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There seems like a huge number of people who, at least in online discussions are skeptical of Tether's stability. And they may very possibly be correct? However

There seems like a huge number of people who, at least in online discussions are skeptical of Tether's stability. And they may very possibly be correct? However, my question is why do virtually none of these people actually out money behind these views and short USDT? It's pretty cheap and easy to take a short position in Tether. You can borrow USDT on Compound for 3.37%, convert it to USDC at Curve for 0.06%, then collect 2.32% on USDC at AAVE. If/when Tether collapses, you'll only have to cover your short at the collapsed value. Many in comment sections like these will argue that Tether is less than 50% backed by hard assets. If you genuinely believed that to be the case, why would you not be happy to pay less than 1.5% per year to earn a 50% profit when the house of cards collapses?

esyir 5y ago
Because the market can remain irrational longer than you can remain solvent. Just look at the state of Meme stocks now.
- gruez 5y ago
  but stablecoins are basically guaranteed to never exceed $1, so your downside is essentially limited to the interest you pay.
  - esyir 5y ago
    Therin lies the rub. With options, you're making a double bet :first that it is overvalued, and second that you got the timing right. If you're wrong on either, you lose money. You don't get the really huge blowout risk due to the stable nature, but the other two still apply.
  - croes 5y ago
    I don't think so https://twitter.com/Bitfinexed/status/1405037796172222466?s=20 https://twitter.com/Bitfinexed/status/1405037796172222466?s=...
    - gruez 5y ago
      My response to that: https://news.ycombinator.com/item?id=27529751 https://news.ycombinator.com/item?id=27529751
      - mcintyre1994 5y ago
        Even if the narrative is nonsense, would a short not have got ruined by that spike regardless of cause?
      - croes 5y ago
        But still invalidates your claim >stablecoins are basically guaranteed to never exceed $1 Why it happened is debatable, but not that it happened.
Giorgi 5y ago
I guess nobody has that kind of money to risk it.
nannal 5y ago
I've a 'teather fudster' for a number of years and that's why I'd be hesitant to open a short right now. Finex have kept the wheel spinning for a remarkably long time, there's no point spending money to wait while its just wobbling given how quickly a short can be opened, once it hits 0.85c or so though then that would indicate to me that its all about to be over very quickly.
paulgb 5y ago
A lot of us who are skeptical of Tether think it poses systematic risk to the whole crypto ecosystem, so selling it short for other crypto would defeat the purpose. Is it possible to convert the USDC to actual USD while maintaining the USDT borrow, or is it required as collateral? Instead of shorting USDT directly, I'm short a public market company which I believe will drop if Tether blows up (it's a pretty junky company, so it's already a profitable trade). If I could convert that to a direct USDT short without crypto exposure, I'd do it.
- anonymoushn 5y ago
  These defi lending platforms generally require you to overcollaterlize your loan because they can't sue you or send you to collections or whatever. You could deposit a bunch of USDC, withdraw a bunch of USDT, send that to coinbase or whatever and sell it for real dollars, but you'll have slightly fewer dollars than you started with.
  - paulgb 5y ago
    The USDC is not frozen as collateral? The way I understand it, I could borrow $10 USDT collateralized by (say) $11 of USDC, but then I couldn't convert that $11 of USDC to $11 USD until I bought back the $10 USDT and returned the loan.
    - anonymoushn 5y ago
      That's correct. I'm just saying you could sell the 10 tether for dollars and put those in your bank account while you wait for the tether collapse.
      - paulgb 5y ago
        Ahh, I see what you mean. That way if USDC collapses, I would lose just the amount it was over-collateralized by. If USDT completely collapses but USDC does not, I would gain the amount I was short USDT. This is more interesting. Thanks for explaining it.
marderfarker2 5y ago
Because you cannot bet against irrational things. Would rather throw money into things with higher conviction, lower risks, albeit with much lower potential returns.
throwaaskjdfh 5y ago
Because if Tether is defying gravity now, there's no way to be sure it won't defy gravity even harder before it collapses. With a short, you can't just be right in the end, you have to find a way to not blow up if things get more irrational in the meantime.
- grapehut 5y ago
  Tether is particularly easy to short because it's pegged to a dollar. That means there's no significant risk it'll become more valuable than a dollar.
  - croes 5y ago
    I don't think so https://twitter.com/Bitfinexed/status/1405037796172222466?s=20 https://twitter.com/Bitfinexed/status/1405037796172222466?s=...
    - rsync 5y ago
      I would like to hear more details on this - the linked twitter thread is a bit bare ... Isn't there an enormous risk in manipulating the price as high as $400/tether just to liquidate (someone elses) short position ? Who else, then, has the opportunity to sell at the temporarily inflated price ? Again, some more details would be very interesting ...
      - grapehut 5y ago
        Yeah, in reality it's not what happened. Exchanges don't instantly margin-call positions, they have to use time-outs and do it slowly (or there simply isn't going to be the liquidity). So it's pretty easy to get the price of tether on a single exchange to momentarily hit $400, just blow through the order book. However no one is getting margin-called just yet, so the trick is to sustain that price, which means buying tether at $400 a piece. Unless you've got hundreds of millions of dollars to blow, it's simply not possible. And something as obvious as that, manual circuit breakers are going to be getting hit before they let margin calls cascade.
rawtxapp 5y ago
Because they will do everything to liquidate you, at one point price of tether briefly hit 1000$ on kraken.
- viro 5y ago
  as a "outsider" that makes no sense to me. tether is supposed to be a stable coin ... how the fuck was it $1000
  - grapehut 5y ago
    Generally spikes like that happen because of fat-finger mistakes that blow through the order book, and typically return to normal within seconds.
    - 988747 5y ago
      There was a short spike of CHFPLN on Forex few years ago: exchange rate went from less than 4.00 PLN to 5.50 PLN, because of Swiss central bank decision to not stabilize it anymore. Some people made a lot of money (or so they thought). Few days later the broker declared that spike "a technical glitch" and they cancelled all the trades. The moral of the story is: your exchange will always find a way to screw you.
  - mcintyre1994 5y ago
    It looks like it was a very brief spike and immediately went back to its peg, but I have no idea how it happened. https://twitter.com/Bitfinexed/status/1405037796172222466?s=20 https://twitter.com/Bitfinexed/status/1405037796172222466?s=...
IculsOneyAD 5y ago
The liquidity on most crypto exchanges comes from USDT. If Tether goes down, I don't believe exchanges are going to let me liquidate my positions. At least not before insiders can do that.
ARandumGuy 5y ago
I'm someone who's highly skeptical of Tether, but has no interest in shorting it. Here's a few reasons why: 1) I'm pretty confident Tether will collapse, but I have no idea when that will actually happen. The old saying is that "The market can remain irrational longer then you can remain solvent" 2) I'm not an expert in cryptocurrency shorting, but the scenario you stated involved shorting Tether against other cryptocurrencies. Since Tether is heavily integrated with the rest of the crypto market, if Tether falls, it will likely heavily impact the rest of the market. It may be possible to make money off of that, but it would also be possible to lose money if you time things incorrectly. 3) It's not all about the money. I'm making plenty of money at my day job, and feel confident in my existing investments. I don't need to spend my time gambling in the crypto market.
- anonymoushn 5y ago
  You can short tether against USD for like less than two pennies per year at FTX, so this is a pretty good deal if you want the exposure for a decade or so, and you don't need exposure to other cryptocurrencies.
  - paulgb 5y ago
    USD, or USDC? If it's real USD, I'd love to know how.
    - anonymoushn 5y ago
      Real dollars yes. You deposit money at FTX and then you short the tether quarterly futures: https://ftx.com/trade/USDT-0924 https://ftx.com/trade/USDT-0924 I think most people would be more worried about counterparty risk with FTX than with Circle though.
      - paulgb 5y ago
        By real dollars I mean dollars in an FDIC or SIPC-insured account, unless I'm mistaken this just appears to be an IOU from FTX.
phpnode 5y ago
When tether collapses it can take the whole crypto economy with it, including Compound. If you want to short it you have to do so in an indirect way, e.g. by shorting MSTR or COIN.
spywaregorilla 5y ago
> It's pretty cheap and easy to take a short position in Tether. You can borrow USDT on Compound for 3.37%, convert it to USDC at Curve for 0.06%, then collect 2.32% on USDC at AAVE. If/when Tether collapses, you'll only have to cover your short at the collapsed value. Read what you just wrote and then ask yourself if figuring out / validating / executing that is actually "easy" to the average person. As a casual observer, and crypto owner, that is definitely not easy for me.
- rawtxapp 5y ago
  Average person isn't shorting Tether, those shorting Tether should have a deep understanding of why it has the potential of collapsing and to have that understanding, you also need to understand these different financial products properly.
  - spywaregorilla 5y ago
    Of course. And that's one reason why the average person observing tether seems scammy doesn't immediately try to short it.
- random_kris 5y ago
  Hmmm for someone reading hacker news, participating in this thread and claiming that they hold crypto this shouldlnt be hard to understand by doing 10 minutes of research. Instead you decided to use that time for commenting and complaining
  - spywaregorilla 5y ago
    > Hmmm for someone reading hacker news, participating in this thread and claiming that they hold crypto this shouldlnt be hard to understand by doing 10 minutes of research I would strongly advise against anyone trying to learn and devise a shorting strategy in 10 minutes > Instead you decided to use that time for commenting and complaining ... ditto?
raesene9 5y ago
This may work if you could trust the venue that you place the short position with, however if Tether collaborates with the main venues, that won't work, if they can spike the price and wipe out your position. There are suggestions that this occurs, example below. https://twitter.com/Bitfinexed/status/1405037796172222466?s=20 https://twitter.com/Bitfinexed/status/1405037796172222466?s=... ``` PSA: Do not attempt to short Tether. If you obtain a large enough position in Tether, the exchange will leak your position to Bitfinex shareholders who will coordinate to liquidate your short position. This happened on Kraken. Tether went over $400 per tether, twice. ```
- gruez 5y ago
  >https://twitter.com/Bitfinexed/status/1405037796172222466?s= https://twitter.com/Bitfinexed/status/1405037796172222466?s=... If someone was short and got wrecked by this, I'd expect them to raise a big fuss about this, but that's not happening (maybe it is, but they didn't link to it). Kraken is also one of the more regulated exchanges out there which puts more doubt on it. All in all, the only thing I'm seeing is witnessing an event and making up an explanation for it that fits their narrative, while offering zero evidence to support it.
  - anonymoushn 5y ago
    Kraken does apparently offer spot margin (but not to people living in my country), so it's possible for someone to be liquidated in such a situation. The accusations are pretty wild compared to the evidence on hand though.
  - yunohn 5y ago
    Why would the price suddenly spike to 1000$ otherwise? What’s a sane reason for this occurring?
    - anonymoushn 5y ago
      Kraken is notorious for trades occurring at non-representative prices across a variety of assets. This happens any time someone places a large limit order and there's not enough liquidity at "reasonable prices" to fill it.
xwolfi 5y ago
If you genuinely believe God will reward you for murdering heretics in a Saint War, why don't more people do it? I am skeptical of USDT, but maybe I'd like to keep my savings out of speculation, especially shorting that leaves you with nothing if your bet turns out false (a long mistake at least let you keep the valueless assets lol). There s no binary choice between speculating for USDT or against USDT, you can say this entire thing stinks and you're better not speculating at all.
mortehu 5y ago
The value of tether is a function of how close the supply is to the underlying assets. The only thing that matters at the moment is that you can redeem for dollars now, not whether you can do so in ten years. The fact that the next billion can be safely redeemed doesn't mean the token isn't a scam.
kemonocode 5y ago
I'd rather prefer it died already so the crypto ecosystem can purge itself off it, but I can't make a bet as to when that will happen. It'll be a bloodshed in the short term but it'll recover in time. We did just fine without it at the beginning, we can do just fine without it now.
chollida1 5y ago
I mean, who says people aren't doing that? I know one fund that is short tether. The downside is that you have to trust USDC at the same time and if tether breaks, there is n o guarentee taht USDC holds its peg so you can lose the following ways 1) be wrong and tether is fully backed 2) be right but way too early 3) be right but the peg only breaks by a couple of pennies so you really make peanuts for the risk you put on 4) be right but USDC also breaks and you end up losing 5) be right but6 tether falling sinks crypto so there is not real crypto position you can hold in this case that makes you money. 6) Counterpary/exchange risk, you have to close out your tether position or remove it from the exchange, in the case that new broker that Tether is worthless, every exchange would suddenly lock out withdrawals and go down like they do each time there is a crash, which means you may end up losing even if you were right. I mean there are so many ways to be right and lose on this trade:) Its not something too many hedge funds would dare put on. The upside to being right just isn't anywhere near enough to be in this trade in a fully leveraged way and this is crypto and everyone accepts its manipulated in some way so its hard to rationalize leveraging this trade up to make any meaningful return
intuitionist 5y ago
Massive counterparty risk. Tether is likely backed mostly by loans to exchanges like Binance and FTX (and of course Bitfinex.) When and if Tether collapses the exchanges will very possibly be rendered insolvent and you’ll be in line with all the other creditors trying to make a recovery. I don’t know enough about fully decentralized protocols to know what the risks are there.
- robjan 5y ago
  The risks are that tether brings down whatever currency your short is denominated in. For DeFi, it will be either another token or cryptocurrency.
wpietri 5y ago
One of the lessons of the 2008 financial bubble is that financial systems are complex, often arcane, and prone to unexpected failure modes. Or more colloquially, the devil is in the details. I used to write financial trading software, so I am reasonably familiar with the topic. But there's no way in hell that I as an individual would use 3 different unknown services to make bets in an unregulated and likely manipulated market. There are all sort of risks there. If I were managing $100m it would be a different story. I could have analysts carefully looking at the financial risks and a lawyer or two gaming out the legal concerns. If all that looked good, then I might go for a short, because believe it's a fraud. But there's no way a typical individual investor should be making bets like that.
yunohn 5y ago
> It's pretty cheap and easy to take a short position in Tether. Proceeds to describe a Byzantine crypto solution, which neglects the inherent risk of each counter-party and interaction along the way.
vkou 5y ago
You can't short tether, because if you succeed, it's likely that the entire crypto ecosystem will implode, and there's a serious chance you won't get paid.
amznthrwaway 5y ago
To my knowledge, I can only bet on Tether’s collapse if I hold uninsured funds in an institution that is, itself, at risk of failure in the case of Tether’s collapse. Is there a way to short Tether without this egregious counter party risk?
jameshart 5y ago
If you believe Tether is engaged in essentially a criminal conspiracy, you might well have some concerns about engaging in financial transactions which intend to profit from that criminal conspiracy. If Tether does collapse, and you manage to engineer a solution so that at the end of that event you are holding some of the resulting money... whose money is that you've got hold of? The victims of the crime?
cesarb 5y ago
Besides what others have already said, there's also the risk that if Tether collapses and becomes so worthless that it's not being traded anymore, you cannot exit the short position, as Matt Levine once mentioned on his newsletter (https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to-zero-isn-t-great-for-short-sellers https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to...).
unmole 5y ago
Because the market can remain irrational for far longer than I can remain solvent.
rsync 5y ago
"It's pretty cheap and easy to take a short position in Tether. You can borrow USDT on Compound for 3.37%, convert it to USDC at Curve for 0.06%, then collect 2.32% on USDC at AAVE. If/when Tether collapses, you'll only have to cover your short at the collapsed value." I am genuinely interested in exactly that short trade and your list of counterparties, above, is the reason I have never pulled the trigger on this. A handful of new, interesting and untested entities all need to function properly at a time of market panic for that trade to complete as expected. EDIT: Somewhat off-topic, but given the actual real-world economic pain that chiacoin has caused me, I am much more interested in the prospect of an IPO of (chia parent) which could then be shorted (or optioned) properly through normal channels. I daydream of being on the right side of that trade with every batch of triple-priced SAS drives we have purchased in the last 4-6 weeks ...
- thebean11 5y ago
  A slightly different strategy with less counterparty risk - Borrow USDT with USDC as collateral - Sell USDT for USD, put it in your regular bank account (you'll end up with slightly less cash than you had originally, since your loan needs to be over-collateralized) Outcomes: - USDT collapses, USDC does not: best outcome, buy USDT for pennies and use it to get your USDC back - Both collapse: pay back your loan only if USDC > USDT - Only USDC collapses: just don't pay back your loan. you lose whatever "extra" collateral you paid
  - warkdarrior 5y ago
    Those are the kinds of financial engineering shenanigans we can look forward to in the brave new world of crypto. Just faster and on a larger scale than before.
lalaland1125 5y ago
Shorting tether is a horrible idea. Tether manipulates the market and will spike the price to collapse your short.
stuzenz 5y ago
There are some very good reasons not to short tether which are listed at the below link. The source of this is bitfinexed has been railing against tether since 2017 and has been a thorn in Bitfinex/Tether's sides for a long time. https://twitter.com/Bitfinexed/status/1405037796172222466 https://twitter.com/Bitfinexed/status/1405037796172222466 It seems there is a fair bit of collusion with some of the 2nd/3rd tier exchanges and Tether. If there is strong short interest it seems that they are willing to pop the price temporarily to wipe out the shorts. If Tether/Bitfinex has $62B and a printing machine it is pretty easy for them to wipe out the other side of a trade they are against. My above understanding is just thinking about it in terms of what I have read and what I know of short selling equities. If you can take a put position (option) against tether I suspect that could work. Even if your bet was right, you would just have to be concerned the counter-parties survive the fall and that there is liquidity left in the market to close out the trade. Considering how much funny things went on in the GFC in regulated markets I suspect there is a good chance that in the unregulated crypto markets that even the correct trade would quite likely not be honoured if a full meltdown happened. I was researching this a bit in the last couple of weeks. My current view is that I see Tether/Bifinex as a fraud which is bigger than Madoff and more serious since it is growing and the currency is (at the moment) a key part of the crypto markets infrastructure. Since tether provides the daily liquidity it also plays a levered role beyond what something like the Madoff fraud would have done to the wider markets.

esyir 5y ago

Because the market can remain irrational longer than you can remain solvent. Just look at the state of Meme stocks now.

gruez 5y ago
but stablecoins are basically guaranteed to never exceed $1, so your downside is essentially limited to the interest you pay.
- esyir 5y ago
  Therin lies the rub. With options, you're making a double bet :first that it is overvalued, and second that you got the timing right. If you're wrong on either, you lose money. You don't get the really huge blowout risk due to the stable nature, but the other two still apply.
- croes 5y ago
  I don't think so https://twitter.com/Bitfinexed/status/1405037796172222466?s=20 https://twitter.com/Bitfinexed/status/1405037796172222466?s=...
  - gruez 5y ago
    My response to that: https://news.ycombinator.com/item?id=27529751 https://news.ycombinator.com/item?id=27529751
    - mcintyre1994 5y ago
      Even if the narrative is nonsense, would a short not have got ruined by that spike regardless of cause?
    - croes 5y ago
      But still invalidates your claim >stablecoins are basically guaranteed to never exceed $1 Why it happened is debatable, but not that it happened.

Giorgi 5y ago

I guess nobody has that kind of money to risk it.

nannal 5y ago

I've a 'teather fudster' for a number of years and that's why I'd be hesitant to open a short right now. Finex have kept the wheel spinning for a remarkably long time, there's no point spending money to wait while its just wobbling given how quickly a short can be opened, once it hits 0.85c or so though then that would indicate to me that its all about to be over very quickly.

paulgb 5y ago

A lot of us who are skeptical of Tether think it poses systematic risk to the whole crypto ecosystem, so selling it short for other crypto would defeat the purpose. Is it possible to convert the USDC to actual USD while maintaining the USDT borrow, or is it required as collateral? Instead of shorting USDT directly, I'm short a public market company which I believe will drop if Tether blows up (it's a pretty junky company, so it's already a profitable trade). If I could convert that to a direct USDT short without crypto exposure, I'd do it.

anonymoushn 5y ago
These defi lending platforms generally require you to overcollaterlize your loan because they can't sue you or send you to collections or whatever. You could deposit a bunch of USDC, withdraw a bunch of USDT, send that to coinbase or whatever and sell it for real dollars, but you'll have slightly fewer dollars than you started with.
- paulgb 5y ago
  The USDC is not frozen as collateral? The way I understand it, I could borrow $10 USDT collateralized by (say) $11 of USDC, but then I couldn't convert that $11 of USDC to $11 USD until I bought back the $10 USDT and returned the loan.
  - anonymoushn 5y ago
    That's correct. I'm just saying you could sell the 10 tether for dollars and put those in your bank account while you wait for the tether collapse.
    - paulgb 5y ago
      Ahh, I see what you mean. That way if USDC collapses, I would lose just the amount it was over-collateralized by. If USDT completely collapses but USDC does not, I would gain the amount I was short USDT. This is more interesting. Thanks for explaining it.

marderfarker2 5y ago

Because you cannot bet against irrational things. Would rather throw money into things with higher conviction, lower risks, albeit with much lower potential returns.

throwaaskjdfh 5y ago

Because if Tether is defying gravity now, there's no way to be sure it won't defy gravity even harder before it collapses. With a short, you can't just be right in the end, you have to find a way to not blow up if things get more irrational in the meantime.

grapehut 5y ago
Tether is particularly easy to short because it's pegged to a dollar. That means there's no significant risk it'll become more valuable than a dollar.
- croes 5y ago
  I don't think so https://twitter.com/Bitfinexed/status/1405037796172222466?s=20 https://twitter.com/Bitfinexed/status/1405037796172222466?s=...
  - rsync 5y ago
    I would like to hear more details on this - the linked twitter thread is a bit bare ... Isn't there an enormous risk in manipulating the price as high as $400/tether just to liquidate (someone elses) short position ? Who else, then, has the opportunity to sell at the temporarily inflated price ? Again, some more details would be very interesting ...
    - grapehut 5y ago
      Yeah, in reality it's not what happened. Exchanges don't instantly margin-call positions, they have to use time-outs and do it slowly (or there simply isn't going to be the liquidity). So it's pretty easy to get the price of tether on a single exchange to momentarily hit $400, just blow through the order book. However no one is getting margin-called just yet, so the trick is to sustain that price, which means buying tether at $400 a piece. Unless you've got hundreds of millions of dollars to blow, it's simply not possible. And something as obvious as that, manual circuit breakers are going to be getting hit before they let margin calls cascade.

rawtxapp 5y ago

Because they will do everything to liquidate you, at one point price of tether briefly hit 1000$ on kraken.

viro 5y ago
as a "outsider" that makes no sense to me. tether is supposed to be a stable coin ... how the fuck was it $1000
- grapehut 5y ago
  Generally spikes like that happen because of fat-finger mistakes that blow through the order book, and typically return to normal within seconds.
  - 988747 5y ago
    There was a short spike of CHFPLN on Forex few years ago: exchange rate went from less than 4.00 PLN to 5.50 PLN, because of Swiss central bank decision to not stabilize it anymore. Some people made a lot of money (or so they thought). Few days later the broker declared that spike "a technical glitch" and they cancelled all the trades. The moral of the story is: your exchange will always find a way to screw you.
- mcintyre1994 5y ago
  It looks like it was a very brief spike and immediately went back to its peg, but I have no idea how it happened. https://twitter.com/Bitfinexed/status/1405037796172222466?s=20 https://twitter.com/Bitfinexed/status/1405037796172222466?s=...

IculsOneyAD 5y ago

The liquidity on most crypto exchanges comes from USDT. If Tether goes down, I don't believe exchanges are going to let me liquidate my positions. At least not before insiders can do that.

ARandumGuy 5y ago

I'm someone who's highly skeptical of Tether, but has no interest in shorting it. Here's a few reasons why: 1) I'm pretty confident Tether will collapse, but I have no idea when that will actually happen. The old saying is that "The market can remain irrational longer then you can remain solvent" 2) I'm not an expert in cryptocurrency shorting, but the scenario you stated involved shorting Tether against other cryptocurrencies. Since Tether is heavily integrated with the rest of the crypto market, if Tether falls, it will likely heavily impact the rest of the market. It may be possible to make money off of that, but it would also be possible to lose money if you time things incorrectly. 3) It's not all about the money. I'm making plenty of money at my day job, and feel confident in my existing investments. I don't need to spend my time gambling in the crypto market.

anonymoushn 5y ago
You can short tether against USD for like less than two pennies per year at FTX, so this is a pretty good deal if you want the exposure for a decade or so, and you don't need exposure to other cryptocurrencies.
- paulgb 5y ago
  USD, or USDC? If it's real USD, I'd love to know how.
  - anonymoushn 5y ago
    Real dollars yes. You deposit money at FTX and then you short the tether quarterly futures: https://ftx.com/trade/USDT-0924 https://ftx.com/trade/USDT-0924 I think most people would be more worried about counterparty risk with FTX than with Circle though.
    - paulgb 5y ago
      By real dollars I mean dollars in an FDIC or SIPC-insured account, unless I'm mistaken this just appears to be an IOU from FTX.

phpnode 5y ago

When tether collapses it can take the whole crypto economy with it, including Compound. If you want to short it you have to do so in an indirect way, e.g. by shorting MSTR or COIN.

spywaregorilla 5y ago

> It's pretty cheap and easy to take a short position in Tether. You can borrow USDT on Compound for 3.37%, convert it to USDC at Curve for 0.06%, then collect 2.32% on USDC at AAVE. If/when Tether collapses, you'll only have to cover your short at the collapsed value. Read what you just wrote and then ask yourself if figuring out / validating / executing that is actually "easy" to the average person. As a casual observer, and crypto owner, that is definitely not easy for me.

rawtxapp 5y ago
Average person isn't shorting Tether, those shorting Tether should have a deep understanding of why it has the potential of collapsing and to have that understanding, you also need to understand these different financial products properly.
- spywaregorilla 5y ago
  Of course. And that's one reason why the average person observing tether seems scammy doesn't immediately try to short it.
random_kris 5y ago
Hmmm for someone reading hacker news, participating in this thread and claiming that they hold crypto this shouldlnt be hard to understand by doing 10 minutes of research. Instead you decided to use that time for commenting and complaining
- spywaregorilla 5y ago
  > Hmmm for someone reading hacker news, participating in this thread and claiming that they hold crypto this shouldlnt be hard to understand by doing 10 minutes of research I would strongly advise against anyone trying to learn and devise a shorting strategy in 10 minutes > Instead you decided to use that time for commenting and complaining ... ditto?

raesene9 5y ago

This may work if you could trust the venue that you place the short position with, however if Tether collaborates with the main venues, that won't work, if they can spike the price and wipe out your position. There are suggestions that this occurs, example below. https://twitter.com/Bitfinexed/status/1405037796172222466?s=20 https://twitter.com/Bitfinexed/status/1405037796172222466?s=... ``` PSA: Do not attempt to short Tether. If you obtain a large enough position in Tether, the exchange will leak your position to Bitfinex shareholders who will coordinate to liquidate your short position. This happened on Kraken. Tether went over $400 per tether, twice. ```

gruez 5y ago
>https://twitter.com/Bitfinexed/status/1405037796172222466?s= https://twitter.com/Bitfinexed/status/1405037796172222466?s=... If someone was short and got wrecked by this, I'd expect them to raise a big fuss about this, but that's not happening (maybe it is, but they didn't link to it). Kraken is also one of the more regulated exchanges out there which puts more doubt on it. All in all, the only thing I'm seeing is witnessing an event and making up an explanation for it that fits their narrative, while offering zero evidence to support it.
- anonymoushn 5y ago
  Kraken does apparently offer spot margin (but not to people living in my country), so it's possible for someone to be liquidated in such a situation. The accusations are pretty wild compared to the evidence on hand though.
- yunohn 5y ago
  Why would the price suddenly spike to 1000$ otherwise? What’s a sane reason for this occurring?
  - anonymoushn 5y ago
    Kraken is notorious for trades occurring at non-representative prices across a variety of assets. This happens any time someone places a large limit order and there's not enough liquidity at "reasonable prices" to fill it.

xwolfi 5y ago

If you genuinely believe God will reward you for murdering heretics in a Saint War, why don't more people do it? I am skeptical of USDT, but maybe I'd like to keep my savings out of speculation, especially shorting that leaves you with nothing if your bet turns out false (a long mistake at least let you keep the valueless assets lol). There s no binary choice between speculating for USDT or against USDT, you can say this entire thing stinks and you're better not speculating at all.

mortehu 5y ago

The value of tether is a function of how close the supply is to the underlying assets. The only thing that matters at the moment is that you can redeem for dollars now, not whether you can do so in ten years. The fact that the next billion can be safely redeemed doesn't mean the token isn't a scam.

kemonocode 5y ago

I'd rather prefer it died already so the crypto ecosystem can purge itself off it, but I can't make a bet as to when that will happen. It'll be a bloodshed in the short term but it'll recover in time. We did just fine without it at the beginning, we can do just fine without it now.

chollida1 5y ago

I mean, who says people aren't doing that? I know one fund that is short tether. The downside is that you have to trust USDC at the same time and if tether breaks, there is n o guarentee taht USDC holds its peg so you can lose the following ways 1) be wrong and tether is fully backed 2) be right but way too early 3) be right but the peg only breaks by a couple of pennies so you really make peanuts for the risk you put on 4) be right but USDC also breaks and you end up losing 5) be right but6 tether falling sinks crypto so there is not real crypto position you can hold in this case that makes you money. 6) Counterpary/exchange risk, you have to close out your tether position or remove it from the exchange, in the case that new broker that Tether is worthless, every exchange would suddenly lock out withdrawals and go down like they do each time there is a crash, which means you may end up losing even if you were right. I mean there are so many ways to be right and lose on this trade:) Its not something too many hedge funds would dare put on. The upside to being right just isn't anywhere near enough to be in this trade in a fully leveraged way and this is crypto and everyone accepts its manipulated in some way so its hard to rationalize leveraging this trade up to make any meaningful return

intuitionist 5y ago

Massive counterparty risk. Tether is likely backed mostly by loans to exchanges like Binance and FTX (and of course Bitfinex.) When and if Tether collapses the exchanges will very possibly be rendered insolvent and you’ll be in line with all the other creditors trying to make a recovery. I don’t know enough about fully decentralized protocols to know what the risks are there.

robjan 5y ago
The risks are that tether brings down whatever currency your short is denominated in. For DeFi, it will be either another token or cryptocurrency.

wpietri 5y ago

One of the lessons of the 2008 financial bubble is that financial systems are complex, often arcane, and prone to unexpected failure modes. Or more colloquially, the devil is in the details. I used to write financial trading software, so I am reasonably familiar with the topic. But there's no way in hell that I as an individual would use 3 different unknown services to make bets in an unregulated and likely manipulated market. There are all sort of risks there. If I were managing $100m it would be a different story. I could have analysts carefully looking at the financial risks and a lawyer or two gaming out the legal concerns. If all that looked good, then I might go for a short, because believe it's a fraud. But there's no way a typical individual investor should be making bets like that.

yunohn 5y ago

> It's pretty cheap and easy to take a short position in Tether. Proceeds to describe a Byzantine crypto solution, which neglects the inherent risk of each counter-party and interaction along the way.

vkou 5y ago

You can't short tether, because if you succeed, it's likely that the entire crypto ecosystem will implode, and there's a serious chance you won't get paid.

amznthrwaway 5y ago

To my knowledge, I can only bet on Tether’s collapse if I hold uninsured funds in an institution that is, itself, at risk of failure in the case of Tether’s collapse. Is there a way to short Tether without this egregious counter party risk?

jameshart 5y ago

If you believe Tether is engaged in essentially a criminal conspiracy, you might well have some concerns about engaging in financial transactions which intend to profit from that criminal conspiracy. If Tether does collapse, and you manage to engineer a solution so that at the end of that event you are holding some of the resulting money... whose money is that you've got hold of? The victims of the crime?

cesarb 5y ago

Besides what others have already said, there's also the risk that if Tether collapses and becomes so worthless that it's not being traded anymore, you cannot exit the short position, as Matt Levine once mentioned on his newsletter (https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to-zero-isn-t-great-for-short-sellers https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to...).

unmole 5y ago

Because the market can remain irrational for far longer than I can remain solvent.

rsync 5y ago

"It's pretty cheap and easy to take a short position in Tether. You can borrow USDT on Compound for 3.37%, convert it to USDC at Curve for 0.06%, then collect 2.32% on USDC at AAVE. If/when Tether collapses, you'll only have to cover your short at the collapsed value." I am genuinely interested in exactly that short trade and your list of counterparties, above, is the reason I have never pulled the trigger on this. A handful of new, interesting and untested entities all need to function properly at a time of market panic for that trade to complete as expected. EDIT: Somewhat off-topic, but given the actual real-world economic pain that chiacoin has caused me, I am much more interested in the prospect of an IPO of (chia parent) which could then be shorted (or optioned) properly through normal channels. I daydream of being on the right side of that trade with every batch of triple-priced SAS drives we have purchased in the last 4-6 weeks ...

thebean11 5y ago
A slightly different strategy with less counterparty risk - Borrow USDT with USDC as collateral - Sell USDT for USD, put it in your regular bank account (you'll end up with slightly less cash than you had originally, since your loan needs to be over-collateralized) Outcomes: - USDT collapses, USDC does not: best outcome, buy USDT for pennies and use it to get your USDC back - Both collapse: pay back your loan only if USDC > USDT - Only USDC collapses: just don't pay back your loan. you lose whatever "extra" collateral you paid
- warkdarrior 5y ago
  Those are the kinds of financial engineering shenanigans we can look forward to in the brave new world of crypto. Just faster and on a larger scale than before.

lalaland1125 5y ago

Shorting tether is a horrible idea. Tether manipulates the market and will spike the price to collapse your short.

stuzenz 5y ago

There are some very good reasons not to short tether which are listed at the below link. The source of this is bitfinexed has been railing against tether since 2017 and has been a thorn in Bitfinex/Tether's sides for a long time. https://twitter.com/Bitfinexed/status/1405037796172222466 https://twitter.com/Bitfinexed/status/1405037796172222466 It seems there is a fair bit of collusion with some of the 2nd/3rd tier exchanges and Tether. If there is strong short interest it seems that they are willing to pop the price temporarily to wipe out the shorts. If Tether/Bitfinex has $62B and a printing machine it is pretty easy for them to wipe out the other side of a trade they are against. My above understanding is just thinking about it in terms of what I have read and what I know of short selling equities. If you can take a put position (option) against tether I suspect that could work. Even if your bet was right, you would just have to be concerned the counter-parties survive the fall and that there is liquidity left in the market to close out the trade. Considering how much funny things went on in the GFC in regulated markets I suspect there is a good chance that in the unregulated crypto markets that even the correct trade would quite likely not be honoured if a full meltdown happened. I was researching this a bit in the last couple of weeks. My current view is that I see Tether/Bifinex as a fraud which is bigger than Madoff and more serious since it is growing and the currency is (at the moment) a key part of the crypto markets infrastructure. Since tether provides the daily liquidity it also plays a levered role beyond what something like the Madoff fraud would have done to the wider markets.