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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:

by 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.

by paulgb 6y ago

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.