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So many people have been saying it's a scam for so long that I almost wonder if something else is going on. Like, if you polled anyone who knew what Tether is,

So many people have been saying it's a scam for so long that I almost wonder if something else is going on. Like, if you polled anyone who knew what Tether is, I bet 80% or 90% would say it's a scam. It's pretty much consensus. I've never seen a single defense or counter-argument of it online. And the vague reserve disclosure didn't help. (And, to be clear, I also think it's likely a scam.) I'd perhaps think it's like the lead-up to 2008 where the people behind the scenes largely knew it was funny money but the general public didn't - but here it seems pretty unanimous from the lowest-level retail investor to the most sophisticated institutional investor that it's a scam. So what's the deal? Is it gonna be the most predictable catastrophe ever? How have they existed from 2012 until today, seemingly without any issue, despite all of the universally extremely negative PR? What are the odds it's somehow not a scam?

ForHackernews 5y ago
I think it's an obvious scam but it's a very useful scam, so there are many people with a vested interest in maintaining the illusion. From people who want to pump up the price of other cryptocurrencies, to offshore exchanges that want to avoid KYC requirements dealing with real banks, to ordinary users who like being able to transfer USDT... there's many people incentivized to look the other way and pretend that water isn't wet.
jasoncartwright 5y ago
It's anecdata, but none of the retail crypto speculators (five or six now) I've spoken to IRL have even heard of Tether.
- meowface 5y ago
  Fair. Regarding my first paragraph, I just meant of the people who do know what it is, I think 80 - 90% would probably say it's likely a scam. (I'm sure a good percentage of investors know nothing at all besides the words Bitcoin, Ethereum, Dogecoin, and hodl.)
- jiofih 5y ago
  It’s hard to imagine someone invested in the crypto market who isn’t aware of stablecoins.
  - meowface 5y ago
    You'd be very, very surprised, then. I would wager probably at least 60% wouldn't even be able to make heads or tails of the term "stablecoin", and possibly up to 80% or 90%, even.
  - kemonocode 5y ago
    Sometimes crypto investors do their investing through means that can be several times detached from the nitty and gritty (e.g. would buying COIN or MSTR stock be considered crypto investing? Some say it would) so it doesn't surprise me that much. I don't think it's too healthy, but hey.
  - handrous 5y ago
    I'd be shocked if more than 10% of the people investing in crypto on Robinhood know what a stable coin is. I bet a fairly high percentage of total crypto investors (not by amount of crypto, but count of individuals investing) are on Robinhood. I'd expect that other casual-friendly trading platforms with crypto support are similarly skewed toward people who don't know much about the space, though probably not quite as much as Robinhood is.
    - jiofih 5y ago
      Oh, the OP said “crypto speculators” which in my mind is a bit more involved than random dudes buying Doge on RH.
      - lupire 5y ago
        buying doge on RH is the most obvious accessible kind of speculation.
- gruez 5y ago
  Is that because they're using non-tether exchanges (eg. robinhood or coinbase)? If you're using something like binance I find it hard to believe that they don't know about tether (or at least heard of the term) considering that "USDT" is plastered everywhere.
  - ac29 5y ago
    Coinbase added Tether in May: https://blog.coinbase.com/tether-usdt-is-now-available-on-coinbase-214f075deaa2 https://blog.coinbase.com/tether-usdt-is-now-available-on-co...
    - ethbr0 5y ago
      And then recently rolled out their own stablecoin in USDC: https://www.coinbase.com/usdc/ https://www.coinbase.com/usdc/
    - gruez 5y ago
      But by default (eg. someone buying BTC or DOGE) they're probably not touching USDT right?
      - ac29 5y ago
        There's a pretty rich history of exchanges suffering "hacks" or other losses and giving all of their customers a haircut on assets to make themselves whole. Coinbase is a little less sketchy than offshore, unregulated exchanges, but if they are holding a large amount of Tether when it goes bust, I wouldnt assume any balances held on Coinbase are necessarily safe.
        gruez 5y ago
        >but if they are holding a large amount of Tether when it goes bust, I wouldnt assume any balances held on Coinbase are necessarily safe. That's only an issue if they blend USDT and USD balances together, which to my knowledge they don't. If you sold a bunch of your bitcoins for USDT rather than USD (which seems unlikely, seeing that BTC-USD has 28x the volume of BTC-USDT), and USDT goes bankrupt, that's on you.
bsanr2 5y ago
There is a rumor going around the meme stock circles that financial institutions were using crypto to manage their liquidity/collateral issues. I'm in no way well-versed in this, but I'll try to convey my understanding. Essentially, banks are carrying too much cash from QE and the emergency infusion due to the COVID crash last year. They don't want to pay the interest on it, but they still need it for their other operations (the conspiracy theory is "manipulating meme stocks and preparing to cover should they fail a margin call"), so they'd been buying up crypto assets, hiding that cash in something that they could pump and dump almost at will. A month-ish ago, some regulation changed where they could no longer hold crypto as an interest-free asset, and coincidentally, we saw the bottom fall out of Bitcoin and the Fed's overnight reverse repo program (where the Fed does a short term swap of US treasuries for cash) begin to expand around the same time. Suffice it to say that everyone figures that SOMEONE big is manipulating the crypto market to their own ends. With Tether serving as the lubricant greasing the wheels of the rest of the market, it has finance's prized "too big to fail" distinction. Edit: I found one of the posts that explained the theory. I probably misunderstood it. https://www.reddit.com/r/Superstonk/comments/nz0fsz/i_found_a_correlation_in_why_reverse_repo_rates/ https://www.reddit.com/r/Superstonk/comments/nz0fsz/i_found_... I know, I know... I present it mostly for you to consider as you may.
- xur17 5y ago
  > A month-ish ago, some regulation changed where they could no longer hold crypto as an interest-free asset What does it mean to be an interest-free asset?
  - deleted 5y ago
    [deleted]
- dmw_ng 5y ago
  Crypto isn't nearly a sufficient alternative to the money market, in traditional finance its use is highly regulated, the whole reason for the current situation is that since 2008 banks are extremely limited in holding any kind of risk assets. The theory is obviously nonsense, because there are much lower risk instruments a bank could invest in to receive an interest-like return, were it permitted. The issue is not that banks are secretly conspiring to destroy your favourite shitcoin, it's that by law they're extremely restricted in investing excess capital in anything remotely resembling a shitcoin, never mind a stock index. Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.
tarsinge 5y ago
The reality doesn't matter, what does is what people agree on. As long as people are willing to exchange them for $1 it can continue indefinitely. The incentive is clear: why would people invested in crypto actively nuke their investment? As long as their investment grow, reality and rationality really doesn't matter. I think it's a good lesson because that behavior is not unique to crypto.
- gruez 5y ago
  >The incentive is clear: why would people invested in crypto actively nuke their investment? That doesn't really make any sense. Holders of USDT are people who sold their crypto, ie. people who aren't invested. Moreover, it's unclear how switching to a more reputable stablecoin would nuke their investment. At best it's a prisoners dilemma and I'm skeptical that everyone chose the "cooperate" option rather than the "defect" option.
  - tarsinge 5y ago
    If they are holders of USDT they have not sold their crypto. The risk is on the USDT/USD pair, and the game will continue while people (like you said) think they have exited to USD by holding USDT.
    - ethbr0 5y ago
      USDT isn't actually crypto, right? It's just an asset that a lot of crypto exchanges use, because it's more convenient to do so than usual (regulated) financial alternatives. Tether will probably just evaporate in the face of alternative stablecoin competition, before volume decreases to a point that a sudden devaluation kills it off.
      - x4e 5y ago
        It is an ERC-20 token on the Ethereum blockchain, so yes it is a cryptocurrency. There is good stablecoin competition in USDC, or, my favourite, DAI. Unfortunately I think exchanges like Binance are somewhat in kahoots with USDT which is why they will not move off it.
deleted 5y ago
[deleted]
wavepruner 5y ago
I think you're living in a media bubble. There are a plenty of rebuttals to the Tether criticism, but on sites like Hacker News no one bothers anymore. It's not worth dealing with the vitriol and downvotes to even try. That being said I also have concerns about Tether, but I think they are way overblown.
- rattlesnakedave 5y ago
  This is the correct answer. This post by Dan held really explains the “it’s not that big of a deal” with tether. https://danheld.substack.com/p/dont-fear-tether https://danheld.substack.com/p/dont-fear-tether
  - ProjectArcturis 5y ago
    "I want to note that I feel weird defending Tether and Bitfinex. I don’t particularly like either company, as they’ve done a ton of shady things over the years. I am not vouching for the long term durability of either company." "So we know that Tether is at least partially backed and has functioning wires in and out of the bank they use, Deltec." Lol okay, nothing to see here, your money is definitely safe.
    - deleted 5y ago
      [deleted]
foobarbazetc 5y ago
It's just a Ponzi scheme where everyone is invested in the scheme because they hold crypto of some kind. Then one day someone will wake up, decide they don't want that kind of exposure, and the whole thing collapses.
- jkepler 5y ago
  You're correct, except that the waking up with be those holding dollars loosing confidence, not bitcoiners. If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/ https://www.lynalden.com/bitcoin-ponzi-scheme/
Daishiman 5y ago
The same way the Albanian government collapsed due to a Ponzi scheme: everyone knew it was a ponzi scheme, but everyone thought they were smarter than most and would get out on the right side of the trade.

ForHackernews 5y ago

I think it's an obvious scam but it's a very useful scam, so there are many people with a vested interest in maintaining the illusion. From people who want to pump up the price of other cryptocurrencies, to offshore exchanges that want to avoid KYC requirements dealing with real banks, to ordinary users who like being able to transfer USDT... there's many people incentivized to look the other way and pretend that water isn't wet.

jasoncartwright 5y ago

It's anecdata, but none of the retail crypto speculators (five or six now) I've spoken to IRL have even heard of Tether.

meowface 5y ago
Fair. Regarding my first paragraph, I just meant of the people who do know what it is, I think 80 - 90% would probably say it's likely a scam. (I'm sure a good percentage of investors know nothing at all besides the words Bitcoin, Ethereum, Dogecoin, and hodl.)
jiofih 5y ago
It’s hard to imagine someone invested in the crypto market who isn’t aware of stablecoins.
- meowface 5y ago
  You'd be very, very surprised, then. I would wager probably at least 60% wouldn't even be able to make heads or tails of the term "stablecoin", and possibly up to 80% or 90%, even.
- kemonocode 5y ago
  Sometimes crypto investors do their investing through means that can be several times detached from the nitty and gritty (e.g. would buying COIN or MSTR stock be considered crypto investing? Some say it would) so it doesn't surprise me that much. I don't think it's too healthy, but hey.
- handrous 5y ago
  I'd be shocked if more than 10% of the people investing in crypto on Robinhood know what a stable coin is. I bet a fairly high percentage of total crypto investors (not by amount of crypto, but count of individuals investing) are on Robinhood. I'd expect that other casual-friendly trading platforms with crypto support are similarly skewed toward people who don't know much about the space, though probably not quite as much as Robinhood is.
  - jiofih 5y ago
    Oh, the OP said “crypto speculators” which in my mind is a bit more involved than random dudes buying Doge on RH.
    - lupire 5y ago
      buying doge on RH is the most obvious accessible kind of speculation.
gruez 5y ago
Is that because they're using non-tether exchanges (eg. robinhood or coinbase)? If you're using something like binance I find it hard to believe that they don't know about tether (or at least heard of the term) considering that "USDT" is plastered everywhere.
- ac29 5y ago
  Coinbase added Tether in May: https://blog.coinbase.com/tether-usdt-is-now-available-on-coinbase-214f075deaa2 https://blog.coinbase.com/tether-usdt-is-now-available-on-co...
  - ethbr0 5y ago
    And then recently rolled out their own stablecoin in USDC: https://www.coinbase.com/usdc/ https://www.coinbase.com/usdc/
  - gruez 5y ago
    But by default (eg. someone buying BTC or DOGE) they're probably not touching USDT right?
    - ac29 5y ago
      There's a pretty rich history of exchanges suffering "hacks" or other losses and giving all of their customers a haircut on assets to make themselves whole. Coinbase is a little less sketchy than offshore, unregulated exchanges, but if they are holding a large amount of Tether when it goes bust, I wouldnt assume any balances held on Coinbase are necessarily safe.
      - gruez 5y ago
        >but if they are holding a large amount of Tether when it goes bust, I wouldnt assume any balances held on Coinbase are necessarily safe. That's only an issue if they blend USDT and USD balances together, which to my knowledge they don't. If you sold a bunch of your bitcoins for USDT rather than USD (which seems unlikely, seeing that BTC-USD has 28x the volume of BTC-USDT), and USDT goes bankrupt, that's on you.

bsanr2 5y ago

There is a rumor going around the meme stock circles that financial institutions were using crypto to manage their liquidity/collateral issues. I'm in no way well-versed in this, but I'll try to convey my understanding. Essentially, banks are carrying too much cash from QE and the emergency infusion due to the COVID crash last year. They don't want to pay the interest on it, but they still need it for their other operations (the conspiracy theory is "manipulating meme stocks and preparing to cover should they fail a margin call"), so they'd been buying up crypto assets, hiding that cash in something that they could pump and dump almost at will. A month-ish ago, some regulation changed where they could no longer hold crypto as an interest-free asset, and coincidentally, we saw the bottom fall out of Bitcoin and the Fed's overnight reverse repo program (where the Fed does a short term swap of US treasuries for cash) begin to expand around the same time. Suffice it to say that everyone figures that SOMEONE big is manipulating the crypto market to their own ends. With Tether serving as the lubricant greasing the wheels of the rest of the market, it has finance's prized "too big to fail" distinction. Edit: I found one of the posts that explained the theory. I probably misunderstood it. https://www.reddit.com/r/Superstonk/comments/nz0fsz/i_found_a_correlation_in_why_reverse_repo_rates/ https://www.reddit.com/r/Superstonk/comments/nz0fsz/i_found_... I know, I know... I present it mostly for you to consider as you may.

xur17 5y ago
> A month-ish ago, some regulation changed where they could no longer hold crypto as an interest-free asset What does it mean to be an interest-free asset?
- deleted 5y ago
  [deleted]
dmw_ng 5y ago
Crypto isn't nearly a sufficient alternative to the money market, in traditional finance its use is highly regulated, the whole reason for the current situation is that since 2008 banks are extremely limited in holding any kind of risk assets. The theory is obviously nonsense, because there are much lower risk instruments a bank could invest in to receive an interest-like return, were it permitted. The issue is not that banks are secretly conspiring to destroy your favourite shitcoin, it's that by law they're extremely restricted in investing excess capital in anything remotely resembling a shitcoin, never mind a stock index. Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.

tarsinge 5y ago

The reality doesn't matter, what does is what people agree on. As long as people are willing to exchange them for $1 it can continue indefinitely. The incentive is clear: why would people invested in crypto actively nuke their investment? As long as their investment grow, reality and rationality really doesn't matter. I think it's a good lesson because that behavior is not unique to crypto.

gruez 5y ago
>The incentive is clear: why would people invested in crypto actively nuke their investment? That doesn't really make any sense. Holders of USDT are people who sold their crypto, ie. people who aren't invested. Moreover, it's unclear how switching to a more reputable stablecoin would nuke their investment. At best it's a prisoners dilemma and I'm skeptical that everyone chose the "cooperate" option rather than the "defect" option.
- tarsinge 5y ago
  If they are holders of USDT they have not sold their crypto. The risk is on the USDT/USD pair, and the game will continue while people (like you said) think they have exited to USD by holding USDT.
  - ethbr0 5y ago
    USDT isn't actually crypto, right? It's just an asset that a lot of crypto exchanges use, because it's more convenient to do so than usual (regulated) financial alternatives. Tether will probably just evaporate in the face of alternative stablecoin competition, before volume decreases to a point that a sudden devaluation kills it off.
    - x4e 5y ago
      It is an ERC-20 token on the Ethereum blockchain, so yes it is a cryptocurrency. There is good stablecoin competition in USDC, or, my favourite, DAI. Unfortunately I think exchanges like Binance are somewhat in kahoots with USDT which is why they will not move off it.

deleted 5y ago

[deleted]

wavepruner 5y ago

I think you're living in a media bubble. There are a plenty of rebuttals to the Tether criticism, but on sites like Hacker News no one bothers anymore. It's not worth dealing with the vitriol and downvotes to even try. That being said I also have concerns about Tether, but I think they are way overblown.

rattlesnakedave 5y ago
This is the correct answer. This post by Dan held really explains the “it’s not that big of a deal” with tether. https://danheld.substack.com/p/dont-fear-tether https://danheld.substack.com/p/dont-fear-tether
- ProjectArcturis 5y ago
  "I want to note that I feel weird defending Tether and Bitfinex. I don’t particularly like either company, as they’ve done a ton of shady things over the years. I am not vouching for the long term durability of either company." "So we know that Tether is at least partially backed and has functioning wires in and out of the bank they use, Deltec." Lol okay, nothing to see here, your money is definitely safe.
  - deleted 5y ago
    [deleted]

foobarbazetc 5y ago

It's just a Ponzi scheme where everyone is invested in the scheme because they hold crypto of some kind. Then one day someone will wake up, decide they don't want that kind of exposure, and the whole thing collapses.

jkepler 5y ago
You're correct, except that the waking up with be those holding dollars loosing confidence, not bitcoiners. If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/ https://www.lynalden.com/bitcoin-ponzi-scheme/

Daishiman 5y ago

The same way the Albanian government collapsed due to a Ponzi scheme: everyone knew it was a ponzi scheme, but everyone thought they were smarter than most and would get out on the right side of the trade.