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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.

by ebbv 9y ago

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.
    - ebbv 9y ago
      They're solvent in that scenario, sure, because they committed fraud. That's the great thing about fraud, getting rich off of it.
      - rmrm 9y ago
        Their assets equal liabilities in either case (whether selling USDT directly for USD, or cyclling them through BTC). Call it what you will, but in neither scenario is anyone rich. Tether if backed by USD at the end of the day is revenue neutral. What am I missing?
        TeMPOraL 9y ago
        Tether being printed out of thin air if they're not backed by USD?
        rmrm 9y ago
        I dont understand your question. I think the math is fairly straightforward. There is a USD/USDT driven cross. Creating and destroying USDT is straightforward there. There is also a BTC/USDT cross. That creates a drive for USDT. If that demand to sell BTC and buy USDT bids up USDT, then USDT would be created, and the BTC would convert back to USD. I agree that Tether is not forthcoming that this happens, but yes this is exactly what I would expect to happen. Its not mysterious sounding to me, or necessarily nefarious. I dont understand why Im beimg downvoted, its a discussion about generic market mechanics. We can leave bogeyman words out of it.
        paulmd 9y ago
        Because Tether obviously does not have $2.3 billion in cash reserves on hand, there probably isn't 1/10th that volume of fiat in the entire cryptocurrency ecosystem (not market caps, liquid cash that could be withdrawn). They're writing checks they cannot cash, plain and simple. It's called "lying" and "fraud", your "but what if they did have the cash" is irrelevant, because they don't, and you're getting downvoted because you're aggressively refusing to address that point in favor of hypotheticals. Could you hypothetically have a legitimate Tether token? Yeah, sure. Is the Tether Foundation on the up and up? Hell no. There's a reason their auditor bailed before completing the audit.
- lucozade 9y ago
  > but if tether one day rises to 1.05 USD That's not the concern. The concern is that if you have a contract that promises to pay the bearer X and you don't pay the bearer X when they ask because you lied, then that's fraud. It's especially frowned upon when X has 10 digits before the dp. Now, I happen to think that the Tether folk have been a tad more crafty than some of the black and white commentary is making out. More specifically, if they've been careful with who they've allowed to set up accounts, it may be effectively impossible for them to be called out. I also don't think the CFTC calling in Dec is that interesting. It probably precipitated their change in T&Cs at the beginning of Jan though. Guess we'll find out.
- rhino369 9y ago
  That wouldn't be fraud (as long as they quickly converted from BTC to USD), but why would anyone do that?
  - rmrm 9y ago
    Because its exactly equivalent to selling Tether for USD, which we know they do. There are arguments that they couldnt have liquidated so much BTC, but I don't see any specific argument that leads on to assume that they wouldnt have. Unless one puts fraud as the entire goal. Which can't be discounted, but its just not obvious, to me.
    - rhino369 9y ago
      It's somewhat equvalent but more complicated and more expensive (Transaction costs at each step). It also has one huge downside, which accounts for why you wouldn't do it. You'd be flooding the market Tethers nobody is asking for, which risks crashing the value of Tethers. They could buy back the tethers for dollars to stablize the price, but that would make the whole transaction useless. There is also volitity risk. In a falling market they might lose money.
      - rmrm 9y ago
        True on volatility and transactions, I shouldnt have said exactly. But volatility speaks to why you would want to exit BTC as quickly as possible, if trying to avoid. One could argue it should net out to nothing over time. I dont see it as flooding the market with anything, the Tethers are created in effect by people exiting cryptos into Tether on all these exchanges that only deal with Tether rather than USD (potentially!). Lets step back to Tether creation. There are zero out there. Someone gives Tether $10 million for 10 million USDT. Those matriculate out in the universe, and are being exchanged back and forth for cryptos. Someone somewhere always holds those 10 million Tether. The price of cryptos rises and rises. Now all of a sudden the demand for USDT has increased, as people who exit crypto on those exchanges need more units than before, rather than 8500 USDT per BTC its 20000 USDT per BTC. No one has given Tether anymore USD directly for USDT. What would happen in this scenario is the price of USDT would rise. One way, not the only way, but one way for Tether to bring the price back under control, would be to buy BTC for USDT, issuing new shares, to bring the price back down. Which at $1 means equillibrium. Is that how things work, I certainly dont know. But that mechanism is one way it could work. And it could explain why USDT are created on down days. Its the demand of people getting out of BTC driving it. Now they could totally take that money and spend it on hookers and yachts for all I know...but thats at the end of the chain.

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.

by 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.

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.
  - ebbv 9y ago
    They're solvent in that scenario, sure, because they committed fraud. That's the great thing about fraud, getting rich off of it.
    - rmrm 9y ago
      Their assets equal liabilities in either case (whether selling USDT directly for USD, or cyclling them through BTC). Call it what you will, but in neither scenario is anyone rich. Tether if backed by USD at the end of the day is revenue neutral. What am I missing?
      - TeMPOraL 9y ago
        Tether being printed out of thin air if they're not backed by USD?
        rmrm 9y ago
        I dont understand your question. I think the math is fairly straightforward. There is a USD/USDT driven cross. Creating and destroying USDT is straightforward there. There is also a BTC/USDT cross. That creates a drive for USDT. If that demand to sell BTC and buy USDT bids up USDT, then USDT would be created, and the BTC would convert back to USD. I agree that Tether is not forthcoming that this happens, but yes this is exactly what I would expect to happen. Its not mysterious sounding to me, or necessarily nefarious. I dont understand why Im beimg downvoted, its a discussion about generic market mechanics. We can leave bogeyman words out of it.
        paulmd 9y ago
        Because Tether obviously does not have $2.3 billion in cash reserves on hand, there probably isn't 1/10th that volume of fiat in the entire cryptocurrency ecosystem (not market caps, liquid cash that could be withdrawn). They're writing checks they cannot cash, plain and simple. It's called "lying" and "fraud", your "but what if they did have the cash" is irrelevant, because they don't, and you're getting downvoted because you're aggressively refusing to address that point in favor of hypotheticals. Could you hypothetically have a legitimate Tether token? Yeah, sure. Is the Tether Foundation on the up and up? Hell no. There's a reason their auditor bailed before completing the audit.
lucozade 9y ago
> but if tether one day rises to 1.05 USD That's not the concern. The concern is that if you have a contract that promises to pay the bearer X and you don't pay the bearer X when they ask because you lied, then that's fraud. It's especially frowned upon when X has 10 digits before the dp. Now, I happen to think that the Tether folk have been a tad more crafty than some of the black and white commentary is making out. More specifically, if they've been careful with who they've allowed to set up accounts, it may be effectively impossible for them to be called out. I also don't think the CFTC calling in Dec is that interesting. It probably precipitated their change in T&Cs at the beginning of Jan though. Guess we'll find out.
rhino369 9y ago
That wouldn't be fraud (as long as they quickly converted from BTC to USD), but why would anyone do that?
- rmrm 9y ago
  Because its exactly equivalent to selling Tether for USD, which we know they do. There are arguments that they couldnt have liquidated so much BTC, but I don't see any specific argument that leads on to assume that they wouldnt have. Unless one puts fraud as the entire goal. Which can't be discounted, but its just not obvious, to me.
  - rhino369 9y ago
    It's somewhat equvalent but more complicated and more expensive (Transaction costs at each step). It also has one huge downside, which accounts for why you wouldn't do it. You'd be flooding the market Tethers nobody is asking for, which risks crashing the value of Tethers. They could buy back the tethers for dollars to stablize the price, but that would make the whole transaction useless. There is also volitity risk. In a falling market they might lose money.
    - rmrm 9y ago
      True on volatility and transactions, I shouldnt have said exactly. But volatility speaks to why you would want to exit BTC as quickly as possible, if trying to avoid. One could argue it should net out to nothing over time. I dont see it as flooding the market with anything, the Tethers are created in effect by people exiting cryptos into Tether on all these exchanges that only deal with Tether rather than USD (potentially!). Lets step back to Tether creation. There are zero out there. Someone gives Tether $10 million for 10 million USDT. Those matriculate out in the universe, and are being exchanged back and forth for cryptos. Someone somewhere always holds those 10 million Tether. The price of cryptos rises and rises. Now all of a sudden the demand for USDT has increased, as people who exit crypto on those exchanges need more units than before, rather than 8500 USDT per BTC its 20000 USDT per BTC. No one has given Tether anymore USD directly for USDT. What would happen in this scenario is the price of USDT would rise. One way, not the only way, but one way for Tether to bring the price back under control, would be to buy BTC for USDT, issuing new shares, to bring the price back down. Which at $1 means equillibrium. Is that how things work, I certainly dont know. But that mechanism is one way it could work. And it could explain why USDT are created on down days. Its the demand of people getting out of BTC driving it. Now they could totally take that money and spend it on hookers and yachts for all I know...but thats at the end of the chain.