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Tether imploding isn't at all like a public company closing shop, because public companies are Real Things and have public data about sales, revenue, employees,

Tether imploding isn't at all like a public company closing shop, because public companies are Real Things and have public data about sales, revenue, employees, business relationships, etc. And even the ones that implode go through bankruptcy court where their assets are doled out to debtors and shareholders. Tether imploding would be more like a bank run, where you can see YOUR MONEY as a number on the screen then when you go to cash out, you simply can no longer access your money. Or maybe you can withdraw $100 a day, but no more. If and when that happens (or threatens to happen), everyone freaks out and tries to get their money at once - which is exactly why the banking system in the U.S. is backed by the federal government so this doesn't happen. The higher risk is that a good swath of crypto investment is done on leverage, which can increase with the more money you have. So with $100MM and a bit of lying you can go invest 10x your money in crypto and get some fat returns - lets say you go all-in and put $1B in Tether and get an 8% return on your money - thanks to leverage you are actually making 80% return on your $100M (sample #s, but you get the idea). This works great until things blow up, because you don't just lose your $100M, the BANKS that gave you leverage ("margin") lose $900M too, so one idiot taking this gamble can have a massive impact on the banking system as a whole. This isn't just theory either, something akin to this happened about a month ago: https://www.thestandard.com.hk/breaking-news/section/2/168807/Nomura,-Credit-Suisse-take-US$9b-hit-from-Bill-Hwang%27s-Archegos-fund-meltdown https://www.thestandard.com.hk/breaking-news/section/2/16880... And that wasn't even fallout from a Ponzi scheme, but simply from: bad risk management + leverage + minimal oversight + lying. The real stupidity is that these banks have continued to provide margin loans at very low rates with loose oversight, which should remind you of "race-to-the-bottom" mortgage market that blew up housing around 15 years ago. Except now we are talking about hedge funds and billionaires and a billions of dollars being thrown into shitcoins and NFTs. So when this implodes there won't be any collateral at all to rely on.

mrlaserOO 5y ago
Ummm how exactly would banks give you 900m for 100m in collateral?! Can you make an example?
- dan-robertson 5y ago
  It’s not banks but I think the GP is trying to describe a margin loan. Basically you give (say) an exchange $100, ask them to buy $1000 worth of stuff using your $100 as margin, and if the stuff you bought looks like it is going to be worth less than $900 (ie if they would make a loss by selling all your stuff) they will call you and ask for more collateral or, if you are too slow, sell all your stuff for eg $925, leaving you with a less of $75.
JackFr 5y ago
To paraphrase: - when a company goes bust you still have shares your share -- no one wants to pay for them with dollars. - when tether implodes you still have your tether, but you can't turn it into dollars because there aren't any dollars to convert it too.
- fastball 5y ago
  Wasn't that GC's point though? The run-on-a-bank analogy only applies if you are holding Tether when it happens. If you are rightfully paranoid about Tether and therefore don't hold any, what is the damage for you?
  - cortesoft 5y ago
    Isn’t this like saying a run on the banks won’t damage you if you keep your money in a mattress? Even if you don’t keep any money in a bank, banks collapsing would still hurt you. The stock market crashing hurts more than just people who own stock.
    - fastball 5y ago
      Right, but a run on a bank does not necessitate collateral damage. As an example, let's say Capital One has been fractional banking (as they all do) but for some reason people get paranoid about it and there is a run on the bank. Everyone tries to withdraw money Capital One doesn't have. As long as the govt doesn't step in and socialize losses on the back of the taxpayer, you're left with a bunch of people who had "deposits" at Capital One that are now non-existent because Capital One doesn't have any money left. Those people are of course hurt, but the person who only banks with Chase would be hurt how?
      - notahacker 5y ago
        People who only bank with Chase are likely owed money or expecting income from Capital One customers who now unexpectedly do not have any money. Also, Chase customers start worrying about the security of their money, and they start to withdraw from Chase faster than Chase debtors pay off their loans
WanderPanda 5y ago
Except that it is not “one idiot taking this gamble” that can have a massive impact. The second and eventually third tier idiots are the banks and the government/people for allowing the concept of “too big to fail” to exist. An additional layer of idiots are the central banks that incentivise all of this by kicking the can down the road.

mrlaserOO 5y ago

Ummm how exactly would banks give you 900m for 100m in collateral?! Can you make an example?

dan-robertson 5y ago
It’s not banks but I think the GP is trying to describe a margin loan. Basically you give (say) an exchange $100, ask them to buy $1000 worth of stuff using your $100 as margin, and if the stuff you bought looks like it is going to be worth less than $900 (ie if they would make a loss by selling all your stuff) they will call you and ask for more collateral or, if you are too slow, sell all your stuff for eg $925, leaving you with a less of $75.

JackFr 5y ago

To paraphrase: - when a company goes bust you still have shares your share -- no one wants to pay for them with dollars. - when tether implodes you still have your tether, but you can't turn it into dollars because there aren't any dollars to convert it too.

fastball 5y ago
Wasn't that GC's point though? The run-on-a-bank analogy only applies if you are holding Tether when it happens. If you are rightfully paranoid about Tether and therefore don't hold any, what is the damage for you?
- cortesoft 5y ago
  Isn’t this like saying a run on the banks won’t damage you if you keep your money in a mattress? Even if you don’t keep any money in a bank, banks collapsing would still hurt you. The stock market crashing hurts more than just people who own stock.
  - fastball 5y ago
    Right, but a run on a bank does not necessitate collateral damage. As an example, let's say Capital One has been fractional banking (as they all do) but for some reason people get paranoid about it and there is a run on the bank. Everyone tries to withdraw money Capital One doesn't have. As long as the govt doesn't step in and socialize losses on the back of the taxpayer, you're left with a bunch of people who had "deposits" at Capital One that are now non-existent because Capital One doesn't have any money left. Those people are of course hurt, but the person who only banks with Chase would be hurt how?
    - notahacker 5y ago
      People who only bank with Chase are likely owed money or expecting income from Capital One customers who now unexpectedly do not have any money. Also, Chase customers start worrying about the security of their money, and they start to withdraw from Chase faster than Chase debtors pay off their loans

WanderPanda 5y ago

Except that it is not “one idiot taking this gamble” that can have a massive impact. The second and eventually third tier idiots are the banks and the government/people for allowing the concept of “too big to fail” to exist. An additional layer of idiots are the central banks that incentivise all of this by kicking the can down the road.