5 ms·

So far the explanation I’ve come across goes as follows: someone creates tether. They use this tether to buy bitcoin, which drives up the prices of bitcoin. The

by c-fe 6y ago

So far the explanation I’ve come across goes as follows: someone creates tether. They use this tether to buy bitcoin, which drives up the prices of bitcoin. The more they buy, the more value their purchased bitcoin has. The trick seems to be that generating this tether should decrease the value of tether, however since everyone thinks its a stablecoin that is backed by usd 1:1, its value remains the same. The worst is that the purchased bitcoin increases in value, so technically they could sell that bitcoin for usd, then use that usd to temporarily back their printed tether... (This is my understanding of the situation and from the reading the explanations of other people, but please take this with a grain of salt, im not sure if everything is true)

shuntress 6y ago
I've gathered basically this same explanation but it still makes no sense. Are people trading BTC for "Land for sale on the moon" too? This sounds like exchanges handing out IOUs instead of money when their patrons try to cash out.
- 40four 6y ago
  It’s not individuals buying Tether from Bitfinex and then buying Bitcoin that causes this. It is Bitfinex as an organization ‘printing’ free money and using it to pump the market.
  - shuntress 6y ago
    >Bitfinex as an organization ‘printing’ free money and using it to pump the market. How?
    - c-fe 6y ago
      like I mentioned above, it is speculated that they are the ones who are printing the tether, then use that to buy bitcoin. They are then probably hoping that whoever receives tether for selling their bitcoin does not immediately want usd, but instead is happy with the tether as it is 'backed 1:1'. (Again, I have to stress that this is a theory i read somewhere on the internet, while lots of things add up, it may also be completely off.) They 'pump the market' because buying bitcoin increases its scarcity, thus raising the price.
      - alisonkisk 6y ago
        But who is selling their (temporarily) valuable bitcoin for worthless tether instead of USD?
        FabHK 6y ago
        Many exchanges eschew fiat due to regulation. So you can only exchange crypto for stable coin crypto there.
      - gillesjacobs 6y ago
        > But who is selling their (temporarily) valuable bitcoin for worthless tether instead of USD? You're asking what the utility of stablecoins is: Stablecoins are widely used as a legislatively advantageous on- and off-ramp for the whole crypto market. Off-ramp: If people want to sell BTC or other volatile tokens because they want to realize profits, the obvious thing would be to sell for fiat (USD/EUR). But due to taxation and legislation this is often difficult. Stablecoins like Tether provide the utility of a low-volatility currency that fiat would fill. Main advantage is bypassing legislation. This use is so common there is jargon for "Tethering up". There also exist many debit cards that allow paying with stablecoins, increasing utility. The rise of DeFi and money markets for stablecoins also provides a good return on stablecoins while in theory being low-volatility. On-ramp: If people want to buy a certain token they first go into Tether. This is usually for bypassing local legislation limiting the buying of a specific token or use of exchanges. This use is less common, I would wager. Of course, for any of this to be actually useful Tether has to remain the same price. If Tether starts to deviate significantly from the 1USD peg, a liquidity crisis cuold be triggered. Personally, I haven't trusted Tether since the first BitFinex scandals and avoid it like the plague. For my stablecoin needs, I use something that is audited and over-collateralized like DAIv2.
        Slikey 6y ago
        This sounds incredibly illegal. I can't imagine trading like this is wanted by legislators and even if Tether is currently backed 1:1 there is no way that legislators will allow this to keep happening eventually crashing the entire Tether currency into the ground.
    - deleted 6y ago
      [deleted]
  - martinko 6y ago
    Nonsense. If this were the case then tether could not trade at par.
    - raesene9 6y ago
      It could, if the major exchanges accept that it does and continue to back that notion...
    - peteradio 6y ago
      (narrator) tether could not trade at par
    - deleted 6y ago
      [deleted]
    - gruez 6y ago
      I suppose this could work as long as you don't print too much. Let's say you have $10M USD in deposits. You can print $20M in USDT as long as you're reasonably sure that on average, people don't withdraw 50% of their deposits. This gets tricky though because USDT is used by multiple exchanges, so I'm not sure what exactly would happen if everyone withdraws their deposits not in USD, but in USDT to another exchange. They'd all need to be in on the conspiracy with some sort of settlement system to transfer money between them.
    - 40four 6y ago
      I'm not a finance or a crypto expert, so don't take my word on it. But many people way smarter than me have been trying to prove this hypothesis for years. Bitfinex doesn't exactly have a reputation that deserves any trust, so I wouldn't put it past them. I think there is a good reason Coinbase does not allow trading Tether.
- defen 6y ago
  Let's say you think Bitcoin is going to crash (or you're a trader and just think it's going to go down). Obviously you want to sell your bitcoin, but also postulate that you don't have a connection to a real bank (KYC and all that), so you can't actually turn your Bitcoins into dollars. So you sell your Bitcoins for Tethers. Then Bitcoin goes down, and eventually you buy them back using Tethers.
bootlooped 6y ago
Do most people even believe that Tether is backed 1:1? Or are they just playing along because it's in their interest?
- londons_explore 6y ago
  All we can be sure of is that the money put into tether is greater or equal to the money taken out. If people didn't believe it, they would sell (either for BTC or real dollars), and if enough people did that then tether would collapse. My suspicion is there are enough dormant tether holders that the above will never occur, even if there have been some substantial fraud losses.
  - alisonkisk 6y ago
    There's a lot of room for delayed fraud, same as when banks fail. Imagine I secretly remove the contents of everyone's safe deposit boxes. I get rich selling what I stole, but no one is any poorer until much later when they try to cash out their treasures and realize they are gone. USDTether is an empty safe deposit box.
    - londons_explore 6y ago
      My argument is if some people aren't regularly looking in their safe deposit box, the fraud might never cause a collapse.
      - hannasanarion 6y ago
        The New York Attorney General is going to look into the box on January 15.

by c-fe 6y ago

shuntress 6y ago

I've gathered basically this same explanation but it still makes no sense. Are people trading BTC for "Land for sale on the moon" too? This sounds like exchanges handing out IOUs instead of money when their patrons try to cash out.

40four 6y ago
It’s not individuals buying Tether from Bitfinex and then buying Bitcoin that causes this. It is Bitfinex as an organization ‘printing’ free money and using it to pump the market.
- shuntress 6y ago
  >Bitfinex as an organization ‘printing’ free money and using it to pump the market. How?
  - c-fe 6y ago
    like I mentioned above, it is speculated that they are the ones who are printing the tether, then use that to buy bitcoin. They are then probably hoping that whoever receives tether for selling their bitcoin does not immediately want usd, but instead is happy with the tether as it is 'backed 1:1'. (Again, I have to stress that this is a theory i read somewhere on the internet, while lots of things add up, it may also be completely off.) They 'pump the market' because buying bitcoin increases its scarcity, thus raising the price.
    - alisonkisk 6y ago
      But who is selling their (temporarily) valuable bitcoin for worthless tether instead of USD?
      - FabHK 6y ago
        Many exchanges eschew fiat due to regulation. So you can only exchange crypto for stable coin crypto there.
    - gillesjacobs 6y ago
      > But who is selling their (temporarily) valuable bitcoin for worthless tether instead of USD? You're asking what the utility of stablecoins is: Stablecoins are widely used as a legislatively advantageous on- and off-ramp for the whole crypto market. Off-ramp: If people want to sell BTC or other volatile tokens because they want to realize profits, the obvious thing would be to sell for fiat (USD/EUR). But due to taxation and legislation this is often difficult. Stablecoins like Tether provide the utility of a low-volatility currency that fiat would fill. Main advantage is bypassing legislation. This use is so common there is jargon for "Tethering up". There also exist many debit cards that allow paying with stablecoins, increasing utility. The rise of DeFi and money markets for stablecoins also provides a good return on stablecoins while in theory being low-volatility. On-ramp: If people want to buy a certain token they first go into Tether. This is usually for bypassing local legislation limiting the buying of a specific token or use of exchanges. This use is less common, I would wager. Of course, for any of this to be actually useful Tether has to remain the same price. If Tether starts to deviate significantly from the 1USD peg, a liquidity crisis cuold be triggered. Personally, I haven't trusted Tether since the first BitFinex scandals and avoid it like the plague. For my stablecoin needs, I use something that is audited and over-collateralized like DAIv2.
      - Slikey 6y ago
        This sounds incredibly illegal. I can't imagine trading like this is wanted by legislators and even if Tether is currently backed 1:1 there is no way that legislators will allow this to keep happening eventually crashing the entire Tether currency into the ground.
  - deleted 6y ago
    [deleted]
- martinko 6y ago
  Nonsense. If this were the case then tether could not trade at par.
  - raesene9 6y ago
    It could, if the major exchanges accept that it does and continue to back that notion...
  - peteradio 6y ago
    (narrator) tether could not trade at par
  - deleted 6y ago
    [deleted]
  - gruez 6y ago
    I suppose this could work as long as you don't print too much. Let's say you have $10M USD in deposits. You can print $20M in USDT as long as you're reasonably sure that on average, people don't withdraw 50% of their deposits. This gets tricky though because USDT is used by multiple exchanges, so I'm not sure what exactly would happen if everyone withdraws their deposits not in USD, but in USDT to another exchange. They'd all need to be in on the conspiracy with some sort of settlement system to transfer money between them.
  - 40four 6y ago
    I'm not a finance or a crypto expert, so don't take my word on it. But many people way smarter than me have been trying to prove this hypothesis for years. Bitfinex doesn't exactly have a reputation that deserves any trust, so I wouldn't put it past them. I think there is a good reason Coinbase does not allow trading Tether.
defen 6y ago
Let's say you think Bitcoin is going to crash (or you're a trader and just think it's going to go down). Obviously you want to sell your bitcoin, but also postulate that you don't have a connection to a real bank (KYC and all that), so you can't actually turn your Bitcoins into dollars. So you sell your Bitcoins for Tethers. Then Bitcoin goes down, and eventually you buy them back using Tethers.

bootlooped 6y ago

Do most people even believe that Tether is backed 1:1? Or are they just playing along because it's in their interest?

londons_explore 6y ago
All we can be sure of is that the money put into tether is greater or equal to the money taken out. If people didn't believe it, they would sell (either for BTC or real dollars), and if enough people did that then tether would collapse. My suspicion is there are enough dormant tether holders that the above will never occur, even if there have been some substantial fraud losses.
- alisonkisk 6y ago
  There's a lot of room for delayed fraud, same as when banks fail. Imagine I secretly remove the contents of everyone's safe deposit boxes. I get rich selling what I stole, but no one is any poorer until much later when they try to cash out their treasures and realize they are gone. USDTether is an empty safe deposit box.
  - londons_explore 6y ago
    My argument is if some people aren't regularly looking in their safe deposit box, the fraud might never cause a collapse.
    - hannasanarion 6y ago
      The New York Attorney General is going to look into the box on January 15.