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For years I've told loved ones, friends, and anyone with a passing interest in the nascent space to avoid Tether like the plague. In my opinion, it's only a ma

For years I've told loved ones, friends, and anyone with a passing interest in the nascent space to avoid Tether like the plague. In my opinion, it's only a matter of time until it blows up.

randomopining 6y ago
How do you invest in Tether? I thought it was just like a dollar peg for btc for inter-exchange operations.
- birdyrooster 6y ago
  I am guessing people park their money in tether during periods of instability without needing to pay a broker to transfer into fiat. It looks like a place for temporarily hedging against crypto generally.
- rawtxapp 6y ago
  They don't invest in tether, it's just a means of moving money between exchanges like you say or temporary hold between trades.
- ac29 6y ago
  In theory, if you give Tether some dollars, they will store those dollars in reserve and issue you new Tethers. In practice, there is no evidence that any part of that happens aside from the minting new tethers part. Most likely there is some amount of money and/or crypto held in reserve, but despite allegedly having several tens of billions of dollars in reserve, they refuse to do an audit. I think the currently most plausible answer for how Tether works is: 1 )Tether issues tokens to OTC exchanges in exchange for an IOU 2) The exchange buys BTC with it 3) The exchange sells that bitcoin for dollars, and pays off that IOU. This almost certainly wont fly with regulators, and has many ways it could explode, hence the investigations.
  - dillondoyle 6y ago
    What's the best guess on where the actual cash sits in the meantime, or long term?
    - ac29 6y ago
      Impossible to know. 30 billion Tethers ago, it was at 74% according to a filing from Tether with the New York Attorney General. In my opinion, best case scenario: Tether is buying Bitcoin and other assets with Tether, and has been able to sell them at a profit as prices rise, leaving their reserves at or above 100%. This sort of initially unbacked issuance may be a crime in and of itself, but its possible Tether holders would have a legitimate claim on any assets if Tether fails or is shutdown and wouldnt take a loss (though it could take years to get back their money). Worst case scenario: its entirely, or almost entirely fraudulent, and Tether insiders have embezzled and spent as much of Tethers available hard currency as they can.
      - askmike 6y ago
        Your best case scenario is worse than what most people in the industry consider the truth..
        arcticbull 6y ago
        Or rather, what most people in the industry pretend doesn't exist, because they know it's a systemic risk and everyone's in way too deep at this point. Look, it's easy, just phone up Paolo and get us an audit, you seem to imply you're connected. Then we'll move on! I'll eat my hat and apologize to everyone I've ever told Tether is anything other than the most legitimate entity in the entire world. I'll borrow from the r/wsb folks and tattoo a Tether logo on my backside, even.
        askmike 6y ago
        Not sure this aged like you think it would: > Or rather, what most people in the industry pretend doesn't exist, because they know it's a systemic risk and everyone's in way too deep at this point. Are you referring to the NYAG here?
- tim333 6y ago
  Kraken will sell you some if you like.
vkou 6y ago
1. Why would any of them care about Tether to begin with? It's not a speculative instrument, like Bitcoin. It's not useful for money transmission, unless they have some incredibly interesting requirements. It's an in some ways better, in some ways worse version of stuffing a pile of money into a mattress. 2. The problem is that even if you stay away from it, because you can't speculate with it, and you aren't moving money around, it is entirely unclear whether or not tether blowing up will take bitcoin down with it. If you want to be prudent about Tether blowing up, you should be advising them to stay away from bitcoin, until it does.
- rawtxapp 6y ago
  The argument some people have is that tether is printing fake money to prop up crypto market. I think it might have some effects like that if it was truly all fake money. I hope that NY investigation will shed more light on it.
  - gruez 6y ago
    >The argument some people have is that tether is printing fake money to prop up crypto market. I don't think that's actually supported by evidence. AFAIK there are concerns about tether's solvency (because one of their bank accounts got frozen), but evidence of money printing is lacking.
    - aero-glide2 6y ago
      They never provided the audit they promised. They lied many times about their banking partners. Its on them to prove that they are not printing money.
      - EGreg 6y ago
        USA prints money. How is the actual dollar any better supported?
        bobbylarrybobby 6y ago
Animats 6y ago
Yes. If you own Tether, get out. There is zero upside and a significant downside.
- ac29 6y ago
  The question is what happens when 50% of volume disappears. Tether currently has about as much volume as the other 9 of the top 10 cryptocurrencies have combined, and is the top trading pair for BTC, ETH and many others. You dont have to hold any to be exposed to a huge downside risk.
  - gruez 6y ago
    >The question is what happens when 50% of volume disappears. Surely this isn't an issue because the volume will just move the other exchanges? The bigger threat is investors getting cold feet and not wanting to buy at all.
    - ac29 6y ago
      Tether is not an exchange. It is a centralized cryptocurrency where the centralized authority has the ability to freeze assets (they did this recently after a DeFi hack). While I dont necessarily think it will happen, theres no reason the US government or some other authority cant seize and suspend operation of Tether's blockchain. At that point zero Tether transactions can occur, on any exchange, any DeFi contract, or any number of other associated activities.
    - arcticbull 6y ago
      What happens is at un-banked exchanges, people try and run for the hills, buying as much BTC or ETH as they can get their hands on with their vanishingly worthless USDT. The price of crypto on these exchanges goes up parabolically into the millions. These folks then transfer their crypto to banked exchanges to try and salvage what little they can - to try and pay back some of the stupid loans they've been taking on the run-up, and they flood these banked exchanges with sell orders, and the price there crashes to pennies. Some exchanges may go insolvent, and those could be on the CME BRR calculation list, causing the price there to spike, leading to cascading liquidations in the futures market. The worst case scenario where the wheels come off is that the wheels come all the way off, like a MtGOX on steroids.
piracy1 6y ago
Me too. I'm looking into shorting it on Kraken but I am not quite sure how it would work because it would be delisted before it went to 0 possibly and I am not quite sure how that would work.
- lalaland1125 6y ago
  Don't short it. The market can stay irrational much much longer than you can stay solvent.
  - gjs278 6y ago
    the only risk to shorting tether would be the interest. it’s not like it will ever be worth more than a dollar.
  - bugzz 6y ago
    For stocks I agree, but here tether isn't ever going to go much above $1, right? So the downside of shorting is just that it ties up a lot of capital, right?
    - samtheprogram 6y ago
      Wouldn’t you be paying for time decay on any short positions?
      - fny 6y ago
        Time decay happens on options. You pay interest on the tether you borrow.
        anonymoushn 6y ago
        Don't short the spot.
        samtheprogram 6y ago
        Thanks, this clarified what’s going on for me. That means you’ll still be paying interest for whatever period you’re holding the position, which really isn’t that bad depending on the rates. However, not to detract from the thread I would think other concerns like market irrationality and delisting still applies.
grey-area 6y ago
When it blows up, it will take Bitcoin with it.
- varajelle 6y ago
  What makes you think that? Alternatively, it could make bitcoin stronger by removing an alternative cryptocurrency
  - JumpCrisscross 6y ago
    > What makes you think that? “Through Tether pass more or less 80% of bitcoin trades.”
    - arcticbull 6y ago
      I'm not an apologist by any means - I absolutely hate Tether, and cryptocurrencies - though for perspective, the most optimistic take is that if you exclude exchanges that are known for reporting fake volume, the breakdown is roughly 59% USD and 41% Tether. [1] It will likely take the whole space down with it, not just Bitcoin, because what'll happen is on all USDT exchanges and insolvent USD exchanges, the price of crypto will reach millions of Tethers per coin as people try and flee, then on all real-dollar exchanges, the price will collapse to pennies as everyone tries to sell their crypto for actual people money that you can use to buy goods and services in the real world. Think MtGOX on steroids. [1] https://www.bitcointradevolume.com/ https://www.bitcointradevolume.com/
      - liquidify 6y ago
        I think you underestimate demand massively. If bitcoin price ever starts to drop precipitously, it will be scooped up by a mass of buyers who have a ton of money to blow and a lot of interest in maintaining price. The only thing that could cause a real collapse to sub 4 digits is if something went wrong in the actual protocol or some unforeseen exploit occurred that affected the system in a way that was unrecoverable. If the cryptography and incentive systems continue to function, the price will probably never approach 4 digits again even if Tether blows up (which it probably will).
agumonkey 6y ago
How do you prepare / avoid / protect from that ? I mean most people don't have USDT it's simply what exchanges us as a pair. Or are you afraid that any exchange using Tether as the main stablecoin will go under with tether and users won't be able to withdraw assets ?
px43 6y ago
Tether definitely sucks, but it was an absolutely reasonable response to banks randomly freezing out USD bank accounts of various exchanges, for various reasons. If you're an exchange that's going to be touching actual USD bank accounts, it turns out you need a fleet of lawyers and significant political and business connections to maintain the relationships required to keep the money flowing. USDT allows smaller, more agile exchanges to play with USD, and delegates the icky legacy finance stuff to the larger players who are set up to deal with it. Of course no one should ever try to store long term value in USDT, but that's not what it's for. It's a tool for shifting the risk of touching USD to people that are actually prepared to handle it, which is fine.

For years I've told loved ones, friends, and anyone with a passing interest in the nascent space to avoid Tether like the plague. In my opinion, it's only a matter of time until it blows up.

randomopining 6y ago

How do you invest in Tether? I thought it was just like a dollar peg for btc for inter-exchange operations.

birdyrooster 6y ago
I am guessing people park their money in tether during periods of instability without needing to pay a broker to transfer into fiat. It looks like a place for temporarily hedging against crypto generally.
rawtxapp 6y ago
They don't invest in tether, it's just a means of moving money between exchanges like you say or temporary hold between trades.
ac29 6y ago
In theory, if you give Tether some dollars, they will store those dollars in reserve and issue you new Tethers. In practice, there is no evidence that any part of that happens aside from the minting new tethers part. Most likely there is some amount of money and/or crypto held in reserve, but despite allegedly having several tens of billions of dollars in reserve, they refuse to do an audit. I think the currently most plausible answer for how Tether works is: 1 )Tether issues tokens to OTC exchanges in exchange for an IOU 2) The exchange buys BTC with it 3) The exchange sells that bitcoin for dollars, and pays off that IOU. This almost certainly wont fly with regulators, and has many ways it could explode, hence the investigations.
- dillondoyle 6y ago
  What's the best guess on where the actual cash sits in the meantime, or long term?
  - ac29 6y ago
    Impossible to know. 30 billion Tethers ago, it was at 74% according to a filing from Tether with the New York Attorney General. In my opinion, best case scenario: Tether is buying Bitcoin and other assets with Tether, and has been able to sell them at a profit as prices rise, leaving their reserves at or above 100%. This sort of initially unbacked issuance may be a crime in and of itself, but its possible Tether holders would have a legitimate claim on any assets if Tether fails or is shutdown and wouldnt take a loss (though it could take years to get back their money). Worst case scenario: its entirely, or almost entirely fraudulent, and Tether insiders have embezzled and spent as much of Tethers available hard currency as they can.
    - askmike 6y ago
      Your best case scenario is worse than what most people in the industry consider the truth..
      - arcticbull 6y ago
        Or rather, what most people in the industry pretend doesn't exist, because they know it's a systemic risk and everyone's in way too deep at this point. Look, it's easy, just phone up Paolo and get us an audit, you seem to imply you're connected. Then we'll move on! I'll eat my hat and apologize to everyone I've ever told Tether is anything other than the most legitimate entity in the entire world. I'll borrow from the r/wsb folks and tattoo a Tether logo on my backside, even.
        askmike 6y ago
        Not sure this aged like you think it would: > Or rather, what most people in the industry pretend doesn't exist, because they know it's a systemic risk and everyone's in way too deep at this point. Are you referring to the NYAG here?
tim333 6y ago
Kraken will sell you some if you like.

vkou 6y ago

1. Why would any of them care about Tether to begin with? It's not a speculative instrument, like Bitcoin. It's not useful for money transmission, unless they have some incredibly interesting requirements. It's an in some ways better, in some ways worse version of stuffing a pile of money into a mattress. 2. The problem is that even if you stay away from it, because you can't speculate with it, and you aren't moving money around, it is entirely unclear whether or not tether blowing up will take bitcoin down with it. If you want to be prudent about Tether blowing up, you should be advising them to stay away from bitcoin, until it does.

rawtxapp 6y ago
The argument some people have is that tether is printing fake money to prop up crypto market. I think it might have some effects like that if it was truly all fake money. I hope that NY investigation will shed more light on it.
- gruez 6y ago
  >The argument some people have is that tether is printing fake money to prop up crypto market. I don't think that's actually supported by evidence. AFAIK there are concerns about tether's solvency (because one of their bank accounts got frozen), but evidence of money printing is lacking.
  - aero-glide2 6y ago
    They never provided the audit they promised. They lied many times about their banking partners. Its on them to prove that they are not printing money.
    - EGreg 6y ago
      USA prints money. How is the actual dollar any better supported?
      - bobbylarrybobby 6y ago

Animats 6y ago

Yes. If you own Tether, get out. There is zero upside and a significant downside.

ac29 6y ago
The question is what happens when 50% of volume disappears. Tether currently has about as much volume as the other 9 of the top 10 cryptocurrencies have combined, and is the top trading pair for BTC, ETH and many others. You dont have to hold any to be exposed to a huge downside risk.
- gruez 6y ago
  >The question is what happens when 50% of volume disappears. Surely this isn't an issue because the volume will just move the other exchanges? The bigger threat is investors getting cold feet and not wanting to buy at all.
  - ac29 6y ago
    Tether is not an exchange. It is a centralized cryptocurrency where the centralized authority has the ability to freeze assets (they did this recently after a DeFi hack). While I dont necessarily think it will happen, theres no reason the US government or some other authority cant seize and suspend operation of Tether's blockchain. At that point zero Tether transactions can occur, on any exchange, any DeFi contract, or any number of other associated activities.
  - arcticbull 6y ago
    What happens is at un-banked exchanges, people try and run for the hills, buying as much BTC or ETH as they can get their hands on with their vanishingly worthless USDT. The price of crypto on these exchanges goes up parabolically into the millions. These folks then transfer their crypto to banked exchanges to try and salvage what little they can - to try and pay back some of the stupid loans they've been taking on the run-up, and they flood these banked exchanges with sell orders, and the price there crashes to pennies. Some exchanges may go insolvent, and those could be on the CME BRR calculation list, causing the price there to spike, leading to cascading liquidations in the futures market. The worst case scenario where the wheels come off is that the wheels come all the way off, like a MtGOX on steroids.

piracy1 6y ago

Me too. I'm looking into shorting it on Kraken but I am not quite sure how it would work because it would be delisted before it went to 0 possibly and I am not quite sure how that would work.

lalaland1125 6y ago
Don't short it. The market can stay irrational much much longer than you can stay solvent.
- gjs278 6y ago
  the only risk to shorting tether would be the interest. it’s not like it will ever be worth more than a dollar.
- bugzz 6y ago
  For stocks I agree, but here tether isn't ever going to go much above $1, right? So the downside of shorting is just that it ties up a lot of capital, right?
  - samtheprogram 6y ago
    Wouldn’t you be paying for time decay on any short positions?
    - fny 6y ago
      Time decay happens on options. You pay interest on the tether you borrow.
      - anonymoushn 6y ago
        Don't short the spot.
      - samtheprogram 6y ago
        Thanks, this clarified what’s going on for me. That means you’ll still be paying interest for whatever period you’re holding the position, which really isn’t that bad depending on the rates. However, not to detract from the thread I would think other concerns like market irrationality and delisting still applies.

grey-area 6y ago

When it blows up, it will take Bitcoin with it.

varajelle 6y ago
What makes you think that? Alternatively, it could make bitcoin stronger by removing an alternative cryptocurrency
- JumpCrisscross 6y ago
  > What makes you think that? “Through Tether pass more or less 80% of bitcoin trades.”
  - arcticbull 6y ago
    I'm not an apologist by any means - I absolutely hate Tether, and cryptocurrencies - though for perspective, the most optimistic take is that if you exclude exchanges that are known for reporting fake volume, the breakdown is roughly 59% USD and 41% Tether. [1] It will likely take the whole space down with it, not just Bitcoin, because what'll happen is on all USDT exchanges and insolvent USD exchanges, the price of crypto will reach millions of Tethers per coin as people try and flee, then on all real-dollar exchanges, the price will collapse to pennies as everyone tries to sell their crypto for actual people money that you can use to buy goods and services in the real world. Think MtGOX on steroids. [1] https://www.bitcointradevolume.com/ https://www.bitcointradevolume.com/
    - liquidify 6y ago
      I think you underestimate demand massively. If bitcoin price ever starts to drop precipitously, it will be scooped up by a mass of buyers who have a ton of money to blow and a lot of interest in maintaining price. The only thing that could cause a real collapse to sub 4 digits is if something went wrong in the actual protocol or some unforeseen exploit occurred that affected the system in a way that was unrecoverable. If the cryptography and incentive systems continue to function, the price will probably never approach 4 digits again even if Tether blows up (which it probably will).

agumonkey 6y ago

How do you prepare / avoid / protect from that ? I mean most people don't have USDT it's simply what exchanges us as a pair. Or are you afraid that any exchange using Tether as the main stablecoin will go under with tether and users won't be able to withdraw assets ?

px43 6y ago

Tether definitely sucks, but it was an absolutely reasonable response to banks randomly freezing out USD bank accounts of various exchanges, for various reasons. If you're an exchange that's going to be touching actual USD bank accounts, it turns out you need a fleet of lawyers and significant political and business connections to maintain the relationships required to keep the money flowing. USDT allows smaller, more agile exchanges to play with USD, and delegates the icky legacy finance stuff to the larger players who are set up to deal with it. Of course no one should ever try to store long term value in USDT, but that's not what it's for. It's a tool for shifting the risk of touching USD to people that are actually prepared to handle it, which is fine.