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Tether is very good for borrowing, if you think it might collapse. You can borrow a large amount, buy a hard asset with the borrowings, and if it collapses you'

Tether is very good for borrowing, if you think it might collapse. You can borrow a large amount, buy a hard asset with the borrowings, and if it collapses you'll only need to pay back at a discount. (Not advice) I am beginning to think that it would be worse if USDT went over the peg rather than under! Therefore, it would not surprise me if the Tether FUD might be intentional - otherwise Tether might start "collapsing" the wrong way.

fastball 5y ago
The problem with that plan is that Tether loaning (outside the interesting relationship exchanges have with Tether) is generally gonna be DeFi loans, which are massively over-collateralized (something like 2:1 collateral to debt). If Tether crashed, it is not clear that your collateral would not be liquidated to cover the nominal value of the original loan, rather than the new (near zero) value of Tether.
- bouncycastle 5y ago
  Actually, what I've described is called "shorting". In defi it's never the nominal value, but the current value, so it would be very clear that your collateral would unlikely be liquidated. You can also use something like USDC for the collateral for even more safety. (I think you can already see some evidence of this strategy since the interest rates for USDT are always higher) The scenario where all the collateral would be liquidated would be if Tether broke its peg and went up. That would be a disaster. (Also called a "short squeeze")
  - fastball 5y ago
    AFAIK all DeFi lending based around Tether is predicated on the idea that a Tether is worth $1 USD. I'm not sure the smart contracts / etc involved are particularly resilient if that changes. The attempts at making these DeFi systems robust is almost entirely focused on what the system needs to do when the value of the non-stable crypto fluctuates wildly, not the stablecoin.
    - bouncycastle 5y ago
      Nope, Tether is a soft-peg, meaning that it sometimes trades above or below $1. Therefore the contracts can deal with it going below or over, and it often does.

fastball 5y ago

The problem with that plan is that Tether loaning (outside the interesting relationship exchanges have with Tether) is generally gonna be DeFi loans, which are massively over-collateralized (something like 2:1 collateral to debt). If Tether crashed, it is not clear that your collateral would not be liquidated to cover the nominal value of the original loan, rather than the new (near zero) value of Tether.

bouncycastle 5y ago
Actually, what I've described is called "shorting". In defi it's never the nominal value, but the current value, so it would be very clear that your collateral would unlikely be liquidated. You can also use something like USDC for the collateral for even more safety. (I think you can already see some evidence of this strategy since the interest rates for USDT are always higher) The scenario where all the collateral would be liquidated would be if Tether broke its peg and went up. That would be a disaster. (Also called a "short squeeze")
- fastball 5y ago
  AFAIK all DeFi lending based around Tether is predicated on the idea that a Tether is worth $1 USD. I'm not sure the smart contracts / etc involved are particularly resilient if that changes. The attempts at making these DeFi systems robust is almost entirely focused on what the system needs to do when the value of the non-stable crypto fluctuates wildly, not the stablecoin.
  - bouncycastle 5y ago
    Nope, Tether is a soft-peg, meaning that it sometimes trades above or below $1. Therefore the contracts can deal with it going below or over, and it often does.