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Perhaps a controversial view, but why does this matter? I was having this debate with a friend a few weeks back. Tether was the first crypto coin pegged to a

Perhaps a controversial view, but why does this matter? I was having this debate with a friend a few weeks back. Tether was the first crypto coin pegged to a fiat currency, but now there are so many more: USDC, BUSD, TrueUSD, DAI, GUSD...and that's just a fraction of the ones pegged to $USD. The entire market's _daily volume_ is 5+ times the entire Tether cap. Plus you have Automated Market Makers (Uniswap & co.) where you can trade directly between crypto pairs and even Binance/Crypto.com debit cards which ensure a closed circulation loop for stablecoins within the exchanges. If it turns out that Tether is printing USDT without backing anymore how would this impact the crypto market? I expect another USD stablecoin would just take its place and life would go on. Crypto trading/hodling is just too irresistible at this point. The last _3 months_ saw $1Tn of new money poured into crypto from all sides. I would be curious to know what does HN genuinely think about this USDT controversy, if possible without the shilling and emotion?

garmaine 5y ago
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- anonymoushn 5y ago
  How? If a USDT-denominated exchange holds a certain amount of USDT and a certain amount of other cryptocurrencies, a change in the dollar value of USDT won't make them unable to make customers whole.
ameister14 5y ago
Did you follow the archegos capital implosion? That's what happens on a smaller scale than tether. What you'll get is a price drop, a pretty significant one, because it will happen suddenly. There is no foundation for the current prices of cryptocurrency, so if people get the impression that its propped up by frauds it runs the risk of dropping precipitously. Also, I think you underestimate the follow-on effects of 20% of a market's daily trading volume pulled out of a market all at once.
- zilebune 5y ago
  I've only followed Archegos from afar, but I see your point. Basically it all boils down to people's trust in Tether, which if lost could cause a ripple effect and massive dump of USDT. I think there are just too many unknowns to predict the market-wide impact, but Archegos is a good case study (in a way so is Ripple/XRP who went through a somewhat similar dump for different reasons a few weeks ago).
mustafa_pasi 5y ago
The dangers from Tether is as I understand it: 1. People holding USDT realize they are holding nothing. The potential losses could scare crypto holders and create a bank run to sell for FIAT. 2. The demand for BTC that drives up the price is inflated. Bitfinex does not actually have anything valuable to be exchanging for BTC. This would certainly cause the current bubble to pop. In the end every holder wants to know when the next pop is going to happen, no?
- kijin 5y ago
  Most people don't hold a lot of tether at any given time. If you bought any tether, you probably did so with the expectation that you will sell it for some other currency, either crypto or fiat, very soon.
  - graeme 5y ago
    You realize someone holds all of the Tether outstanding at all timed, correct? It doesn’t just vanish. Further, there are many sites paying 12+% interest for people willing to deposit their Tether. This serves as an incentive for people to keep money in Tether rather than BTC/ETH or fiat.
    - nikanj 5y ago
      Someone still holds all of the CryptoKitties. It doesn't mean they've got any value left.
  - PKop 5y ago
    This isn't true because with DeFi yields averaging in double digits, many people are holding all forms of stable coins to accrue this massive yield. Some people are entering the stable coin market with fiat simply to get this yield and have no interest in buying Bitcoin with it. It is also irrelevant to frame the situation from what "most people" do when the question is what are the people holding all the minted tether doing with it? It does not disappear; if it is not cashed in for fiat then it is still being held by someone.
mannykannot 5y ago
If you, personally, do not care what the exchange rate between Bitcoin and USD is, then maybe you need not be concerned over whether a Tether bubble is going cause that rate to crash. I guess, however, that a large majority of those holding Bitcoin care a good deal about that rate, and if so, then a crash in that rate will have a significant effect on how Bitcoin is viewed and used. The question for you to ask yourself, then, is whether those changes will adversely affect whatever it is about Bitcoin that you value.
imaginenore 5y ago
I used to think like that too, but I've slowly changed my opinion. First major error in your thinking is comparing market cap with daily trading volume. Volume is mostly coins moving back and forth, it kind of evens out, though at the moment there's a slight bias towards buying. If you decide to just sell $48B of Tether, there will not be enough buyers to hold the price near $1. Not even $1B. The liquidity is just not there, look at the books, the market depth. So once we establish that, it's quite clear what the danger is. Imagine that Tether doesn't store its capital in dollars, but instead it buys BTC (for simplicity's sake, just one coin). So they drive the price of BTC up, and many people see it, and buy it too, and everyone is seemingly making money and getting rich, including Tether, because they think they are smart by not holding USD in their reserves, they make insane profits. But what happens when the party is over? What happens when the price starts dropping fast? Now, Tether financiers are probably not stupid, they probably have all kinds of stop-loss triggers in place. So when the price of BTC does down below X, they sell N% of their BTC reserves back into USD. And when it goes even lower below Z, they sell even more of their reserves, and so on. And so do many people who bought BTC as an investment. And that drives BTC price down even faster. But, as we established in the paragraph above, there's not enough buyers to absorb all these billions of dollars worth of sells, because the books are much thinner than markets caps. So what can happen in that case? The price of BTC drops to near zero and USDT too. We don't actually know what Tether stores their reserves in. It's possible they are smart and didn't just buy BTC only, I really hope it's a wide variety of cryptocurrencies, fiat currencies, stocks, precious metals, real estate, rare art, etc.
graeme 5y ago
> The last _3 months_ saw $1Tn of new money poured into crypto from all sides. What’s the source on this? It seems implausible, given the commotion about Tesla’s comparatively tiny $1.5 billion entry.
robjan 5y ago
> The last _3 months_ saw $1Tn of new money poured into crypto from all sides. Market cap is based on the price of the last transaction multiplied by the number of coins. It's not related to the total capital flow.
- Tenoke 5y ago
  I assume they are conflating the $1T increase of the total crypto market cap with how much new money has been poured in, however, that's just wrong - you need much less than $1T to increase the market cap by that much.
  - zilebune 5y ago
    You're correct, sorry my bad. I was looking at these charts but indeed they show market cap not capital influx: https://coinmarketcap.com/charts/ https://coinmarketcap.com/charts/
jcpham2 5y ago
It’s too far gone now to matter. Initially we cried scam but there’s too much liquidity and too many clones to stop at this point. 25 billion is a drop in the bucket. USDC pays higher interest than <insert bank name>
zilebune 5y ago
Sorry, for some reason I can't edit my own comment, so adding a new one. The $1Tn figure is Market Cap; I was looking at these charts but indeed they show market cap not capital influx: https://coinmarketcap.com/charts/ https://coinmarketcap.com/charts/

garmaine 5y ago

anonymoushn 5y ago
How? If a USDT-denominated exchange holds a certain amount of USDT and a certain amount of other cryptocurrencies, a change in the dollar value of USDT won't make them unable to make customers whole.

ameister14 5y ago

Did you follow the archegos capital implosion? That's what happens on a smaller scale than tether. What you'll get is a price drop, a pretty significant one, because it will happen suddenly. There is no foundation for the current prices of cryptocurrency, so if people get the impression that its propped up by frauds it runs the risk of dropping precipitously. Also, I think you underestimate the follow-on effects of 20% of a market's daily trading volume pulled out of a market all at once.

zilebune 5y ago
I've only followed Archegos from afar, but I see your point. Basically it all boils down to people's trust in Tether, which if lost could cause a ripple effect and massive dump of USDT. I think there are just too many unknowns to predict the market-wide impact, but Archegos is a good case study (in a way so is Ripple/XRP who went through a somewhat similar dump for different reasons a few weeks ago).

mustafa_pasi 5y ago

The dangers from Tether is as I understand it: 1. People holding USDT realize they are holding nothing. The potential losses could scare crypto holders and create a bank run to sell for FIAT. 2. The demand for BTC that drives up the price is inflated. Bitfinex does not actually have anything valuable to be exchanging for BTC. This would certainly cause the current bubble to pop. In the end every holder wants to know when the next pop is going to happen, no?

kijin 5y ago
Most people don't hold a lot of tether at any given time. If you bought any tether, you probably did so with the expectation that you will sell it for some other currency, either crypto or fiat, very soon.
- graeme 5y ago
  You realize someone holds all of the Tether outstanding at all timed, correct? It doesn’t just vanish. Further, there are many sites paying 12+% interest for people willing to deposit their Tether. This serves as an incentive for people to keep money in Tether rather than BTC/ETH or fiat.
  - nikanj 5y ago
    Someone still holds all of the CryptoKitties. It doesn't mean they've got any value left.
- PKop 5y ago
  This isn't true because with DeFi yields averaging in double digits, many people are holding all forms of stable coins to accrue this massive yield. Some people are entering the stable coin market with fiat simply to get this yield and have no interest in buying Bitcoin with it. It is also irrelevant to frame the situation from what "most people" do when the question is what are the people holding all the minted tether doing with it? It does not disappear; if it is not cashed in for fiat then it is still being held by someone.

mannykannot 5y ago

If you, personally, do not care what the exchange rate between Bitcoin and USD is, then maybe you need not be concerned over whether a Tether bubble is going cause that rate to crash. I guess, however, that a large majority of those holding Bitcoin care a good deal about that rate, and if so, then a crash in that rate will have a significant effect on how Bitcoin is viewed and used. The question for you to ask yourself, then, is whether those changes will adversely affect whatever it is about Bitcoin that you value.

imaginenore 5y ago

I used to think like that too, but I've slowly changed my opinion. First major error in your thinking is comparing market cap with daily trading volume. Volume is mostly coins moving back and forth, it kind of evens out, though at the moment there's a slight bias towards buying. If you decide to just sell $48B of Tether, there will not be enough buyers to hold the price near $1. Not even $1B. The liquidity is just not there, look at the books, the market depth. So once we establish that, it's quite clear what the danger is. Imagine that Tether doesn't store its capital in dollars, but instead it buys BTC (for simplicity's sake, just one coin). So they drive the price of BTC up, and many people see it, and buy it too, and everyone is seemingly making money and getting rich, including Tether, because they think they are smart by not holding USD in their reserves, they make insane profits. But what happens when the party is over? What happens when the price starts dropping fast? Now, Tether financiers are probably not stupid, they probably have all kinds of stop-loss triggers in place. So when the price of BTC does down below X, they sell N% of their BTC reserves back into USD. And when it goes even lower below Z, they sell even more of their reserves, and so on. And so do many people who bought BTC as an investment. And that drives BTC price down even faster. But, as we established in the paragraph above, there's not enough buyers to absorb all these billions of dollars worth of sells, because the books are much thinner than markets caps. So what can happen in that case? The price of BTC drops to near zero and USDT too. We don't actually know what Tether stores their reserves in. It's possible they are smart and didn't just buy BTC only, I really hope it's a wide variety of cryptocurrencies, fiat currencies, stocks, precious metals, real estate, rare art, etc.

graeme 5y ago

> The last _3 months_ saw $1Tn of new money poured into crypto from all sides. What’s the source on this? It seems implausible, given the commotion about Tesla’s comparatively tiny $1.5 billion entry.

robjan 5y ago

> The last _3 months_ saw $1Tn of new money poured into crypto from all sides. Market cap is based on the price of the last transaction multiplied by the number of coins. It's not related to the total capital flow.

Tenoke 5y ago
I assume they are conflating the $1T increase of the total crypto market cap with how much new money has been poured in, however, that's just wrong - you need much less than $1T to increase the market cap by that much.
- zilebune 5y ago
  You're correct, sorry my bad. I was looking at these charts but indeed they show market cap not capital influx: https://coinmarketcap.com/charts/ https://coinmarketcap.com/charts/

jcpham2 5y ago

It’s too far gone now to matter. Initially we cried scam but there’s too much liquidity and too many clones to stop at this point. 25 billion is a drop in the bucket. USDC pays higher interest than <insert bank name>

zilebune 5y ago

Sorry, for some reason I can't edit my own comment, so adding a new one. The $1Tn figure is Market Cap; I was looking at these charts but indeed they show market cap not capital influx: https://coinmarketcap.com/charts/ https://coinmarketcap.com/charts/