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You're skipping a key bit here; billions of Tethers magically appeared on the market in the last month and were used to buy BTC in suspiciously regular fashion,

by ebbv 9y ago

You're skipping a key bit here; billions of Tethers magically appeared on the market in the last month and were used to buy BTC in suspiciously regular fashion, in 100 million USDT amounts, and with no clear evidence that it was actually purchased by anyone using real USD.

ceejayoz 9y ago
Another key bit: Tether's website claims "frequent audits", but their auditor a) never completed their first audit and b) just severed their relationship. https://www.coindesk.com/tether-confirms-relationship-auditor-dissolved/ https://www.coindesk.com/tether-confirms-relationship-audito...
- jandrese 9y ago
  I'm guessing the auditors weren't happy with "out of thin air" when they asked where the the backing currency came from. The Tether folks were like "Our balance sheet is really simple! We just add numbers to this column until it evens out, what's the problem?!?" and the auditors are like "that's just fraud".
  - blibble 9y ago
    that's more or less what happens when you go and get a loan or a mortgage from the bank
    - deleted 9y ago
      [deleted]
    - ceejayoz 9y ago
      Banks can repossess your property if you don't pay. If you're not putting in much money as a down payment, they'll also force you to pay for insurance (PMI) on the mortgage. They're also not promising otherwise and claiming to be regularly audited while firing/being fired by their auditor.
  - Nition 9y ago
    It's ridiculous; surely they could have made tons of money with USDT legally if they'd just been less greedy: - Create Tether out of thin air - Sell it to people for $1USD each - Put that USD in a bank account to earn interest Hell, there's probably still an opening for someone else to do it right. - Create MyTetheredCrypto out of thin air - Convince people & exchanges to accept it ??? - Sell it for $1USD each - Unlike Tether, let your company be checked and audited frequently - Get rich off the interest
    - rajacombinator 9y ago
      Why would anyone buy your tethers with usd?
      - Nition 9y ago
        It sounds like exchanges are using Tether because offering to cash out USD can be difficult if the exchange isn't in the US, so they let people use Tether as a proxy USD. e.g. If someone thinks the market's about to crash, they can sell their Bitcoin for Tether, then buy back Bitcoin when the price drops. So if your coin has the same use case as Tether does now, people may not buy MyTetheredCrypto off you directly for USD, but they might buy it off you for Bitcoin or other cryptocurrencies you accept if it's not easy for them to convert to USD. Then you sell those coins immediately for their value in USD (you presumably having more access to do this than the buyer does) so you have your USD-backed tethered cryptocurrency with every MyTetheredCrypto backed by a real dollar USD. Obviously I'm not really suggesting all this seriously though, there are lots of potential problems all over it.
        jandrese 9y ago
        The big problem being how you convince people to put real money into the system in the first place, especially if you want to keep the price fixed at 1:1. You end up with a huge quantity if BTC chasing tiny amounts of real USD. In a proper market the exchange rate should plummet due to the imbalance.
    - deleted 9y ago
      [deleted]
vkou 9y ago
Also, 'aspirationally' is doing a lot of work in the grandparent post. Each instance of USDT is supposed to be backed by 1 USD in tether's accounts, which is what's supposed to peg its value... However. 1. Tether will not convert your USDT into USD. You can only offload it to a bigger fool. 2. Tether's accounts have yet to be audited. 3. Tether has lied about #1 and #2.
drcode 9y ago
I hear you and this whole situation is clearly shady af, but at the end of the day BTC is fungible with USD, so I'm not sure at this in and of itself is that big of an issue (besides any explicit legal concerns that I can't speak to). If you're providing a currency pegged to the USD, then selling tether for BTC might be one piece of a strategy to do this- The issue for me is more that no one knows what's happening to the USD/BTC/etc after such a sale happens.
- ebbv 9y ago
  Issuing USDT when there's no USD backing it up is an issue when you claim that it is backed 1:1. That is called fraud.
  - drcode 9y ago
    I'm being 100% pedantic here (I fully agree tethers are ridiculously shady) but if tether one day rises to 1.05 USD, and the tether company then sells more for BTC to bring it back to 1.00 USD, and the tether company subsequently converts the BTC to USD, how is that fraud?
    - ebbv 9y ago
      Because they're not claiming "We can maybe somehow come up with the money that the Tethers represent in the future." they're saying they have the money right now. And again, you're missing the point that it doesn't seem like they are selling the USDT for anything, BTC or otherwise. They're just printing it and buying BTC with it. EDIT: That may seem like splitting hairs but the point is they aren't issuing them in exchange for value, they're just creating them and then using the value they supposedly have based to purchase BTC. An analogy if you still don't understand the difference; it's the difference between buying a $50 Gift Certificate to a store with $50 USD or just printing one on my printer. One represents $50 USD that exist and were exchanged to buy it, and the other represents nothing.
      - rmrm 9y ago
        Buying bitcoin with it and then selling the bitcoin immediately for USD, and banking it would mean they are at least solvent, is they key point he is getting at. Im not sure why anyone would want to trust money to that without audits, but its certainly possible. And quite important! Edit: the assumption seems to be that they are buying bitcoin and holding it, which would increase the bid and result in not being backed by USD. If they are not holding the bitcoin, then the buys and sells even out, and they are not adding to the bid, and they hold cash equivalent to USDT. I am quite interested to find out which it is.
js2 9y ago
Here’s what I don’t understand. You can exchange bitcoins for fiat currency. But afaik you can’t exchange USDT for fiat. So why is anyone willing to take the risk of holding on to USDT? Why are any exchanges even willing to touch it?
- JumpCrisscross 9y ago
  > Why are any exchanges even willing to touch it? They’re earning fees from uninformed buyers coming from a community with an ideological aversion to governments. The first part makes it profitable. The last means the risk of their reporting you to the proper authorities is slim.
  - jhwang5 9y ago
    Not sure why you are getting downvoted.
    - rocqua 9y ago
      Just guessing: The idea that the current value in bitcoin comes from crypto-anarchists rather than people speculating.
- ceejayoz 9y ago
  It lets the exchanges avoid dealing with USD, which they believe (IMO wrongly, but hey) exempts them from know-your-customer laws. A lot of Coinbase's customer service issues stem from KYC laws and the verification it requires. Some of them are being very squirrely with their users, telling you your "USD" balance which is actually USDT. Some may believe it's a fraud, but be happy to benefit from the apparent boost it's giving cryptocurrency values and think they're safe enough if it collapses.
  - bby 9y ago
    How drastic do you think a contagion would be if Bitfinex is found to be fraudulent (meaning that everyone rushes out of USDT and buys crypto, then sends crypto to an exchange that accepts fiat)? There are so many exchanges that don't accept fiat.
seppel 9y ago
Ok, so they printed billions of Tethers and bought BTC with them, I get this part. What I don't get is: This means somebody sold BTC for billions of USDT (instead USD!). Who is doing this? Why would you sell for USDT instead USD? Maybe there some daytraders on the exchanges that go in and out the Tether every day, yeah. But that should not account for that much. Who is hodling that giant pile of USDT? And why?
- achompas 9y ago
  > Who is doing this? Why would you sell for USDT instead USD? On many international exchanges, USDT are the easiest way to convert BTC to a (supposedly) USD-backed asset.
  - seppel 9y ago
    > On many international exchanges, USDT are the easiest way to convert BTC to a (supposedly) USD-backed asset. I'm sorry, but I cannot follow. Let's say you want to sell a BTC, current worth about 10k. So you go to a shady exchange, click sell and 10k of USDT appear in your account. Good, but what is the next step? The next thing you will notice that there is nothing that you can buy for your USDT. You cannot buy a house, you cannot buy a car, you cannot even buy food. The only thing that you can buy for USDT is BTC (or some other cryptocurrency). This is the only thing you can do next. And the BTC is even worth more than the USDT, because there are actually people willing to sell you stuff for BTC. But let's assume for a moment that people are really hodling USDT. This would mean that there is an increasing amount of such people, because Tether is printing more and more and more of USDT. This means there needs to be an increasing demand of USDT, and I really cannot see where this is coming from.
    - deleted 9y ago
      [deleted]
    - hvasishth 9y ago
      You sell BTC to USDT if you are not looking to cash out of BTC. Instead, if you think that BTC is at a peak in the short term and you simply want to sell at the peak and get back in once it drops, selling to USDT is just fine. That way you can buy back BTC once price drops. When you do want to cash out to real fiat, you have to sell to USD. USDT allows a large number of exchanges to allow you to sell BTC and hold in something that looks like USD. Without USDT a number of exchanges won't see anywhere near the volume they get. By enabling a larger volume, USDT is indirectly helping inflate BTC (and other currencies) price.
arisAlexis 9y ago
actually if you put 10k to buy btc and then revert it to usdt your 10k becomes usdt backing. since you are buying something that needs to keep the price inflation kicks in and more is issued. nothing magical about that

by ebbv 9y ago

ceejayoz 9y ago

Another key bit: Tether's website claims "frequent audits", but their auditor a) never completed their first audit and b) just severed their relationship. https://www.coindesk.com/tether-confirms-relationship-auditor-dissolved/ https://www.coindesk.com/tether-confirms-relationship-audito...

jandrese 9y ago
I'm guessing the auditors weren't happy with "out of thin air" when they asked where the the backing currency came from. The Tether folks were like "Our balance sheet is really simple! We just add numbers to this column until it evens out, what's the problem?!?" and the auditors are like "that's just fraud".
- blibble 9y ago
  that's more or less what happens when you go and get a loan or a mortgage from the bank
  - deleted 9y ago
    [deleted]
  - ceejayoz 9y ago
    Banks can repossess your property if you don't pay. If you're not putting in much money as a down payment, they'll also force you to pay for insurance (PMI) on the mortgage. They're also not promising otherwise and claiming to be regularly audited while firing/being fired by their auditor.
- Nition 9y ago
  It's ridiculous; surely they could have made tons of money with USDT legally if they'd just been less greedy: - Create Tether out of thin air - Sell it to people for $1USD each - Put that USD in a bank account to earn interest Hell, there's probably still an opening for someone else to do it right. - Create MyTetheredCrypto out of thin air - Convince people & exchanges to accept it ??? - Sell it for $1USD each - Unlike Tether, let your company be checked and audited frequently - Get rich off the interest
  - rajacombinator 9y ago
    Why would anyone buy your tethers with usd?
    - Nition 9y ago
      It sounds like exchanges are using Tether because offering to cash out USD can be difficult if the exchange isn't in the US, so they let people use Tether as a proxy USD. e.g. If someone thinks the market's about to crash, they can sell their Bitcoin for Tether, then buy back Bitcoin when the price drops. So if your coin has the same use case as Tether does now, people may not buy MyTetheredCrypto off you directly for USD, but they might buy it off you for Bitcoin or other cryptocurrencies you accept if it's not easy for them to convert to USD. Then you sell those coins immediately for their value in USD (you presumably having more access to do this than the buyer does) so you have your USD-backed tethered cryptocurrency with every MyTetheredCrypto backed by a real dollar USD. Obviously I'm not really suggesting all this seriously though, there are lots of potential problems all over it.
      - jandrese 9y ago
        The big problem being how you convince people to put real money into the system in the first place, especially if you want to keep the price fixed at 1:1. You end up with a huge quantity if BTC chasing tiny amounts of real USD. In a proper market the exchange rate should plummet due to the imbalance.
  - deleted 9y ago
    [deleted]

vkou 9y ago

Also, 'aspirationally' is doing a lot of work in the grandparent post. Each instance of USDT is supposed to be backed by 1 USD in tether's accounts, which is what's supposed to peg its value... However. 1. Tether will not convert your USDT into USD. You can only offload it to a bigger fool. 2. Tether's accounts have yet to be audited. 3. Tether has lied about #1 and #2.

drcode 9y ago

I hear you and this whole situation is clearly shady af, but at the end of the day BTC is fungible with USD, so I'm not sure at this in and of itself is that big of an issue (besides any explicit legal concerns that I can't speak to). If you're providing a currency pegged to the USD, then selling tether for BTC might be one piece of a strategy to do this- The issue for me is more that no one knows what's happening to the USD/BTC/etc after such a sale happens.

ebbv 9y ago
Issuing USDT when there's no USD backing it up is an issue when you claim that it is backed 1:1. That is called fraud.
- drcode 9y ago
  I'm being 100% pedantic here (I fully agree tethers are ridiculously shady) but if tether one day rises to 1.05 USD, and the tether company then sells more for BTC to bring it back to 1.00 USD, and the tether company subsequently converts the BTC to USD, how is that fraud?
  - ebbv 9y ago
    Because they're not claiming "We can maybe somehow come up with the money that the Tethers represent in the future." they're saying they have the money right now. And again, you're missing the point that it doesn't seem like they are selling the USDT for anything, BTC or otherwise. They're just printing it and buying BTC with it. EDIT: That may seem like splitting hairs but the point is they aren't issuing them in exchange for value, they're just creating them and then using the value they supposedly have based to purchase BTC. An analogy if you still don't understand the difference; it's the difference between buying a $50 Gift Certificate to a store with $50 USD or just printing one on my printer. One represents $50 USD that exist and were exchanged to buy it, and the other represents nothing.
    - rmrm 9y ago
      Buying bitcoin with it and then selling the bitcoin immediately for USD, and banking it would mean they are at least solvent, is they key point he is getting at. Im not sure why anyone would want to trust money to that without audits, but its certainly possible. And quite important! Edit: the assumption seems to be that they are buying bitcoin and holding it, which would increase the bid and result in not being backed by USD. If they are not holding the bitcoin, then the buys and sells even out, and they are not adding to the bid, and they hold cash equivalent to USDT. I am quite interested to find out which it is.

js2 9y ago

Here’s what I don’t understand. You can exchange bitcoins for fiat currency. But afaik you can’t exchange USDT for fiat. So why is anyone willing to take the risk of holding on to USDT? Why are any exchanges even willing to touch it?

JumpCrisscross 9y ago
> Why are any exchanges even willing to touch it? They’re earning fees from uninformed buyers coming from a community with an ideological aversion to governments. The first part makes it profitable. The last means the risk of their reporting you to the proper authorities is slim.
- jhwang5 9y ago
  Not sure why you are getting downvoted.
  - rocqua 9y ago
    Just guessing: The idea that the current value in bitcoin comes from crypto-anarchists rather than people speculating.
ceejayoz 9y ago
It lets the exchanges avoid dealing with USD, which they believe (IMO wrongly, but hey) exempts them from know-your-customer laws. A lot of Coinbase's customer service issues stem from KYC laws and the verification it requires. Some of them are being very squirrely with their users, telling you your "USD" balance which is actually USDT. Some may believe it's a fraud, but be happy to benefit from the apparent boost it's giving cryptocurrency values and think they're safe enough if it collapses.
- bby 9y ago
  How drastic do you think a contagion would be if Bitfinex is found to be fraudulent (meaning that everyone rushes out of USDT and buys crypto, then sends crypto to an exchange that accepts fiat)? There are so many exchanges that don't accept fiat.

seppel 9y ago

Ok, so they printed billions of Tethers and bought BTC with them, I get this part. What I don't get is: This means somebody sold BTC for billions of USDT (instead USD!). Who is doing this? Why would you sell for USDT instead USD? Maybe there some daytraders on the exchanges that go in and out the Tether every day, yeah. But that should not account for that much. Who is hodling that giant pile of USDT? And why?

achompas 9y ago
> Who is doing this? Why would you sell for USDT instead USD? On many international exchanges, USDT are the easiest way to convert BTC to a (supposedly) USD-backed asset.
- seppel 9y ago
  > On many international exchanges, USDT are the easiest way to convert BTC to a (supposedly) USD-backed asset. I'm sorry, but I cannot follow. Let's say you want to sell a BTC, current worth about 10k. So you go to a shady exchange, click sell and 10k of USDT appear in your account. Good, but what is the next step? The next thing you will notice that there is nothing that you can buy for your USDT. You cannot buy a house, you cannot buy a car, you cannot even buy food. The only thing that you can buy for USDT is BTC (or some other cryptocurrency). This is the only thing you can do next. And the BTC is even worth more than the USDT, because there are actually people willing to sell you stuff for BTC. But let's assume for a moment that people are really hodling USDT. This would mean that there is an increasing amount of such people, because Tether is printing more and more and more of USDT. This means there needs to be an increasing demand of USDT, and I really cannot see where this is coming from.
  - deleted 9y ago
    [deleted]
  - hvasishth 9y ago
    You sell BTC to USDT if you are not looking to cash out of BTC. Instead, if you think that BTC is at a peak in the short term and you simply want to sell at the peak and get back in once it drops, selling to USDT is just fine. That way you can buy back BTC once price drops. When you do want to cash out to real fiat, you have to sell to USD. USDT allows a large number of exchanges to allow you to sell BTC and hold in something that looks like USD. Without USDT a number of exchanges won't see anywhere near the volume they get. By enabling a larger volume, USDT is indirectly helping inflate BTC (and other currencies) price.

arisAlexis 9y ago

actually if you put 10k to buy btc and then revert it to usdt your 10k becomes usdt backing. since you are buying something that needs to keep the price inflation kicks in and more is issued. nothing magical about that