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> 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 a

> 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 :)
        qeternity 6y ago
        No, they don't. There doesn't need to be an arbitrage. If you have 10 USDT and I give you 9.90 USD for that...nothing else needs to happen. But the degree that this is happening pales massively in comparison to the billions that are sat on exchanges and recycled. Tether would be the first legitimate billion dollar operation where people have to say things like "but you didn't hear it from me".
        jrh206 6y ago
        > No, they don't. There doesn't need to be an arbitrage. If you have 10 USDT and I give you 9.90 USD for that...nothing else needs to happen. I'm not an expert, so I might be wrong (seriously, not sarcastically). I _think_ this is technically arbitrage even though you never complete the loop.
        qeternity 6y ago
        I’m a hedge fund trader. It’s not an arbitrage. It’s the furthest thing from an arbitrage.
        tylerhou 6y ago
        It's arbitrage if you can close the loop with little or no risk. Preferably immediately if you already have a buyer lined up. Otherwise, you incur more risk -- you might be caught holding the bag when the music stops.
nebulous1 6y ago
> USDT is only liquid BECAUSE there is no redemption mechanism This isn't necessarily true, as in that event, although possible, wouldn't necessarily have happened. Much like banks with limited liquidity can survive for a long time. To your point, it's confusing how they managed to thrive after admitting that they were lying about being backed 1:1. Edit: I haven't been paying too much attention to tether in ages. It looks like they're now offering redemption of $100k+ at a minimum of $1000 a pop?
gruez 6y ago
>USDT is only liquid BECAUSE there is no redemption mechanism (or at least not one that has ever been demonstrated). For the bystanders here, I've made a reply to a comment similar to this in sibling thread: https://news.ycombinator.com/item?id=25686965 https://news.ycombinator.com/item?id=25686965
- rednerrus 6y ago
  If there is a USD to USDT match, where are the audits?
  - gruez 6y ago
    Is that relevant? I'm not arguing against the claims that tether is shady, I'm only arguing against the outrageous claims that you can't convert USDT back to USD that some tether opponents claim.
    - jVinc 6y ago
      Well ofcause you can. A pyramid scheme keeps paying out profits to the chumps right up to the point when it doesn't. The argument here isn't that Tether has no cash on hand, it's that if enough people pull out, they hit the the bottom of the non 1:1 reserve and everyone else left holding will zero out. If you have 1 kg of gold and start selling papers giving people claim to that 1kg of gold, nothing will prevent you from seeling 1000 claims, making it seem like you're holding a ton of gold for people when looking at the market cap, but if 2 people come and ask you for their 1kg of gold and you don't have enough of the cash you got seeling claims on hand and an oppotunity to buy gold quickly, then from one day to the next 999 claims are worthless. This is of cause not a big risk in the industry normally because markets are regulated and those who hold gold or other assets backing claims go through audits. Naturally Tether can't go through an honest audit because even though they might be holding enough cash to cover a decent amount of the market, it would expose them for lying over time, which would still hurt their business tremendously.
      - gruez 6y ago

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 :)
      - qeternity 6y ago
        No, they don't. There doesn't need to be an arbitrage. If you have 10 USDT and I give you 9.90 USD for that...nothing else needs to happen. But the degree that this is happening pales massively in comparison to the billions that are sat on exchanges and recycled. Tether would be the first legitimate billion dollar operation where people have to say things like "but you didn't hear it from me".
        jrh206 6y ago
        > No, they don't. There doesn't need to be an arbitrage. If you have 10 USDT and I give you 9.90 USD for that...nothing else needs to happen. I'm not an expert, so I might be wrong (seriously, not sarcastically). I _think_ this is technically arbitrage even though you never complete the loop.
        qeternity 6y ago
        I’m a hedge fund trader. It’s not an arbitrage. It’s the furthest thing from an arbitrage.
        tylerhou 6y ago
        It's arbitrage if you can close the loop with little or no risk. Preferably immediately if you already have a buyer lined up. Otherwise, you incur more risk -- you might be caught holding the bag when the music stops.

nebulous1 6y ago

> USDT is only liquid BECAUSE there is no redemption mechanism This isn't necessarily true, as in that event, although possible, wouldn't necessarily have happened. Much like banks with limited liquidity can survive for a long time. To your point, it's confusing how they managed to thrive after admitting that they were lying about being backed 1:1. Edit: I haven't been paying too much attention to tether in ages. It looks like they're now offering redemption of $100k+ at a minimum of $1000 a pop?

gruez 6y ago

>USDT is only liquid BECAUSE there is no redemption mechanism (or at least not one that has ever been demonstrated). For the bystanders here, I've made a reply to a comment similar to this in sibling thread: https://news.ycombinator.com/item?id=25686965 https://news.ycombinator.com/item?id=25686965

rednerrus 6y ago
If there is a USD to USDT match, where are the audits?
- gruez 6y ago
  Is that relevant? I'm not arguing against the claims that tether is shady, I'm only arguing against the outrageous claims that you can't convert USDT back to USD that some tether opponents claim.
  - jVinc 6y ago
    Well ofcause you can. A pyramid scheme keeps paying out profits to the chumps right up to the point when it doesn't. The argument here isn't that Tether has no cash on hand, it's that if enough people pull out, they hit the the bottom of the non 1:1 reserve and everyone else left holding will zero out. If you have 1 kg of gold and start selling papers giving people claim to that 1kg of gold, nothing will prevent you from seeling 1000 claims, making it seem like you're holding a ton of gold for people when looking at the market cap, but if 2 people come and ask you for their 1kg of gold and you don't have enough of the cash you got seeling claims on hand and an oppotunity to buy gold quickly, then from one day to the next 999 claims are worthless. This is of cause not a big risk in the industry normally because markets are regulated and those who hold gold or other assets backing claims go through audits. Naturally Tether can't go through an honest audit because even though they might be holding enough cash to cover a decent amount of the market, it would expose them for lying over time, which would still hurt their business tremendously.
    - gruez 6y ago