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> If Tether worked as it was advertised there would be no profit opportunity Of cause there would. Even if the tokens are backed 1:1 by dollars it still has an
by hjk05 7y ago
> If Tether worked as it was advertised there would be no profit opportunity
Of cause there would. Even if the tokens are backed 1:1 by dollars it still has an exchange rate. So tether could issue at above 1 rates and buy at below 1 rates. That provides a very simple profit making scheme.
For users, they would often like to “cash out to tether” quickly, which means they’d undercut the exchange rate thus providing tether with a profit in exchange for swift processing.
> If we were in a fantasy land where Tether wasn’t fraudulent then the price variance of Tether on exchanges would be so minuscule that there would be no arbitrage opportunity for anyone to take advantage of.
I’m reminded of the joke where two wallstreet stock brokers are walking down the street, one says to the other “look a 50$ bill on the ground!” The other without looking down replies: “that’s impossible, if there was a 50$ bill on the ground someone would have picked it up.”
- notahacker 7y ago> Of cause there would. Even if the tokens are backed 1:1 by dollars it still has an exchange rate. So tether could issue at above 1 rates and buy at below 1 rates. That provides a very simple profit making scheme. If USDT is credibly backed by dollars this spread is tiny, not least because other holders of Tether can play the same game. And if USDT is backed by dollars held in cash in customer accounts as originally claimed, there's an enormous opportunity cost of not investing those dollars.
- tinco 7y agoHolders of Tether can play the same game, but they don't have the same advantage. Because of the knowledge imbalance, Tether has zero risk in this game. Any other player has the risk that they might lose money on a trade for whatever reason. I agree the spread might be tiny though. Though if Tether puts itself in a bad light every now and again it could force the spread a bit wider.