6 ms·

I’ve been wondering if Tether is really a scam for a long time. In all these analyses, one key point is missing: arbitrage traders have to make up for the sell

I’ve been wondering if Tether is really a scam for a long time. In all these analyses, one key point is missing: arbitrage traders have to make up for the sell pressure on USDT when Tethers are being printed and sold for BTC. Can anyone show me how there is a plausible mechanism/scheme/conspiracy that keeps the USD/USDT exchange rate stable while a crazy amount of illegitimate Tethers are being printed? Edit: typo and removed link.

dmichulke 6y ago
Exactly, I don't say OP is wrong but I need to see how I can 1. buy X for USD 2. buy BTC for X Shouldn't the price for X then stay the same? (Bought X once, sold X once) Assuming X drops to 0, wouldn't people that have BTC just use another coin X' to get back to USD? Assuming company Y creates X out of thin air and buys BTC with it, why doesn't X drop in value? Because arbitrageurs buy it? So arbitrageurs have lots of X? Should I care if they go broke in the process?
- Uberphallus 6y ago
  Since they can print X and they peg it to USD, it won't change in price itself, but nothing can assure the driving force of BTC price is actual demand.
  - dmichulke 6y ago
    When central banks peg their currencies to others, that means they buy the foreign currency if their own currency is overvalued in comparison, or sell foreign currency to buy local curerncy in the case of undervaluation. You say that a peg breaks if the Central Bank doesn't have the exchange reserves anymore to uphold a peg. Where does Bitfinex take the money from to buy tether to prevent it from devaluing? Alternatively, who else buys tether, arbitrageurs?
    - qeternity 6y ago
      You're missing the entire premise: where can I go sell my USDT directly for USD? Show me where. Unlike your example where this an existing market that a peg has to be supported, there simply isn't a fungible USDT/USD market.
      - gruez 6y ago
        > You're missing the entire premise: where can I go sell my USDT directly for USD? Show me where. https://trade.kraken.com/charts/KRAKEN:USDT-USD https://trade.kraken.com/charts/KRAKEN:USDT-USD
- qeternity 6y ago
  Because the mechanism to transmit USDT to USD doesn't exist. Tether has never demonstrated a single USDT redemption. All of the trading on an exchange doesn't matter because on USDT exchanges, you never actually have USD. If you trade USDT/USD on Binance, your profits are still actually USDT denominated! There is no proven way to convert USDT to USD except via another crypto (i.e. Binance USDT -> BTC and then Coinbase BTC -> USD) hence this entire topic... The peg would break down if there was any real convergence mechanism. But there isn't. This isn't a problem until people actually try to exchange these supposedly fungible assets.
  - gruez 6y ago
    >Tether has never demonstrated a single USDT redemption Does that matter when you can withdraw from a USDT exchange and get USD in a bank account, or trade USDT for USD at kraken?
    - qeternity 6y ago
      Yes - none of this proves that Tether has any reserves. It just proves that someone else believes they do...which we already know.
      - gruez 6y ago
        This is moving the goalposts. I don't think anyone thinks tether has full reserves. They literally admitted that they don't[1]. However your original claim of "you can't redeem USDT" is misleading at best. [1] wikipedia: "On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents"
        FireBeyond 6y ago
        That was after how many years of Tether insisting that they had 1:1 reserves, talking about audits thereof, threatening lawsuits against people who said they didn't? ... and many many crypto-fans naysaying anyone who didn't believe them.
qeternity 6y ago
I'm not sure what arbitrage you're referring to. But more importantly, nobody is selling these freshly printed USDT for USD...that's the whole point. They are selling USDT for BTC. 99% of the USD/USDT trading is fake/wash trading to give the illusion of volume.
- mathgenius 6y ago
  Kraken has USDT/USD markets. I'm sure there are plenty of other places to trade USDT for USD. https://www.kraken.com/prices/usdt-tether-usd-price-chart/usd-us-dollar?interval=1m https://www.kraken.com/prices/usdt-tether-usd-price-chart/us...
- jerry1979 6y ago
  If tether is functionally doing a fractional reserve scheme, then we should expect a run on the tether bank sooner or later.
mathgenius 6y ago
As long as tether can provide a small percentage of liquidity on USDT/USD then they (arbitrageurs) can maintain the peg. This can obviously break down, and has in the past. It's all about liquidity...
raesene9 6y ago
If you ignore the URL and read the content of this http://www.tr0lly.com/bitcoin/the-tether-press-and-bitcoins-speculative-mania/ http://www.tr0lly.com/bitcoin/the-tether-press-and-bitcoins-... it's actually a good theory for what may be happening. It's speculation, but then without audits and accounts of the exchanges that use Tether, and Tether itself, speculation seems to be about as good an option as there is.
csomar 6y ago
It's just that conspiracy theories and doom stories are nice to write about. USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin. Most people writing about USDT don't understand how arbitrage markets work, and don't understand that liquid markets are quick to resolve themselves (unlike ponzi schemes where you can hide the missing assets for a long time). Liquid markets will put quick pressure which is why these structures collapse faster (see MtGox)
- user-the-name 6y ago
  Market caps in cryptocurrencies are an entirely nonsensical fiction. They have no real effect on anything. Look at trade volumes. Tether is massively bigger than bitcoin and ethereum combined.
- deleted 6y ago
  [deleted]
- Rury 6y ago
  >USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin. Technically it is possible. You don't need an equal or larger market cap to inflate something else 90%. You just need enough to dominate the trading volume. As an extreme example, if bid/ask volume is exactly 1 (ie the ONLY trade volume consists of you and 1 other person trading a quantity of 1), then at the minimum, all you need is a bank roll of 1.9x the current unit price, with both you agreeing to the trade it for 1.9x, for the going price per unit to inflate 90%. And since market cap = price per unit × units outstanding, then the market cap also inflated 90%. If the units outstanding was 5000, and the unit price was $1, then the market cap increased $4,500 using only $1.90.

dmichulke 6y ago

Exactly, I don't say OP is wrong but I need to see how I can 1. buy X for USD 2. buy BTC for X Shouldn't the price for X then stay the same? (Bought X once, sold X once) Assuming X drops to 0, wouldn't people that have BTC just use another coin X' to get back to USD? Assuming company Y creates X out of thin air and buys BTC with it, why doesn't X drop in value? Because arbitrageurs buy it? So arbitrageurs have lots of X? Should I care if they go broke in the process?

Uberphallus 6y ago
Since they can print X and they peg it to USD, it won't change in price itself, but nothing can assure the driving force of BTC price is actual demand.
- dmichulke 6y ago
  When central banks peg their currencies to others, that means they buy the foreign currency if their own currency is overvalued in comparison, or sell foreign currency to buy local curerncy in the case of undervaluation. You say that a peg breaks if the Central Bank doesn't have the exchange reserves anymore to uphold a peg. Where does Bitfinex take the money from to buy tether to prevent it from devaluing? Alternatively, who else buys tether, arbitrageurs?
  - qeternity 6y ago
    You're missing the entire premise: where can I go sell my USDT directly for USD? Show me where. Unlike your example where this an existing market that a peg has to be supported, there simply isn't a fungible USDT/USD market.
    - gruez 6y ago
      > You're missing the entire premise: where can I go sell my USDT directly for USD? Show me where. https://trade.kraken.com/charts/KRAKEN:USDT-USD https://trade.kraken.com/charts/KRAKEN:USDT-USD
qeternity 6y ago
Because the mechanism to transmit USDT to USD doesn't exist. Tether has never demonstrated a single USDT redemption. All of the trading on an exchange doesn't matter because on USDT exchanges, you never actually have USD. If you trade USDT/USD on Binance, your profits are still actually USDT denominated! There is no proven way to convert USDT to USD except via another crypto (i.e. Binance USDT -> BTC and then Coinbase BTC -> USD) hence this entire topic... The peg would break down if there was any real convergence mechanism. But there isn't. This isn't a problem until people actually try to exchange these supposedly fungible assets.
- gruez 6y ago
  >Tether has never demonstrated a single USDT redemption Does that matter when you can withdraw from a USDT exchange and get USD in a bank account, or trade USDT for USD at kraken?
  - qeternity 6y ago
    Yes - none of this proves that Tether has any reserves. It just proves that someone else believes they do...which we already know.
    - gruez 6y ago
      This is moving the goalposts. I don't think anyone thinks tether has full reserves. They literally admitted that they don't[1]. However your original claim of "you can't redeem USDT" is misleading at best. [1] wikipedia: "On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents"
      - FireBeyond 6y ago
        That was after how many years of Tether insisting that they had 1:1 reserves, talking about audits thereof, threatening lawsuits against people who said they didn't? ... and many many crypto-fans naysaying anyone who didn't believe them.

qeternity 6y ago

I'm not sure what arbitrage you're referring to. But more importantly, nobody is selling these freshly printed USDT for USD...that's the whole point. They are selling USDT for BTC. 99% of the USD/USDT trading is fake/wash trading to give the illusion of volume.

mathgenius 6y ago
Kraken has USDT/USD markets. I'm sure there are plenty of other places to trade USDT for USD. https://www.kraken.com/prices/usdt-tether-usd-price-chart/usd-us-dollar?interval=1m https://www.kraken.com/prices/usdt-tether-usd-price-chart/us...
jerry1979 6y ago
If tether is functionally doing a fractional reserve scheme, then we should expect a run on the tether bank sooner or later.

mathgenius 6y ago

As long as tether can provide a small percentage of liquidity on USDT/USD then they (arbitrageurs) can maintain the peg. This can obviously break down, and has in the past. It's all about liquidity...

raesene9 6y ago

If you ignore the URL and read the content of this http://www.tr0lly.com/bitcoin/the-tether-press-and-bitcoins-speculative-mania/ http://www.tr0lly.com/bitcoin/the-tether-press-and-bitcoins-... it's actually a good theory for what may be happening. It's speculation, but then without audits and accounts of the exchanges that use Tether, and Tether itself, speculation seems to be about as good an option as there is.

csomar 6y ago

It's just that conspiracy theories and doom stories are nice to write about. USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin. Most people writing about USDT don't understand how arbitrage markets work, and don't understand that liquid markets are quick to resolve themselves (unlike ponzi schemes where you can hide the missing assets for a long time). Liquid markets will put quick pressure which is why these structures collapse faster (see MtGox)

user-the-name 6y ago
Market caps in cryptocurrencies are an entirely nonsensical fiction. They have no real effect on anything. Look at trade volumes. Tether is massively bigger than bitcoin and ethereum combined.
deleted 6y ago
[deleted]
Rury 6y ago
>USDT market cap is lower than that of GBTC. So it's not possible that USDT is inflating 90% of the price of Bitcoin. Technically it is possible. You don't need an equal or larger market cap to inflate something else 90%. You just need enough to dominate the trading volume. As an extreme example, if bid/ask volume is exactly 1 (ie the ONLY trade volume consists of you and 1 other person trading a quantity of 1), then at the minimum, all you need is a bank roll of 1.9x the current unit price, with both you agreeing to the trade it for 1.9x, for the going price per unit to inflate 90%. And since market cap = price per unit × units outstanding, then the market cap also inflated 90%. If the units outstanding was 5000, and the unit price was $1, then the market cap increased $4,500 using only $1.90.