thing keeping it going is the rising cryptocurrency price, which is keeping people hoarding coins instead of selling back to USD. This is also why the rate of tether issuance has been increasing - they need to keep the price high so people continue to hold. Eventually the selling pressure will increase (on the few exchanges that actually handle real USD), and as people attempt to convert their crypto holdings to real dollars the fraud will become readily apparent. There will be huge distortions as the price of Bitcoin and Ethereum rockets on Bitfinex and other Tether exchanges as people try to get their money out, and simultaneously craters on GDAX & Gemeni as they try to get back in to fiat. In the end the massively decreased GDAX/Gemeni prices will be the only ones that matter since all faith will have been lost in the former tether-based exchanges. If you're reading this, you have been warned.

ufo 9y ago
To complement what you said, this has already happened with MtGOX in 2013. The price rise in Bitcoin up to $1000 was largely due to trading bots in MtGOX who purchased bitcoin with fake money. When MtGOX finally broke we say prices exploding inside it, as people desperately tried to cash out, and plummeting everywhere else.
deleted 9y ago
[deleted]
candiodari 9y ago
You could go even further. Let's say you are a very large bitcoin fish running an exchange and you want to cash out. Tether is the ideal instrument to let you absorb part of the market demand using bitcoin rather than dollars, protecting the price while you're continuing your cashout.
bb88 9y ago
Great comment.
ActsJuvenile 9y ago
Couldn't agree more with the endgame you described. It will be same as MtGox's last month when prices were $2,000 higher there while everyone was trying to sell off at more liquid exchanges.