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I fail to see the problem. If USDT is worth $1 because everyone agrees it is, everything works fine. It's been that way for a long time and will likely contin

I fail to see the problem. If USDT is worth $1 because everyone agrees it is, everything works fine. It's been that way for a long time and will likely continue. If there's a run on the bank because people believe it's not worth $1, everyone tries to sell their USDT, then it is no longer worth a dollar. That's the risk of holding USDT. Everyone who takes 5 minutes to research it understands that USDT is kind of shady but has a long record of maintaining peg anyway. This is true of every partially-backed stablecoin, of which there are many. We have a recent example of one failing: https://news.ycombinator.com/item?id=27539368 https://news.ycombinator.com/item?id=27539368 In that case, IRON was only 75% backed, and now the price is $0.75. There are other products, like DAI, which keeps reserves of ETH equal to 150% of the value of DAI. Occasionally liquidity becomes thin and DAI loses peg by a few cents, but it quickly returns as liquidations happen and the ETH is sold off to return DAI to peg. Synthetix does something similar with sUSD. Gemini has GUSD, Coinbase has USDC, Binance has BUSD, all of which claim to be fully backed by USD and have audits to bolster that claim. Here's a whole list of them, each offering various models of trust, decentralization, audits, etc: https://www.coingecko.com/en/categories/usd-stablecoin https://www.coingecko.com/en/categories/usd-stablecoin If USDT implodes, it could cause a liquidity crisis, but it will lead to investors demanding more proof of funds before using a stablecoin, and long-term strengthen the crypto economy. If USDT fails and creates a liquidity crisis that tanks the rest of the crypto market, I'll be shopping for bargains.

dannyw 5y ago
The issue is if Tether continues to grow, as it has been, it may become too big to fail. That is, Tether loses its peg, $X dollars go missing, and firms start to fail like dominos, even outside the crypto sphere. Tether is far from that level but theres nothing stopping its growth. The solution isnt to ban tether, but rather launch central bank stablecoins. Put the official USD as a ERC20 token.
- anon9001 5y ago
  > The issue is if Tether continues to grow, as it has been, it may become too big to fail. If this happens, we need to let it fail. I'd be furious to see the fed bail out USDT to make sure the crypto market stays "stable". > That is, Tether loses its peg, $X dollars go missing, and firms start to fail like dominos, even outside the crypto sphere. If firms fall because they bet too hard on USDT, they deserve to fall. Tether has not offered sufficient evidence that they are fully backed, so that risk needs to be accounted for by the firms that use USDT. > Tether is far from that level but theres nothing stopping its growth. Hopefully what's stopping that growth are better stablecoins with alternative risk profiles that are more favorable to investors. > The solution isnt to ban tether, but rather launch central bank stablecoins. Put the official USD as a ERC20 token. That's still just trading one set of risks for another, which is fine. Having multiple stablecoin options is good.
  - cinquemb 5y ago
    > If this happens, we need to let it fail. I'd be furious to see the fed bail out USDT to make sure the crypto market stays "stable". We already know its going to happen: some "blessed" TBTF tradfi bank is going to have some massive tail risk exposure on chain and will go insolvent unless FRBNY steps in so that they can get more tethers minted for them on chain. What they wont be able to do is halt trading for all the derivatives on all the dex's on chain to help minimize the cost of that bailout.
- deleted 5y ago
  [deleted]
- augstein 5y ago
  At current prices, Tethers market cap is only about 10% of Bitcoins and about 5% of the whole crypto market cap.
  - runeks 5y ago
    Market cap is the wrong metric to use. Tether is debt. Its entire market cap is redeemable in USD. It’s not possible to redeem the market cap of e.g. Bitcoin.
    - jkhdigital 5y ago
      Not really, Tether’s terms don’t provide much in the way of redeemability. It’s quite probable that most of the Tethers already minted never had an actual dollar behind them anyway.
      - runeks 5y ago
        A Tether is redeemable. The terms say you may experience a delay, due to liquidity issues. But it’s still redeemable. Issuing a token, and claiming it will always be worth $1, simply by hoping that someone, somewhere will buy them for $1 is fraud.
  - deleted 5y ago
    [deleted]
chovybizzass 5y ago
I'm moving all my tanks to the border waiting to buy the dip
rossmohax 5y ago
How creators of fully backed stablecoins earn money?
- bonzini 5y ago
  Exchange fees, I guess.
- anon9001 5y ago
  They're all wildly different. You have to investigate each one specifically. I'd guess most of the centrally managed ones make their money investing the deposited USD to earn a safe rate of return as profit. The defi ones that take colleteral, like DAI, make money by charging a borrow rate on the DAI that's minted and another fee if your account is liquidated.
  - peytn 5y ago
    > I'd guess most of the centrally managed ones make their money investing the deposited USD to earn a safe rate of return as profit. Yeah and liquidating these might tank something else, which might tank something else, which might piss people off enough to get serious regulation through. That is the problem.
    - anon9001 5y ago
      That's a problem, sure, but not one that you're going to solve by regulating stablecoins. Contagions are all over the credit markets. The whole thing is a house of cards and always has been. We have all kinds of regulations for just how much collateral a bank must have, for example, but 2008 still happened. I'd rather have firms fail if they make bad decisions. Risk-taking is incentivized when banks can say "oh no, we followed all the rules but somehow still went insolvent, must be someone else's fault... definitely not ours for not researching our investments... so how about a giant free loan?"
      - mkr-hn 5y ago
        I thought the banks paid back all the loans from the government with interest.
meirelles 5y ago
Out of all stablecoins, I've found DAI the most interesting one, it's a beautiful engineer solution to tackle a problem. Backed by volatile assets, profits and interests (%). Every participant has a clear incentive/risk, trustless and transparent.
- anon9001 5y ago
  I totally agree and I don't think it's crazy to consider it more safe than centralized stablecoins run by companies. If there's a bank account, it's possible the entity managing that account could become insolvent or that someone could run off with the funds. If your collateral is locked in a smart contract that's properly secured, it's possible to create a situation where it's technically impossible for anyone unauthorized to lose the collateral, either by embezzlement or by losing it with poor managmeent. I'm honestly not sure whether it's more likely that DAI has a contract bug or USDT/USDC/GUSD/BUSD/TUSD/etc becomes insolvent due to some external factors. If we had a global credit crisis and banking institutions were failing, I'd feel a lot more comfortable holding DAI than one of the stablecoins that relies on the traditional system.
  - jkhdigital 5y ago
    Yeah I agree, I think DAI represents the true ethos of crypto pretty well: risk is everywhere (and anyone who suggest otherwise is lying) so let’s just make it perfectly transparent and let the individual decide if they want to play or not.
- matthewdgreen 5y ago
  But DAI is currently about 50% backed by USDC, which means it's effectively turning into an asset-backed stablecoin.
baby 5y ago
Aren’t banks only required to hold 2% in cash of their clients’ balance? It seems like this scam is not new.
- onethought 5y ago
  They have government backing to issue new money (in the form of debt). That’s quite different when you remove the government backing.
  - baby 5y ago
    It took a few bank runs to get there though. The government backing is also 50/50.
    - onethought 5y ago
      Are you talking about a specific country? My point was only to point out the very material difference in having a producer of a currency back the production. In Crypto the miners cannot suddenly issue more currency, meaning there is an inherent risk of capital grid-lock. I get this is a trade off for the other benefits of crypto but it's one people should be aware of, and why you can't treat it the same way... or rely on it the same way.
  - imtringued 5y ago
    One of the weird parts of fiat banking is that a public institution is almost 100% privatized. This is fine during normal times but during crisis it doesn't work because we want to keep the public institution part alive, which involves saving the private companies that caused the problem.
    - jkhdigital 5y ago
      Banking has never been a public institution. Even now the Federal Reserve System is not, in fact, a public entity. It is chartered by the federal government but does whatever it wants within that charter. There are no elected officials at the Fed.
quickthrower2 5y ago
It could cause shockwaves beyond crypto. You’d see Coinbase, Tesla and MSTR stocks hit and maybe the meme stocks because they are kind of like speculative cryptos. Then maybe anything else crypto related like Twitter, PayPal, NVidia, etc. Then as we are in an everything bubble other stocks and sectors fall and confidence is in a negative spiral.
- paulgb 5y ago
  TWTR because Jack likes Bitcoin, or is there another connection? They don’t have Bitcoin on their books, right?
  - quickthrower2 5y ago
    Yes it’s not because it’s on the books. It’s people thinking that other people thinking that other people thinking the price will go down.
numair 5y ago
> Gemini has GUSD, Coinbase has USDC, Binance has BUSD, all of which claim to be fully backed by USD and have audits to bolster that claim. Congratulations! You’ve just fallen into the rabbit hole of trying to find actual auditors’ reports that back up your statement. Please note that “attestations” don’t count, and that cash held in bank accounts aren’t proof of reserves that are specifically used for 1-to-1 parity unless backed by certified auditors’ statements that this pool is not also being used for, say, I don’t know, a merchant bank operating on top of crypto, or something..
- anon9001 5y ago
  I don't know how you can say attestations by CPAs and LLPs don't count. These offerings are pretty transparent. If you choose to use a stablecoin that's not backed by on-chain collateral, you're accepting the attestations are true and putting trust in the reputation of the companies. Personally, I'd rather be able to verify the collateral on-chain, which is why I think fully collateral-backed on-chain stablecoins like DAI make a lot of sense.
  - numair 5y ago
    Do you know what an attestation actually is? Are you aware of the complete lack of accountability, liability, anything from these reports? They literally just mean “I saw some money in an account and it matched the figure they said they were supposed to have.” That’s it. As of 12:00pm on a Friday you could have your friend wire you $1B and get someone to attest that they saw $1B in your bank account, which is then wired back out; does that make you a billionaire? The willingness of these operators to target poor, unsuspecting muppets who aren’t aware that attestation ≠ audit, without any disclaimer or explanation of this fact, is a HUGE red flag that their claims of “transparency” are anything but.
    - anon9001 5y ago
      Yes, I understand, but the businesses involved in this also have a strong desire to not become insolvent. I think it's very reasonable to accept that you're mostly betting on Gemini (or whoever) being an honest broker, and the attestation reports give some reason to believe that they can produce the dollars on demand. The attestation reports do show that they're able to come up with that available balance, even if only for a minute, which does add credibility. If you're concerned about the solvency of the institutions offering these products, that's fine, but I think everyone (including Tether) is incentivized to do everything possible to never become insolvent. Aligned interests do count for something.
Havoc 5y ago
>If USDT is worth $1 because everyone agrees it is, everything works fine. Until that agreement starts to wobble
dalbasal 5y ago
>> I fail to see the problem... Financialisation problems. Rosengren seems to be worried, for example, that a liquidation of backing assets triggers something ugly. IE, USDT drops in value>> Reserves liquidated defending USDT price>> Assets in reserve plummet in price, perhaps triggering more stuff elsewhere. ..Meanwhile to that, crypto markets are disrupted. I think it makes sense for a financial regulator to start raising a brow. Also, how fast is USDT growing? At some scale does stablecone presents a different flavour of risk.
throw0101a 5y ago
> Everyone who takes 5 minutes to research it understands that USDT is kind of shady but has a long record of maintaining peg anyway. The problem arises when large numbers of people do not research it and jump on the meme blindly. Depending on the number of people involved, this could have knock-on effects (see also people flipping houses in the US with reseting mortgages pre-2008).
jkhdigital 5y ago
Yes, and people ought to consider what it means for there to be a “liquidity crisis” in crypto—in traditional markets, it means everyone calls in their short-term financing and hoards cash. What is the crypto equivalent of cash? Bitcoin.

dannyw 5y ago

The issue is if Tether continues to grow, as it has been, it may become too big to fail. That is, Tether loses its peg, $X dollars go missing, and firms start to fail like dominos, even outside the crypto sphere. Tether is far from that level but theres nothing stopping its growth. The solution isnt to ban tether, but rather launch central bank stablecoins. Put the official USD as a ERC20 token.

anon9001 5y ago
> The issue is if Tether continues to grow, as it has been, it may become too big to fail. If this happens, we need to let it fail. I'd be furious to see the fed bail out USDT to make sure the crypto market stays "stable". > That is, Tether loses its peg, $X dollars go missing, and firms start to fail like dominos, even outside the crypto sphere. If firms fall because they bet too hard on USDT, they deserve to fall. Tether has not offered sufficient evidence that they are fully backed, so that risk needs to be accounted for by the firms that use USDT. > Tether is far from that level but theres nothing stopping its growth. Hopefully what's stopping that growth are better stablecoins with alternative risk profiles that are more favorable to investors. > The solution isnt to ban tether, but rather launch central bank stablecoins. Put the official USD as a ERC20 token. That's still just trading one set of risks for another, which is fine. Having multiple stablecoin options is good.
- cinquemb 5y ago
  > If this happens, we need to let it fail. I'd be furious to see the fed bail out USDT to make sure the crypto market stays "stable". We already know its going to happen: some "blessed" TBTF tradfi bank is going to have some massive tail risk exposure on chain and will go insolvent unless FRBNY steps in so that they can get more tethers minted for them on chain. What they wont be able to do is halt trading for all the derivatives on all the dex's on chain to help minimize the cost of that bailout.
deleted 5y ago
[deleted]
augstein 5y ago
At current prices, Tethers market cap is only about 10% of Bitcoins and about 5% of the whole crypto market cap.
- runeks 5y ago
  Market cap is the wrong metric to use. Tether is debt. Its entire market cap is redeemable in USD. It’s not possible to redeem the market cap of e.g. Bitcoin.
  - jkhdigital 5y ago
    Not really, Tether’s terms don’t provide much in the way of redeemability. It’s quite probable that most of the Tethers already minted never had an actual dollar behind them anyway.
    - runeks 5y ago
      A Tether is redeemable. The terms say you may experience a delay, due to liquidity issues. But it’s still redeemable. Issuing a token, and claiming it will always be worth $1, simply by hoping that someone, somewhere will buy them for $1 is fraud.
- deleted 5y ago
  [deleted]

chovybizzass 5y ago

I'm moving all my tanks to the border waiting to buy the dip

rossmohax 5y ago

How creators of fully backed stablecoins earn money?

bonzini 5y ago
Exchange fees, I guess.
anon9001 5y ago
They're all wildly different. You have to investigate each one specifically. I'd guess most of the centrally managed ones make their money investing the deposited USD to earn a safe rate of return as profit. The defi ones that take colleteral, like DAI, make money by charging a borrow rate on the DAI that's minted and another fee if your account is liquidated.
- peytn 5y ago
  > I'd guess most of the centrally managed ones make their money investing the deposited USD to earn a safe rate of return as profit. Yeah and liquidating these might tank something else, which might tank something else, which might piss people off enough to get serious regulation through. That is the problem.
  - anon9001 5y ago
    That's a problem, sure, but not one that you're going to solve by regulating stablecoins. Contagions are all over the credit markets. The whole thing is a house of cards and always has been. We have all kinds of regulations for just how much collateral a bank must have, for example, but 2008 still happened. I'd rather have firms fail if they make bad decisions. Risk-taking is incentivized when banks can say "oh no, we followed all the rules but somehow still went insolvent, must be someone else's fault... definitely not ours for not researching our investments... so how about a giant free loan?"
    - mkr-hn 5y ago
      I thought the banks paid back all the loans from the government with interest.

meirelles 5y ago

Out of all stablecoins, I've found DAI the most interesting one, it's a beautiful engineer solution to tackle a problem. Backed by volatile assets, profits and interests (%). Every participant has a clear incentive/risk, trustless and transparent.

anon9001 5y ago
I totally agree and I don't think it's crazy to consider it more safe than centralized stablecoins run by companies. If there's a bank account, it's possible the entity managing that account could become insolvent or that someone could run off with the funds. If your collateral is locked in a smart contract that's properly secured, it's possible to create a situation where it's technically impossible for anyone unauthorized to lose the collateral, either by embezzlement or by losing it with poor managmeent. I'm honestly not sure whether it's more likely that DAI has a contract bug or USDT/USDC/GUSD/BUSD/TUSD/etc becomes insolvent due to some external factors. If we had a global credit crisis and banking institutions were failing, I'd feel a lot more comfortable holding DAI than one of the stablecoins that relies on the traditional system.
- jkhdigital 5y ago
  Yeah I agree, I think DAI represents the true ethos of crypto pretty well: risk is everywhere (and anyone who suggest otherwise is lying) so let’s just make it perfectly transparent and let the individual decide if they want to play or not.
matthewdgreen 5y ago
But DAI is currently about 50% backed by USDC, which means it's effectively turning into an asset-backed stablecoin.

baby 5y ago

Aren’t banks only required to hold 2% in cash of their clients’ balance? It seems like this scam is not new.

onethought 5y ago
They have government backing to issue new money (in the form of debt). That’s quite different when you remove the government backing.
- baby 5y ago
  It took a few bank runs to get there though. The government backing is also 50/50.
  - onethought 5y ago
    Are you talking about a specific country? My point was only to point out the very material difference in having a producer of a currency back the production. In Crypto the miners cannot suddenly issue more currency, meaning there is an inherent risk of capital grid-lock. I get this is a trade off for the other benefits of crypto but it's one people should be aware of, and why you can't treat it the same way... or rely on it the same way.
- imtringued 5y ago
  One of the weird parts of fiat banking is that a public institution is almost 100% privatized. This is fine during normal times but during crisis it doesn't work because we want to keep the public institution part alive, which involves saving the private companies that caused the problem.
  - jkhdigital 5y ago
    Banking has never been a public institution. Even now the Federal Reserve System is not, in fact, a public entity. It is chartered by the federal government but does whatever it wants within that charter. There are no elected officials at the Fed.

quickthrower2 5y ago

It could cause shockwaves beyond crypto. You’d see Coinbase, Tesla and MSTR stocks hit and maybe the meme stocks because they are kind of like speculative cryptos. Then maybe anything else crypto related like Twitter, PayPal, NVidia, etc. Then as we are in an everything bubble other stocks and sectors fall and confidence is in a negative spiral.

paulgb 5y ago
TWTR because Jack likes Bitcoin, or is there another connection? They don’t have Bitcoin on their books, right?
- quickthrower2 5y ago
  Yes it’s not because it’s on the books. It’s people thinking that other people thinking that other people thinking the price will go down.

numair 5y ago

> Gemini has GUSD, Coinbase has USDC, Binance has BUSD, all of which claim to be fully backed by USD and have audits to bolster that claim. Congratulations! You’ve just fallen into the rabbit hole of trying to find actual auditors’ reports that back up your statement. Please note that “attestations” don’t count, and that cash held in bank accounts aren’t proof of reserves that are specifically used for 1-to-1 parity unless backed by certified auditors’ statements that this pool is not also being used for, say, I don’t know, a merchant bank operating on top of crypto, or something..

anon9001 5y ago
I don't know how you can say attestations by CPAs and LLPs don't count. These offerings are pretty transparent. If you choose to use a stablecoin that's not backed by on-chain collateral, you're accepting the attestations are true and putting trust in the reputation of the companies. Personally, I'd rather be able to verify the collateral on-chain, which is why I think fully collateral-backed on-chain stablecoins like DAI make a lot of sense.
- numair 5y ago
  Do you know what an attestation actually is? Are you aware of the complete lack of accountability, liability, anything from these reports? They literally just mean “I saw some money in an account and it matched the figure they said they were supposed to have.” That’s it. As of 12:00pm on a Friday you could have your friend wire you $1B and get someone to attest that they saw $1B in your bank account, which is then wired back out; does that make you a billionaire? The willingness of these operators to target poor, unsuspecting muppets who aren’t aware that attestation ≠ audit, without any disclaimer or explanation of this fact, is a HUGE red flag that their claims of “transparency” are anything but.
  - anon9001 5y ago
    Yes, I understand, but the businesses involved in this also have a strong desire to not become insolvent. I think it's very reasonable to accept that you're mostly betting on Gemini (or whoever) being an honest broker, and the attestation reports give some reason to believe that they can produce the dollars on demand. The attestation reports do show that they're able to come up with that available balance, even if only for a minute, which does add credibility. If you're concerned about the solvency of the institutions offering these products, that's fine, but I think everyone (including Tether) is incentivized to do everything possible to never become insolvent. Aligned interests do count for something.

Havoc 5y ago

>If USDT is worth $1 because everyone agrees it is, everything works fine. Until that agreement starts to wobble

dalbasal 5y ago

>> I fail to see the problem... Financialisation problems. Rosengren seems to be worried, for example, that a liquidation of backing assets triggers something ugly. IE, USDT drops in value>> Reserves liquidated defending USDT price>> Assets in reserve plummet in price, perhaps triggering more stuff elsewhere. ..Meanwhile to that, crypto markets are disrupted. I think it makes sense for a financial regulator to start raising a brow. Also, how fast is USDT growing? At some scale does stablecone presents a different flavour of risk.

throw0101a 5y ago

> Everyone who takes 5 minutes to research it understands that USDT is kind of shady but has a long record of maintaining peg anyway. The problem arises when large numbers of people do not research it and jump on the meme blindly. Depending on the number of people involved, this could have knock-on effects (see also people flipping houses in the US with reseting mortgages pre-2008).

jkhdigital 5y ago

Yes, and people ought to consider what it means for there to be a “liquidity crisis” in crypto—in traditional markets, it means everyone calls in their short-term financing and hoards cash. What is the crypto equivalent of cash? Bitcoin.