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OP gives no proof that Tether is not holding 1:1 reserves. There is, however, a good proof that they do: Tether has held the 1:1 beg pretty well recently. Bitco

by csomar 6y ago

OP gives no proof that Tether is not holding 1:1 reserves. There is, however, a good proof that they do: Tether has held the 1:1 beg pretty well recently. Bitcoin price dropped to $4.000 last year and Tether exchange rate has held pretty well. It is important to mention that USDT is still liquid despite the lack of USD on/off-ramps. People regularly sell USDT on the offline market, and can exchange to USDC on many exchanges. > But Tether is printing so much money. So is USDC, and the price of Bitcoin is going higher. This means Bitcoiners have lots of value in Bitcoin and some of them are going to convert that value to USD. They are mainly using USDT for that, for whatever reason. > Tether printing press is driving Bitcoin price. Wrong. My proof for that is "where is the premium to buy Bitcoin". In a very liquid market (which for the most part, crypto is), prices should be the same up to the costs (transaction and banking fees). Prices have been higher in Coinbase during this run. As I am typing right now, Coinbase prices are 50-80 dollars higher for Bitcoin. GBTC is even more ridiculous with 10-15% premium on price (but also GBTC is less liquid/arb-able). This signifies that demand is coming from US retail and institutional investors. > Tether is holding USD as securities/derivatives/whatever. All of them are. See: https://omarabid.com/usd-stable-coins https://omarabid.com/usd-stable-coins

paulgb 6y ago
I mostly agree with your skepticism on USDT driving BTC price, but I disagree with this: > There is, however, a good proof that they do: Tether has held the 1:1 beg pretty well recently. All this proves is that they have something in reserve, not that it is 1:1 backed. Most modern banking operates on a fractional reserve system, but when I take cash out of my bank account I get a cash dollar 1:1 with what they debit my account; they don’t prorate it for the amount of reserve they have.
- csomar 6y ago
  That's good for 97% of the time, but not for the 3% where prices either crashes or goes way-up (volatility blackswan). These stressful situations tests the 1:1 peg. (which is why I mentioned the $4000 price crash). They probably have 1. good reserves ratios and 2. very liquid assets as reserve.
  - paulgb 6y ago
    The difference between having 1:1 backing and “pretty good” reserves is that if they claim (as they do) to be 1:1 backed and it were to come out that they were not, it could spark a “run on the bank” type scenario for everyone to get their money out while they can.
    - csomar 6y ago
      It's not like it didn't happen before (it happened twice), and their rate diverged from the 1:1. Actually, their rate wasn't that super stable until very recently. The reason why I think they are fully backed is that the crypto-market yield for USD in the last few years have been crazy. So unless you are planning an exit scam, you can't go broke. Even if they are losing money to move the money, or they screw up here or there (get accounts blocked), they can still come on top.
  - jVinc 6y ago
    Lets pretend Tether has no backing what so ever. They could still defend the peg 1:1 completely. How? Well if someone wants to sell a bunch of tether, they simply print even more tether, use that to buy crypto on exchanges, and sell that crypto to anyone willing to buy it that generates dollars to pay of the person selling their tether. But that also leves them with the tether that was sold back to dollars, which they can then buy more crypto with an either just hold or also sell to generate dollars. The visuals of this from an outside ends up looking effectively like there was just ton more new money coming into the system when in fact the exchanges and new money took a hit, and the money printing people just raised their perceived holding without backing. That is to say, that in this case the event of someone wanting out looks like the market is rising. You can keep this going as long as your un-backed coin can be exchanged for other liquid crypto. As long as they have a blindly trusted money money printing machine, they can use it to defend the illusion that it's printing real money. This is thes standard playbook for a pyramid scheme. You use new money to keep the illusion of a big holding and you can keep that going as long as the illusion holds.
- sekai 6y ago
  > but when I take cash out of my bank account I get a cash dollar 1:1 with what they debit my account; they don’t prorate it for the amount of reserve they have. Now try taking out 50 million or more, you'll face same difficulties. This tether nonsense comes up every few months, still adamantly holding the 1:1. Not mentioning that it's not the single dollar peg option in crypto space anymore, plenty of other options USDC, Dai.
  - paulgb 6y ago
    > Now try taking out 50 million or more, you'll face same difficulties. Sure but that’s my point. The fact that my small volume transactions go through without friction is not proof that the system is not fractional reserve. In the case of a (properly run) bank the value still exists but isn’t liquid; in the case of USDT we don’t know without an audit.
qeternity 6y ago
> It is important to mention that USDT is still liquid despite the lack of USD on/off-ramps. USDT is only liquid BECAUSE there is no redemption mechanism (or at least not one that has ever been demonstrated). If Tether came and said "sure we'll redeem these fully backed Tethers for USD 24/7/365" you would quickly find yourself with a liquidity crisis.
- csomar 6y ago
  People can sell USDT for crypto, USDC or offline. If Tether didn't have good reserves, the price will diverge from 1:1.
  - qeternity 6y ago
    No, instead of just stating it, explain to me. Tether's reserves only matter when people try to redeem Tethers. This is currently not possible. So it is purely a trust game right now, and everyone has an incentive to trust (or turn a blind eye) that Tether is playing by the rules.
    - csomar 6y ago
      > Tether's reserves only matter when people try to redeem Tethers. This is currently not possible. This is why being liquid and freely trade-able matters. Tether is fully redeemable if you can trade it against other crypto/stable coins. Want to redeem USDT? exchange it to USDC and then withdraw to your bank account.
      - qeternity 6y ago
        No, trading is not redeeming. The fact that you will buy it from me or swap me USDC does not prove that they have any reserves. So again I ask - how do we have any proof that Tether has the reserves they claim they do?
        csomar 6y ago
        Somebody will need to take the counter-trade (the arbitrage dude) and unless he can redeem to close the circle, he is going to stop. USDT are redeemable to your bank account if you have a good sizable balance (talking 7-8 figures). You'll get it deposited from some of their offshore shell companies. But you didn't hear it from me :)
safog 6y ago
There's a lot of bots doing arbitrage between exchanges though. If one diverges significantly from the other, the bots will eat up the difference, I don't think you can make any claims about where the demand is coming from based on this?
- csomar 6y ago
  Bots will arbitrage up to the transaction costs. (the price is not worth arbing if it is a small difference). Some exchanges, sometimes, lead the price and this can be visible if you are actively trading (you'll notice that the arb bots are selling in one exchange and buying in the other, aka: bearish exchange trailing the market).
dandanua 6y ago
The proof is that Tether almost never deleted any of its tokens, even when Bitcoin dropped significantly, e.g. from $10k to $5k in 2020. Does it mean that no one wanted their USD back from Tether organization? I highly doubt it.
- csomar 6y ago
  They do: https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/
Slartie 6y ago
If Tether Ltd. had at any point in time made any significant USDT -> USD redemptions that outweighed the new USDT given out to new buyers, we should have seen that by a significant number of Tethers being destroyed. Looking at the historic Tether market cap on CoinMarketCap - which is practically equal to all non-destroyed tethers due to USDT being pegged to the USD - however does not reveal any significant drop in Tether market cap ever that could be an indication of actual redemptions. And I refuse to believe that in all of Tethers' history, with all of Bitcoins' ups and downs, there has never been a period in which people weren't pulling more money out of the crypto ecosystem than other people were putting fresh money in. I would expect that to be the case in most of the Bitcoin deflation phases.
- csomar 6y ago
  Posting this again: https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/ They did redeem from 2.8bn to 1.7bn. Which is like 40% of their total value at the time. Is that significant enough?
  - Slartie 6y ago
    Ah yeah, you got me. Though I don't really count that as good evidence for an actual "redemption" since it apparently was burning Tethers that came from Bitfinex: https://www.coindesk.com/tether-just-burned-500-million-usdt-stablecoin-tokens https://www.coindesk.com/tether-just-burned-500-million-usdt... And since Bitfinex is the owner of Tether Ltd., there is unfortunately no outsider that could credibly confirm to have actually received any USD in exchange for those burned Tethers. Bitfinex might just as well have sold Bitcoins from its own stash (or from customer wallets) to others for USDT and then burned those USDT in order to stabilize the USDT/USD price which wasn’t exactly holding up well at that time. If they had actually printed more USDT than they have USD in the past, this would be a smart move in order to distribute the "missing" funds more evenly across multiple crypto coins in their custody, which makes it less likely for them to run out of one of them and thus makes it less likely for the alleged scam to come to light.
user-the-name 6y ago
> OP gives no proof that Tether is not holding 1:1 reserves. Other than, you know, they themselves admitting under oath that they did not.
FireBeyond 6y ago
> OP gives no proof that Tether is not holding 1:1 reserves. I'm fairly certain that _Tether's_ lawyer said, in court, that their reserves were closer to 0.74.

by csomar 6y ago

paulgb 6y ago

I mostly agree with your skepticism on USDT driving BTC price, but I disagree with this: > There is, however, a good proof that they do: Tether has held the 1:1 beg pretty well recently. All this proves is that they have something in reserve, not that it is 1:1 backed. Most modern banking operates on a fractional reserve system, but when I take cash out of my bank account I get a cash dollar 1:1 with what they debit my account; they don’t prorate it for the amount of reserve they have.

csomar 6y ago
That's good for 97% of the time, but not for the 3% where prices either crashes or goes way-up (volatility blackswan). These stressful situations tests the 1:1 peg. (which is why I mentioned the $4000 price crash). They probably have 1. good reserves ratios and 2. very liquid assets as reserve.
- paulgb 6y ago
  The difference between having 1:1 backing and “pretty good” reserves is that if they claim (as they do) to be 1:1 backed and it were to come out that they were not, it could spark a “run on the bank” type scenario for everyone to get their money out while they can.
  - csomar 6y ago
    It's not like it didn't happen before (it happened twice), and their rate diverged from the 1:1. Actually, their rate wasn't that super stable until very recently. The reason why I think they are fully backed is that the crypto-market yield for USD in the last few years have been crazy. So unless you are planning an exit scam, you can't go broke. Even if they are losing money to move the money, or they screw up here or there (get accounts blocked), they can still come on top.
- jVinc 6y ago
  Lets pretend Tether has no backing what so ever. They could still defend the peg 1:1 completely. How? Well if someone wants to sell a bunch of tether, they simply print even more tether, use that to buy crypto on exchanges, and sell that crypto to anyone willing to buy it that generates dollars to pay of the person selling their tether. But that also leves them with the tether that was sold back to dollars, which they can then buy more crypto with an either just hold or also sell to generate dollars. The visuals of this from an outside ends up looking effectively like there was just ton more new money coming into the system when in fact the exchanges and new money took a hit, and the money printing people just raised their perceived holding without backing. That is to say, that in this case the event of someone wanting out looks like the market is rising. You can keep this going as long as your un-backed coin can be exchanged for other liquid crypto. As long as they have a blindly trusted money money printing machine, they can use it to defend the illusion that it's printing real money. This is thes standard playbook for a pyramid scheme. You use new money to keep the illusion of a big holding and you can keep that going as long as the illusion holds.
sekai 6y ago
> but when I take cash out of my bank account I get a cash dollar 1:1 with what they debit my account; they don’t prorate it for the amount of reserve they have. Now try taking out 50 million or more, you'll face same difficulties. This tether nonsense comes up every few months, still adamantly holding the 1:1. Not mentioning that it's not the single dollar peg option in crypto space anymore, plenty of other options USDC, Dai.
- paulgb 6y ago
  > Now try taking out 50 million or more, you'll face same difficulties. Sure but that’s my point. The fact that my small volume transactions go through without friction is not proof that the system is not fractional reserve. In the case of a (properly run) bank the value still exists but isn’t liquid; in the case of USDT we don’t know without an audit.

qeternity 6y ago

> It is important to mention that USDT is still liquid despite the lack of USD on/off-ramps. USDT is only liquid BECAUSE there is no redemption mechanism (or at least not one that has ever been demonstrated). If Tether came and said "sure we'll redeem these fully backed Tethers for USD 24/7/365" you would quickly find yourself with a liquidity crisis.

csomar 6y ago
People can sell USDT for crypto, USDC or offline. If Tether didn't have good reserves, the price will diverge from 1:1.
- qeternity 6y ago
  No, instead of just stating it, explain to me. Tether's reserves only matter when people try to redeem Tethers. This is currently not possible. So it is purely a trust game right now, and everyone has an incentive to trust (or turn a blind eye) that Tether is playing by the rules.
  - csomar 6y ago
    > Tether's reserves only matter when people try to redeem Tethers. This is currently not possible. This is why being liquid and freely trade-able matters. Tether is fully redeemable if you can trade it against other crypto/stable coins. Want to redeem USDT? exchange it to USDC and then withdraw to your bank account.
    - qeternity 6y ago
      No, trading is not redeeming. The fact that you will buy it from me or swap me USDC does not prove that they have any reserves. So again I ask - how do we have any proof that Tether has the reserves they claim they do?
      - csomar 6y ago
        Somebody will need to take the counter-trade (the arbitrage dude) and unless he can redeem to close the circle, he is going to stop. USDT are redeemable to your bank account if you have a good sizable balance (talking 7-8 figures). You'll get it deposited from some of their offshore shell companies. But you didn't hear it from me :)

safog 6y ago

There's a lot of bots doing arbitrage between exchanges though. If one diverges significantly from the other, the bots will eat up the difference, I don't think you can make any claims about where the demand is coming from based on this?

csomar 6y ago
Bots will arbitrage up to the transaction costs. (the price is not worth arbing if it is a small difference). Some exchanges, sometimes, lead the price and this can be visible if you are actively trading (you'll notice that the arb bots are selling in one exchange and buying in the other, aka: bearish exchange trailing the market).

dandanua 6y ago

The proof is that Tether almost never deleted any of its tokens, even when Bitcoin dropped significantly, e.g. from $10k to $5k in 2020. Does it mean that no one wanted their USD back from Tether organization? I highly doubt it.

csomar 6y ago
They do: https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/

Slartie 6y ago

If Tether Ltd. had at any point in time made any significant USDT -> USD redemptions that outweighed the new USDT given out to new buyers, we should have seen that by a significant number of Tethers being destroyed. Looking at the historic Tether market cap on CoinMarketCap - which is practically equal to all non-destroyed tethers due to USDT being pegged to the USD - however does not reveal any significant drop in Tether market cap ever that could be an indication of actual redemptions. And I refuse to believe that in all of Tethers' history, with all of Bitcoins' ups and downs, there has never been a period in which people weren't pulling more money out of the crypto ecosystem than other people were putting fresh money in. I would expect that to be the case in most of the Bitcoin deflation phases.

csomar 6y ago
Posting this again: https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/ They did redeem from 2.8bn to 1.7bn. Which is like 40% of their total value at the time. Is that significant enough?
- Slartie 6y ago
  Ah yeah, you got me. Though I don't really count that as good evidence for an actual "redemption" since it apparently was burning Tethers that came from Bitfinex: https://www.coindesk.com/tether-just-burned-500-million-usdt-stablecoin-tokens https://www.coindesk.com/tether-just-burned-500-million-usdt... And since Bitfinex is the owner of Tether Ltd., there is unfortunately no outsider that could credibly confirm to have actually received any USD in exchange for those burned Tethers. Bitfinex might just as well have sold Bitcoins from its own stash (or from customer wallets) to others for USDT and then burned those USDT in order to stabilize the USDT/USD price which wasn’t exactly holding up well at that time. If they had actually printed more USDT than they have USD in the past, this would be a smart move in order to distribute the "missing" funds more evenly across multiple crypto coins in their custody, which makes it less likely for them to run out of one of them and thus makes it less likely for the alleged scam to come to light.

user-the-name 6y ago

> OP gives no proof that Tether is not holding 1:1 reserves. Other than, you know, they themselves admitting under oath that they did not.

FireBeyond 6y ago

> OP gives no proof that Tether is not holding 1:1 reserves. I'm fairly certain that _Tether's_ lawyer said, in court, that their reserves were closer to 0.74.