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Saw a really good YT video[1] on Tether yesterday. Breaks down all the sketchiness. But the problem he mentions in the video is a problem with pretty much all s

Saw a really good YT video[1] on Tether yesterday. Breaks down all the sketchiness. But the problem he mentions in the video is a problem with pretty much all stablecoins, in order to function you must have the proper reserves before generating a token, but inevatably greed kicks in and you start thinking what if you minted coins without the backing. USD pegged stablecoins are basically money printing machines in the hands of whoever runs the project. [1]: https://www.youtube.com/watch?v=-whuXHSL1Pg https://www.youtube.com/watch?v=-whuXHSL1Pg

vadansky 5y ago
FYI skip to 2:10 if you don't wanna watch a skit
- beforeolives 5y ago
  The whole video would have been better if he had built an argument from the ground up instead of starting with the idea that Tether is a scam and laying so many attempts at humor and irony on top of it. Or at least it would have been clearer and more educational; I haven't seen his videos before and maybe other people watch him for entertainment.
- derimagia 5y ago
  I started using SponsorBlock (https://sponsor.ajay.app/ https://sponsor.ajay.app/) a bit ago. I was skeptical that the crowdsourcing wouldn't reach enough but I find it works for most videos. It essentially tags parts of videos and it's pretty customizable - it only highlight a certain type, have it skip automatically, etc. I already pay for YouTube Premium and am not a fan of ads.
jbverschoor 5y ago
That's exactly how fractional reserve banking started...
- toomuchtodo 5y ago
  Which is backed by a governments, laws, and regulators… If my deposit account gives up the ghost, I know the FDIC or the Fed will make me whole (or SPIC for my brokerage account). Who will do the same for Tether and other stablecoins? Not good!
  - hammock 5y ago
    >the FDIC or SPIC You mean they will print more money to fill your loss (dilution net effect zero) >the Fed will make me whole Says who?
    - toomuchtodo 5y ago
      So, I'm really unsure how to have these sorts of discussions with crypto proponents. The US government's securities (UST), as well as the US capital markets, are some of the most trusted financial assets and mechanisms in the world. Treasuries, in particular, are considered one of the safest asset classes to hold. As a crypto proponent, you might not believe that, but collectively $22 trillion of capital (and those responsible for its management, sovereign and institutional alike) believes that's the case. If the US government fails, crypto is likely to be of lesser value than say, ammo, food, and fuel. This is in stark contrast to offshore crypto operations who refuse transparent auditing of their reserves.
    - tfehring 5y ago
      The FDIC's Deposit Insurance Fund has a balance of over $119 billion as of March 31. No need for money to be printed. https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2021mar/fdic.pdf https://www.fdic.gov/analysis/quarterly-banking-profile/stat...
  - jbverschoor 5y ago
    They're not "backed". It's simply not there. They're backed by the law that if you arrange a "run on the bank", YOU will go to jail.
unyttigfjelltol 5y ago
Always and everywhere banking has faced precisely this problem, which is the original reason for bank regulation and deposit insurance-type backup. If you encounter an unregulated or irregular market participant doing anything that looks like banking, buyer beware-- on average, over time, you're not getting your money back.
- elliekelly 5y ago
  I feel like cryptocurrency markets and investors are painfully “re-learning” the lessons of a hundred years ago.
  - eloff 5y ago
    It seems that reinventing finance works out about the same a rewriting a big software project. You think you'll get rid of a lot of nasty code, but then you realize all that ugliness was there for a reason and you're just rediscovering all the edge cases again the hard way.
    - gradys 5y ago
      But in doing so, you bring that latent knowledge back into the minds of living people who can rethink the solutions in the face of the modern ecosystem and clean out the cruft that truly has no modern purpose.
      - elliekelly 5y ago
        Do you think no one in finance has thought about financial regulations until crypto came around? I can assure you there were (and are!) many people paid quite a lot of money to “rethink the solutions in the face of the modern regulatory ecosystem and clean out the cruft that truly has no modern purpose”. One of the reasons securities regulations are “expensive” to comply with is because they’re constantly changing. Why are they constantly changing? Because we’re rethinking how, when, and whether the various regulations ought to be implemented. The regulations implementing Federal securities laws are perhaps the most nimble, iterative, and “listen to your users” driven regulations in the US.
Tenobrus 5y ago
Actually this is no longer true. As of recently, the crypto ecosystem produced Dai (https://makerdao.com/en/ https://makerdao.com/en/), which is a fully decentralized stablecoin. I think it represents one end-state of the crypto ecosystem, blockchain transactions but with decentralized systems keeping volatility near zero.
- runako 5y ago
  I've only skimmed the white paper, but this appears to be a "stablecoin" backed by crypto assets. Is that correct? The white paper is complex, and the Emergency Shutdown price stability mechanism appears exposed to ETH price risk such that if ETH moves rapidly around the Emergency Shutdown, there's no guarantee that Dai holders could recoup on a 1:1 basis. Is that correct? This seems to be not a dependable peg.
  - miracle2k 5y ago
    The Bank of England couldn't keep their peg, so what's the gold standard for a dependable cross-asset peg then? DAI has been tremendously successful over multiple years and multiple bear markets and ETH price crashes; it can only do so much of course. If ETH goes to zero tomorrow, DAI holders will not be able to recoup, sure. In fact, the real problem with DAI is that demand often exceeds supply, the latter being limited by people who want to go long ETH, so they keep having to fight DAI breaking the peg in the other direction. To solve this, they onboarded other collateral types, including the USDC stablecoin, which now unfortunately accounts for >50% of DAI collateral.
    - runako 5y ago
      > The Bank of England couldn't keep their peg, so what's the gold standard for a dependable cross-asset peg then? I'm not a crypto expert, but naively I would at a minimum expect uncorrelated collateral to be part of the picture. DAI runs on ETH, so collateralizing via an ETH mechanism seems like possibly not the best choice. I would expect that the peg would depend on something that exhibits a low correlation with crypto asset prices and a very high and dependable correlation with USD, like money market funds or Treasuries.
digianarchist 5y ago
Why would they kill the golden goose though? Think of how much money they could be making by simply holding deposits...
- pjlegato 5y ago
  The amount of money a bank (or loosely equivalent crypto entity) can make holding deposits and making loans out of them is far lower than the amount it can make by printing new fiat (or crypto tokens) out of thin air and loaning them out (/selling them.) Usually, this works fine, they make a lot of money, and everyone's happy. When there's some unexpected macroeconomic issue, which empirically happens with some regularity, they have massive problems as loans default en masse (or everyone tries to redeem their token for USD at once.)
  - SpicyLemonZest 5y ago
    And it's critical to note that Tether has, in fact, refused to process any redemptions for any US client since 2018.
    - skybrian 5y ago
      I’m wondering why non-US intermediaries couldn’t do it?
      - wmf 5y ago
        There's no evidence that Tether does redemptions for anyone.
        anonymoushn 5y ago
        If you ask any trading desk in the space they will tell you they personally regularly do this.
        wmf 5y ago
ostenning 5y ago
Centralised stable coins maybe or yes. But there are also decentralized stable coins like DAI that have smart contracts to ensure a level of backing
- shkkmo 5y ago
  Isn't the DAI better describes as semi-stable since it holds reserves in Ether and other cryptocurrencies but is pegged to the dollar. This exposes it to systemic risk in the way that stablecoins backed by reserves in their pegged currency are not. The degree of excess in their reserves does cushion against a lot of violatility, but that cushion is finite and could easily vanish in a cryptomarket crash.
  - coolspot 5y ago
    AFAIK it survived ETH price crash from $1400 to $90 .
    - shkkmo 5y ago
      Have any details on this? I find those numbers implausible without a context or a citation.
      - ostenning 5y ago
        You can just look at the market cap and price history of DAI through the last market crashes
        shkkmo 5y ago
        I did, it was not clear to me what was being referenced. If there is a good example of DAI surviving such instability, a reference discussing how that happened seems like a pretty reasonable requests given the strong claims that are being made.
- tootahe45 5y ago
  > decentralized stable coins like DAI that have smart contracts to ensure a level of backing Which has been collateralized by centralized stable coins including tether, if i recall correctly..
jpmattia 5y ago
> but inevatably greed kicks in and you start thinking what if you minted coins without the backing. Yet another tired implication of Tether printing coins without backing, so let's break down the NYAG's announcement of Tether's fine. The fine was for: 1. Buying a bond (= lending out their backing) in a related party transaction, and 2. Not updating their customers that Tether backing had changed from 100% cash into a mix of cash+bonds. The guy with the handle bitfinex'd was an extremely prolific screamer about fraudulently unbacked tether and folks seemed to believe him. If you still believe him, it now means you believe that NYAG Leticia James looked at Tether's books and gave them a pass on fraud in order to collect a few million dollars in a fine. Not bloody likely.

vadansky 5y ago

FYI skip to 2:10 if you don't wanna watch a skit

beforeolives 5y ago
The whole video would have been better if he had built an argument from the ground up instead of starting with the idea that Tether is a scam and laying so many attempts at humor and irony on top of it. Or at least it would have been clearer and more educational; I haven't seen his videos before and maybe other people watch him for entertainment.
derimagia 5y ago
I started using SponsorBlock (https://sponsor.ajay.app/ https://sponsor.ajay.app/) a bit ago. I was skeptical that the crowdsourcing wouldn't reach enough but I find it works for most videos. It essentially tags parts of videos and it's pretty customizable - it only highlight a certain type, have it skip automatically, etc. I already pay for YouTube Premium and am not a fan of ads.

jbverschoor 5y ago

That's exactly how fractional reserve banking started...

toomuchtodo 5y ago
Which is backed by a governments, laws, and regulators… If my deposit account gives up the ghost, I know the FDIC or the Fed will make me whole (or SPIC for my brokerage account). Who will do the same for Tether and other stablecoins? Not good!
- hammock 5y ago
  >the FDIC or SPIC You mean they will print more money to fill your loss (dilution net effect zero) >the Fed will make me whole Says who?
  - toomuchtodo 5y ago
    So, I'm really unsure how to have these sorts of discussions with crypto proponents. The US government's securities (UST), as well as the US capital markets, are some of the most trusted financial assets and mechanisms in the world. Treasuries, in particular, are considered one of the safest asset classes to hold. As a crypto proponent, you might not believe that, but collectively $22 trillion of capital (and those responsible for its management, sovereign and institutional alike) believes that's the case. If the US government fails, crypto is likely to be of lesser value than say, ammo, food, and fuel. This is in stark contrast to offshore crypto operations who refuse transparent auditing of their reserves.
  - tfehring 5y ago
    The FDIC's Deposit Insurance Fund has a balance of over $119 billion as of March 31. No need for money to be printed. https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2021mar/fdic.pdf https://www.fdic.gov/analysis/quarterly-banking-profile/stat...
- jbverschoor 5y ago
  They're not "backed". It's simply not there. They're backed by the law that if you arrange a "run on the bank", YOU will go to jail.

unyttigfjelltol 5y ago

Always and everywhere banking has faced precisely this problem, which is the original reason for bank regulation and deposit insurance-type backup. If you encounter an unregulated or irregular market participant doing anything that looks like banking, buyer beware-- on average, over time, you're not getting your money back.

elliekelly 5y ago
I feel like cryptocurrency markets and investors are painfully “re-learning” the lessons of a hundred years ago.
- eloff 5y ago
  It seems that reinventing finance works out about the same a rewriting a big software project. You think you'll get rid of a lot of nasty code, but then you realize all that ugliness was there for a reason and you're just rediscovering all the edge cases again the hard way.
  - gradys 5y ago
    But in doing so, you bring that latent knowledge back into the minds of living people who can rethink the solutions in the face of the modern ecosystem and clean out the cruft that truly has no modern purpose.
    - elliekelly 5y ago
      Do you think no one in finance has thought about financial regulations until crypto came around? I can assure you there were (and are!) many people paid quite a lot of money to “rethink the solutions in the face of the modern regulatory ecosystem and clean out the cruft that truly has no modern purpose”. One of the reasons securities regulations are “expensive” to comply with is because they’re constantly changing. Why are they constantly changing? Because we’re rethinking how, when, and whether the various regulations ought to be implemented. The regulations implementing Federal securities laws are perhaps the most nimble, iterative, and “listen to your users” driven regulations in the US.

Tenobrus 5y ago

Actually this is no longer true. As of recently, the crypto ecosystem produced Dai (https://makerdao.com/en/ https://makerdao.com/en/), which is a fully decentralized stablecoin. I think it represents one end-state of the crypto ecosystem, blockchain transactions but with decentralized systems keeping volatility near zero.

runako 5y ago
I've only skimmed the white paper, but this appears to be a "stablecoin" backed by crypto assets. Is that correct? The white paper is complex, and the Emergency Shutdown price stability mechanism appears exposed to ETH price risk such that if ETH moves rapidly around the Emergency Shutdown, there's no guarantee that Dai holders could recoup on a 1:1 basis. Is that correct? This seems to be not a dependable peg.
- miracle2k 5y ago
  The Bank of England couldn't keep their peg, so what's the gold standard for a dependable cross-asset peg then? DAI has been tremendously successful over multiple years and multiple bear markets and ETH price crashes; it can only do so much of course. If ETH goes to zero tomorrow, DAI holders will not be able to recoup, sure. In fact, the real problem with DAI is that demand often exceeds supply, the latter being limited by people who want to go long ETH, so they keep having to fight DAI breaking the peg in the other direction. To solve this, they onboarded other collateral types, including the USDC stablecoin, which now unfortunately accounts for >50% of DAI collateral.
  - runako 5y ago
    > The Bank of England couldn't keep their peg, so what's the gold standard for a dependable cross-asset peg then? I'm not a crypto expert, but naively I would at a minimum expect uncorrelated collateral to be part of the picture. DAI runs on ETH, so collateralizing via an ETH mechanism seems like possibly not the best choice. I would expect that the peg would depend on something that exhibits a low correlation with crypto asset prices and a very high and dependable correlation with USD, like money market funds or Treasuries.

digianarchist 5y ago

Why would they kill the golden goose though? Think of how much money they could be making by simply holding deposits...

pjlegato 5y ago
The amount of money a bank (or loosely equivalent crypto entity) can make holding deposits and making loans out of them is far lower than the amount it can make by printing new fiat (or crypto tokens) out of thin air and loaning them out (/selling them.) Usually, this works fine, they make a lot of money, and everyone's happy. When there's some unexpected macroeconomic issue, which empirically happens with some regularity, they have massive problems as loans default en masse (or everyone tries to redeem their token for USD at once.)
- SpicyLemonZest 5y ago
  And it's critical to note that Tether has, in fact, refused to process any redemptions for any US client since 2018.
  - skybrian 5y ago
    I’m wondering why non-US intermediaries couldn’t do it?
    - wmf 5y ago
      There's no evidence that Tether does redemptions for anyone.
      - anonymoushn 5y ago
        If you ask any trading desk in the space they will tell you they personally regularly do this.
        wmf 5y ago

ostenning 5y ago

Centralised stable coins maybe or yes. But there are also decentralized stable coins like DAI that have smart contracts to ensure a level of backing

shkkmo 5y ago
Isn't the DAI better describes as semi-stable since it holds reserves in Ether and other cryptocurrencies but is pegged to the dollar. This exposes it to systemic risk in the way that stablecoins backed by reserves in their pegged currency are not. The degree of excess in their reserves does cushion against a lot of violatility, but that cushion is finite and could easily vanish in a cryptomarket crash.
- coolspot 5y ago
  AFAIK it survived ETH price crash from $1400 to $90 .
  - shkkmo 5y ago
    Have any details on this? I find those numbers implausible without a context or a citation.
    - ostenning 5y ago
      You can just look at the market cap and price history of DAI through the last market crashes
      - shkkmo 5y ago
        I did, it was not clear to me what was being referenced. If there is a good example of DAI surviving such instability, a reference discussing how that happened seems like a pretty reasonable requests given the strong claims that are being made.
tootahe45 5y ago
> decentralized stable coins like DAI that have smart contracts to ensure a level of backing Which has been collateralized by centralized stable coins including tether, if i recall correctly..

jpmattia 5y ago

> but inevatably greed kicks in and you start thinking what if you minted coins without the backing. Yet another tired implication of Tether printing coins without backing, so let's break down the NYAG's announcement of Tether's fine. The fine was for: 1. Buying a bond (= lending out their backing) in a related party transaction, and 2. Not updating their customers that Tether backing had changed from 100% cash into a mix of cash+bonds. The guy with the handle bitfinex'd was an extremely prolific screamer about fraudulently unbacked tether and folks seemed to believe him. If you still believe him, it now means you believe that NYAG Leticia James looked at Tether's books and gave them a pass on fraud in order to collect a few million dollars in a fine. Not bloody likely.