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Right, I agree that lots of people are holding Tether, mostly exchanges, market makers, and liquidity pools if I had to guess, but unclear. If that Tether was p

Right, I agree that lots of people are holding Tether, mostly exchanges, market makers, and liquidity pools if I had to guess, but unclear. If that Tether was proved worthless, anyone who used Tether to buy crypto still gets to keep their crypto. It is ONLY people holding Tether that are hurt, but the negative news could have waterfall impact on ecosystem. As for the triviality of auditing, I don't think it's that simple, but point taken.

michaelt 5y ago
Well, you could make a stablecoin that was trivial to audit - you merely need to demonstrate that, at the moment of the audit, the number of tokens in circulation equals the amount in your backing funds account with a reputable bank. And that the auditor can see the history of cash in your account and coins in circulation match up. Of course, if you don't want to be easy to audit, you can introduce a bunch of complexity - play a shell game shifting money around, intermingle the clients' money with the company's money, operate independent lines of business and intermingle those too, and so on...
- washedup 5y ago
  Excellent point - does one exist (an easily audited stablecoin)?
graeme 5y ago
It would be a removal of $62.5 billion from the ecosystem. That’s a massive loss of demand. Everyone else still has their bitcoin but if it turns out the majority of the orders were with fraudulent funds, what does that do to BTC value? Why wouldn’t auditing be trivial? It’s just checking the level of funds in account and whether they’re present over time. All major companies do audits, it’s a simple, common procedure.
- shkkmo 5y ago
  > Why wouldn’t auditing be trivial? It’s just checking the level of funds in account and whether they’re present over time. Except that we know for a fact that Tether is not mostly backed by bank deposits. They hold a bunch of different types of assets, some (most?) of which is probably debt with varying levels of collateral. Assessing debt risk is doable but mote complicated than just checking a balance number.
  - graeme 5y ago
    See the note above about not trusting the claims of proven liars. For years Tether said they were backed 1:1 by dollars, but blocked audits. The audits would have been simple. It turns out Tethers were not backed 1:1. It would also be simple to audit their dollar deposits now, but they haven’t done that either. And no one in the commercial paper market has heard of them. So, if they were bonafide, there are claims it would be simple to audit. They have not audited them.
    - shkkmo 5y ago
      Well, clearly the incentives for Tether are against auditing as any details they could announce (given what we already know) would just generate mote negative coverage amd uncertainty.
      - graeme 5y ago
        How does that follow? If they had proof of their reserves it would dispel the rumours and increase confidence.
    - lamontcg 5y ago
      Their "commercial paper" is most likely loans to exchanges and "whales" which is against crypto as collateral. It is a "shadow market" for loans against crypto that they're calling "commercial paper" to sound all official and grown up. Which makes Tether effectively backed by crypto. As the price of crypto/bitcoin rises that collateral is worth more and those loanees can come back and borrow more Tether. Tether then gets used as fuel for arbitrage bots which pumps up the price of crypto (which is literally just monetary inflation, you have more and more Tether chasing after roughly the same amount of crypto so you wind up with inflation). This also explains how the peg is maintained since if the loan is dollar-denominated then nobody who has borrowed $250,000 in Tether wants to see Tether drop to $.90 USD and have to pay back 250,000 Tether plus $25,000 in actual USD (while on the other side everyone wants to buy Tether once it goes over $1.00 since you can flip it and arbitrage it). I'll let you do the math though on what happens if crypto were to say drop by 90% or so...
shkkmo 5y ago
If tether breaks, it will not just create negative sentiment, but cause a liquidity crunch since the major providers of liquidity are presumably the one that also hold a lot of tether. This combo could easily crater prices as more and more sellers compete for buyers by dropping prices.

michaelt 5y ago

Well, you could make a stablecoin that was trivial to audit - you merely need to demonstrate that, at the moment of the audit, the number of tokens in circulation equals the amount in your backing funds account with a reputable bank. And that the auditor can see the history of cash in your account and coins in circulation match up. Of course, if you don't want to be easy to audit, you can introduce a bunch of complexity - play a shell game shifting money around, intermingle the clients' money with the company's money, operate independent lines of business and intermingle those too, and so on...

washedup 5y ago
Excellent point - does one exist (an easily audited stablecoin)?

graeme 5y ago

It would be a removal of $62.5 billion from the ecosystem. That’s a massive loss of demand. Everyone else still has their bitcoin but if it turns out the majority of the orders were with fraudulent funds, what does that do to BTC value? Why wouldn’t auditing be trivial? It’s just checking the level of funds in account and whether they’re present over time. All major companies do audits, it’s a simple, common procedure.

shkkmo 5y ago
> Why wouldn’t auditing be trivial? It’s just checking the level of funds in account and whether they’re present over time. Except that we know for a fact that Tether is not mostly backed by bank deposits. They hold a bunch of different types of assets, some (most?) of which is probably debt with varying levels of collateral. Assessing debt risk is doable but mote complicated than just checking a balance number.
- graeme 5y ago
  See the note above about not trusting the claims of proven liars. For years Tether said they were backed 1:1 by dollars, but blocked audits. The audits would have been simple. It turns out Tethers were not backed 1:1. It would also be simple to audit their dollar deposits now, but they haven’t done that either. And no one in the commercial paper market has heard of them. So, if they were bonafide, there are claims it would be simple to audit. They have not audited them.
  - shkkmo 5y ago
    Well, clearly the incentives for Tether are against auditing as any details they could announce (given what we already know) would just generate mote negative coverage amd uncertainty.
    - graeme 5y ago
      How does that follow? If they had proof of their reserves it would dispel the rumours and increase confidence.
  - lamontcg 5y ago
    Their "commercial paper" is most likely loans to exchanges and "whales" which is against crypto as collateral. It is a "shadow market" for loans against crypto that they're calling "commercial paper" to sound all official and grown up. Which makes Tether effectively backed by crypto. As the price of crypto/bitcoin rises that collateral is worth more and those loanees can come back and borrow more Tether. Tether then gets used as fuel for arbitrage bots which pumps up the price of crypto (which is literally just monetary inflation, you have more and more Tether chasing after roughly the same amount of crypto so you wind up with inflation). This also explains how the peg is maintained since if the loan is dollar-denominated then nobody who has borrowed $250,000 in Tether wants to see Tether drop to $.90 USD and have to pay back 250,000 Tether plus $25,000 in actual USD (while on the other side everyone wants to buy Tether once it goes over $1.00 since you can flip it and arbitrage it). I'll let you do the math though on what happens if crypto were to say drop by 90% or so...

shkkmo 5y ago

If tether breaks, it will not just create negative sentiment, but cause a liquidity crunch since the major providers of liquidity are presumably the one that also hold a lot of tether. This combo could easily crater prices as more and more sellers compete for buyers by dropping prices.