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Crypto Coin Tether Defies Logic on Kraken’s Market, Raising Red Flags
- arisAlexis 8y agoit's amazing how everyone is focused or trivial stuff and hate all blockchain tech. there was an article about bitd with zero upvotes and this fud had 200
- trophycase 8y agoI don't understand. Of course the orders don't move the price because any move away from 1.00 can be quickly arbitraged away. There is going to be massive liquidity in the books around 1.00 because that is its fixed, known price. There is no discovery happening here.
- ISL 8y agoI'm no Tether expert, but late in the article, it suggests that new Tethers are supposed to be issued if the price reaches $1.1 . It is interesting to me that there is any substantial demand for a Tether, when $1 is always worth $1. If Tethers are actually worth $1, why not convert them to dollars and avoid the counterparty risk entirely?
- cslarson 8y agoThere may be demand for tether to use on exchanges that don't have real $ trading but otherwise have good liquidity on lots of tokens.
- rewtraw 8y agoTether is more convenient (faster) than exchanging for USD. And many exchanges don't support USD/Fiat so the only way to sell tokens for a stable currency is to exchange for Tether.
- trophycase 8y agoExchanges with actual USD pairings generally have low volume (Kraken, on account of its terrible engine) or few coins listed (gdax, gemini). So if you want to hedge in fiat on a higher volume exchange like bitfinex or binance and also want to trade alts, you will need tether. The price of tether will likely never reach 1.1 unless there are solvency concerns. Any price disparity between BtC/usdt and BTC/USD has historically disappeared, so you can pseudo-arbitrage these pairs across exchanges even though they are technically not the same. Kraken's USD/USDT pair also makes this bridge easier.
- thisisit 8y agoThere are many reasons why they are not converted. For one, the business with Tether started when Bitfinex was hacked. Secondly, AFAIK many exchanges including Bitfinex had trouble letting people withdraw USD. I am not entirely sure if that has changed recently. So, in both cases Tether acts as a counterparty to BTC trades. In most cases, the BTC/USD pair is not actual USD but TUSD.
- aeternus 8y agoNew Tethers are not supposed to be issued if the price reaches $1.1, I believe the article got that part wrong. Tether should only be issued based on the amount of USD that Tether has in its bank account / vaults (they have released a 'audit' by a law firm but not by an official auditor). Since each Tether represents exactly $1, market forces should handle the pegging. Assuming people trust that Tether does have the USD, then any price < or > $1 represents an arbitrage opportunity. The demand for Tether comes from the fact that many exchanges are not licensed to operate in USD. Tether is used in place of USD on those exchanges, and the counterparty risk you mention is likely balanced by arbitrage opportunity.
- bitreality 8y agoThe USD/USDT price has no impact on if Tethers are issued. A USD/USDT trade occurs on only a few markets, one of which is Kraken, and it requires one party to already have USDT, which they are then selling for "real" USD.
- pjc50 8y agoDollars have to be sent through a bank, and too many of the exchanges have been cut off from the banking system. They exist to let money circulate between those exchanges and the few real USD exit points of the system. It's not clear if tether can really be "redeemed".
- mygo 8y agoTether, in theory, actually has a real use case. It can be used as a stable intermediary between exchanges that do not support USD and exchanges that do. But in practice I don’t know enough to be confident that a tether is always going to be $1.
- ggggtez 8y agoBasic point is: If 37.5 moves the price 0.0002, and 13,076.389 only moves it by half that, then the second purchase is fake (trading to yourself). In reality, it might look like there are thousands of tether being traded around, but actually there are probably only a couple real trades, and relatively low volume ones at that. That difference can indicate that the suggestion that they are backed by USD is bullshit. For example, they are likely avoiding hitting 1.10 on purpose so they can avoid scrutiny on re-issue.
- trophycase 8y agoI'm not sure how Kraken trading to themselves would indicate that Tether is not backed. Kraken is not associated with tether and their volume is not large and contributes very little to the market. And how does someone trading to themselves have any effect on price whatsoever? If there was real liquidity on Kraken and the price actually hit 1.10, then Bitfinex/Tether could simply print tether and arbitrage the difference themselves, essentially creating the tether out of all the money they made arbitraging, meaning it is fully backed. If the accusation is wash trading I just don't see how that would matter.
- darawk 8y agoYep. Not to mention the fact that there is a tether usd market on Bittrex, and a tether/trueusd market. As well as a Tether/TrueUSD market on Binance. TrueUSD is a US-based company with properly audited reserves. There is zero chance that all of these markets are manipulated.
- JumpCrisscross 8y ago> There is zero chance that all of these markets are manipulated This lacks the imagination of market manipulators from even the 19th century. For more modern context, see penny stocks. These are traded OTC at a variety of venues. Manipulation is trivial given (a) prices on one venue are broadcast to others, thereby letting one bad apple spoil the bunch and (b) electronic trading makes overseeing dozens of accounts easy.
- JumpCrisscross 8y ago> Of course the orders don't move the price because any move away from 1.00 can be quickly arbitraged away Former algorithmic trader. You're right–the ceiling isn't particularly unusual. That prices never cross through is weird, but not inexplicable. What is inexplicable is the downtick inelasticity. Large sell orders should burn through more book than small orders. As the top of the order book is burned, lower bids are revealed. Even in the presence of lots of arbitrageurs, there will be transactions at those newly-revealed lows. That isn't happening. Instead we see a stable harmonic evocative of wash trading.
- 100qs 8y agoSuppose wash trading is indeed occurring, what is the benefit to the perpetrator? Fees are 0.20% for both maker and taker on Kraken. You'd have to pay ~$52,000 to print a $13 million trade.
- JumpCrisscross 8y ago> what is the benefit to the perpetrator? Let's assume a third-party manipulator (i.e. they can't print new Tether). To make this economical, they would need an in with at least one exchange. Their trades on this venue (let's call it ShadyBit) would be free, or close to it. This is where the majority of their wash trades happen. If one naïvely averages volume across the market, this will do the trick. But the jig will fall apart if another exchange starts sharply diverging. So you set up sock puppet accounts there to soak up excess demand. As long as you keep the confidence game balanced, there shouldn't be too many people looking to sell at unusually low prices. In the meantime, you can continue using your inflated-value tokens as collateral for borrowing or to buy appreciating assets or to sell or whatnot.
- dmurray 8y agoBut this isn't happening. Rather than being artificially inflated, the price of Tether stays at $1 (to three significant figures) on all the exchanges.
- rthomas6 8y agoI don't understand why there isn't more hype around the DAI stablecoin. It's an ERC-20 token that is pegged to USD through known collateral and economic incentives in a smart contract. It doesn't have any of the problems with Tether of the collateral not being transparent or not fully knowing how the price is staying pegged. https://makerdao.com/ https://makerdao.com/
- JumpCrisscross 8y ago> pegged to USD through known collateral I'm skeptical of any stable coin. Doubly so when they're pegged to U.S. dollars. Banks holding U.S. dollars follow American AML rules. Those include requirements around tracing beneficial ownership. Since nobody knows who beneficially owns a stablecoin, there is nobody who can vouch for those dollars' beneficial owners.
- snissn 8y agohave you read about it?
- htormey 8y agoLook at TrueUSD. They are a US based company that holds USD in escrow and do this: https://www.trusttoken.com/trueusd/ https://www.trusttoken.com/trueusd/ I was at a talk by them last week and they talked through the process they used to stay compliant.
- JumpCrisscross 8y ago> US based company that holds USD in escrow It appears TrueUSD has set up a "legal framework [which] enables you to exchange USD directly with escrow accounts" [1]. When cashing out, you "receive USD from one of the escrow accounts in [their] network of fiduciary and banking partners to purchase or redeem TrueUSD." (You also need to pass "a standard KYC/AML check." This is much better than Tether. But I'm still skeptical. If a TrueUSD token is frozen as part of a bankruptcy or divorce case, or is involved in criminal proceedings, is the token frozen or the entire escrow account? How do the escrow account managers certify they know the beneficial owners of their escrow accounts? "Know your customer" is a basic American financial principle, and one stable coins of any stripe inherently butt up against. [1] https://blog.trusttoken.com/trueusd-a-usd-backed-stablecoin-you-can-trust-9688796cfd0d https://blog.trusttoken.com/trueusd-a-usd-backed-stablecoin-...
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- crb002 8y agoSo they are arbitraging an inneficent market? Easy fix is for sellers/buyers to use limit orders. With a trusted third party they can settle with no juice to an arbitrager.
- mar77i 8y agoOh look, my earlier comment is relevant again. https://news.ycombinator.com/item?id=17350291 https://news.ycombinator.com/item?id=17350291
- mttrys 8y agoWhat about Abra and their ability to delta hedge with synthetic contracts to peg your money to USD?
- JumpCrisscross 8y ago> their ability to delta hedge with synthetic contracts to peg your money to USD? What's being delta hedged?
- qeternity 8y agoDelta is the derivative of the price of an option with respect to the price of the underlying. Delta hedging is offsetting your option/derivative delta with some other source of delta, typically the underlying.
- JumpCrisscross 8y agoPardon me, I was confused about who was delta hedging what with Abra, given the paucity of non-linear anything around cryptocurrencies.
- cornholio 8y agoOn the tether market there is active (as it should be) a $10 billion gorilla that acts as a market maker. The price is 100% manipulated, as it should be. What they seem to prove is that on this particular market, a wash trader is active, that fakes volume. There is little benefit in this for the gorilla, and a lot of benefit for Kraken itself.
- coolspot 8y agoGorilla might be interested in fake volume to simulate bullish signals for rest of the market, in order to raise valuation of coins.
- bitreality 8y agoI think they'd just prefer no one speculating on Tether at all. If Tether had a bunch of people actively trading the USD-Tether pair, it would be much more expensive to keep the price fixed. By keeping the price volatility extremely low, they discourage speculators from trading, since they don't stand to make a profit without price movement.
- PoarNeemn 8y agoA cryptocurrency doing something shady, who could have imagined.
- Jommi 8y agoPeople should realize that kraken offers USDT and EURT darkpool orders. Of course they wont show up.
- thwd 8y agoDarkpool orders don't show while pending but once filled they show in the historical trades dataset.
- lowdest 8y ago>He can’t wrap his mind around why orders for 13,076.389 Tethers keep popping up on Kraken. “No human would enter that order,” he said. “It doesn’t make sense.” I'm a small time automated trader, and I've made many thousands of orders that extend out to 5 or more decimal places. There's nothing unusual about this to me. My code will take a single uneven dollar amount and make X equal trades out of it. Every few days I add an uneven amount of profit back into the original amount and then I'm trading a new 5+ decimal place dollar amount. >On May 9, eight sell trades for 13,076.389 Tethers each occurred in succession over 16 seconds, yet Tether’s price was unchanged at 0.999. The next trade—for just 75 Tethers—pushed the price up 0.0001. Is this not just the bid-ask spread? Of course sell trades and buy trades execute at different prices, that's how a limit order book works. The concern around Tether may well be justified, but some of the things I've seen presented as evidence suggest a lack of understanding about what normal exchange activity can look like.
- deltateam 8y ago> The concern around Tether may well be justified, but some of the things I've seen presented as evidence suggest a lack of understanding about what normal exchange activity can look like. MOST of the concerns I've seen about Tether are based on a lack of understanding about how most markets work. Its funny to me because the reasons I don't use Tether have to do with it being centralized in general, (with the assumption that they are full reserve). The systemic risk fractional reserve fear is why other people are concerned about Tether, and it doesn't really matter? That company is a huge target either way! If they seek to prove their reserve by an accountant, then their banking partner gets exposed and will close Tether's accounts, or that bank will be cut off by other banks. This is what has happened in the past, when Wells Fargo cut them out of their international wires route.
- wmf 8y agoThey finally solved the banking problem by starting their own bank, although you still can't get USD in or out for some reason.
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- csomar 8y agoSmall/Big orders move price by the same factor doesn't mean Tether is defying logic. Market maker ask for a higher price (or lower) based on volume only on volatile assets. If you are almost 100% certain that Tether are USD-backed, then your operation is easy. You put bids/asks just 0.x% from $1 and you sell/buy Tether back and forth providing liquidity. Market making is a competitive operation so the margins get smaller. Some people need to pay fees, some don't. So it might not be profitable for everyone. The fee on Kraken reduces to 0% for market makers if they make enough volume. The volume on Kraken could be dismissed as too small comparing to other actors. Tether is mainly used by binance, hitbtc, okex, huobi... as a trading pair for crypto. They are dealing hundreds time more volume than Kraken. This is not an acknowledgement that Tethers are safe. But that this study is rather not very informative and not well researched.
- scotty79 8y agoI thought the whole idea of tether is that the price is purposely manipulated to be worth roughly 1 dollar? I think seed capital of people who funded tether is used for that. How else could you have stable price of anything durable and tradeable? Even if you have some control over supply you'd still be lagging behind demand and won't be taking into account supply that private holders will provide.
- Animats 8y agoClearly, someone, presumably Bitfinex, is propping up the market. That's what they are supposed to be doing. The question is whether they have the financial strength and will to do it in times of stress. Historically, price pegs like this break at some point. Think of Tether as a trading convenience. It's needed only because Bitcoin "exchanges" are so difficult about wire transferring money out. (With real stockbrokers, cash can be wire transferred out within hours with no nonsense. A firm that can't do that goes bankrupt within days.) Don't keep money in Tether for long.
- windows_tips 8y ago>It's needed only because Bitcoin "exchanges" are so difficult about wire transferring money out. (With real stockbrokers, cash can be wire transferred out within hours with no nonsense...) I've sold and 'cashed out' of gdax in the morning and had they money in my credit union account by about noon for no fee.
- DINKDINK 8y agoThe people writing these articles are astoundingly ignorant yet think themselves geniuses. How is it that they don't understand no one is willing to pay a premium or sell at a discount for assets who have parity in value? They are confounded that the data (USDT and USD have parity in value) doesn't fit their narrative (USDT doesn't have value) and so look for Procustean methods to fit it: No it's not that the broader market is in agreement that there's value parity, there's something afoot. This is Geocentric and Heliocentric: https://en.wikipedia.org/wiki/Copernican_Revolution#/media/File:Apparent_retrograde_motion.gif https://en.wikipedia.org/wiki/Copernican_Revolution#/media/F...
- thwd 8y agoThis! Nobody that uses Tether wants it to be more or less than exactly 1 USD. Its value (its utility, its function) is to equal 1 USD. Anyone placing an order way above or below 1 USD can expect it to never fille and even if it did, the market would correct immediately because it is in the interest of the majority to be tethered to the dollar.
- talltimtom 8y agoTrue, someone trying to cash out a large amount of tether well below 1$ can expect the deal to go unfulfilled while washtrades around 1$ continue.
- MoBattah 8y ago.....not exactly. Most exchanges use NBBO-like mechanisms. "National Best Bid and Offer (NBBO) is a regulation by the United States Securities and Exchange Commission that requires brokers to execute customer trades at the best available ask price when buying securities, and the best available bid price when selling securities." So even if you wanted to sell your Tether for $0.50 each, it'll execute at ~$1.
- jen729w 8y agoBeen reading Philip K. Dick recently, have we?
- gcbw2 8y agoSo annoying that the author links send me to twitter instead of a bio.
- Canada 8y agoI have the usual reservations about tether: that bitfinex doesn't actually have the reserves or that one day it won't be able to get actual dollars where they need to be to keep it going. But seriously, why does the financial press get away with constantly inventing causation? "Bitcoin tumbled following the report." Great insight there. And also the Earth continued spinning.
- beefield 8y ago> But seriously, why does the financial press get away with constantly inventing causation? I guess the customers of financial press would not find "Market did some random fluctuations with no cause whatsoever" that valuable reporting after repeated about a hundred times in row - even if that in many cases would be more accurate reporting than the invented causations.
- Canada 8y agoYeah, I get it. But when the the market is already trending in a very clear direction, to have the gall to suggest it turned that direction, when it was already plainly going there, because of some thing which is so much less significant than the very article giving it hype... The reporters have less integity than the most blatent, transparent scam. Pick the most blatent Ponzi scheme, they are no better. And yet, this finace press does it as easily and regularly as breathing.
- tristanho 8y agoI recently read this phenomenal article on stablecoins: https://medium.com/reserve-currency/why-another-stablecoin-866f774afede https://medium.com/reserve-currency/why-another-stablecoin-8... Here's some relevant context on how Tether works: > A traditional asset-backed stablecoin is simple to describe, and only gets complicated in practice. The issuer sells tokens for $1 each, and holds all of the dollars from those sales in reserve in a bank account. Any time someone wants to, they can redeem tokens for dollars with the issuer. This design is best with a trustworthy audit mechanism, like Trust Token is using for TrueUSD, in order to reassure holders that the money is there. > This means that the issuer can maintain a buy wall equal in size to 100% of the circulating supply of the stablecoin at all times. If it’s a trustworthy actor and does in fact maintain that buy wall, it can implement a perfect currency peg. This system is a lot like Hong Kong’s currency board, which has classically maintained very high USD reserves, and had no trouble weathering the storm in the Asian Financial Crisis we referenced earlier, in which many exchange rate pegs broke.
- PeterisP 8y agoThe key words in the article is the "if" part, "If it’s a trustworthy actor and does in fact maintain that buy wall". There's a very, very, very large difference between an issuer that actually "holds all of the dollars from those sales in reserve in a bank account" and an issuer that only makes unaudited claims that they do so, like Tether. In the absence of reasonably expected evidence, you should assume that such claims may not be true.
- tstegart 8y agoCan someone explain what the purpose of this would be in plain English and plain math? I see a lot of claims but I don't understand how they work. For example, if the goal was to make money, can someone explain how $1000 would travel through this system and end up with a profit? If the goal was to benefit tether, how would $1000 in trades accomplish that?
- jpatokal 8y agoTether's point is to be a fast way to get in and out of unstable cryptocurrencies. If you convert BTC to cold hard USD, you have to talk to a bank at some point and that's slow and imposes KYC requirements. Converting BTC to USDT, on the other hand, is effectively instant, and Tether's promise is that one USDT will always be worth one USD. The catch, of course, is whether that promise is true and if it's even possible to convert your USDT to actual USD, and the answer to both seems to be "no"...
- tstegart 8y agoI get that, but how does this suspicious trading do anything? What does it do? It just seems suspicious at this point, but I can't actually find the math to work out the purpose, even though some people in the thread are claiming its alternatively making someone money or supporting the peg, but doesn't say how.
- tedunangst 8y agoIf I had a large amount of tether, I might wonder if I could convert that to cash money. So I look at the exchange, see lots of trades being done, and conclude that when the day comes for me to cash out it will be possible. After all, look at all these other people cashing out with no difficulty. Allegedly. Having concluded I can cash out tomorrow, I won't try to cash out today. Which would be the point.
- b1daly 8y agoThe thing that should be a huge red flag about tether is that there is ~$2.5 billion in notional value of tethers floating around. (I think the bulk these are held by exchanges, on behalf of their customers or themselves.) There is no possible mechanism by which these tethers can actually be redeemed for US $. The Tether company does not offer this service, which is incredible. For someone to exchange their tethers for dollars requires them to have an account at an exchange that uses tether, with US dollar services, who reliably will let customers withdraw said dollars. As far as I know, there are no such entities who are willing or able to provide such a service. This alone should cause the tether peg to break. It seems like this lack of liquidity (is that the right term?) would enable a dollar peg to be maintained at a much lower cost, through wash trading or other trading on an exchange like Kraken. It's incredible to me that people are willing to entrust significant amounts of hard cash to this house of cards. I guess some people have money to burn.
- A2017U1 8y ago>As far as I know, there are no such entities who are willing or able to provide such a service. Kraken offer such a service, this article is about kraken and it specifically mentions USD/usdt trading on the exchange.
- duskwuff 8y ago> Kraken offer such a service... Kraken offers an exchange between USD and USDT. When you perform an exchange, you are trading USD for another user's USDT, or potentially for USDT issued directly by Tether. The exchange is performed at market rates, which can fluctuate. Tether claims on their web site that USDT can be redeemed, which would presumably be a process by which one USDT is destroyed and the holder receives exactly one USD in return. However, this process does not appear to actually be available to anyone.
- A2017U1 8y agoI suggest you read the comment I was responding to again. My reply was accurate. >However, this process does not appear to actually be available to anyone. Tethers have been redeemed by exchanges and burnt, this is visible on the omni chain explorer. Theres only a handful of actual customers allowed to buy and redeem directly with tether.
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- tgsovlerkhgsel 8y agoWould this behavior be inconsistent with entities believing into the tethering effect, and trying to use it to arbitrage? The fact that the market doesn't behave like any "normal" market for a good that isn't expected to have a tightly "tethered" price is not particularly weird in my eyes.
- swang 8y agoOne of the things promised about Tether was full audits. And here we are now with nary an audit. I'm surprised so many on here are defending or semi-defending Tether. All of this smells of manipulation yet people on here seem to be defending them. I'm not an expert on any of this but if there's been no credible excuse for not having an audit, and part of the whole attractiveness initially of Tether was "full audits" how can you possibly continue to trust them unless you have significant money sunk into it?
- wu-ikkyu 8y ago>I'm surprised so many on here are defending or semi-defending Tether. Wouldn't the price of BTC take a big hit if the suspicions of Tether prove to be true? I suspect there may be some unconscious cognitive dissonance going on for those who may be holding BTC if not Tether.
- A2017U1 8y agoBy the same measure isn't there just as many invested in other coins that would stand to benefit from negativity around tether and bitcoin? You can't believe many things in cryptocurrency.
- steveharman 8y ago"Many other orders go out to five decimal places, numbers like 34.08652* Google "numbers stations'. It's the cold war all over again, updated for 2018. See also; conspiracies are everywhere (TM)
- nootropicat 8y ago>assume tether conspiracy theory is true >discover behavior perfectly explained by an automated arbitrage of a redeemable token >was the assumption wrong? >impossibru "it could be a signal"