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> The real mystery to me is why rational traders continue to buy Tether at $0.9926 Unless there is reason to believe otherwise that I'm not aware of, shouldn't

by paulgb 8y ago

> The real mystery to me is why rational traders continue to buy Tether at $0.9926 Unless there is reason to believe otherwise that I'm not aware of, shouldn't we assume that this is just Tether buying up the supply to keep the peg? Isn't that how a stablecoin is supposed to work?

panarky 8y ago
> this is just Tether buying up the supply to keep the peg Buying up the supply with what? Skeptics claim Tether isn't backed by actual dollars, so it's impossible to convert Tether for dollars. But if Tether is buying up the supply, what are the sellers of Tether receiving in return? If they're getting dollars, then doesn't that refute the skeptics' claims?
- paulgb 8y ago
  Skeptics generally claim it's not backed 1:1, not that they have zero dollars left. They can afford to buy up the demand until at some point they can't.
  - jandrese 8y ago
    Otherwise known as a Ponzi scheme.
    - jerguismi 8y ago
      More like fractional reserve banking.
      - Scoundreller 8y ago
        You can be solvent (assets = liabilities) with fractional cash reserves. You can also be insolvent (assets << liabilities), in which you must be fractional too.
        jerguismi 8y ago
        Usually by insolvency is meant that the bank doesn't have enough liquid, hard assets to cover up the withdrawals from the bank. Bank can have varying assets such as bonds that it has lent out, but if the bank has lent out a lot of money to some people who can't pay the loans or other banks are unwilling to buy, it can be insolvent even if on paper it has "assets".
        Scoundreller 8y ago
        It looks like “insolvency” is ambiguous, and we should differentiate between cash flow vs balance sheet insolvency.
- dragonwriter 8y ago
  > But if Tether is buying up the supply, what are the sellers of Tether receiving in return? If they're getting dollars, then doesn't that refute the skeptics' claims? No, since Tether and Bitfinex are the same company. While it's the opposite direction of the recent NY AG issue, if Bitfinex company or client account funds were raided to buy Tether for price support purposes, that doesn't require Tether to be backed by any dedicated reserves. After taking $700m out of whatever funds were backing Tether to paper over the loss of Bitfinex funds, raiding Bitfinex funds to prop up Tether wouldn't be out of character, though obviously that kind of back and forth shell game would be unsustainable in the long term.
  - FireBeyond 8y ago
    > No, since Tether and Bitfinex are the same company. Right, despite previous protests to the contrary, the court filing noted (and I'm surprised that the article didn't, though it hinted at that) that the "arm's length" loan document was signed by the same two corporate officers, on both sides of the contract.
- patio11 8y ago
  The price of Bitcoin as denominated in tethers is increasing (supply/demand as people attempting to exfiltrate value to a safer asset) and Bitfinex has quite a lot of Bitcoin, both their own, their reserves, and other people's, so they can hold a peg until they can't, making trading profits all the way, as long as their counterparties and regulators let them.
- matthewdgreen 8y ago
  The claim is that Tether isn't backed by enough dollars to cover the number of Tethers in existence. There could still be a bunch of dollars in the bank.
nostrademons 8y ago
Could also be unattended arbitrage bots. These are programmed to look at the price on multiple exchanges and if it diverges, buy on the cheap exchange and simultaneously sell on the expensive exchange. Under current market conditions, that means buying (for USD) on Coinbase, Gemini, and other fiat exchanges, and selling (for Tether) on Bitfinex, Binance, and other Tether-based exchanges. When the music stops, they'll be left with zero dollar reserves, zero Bitcoin reserves, and a hoard of worthless Tether.
- jerguismi 8y ago
  On the other hand people have been saying the same about tether for many years, and it still has kept the peg at pretty good levels. And it is still the most liquid and biggest "stablecoin". Many seem to need this kind of thing so they keep using it even when there are risks involved.

by paulgb 8y ago

panarky 8y ago

> this is just Tether buying up the supply to keep the peg Buying up the supply with what? Skeptics claim Tether isn't backed by actual dollars, so it's impossible to convert Tether for dollars. But if Tether is buying up the supply, what are the sellers of Tether receiving in return? If they're getting dollars, then doesn't that refute the skeptics' claims?

paulgb 8y ago
Skeptics generally claim it's not backed 1:1, not that they have zero dollars left. They can afford to buy up the demand until at some point they can't.
- jandrese 8y ago
  Otherwise known as a Ponzi scheme.
  - jerguismi 8y ago
    More like fractional reserve banking.
    - Scoundreller 8y ago
      You can be solvent (assets = liabilities) with fractional cash reserves. You can also be insolvent (assets << liabilities), in which you must be fractional too.
      - jerguismi 8y ago
        Usually by insolvency is meant that the bank doesn't have enough liquid, hard assets to cover up the withdrawals from the bank. Bank can have varying assets such as bonds that it has lent out, but if the bank has lent out a lot of money to some people who can't pay the loans or other banks are unwilling to buy, it can be insolvent even if on paper it has "assets".
        Scoundreller 8y ago
        It looks like “insolvency” is ambiguous, and we should differentiate between cash flow vs balance sheet insolvency.
dragonwriter 8y ago
> But if Tether is buying up the supply, what are the sellers of Tether receiving in return? If they're getting dollars, then doesn't that refute the skeptics' claims? No, since Tether and Bitfinex are the same company. While it's the opposite direction of the recent NY AG issue, if Bitfinex company or client account funds were raided to buy Tether for price support purposes, that doesn't require Tether to be backed by any dedicated reserves. After taking $700m out of whatever funds were backing Tether to paper over the loss of Bitfinex funds, raiding Bitfinex funds to prop up Tether wouldn't be out of character, though obviously that kind of back and forth shell game would be unsustainable in the long term.
- FireBeyond 8y ago
  > No, since Tether and Bitfinex are the same company. Right, despite previous protests to the contrary, the court filing noted (and I'm surprised that the article didn't, though it hinted at that) that the "arm's length" loan document was signed by the same two corporate officers, on both sides of the contract.
patio11 8y ago
The price of Bitcoin as denominated in tethers is increasing (supply/demand as people attempting to exfiltrate value to a safer asset) and Bitfinex has quite a lot of Bitcoin, both their own, their reserves, and other people's, so they can hold a peg until they can't, making trading profits all the way, as long as their counterparties and regulators let them.
matthewdgreen 8y ago
The claim is that Tether isn't backed by enough dollars to cover the number of Tethers in existence. There could still be a bunch of dollars in the bank.

nostrademons 8y ago

Could also be unattended arbitrage bots. These are programmed to look at the price on multiple exchanges and if it diverges, buy on the cheap exchange and simultaneously sell on the expensive exchange. Under current market conditions, that means buying (for USD) on Coinbase, Gemini, and other fiat exchanges, and selling (for Tether) on Bitfinex, Binance, and other Tether-based exchanges. When the music stops, they'll be left with zero dollar reserves, zero Bitcoin reserves, and a hoard of worthless Tether.

jerguismi 8y ago
On the other hand people have been saying the same about tether for many years, and it still has kept the peg at pretty good levels. And it is still the most liquid and biggest "stablecoin". Many seem to need this kind of thing so they keep using it even when there are risks involved.