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I don't understand how Tether has survived this long. Bitfinex and Tether sure look transparently like a fraud, all the way back to the "no really we have $1 in

I don't understand how Tether has survived this long. Bitfinex and Tether sure look transparently like a fraud, all the way back to the "no really we have $1 in the bank for every Tether but you can't audit us" days. And yet it continues to occupy its role as the underpinning of most cryptocurrency markets. Why hasn't it blown up yet? My best guess is that it's useful to everyone taking in money from new retail investors. Also there's no clear financial incentive for blowing it up; there's no way to easily short Tether, for instance. This article talks about the way Tether is loaning out what reserves they have. The Economist looked at this phenomenon and found Tether has a 383-to-1 leverage. That's going to be a complete disaster the moment there's a major blip in the economy. Say, a major Chinese real estate company going broke. Or interest rates in the West finally going up and causing a market correction. Maybe that's what will blow it up. The good news is the Economist also thinks the inevitable cryptocurrency disaster will be bad but won't destroy world economies. " its holders would lose hundreds of billions of dollars but that the fallout would be manageable." I sure hope that happens before this tower of unregulated investments gets so big that when it falls over it crushes the real economy. But don't worry folks, this is all good for Bitcoin. https://www.economist.com/leaders/2021/08/07/why-regulators-should-treat-stablecoins-like-banks https://www.economist.com/leaders/2021/08/07/why-regulators-...

arcticbull 5y ago
It took Liberty Reserve 7 years and 17 countries cooperating to get nuked from orbit. Tether was founded as Realcoin in 2014 by a group including former child star and accused sex offender Brock Pierce, so while it’s technically just rounding the 7 year mark, it didn’t begin in earnest until it was taken over by Bitfinex towards 2015 and didn’t become majorly problematic until 2016/2017 according to the NYAG findings. [1] Given the vastly larger scope here, I suspect we’re going to be dealing with them for a few more years as the wheels of Justice spool up. For anyone wanting to learn more I highly recommend Bennett Tomlins write up. [2] [1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlement_agreement_-_execution_version.b-t_signed-c2_oag_signed.pdf https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen... [2] https://bennettftomlin.com/2020/12/08/an-introduction-to-the-tether-bitfinex-controversy/ https://bennettftomlin.com/2020/12/08/an-introduction-to-the...
- soared 5y ago
  > by a group including former child star and accused sex offender This makes your argument seem conspiracy-theory-esque, despite your links having some quality information. That quote is more akin to clickbait than it is a valid point in your argument.
  - Daishiman 5y ago
    Every other crypto investment seems to be run by someone with past criminal convictions, accusations of sexual misconduct, or shady past. I have somehow been able to avoid all of this in my own career without much effort. It speaks volumes that this is the kind of characters interested in this space.
    - numair 5y ago
      So you’ve never used anything connected to Facebook?
      - skinnymuch 5y ago
        What could this possibly mean? Why single out Facebook?
  - arcticbull 5y ago
    It was a little ad hominemey, for color. I'll own that criticism.
- adflux 5y ago
  Bennett has done a fantastic job. There WILL be a movie about this company when investors lose faith. Like next decades, "the big short".
  - fny 5y ago
    But how exactly do you short stablecoins? You can't and even if you did the game is heavily rigged against you. If you remember in the movie, Cohodes got his ass handed to him as banks margin called him out of his position and that's in a regulated market. These guys own their market and the exchange on which it originates. There's no way to even verify if they received dollars for every tether issued and by some miracle the yield on USDT is incredible. You'd be losing 4-5% a year guaranteed holding a short position.
shawabawa3 5y ago
It's trivially easy for anyone to short tether, simply take out a DeFi loan of tether backed by any other crypto collateral (including e.g. USDC so you don't have liquidation risk). It will just cost you a few % APR to keep the position open
- NelsonMinar 5y ago
  I'm not sure I follow your short structure but you're mentioning other cryptocurrencies. Is there a clean bet where I sell Tethers and get dollars? (USDC are not dollars.)
  - louloulou 5y ago
    Yup, you can do it on Kraken (https://trade.kraken.com/charts/KRAKEN:USDT-USD?period=1d https://trade.kraken.com/charts/KRAKEN:USDT-USD?period=1d)
  - jkhdigital 5y ago
    So convert the USDC to dollars and withdraw the dollars. Done.
    - graeme 5y ago
      In the event Tether busts, the entire crypto markets will freeze up, and it’s plausible usdc will not be redeemable or face a run. USDC aren’t dollars and have been opaque about their backing. The bulk of their assets are in “cash and cash equivalents” which sound good, except they include less than 90 day commercial paper here! They also don’t state its quality or say how much of their cash/equivalents are CP rather than cash or treasuries. Never been audited, only attestations
      - rdtwo 5y ago
        Yeah but where do they run to? I could see dark money having to run into BTC and ETH because real dollar redemption is a problem if you operate out of China for example.
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forgotmyoldname 5y ago
Keep in mind that the original Ponzi scheme ran for quite a while and even had the media defending it as a great investment. Tether (and most crypto) seems like someone copied Ponzi's original scheme 1:1. Put in some money, transfer it to another format (Tether to other crypto, with Ponzi it was stamps), then eventually pull out loads of cash. Some people will undeniably get rich off it. But it's not sustainable.
- jimmydorry 5y ago
  The part I have never seen elaborated on in the "Tether is a Ponzi" claims is at what point will people using Tether make money? Tethers are IOUs to facilitate moving USD between financial institutions (mainly between exchanges, and mostly used by the exchanges themselves). You can spend $1 USD to get 1 Tether that is "redeemable" (by trade, not through the Tether company) for exactly $1 USD. A Ponzi requires some kind of promised payout, no?
  - forgotmyoldname 5y ago
    Tether takes a bunch of money to facilitate users converting to Bitcoin or other currencies. The maintainers of Tether keep sucking up real money, minting Tether that they claim is backed by cash (real currency), but the real cash backing goes poof and they aren't demonstrating that there is any stable backing. But so long as other crypto isn't crashing, they can reliably take real cash, skim off some for themselves, and pay out small amounts of what they receive to people cashing out on Tether. More people are putting money in than taking money out. This is all elaborated in the article. Now if, for some reason, too many people decide to withdrawal and cash out on their Tether, there's not a sufficient cash backing there. It'll completely collapse and people will be left with a bunch of Tether that's no more valuable than any other bunch of random sequences of 0s and 1s on the internet. This is no different from the original Ponzi scheme. Just replace crypto with stamps/international reply coupons and it's absolutely identical.
    - jimmydorry 5y ago
      If too many people decide to withdraw their money from any financial system (e.g. banks, brokers, exchanges, etc.), you can expect there to be liquidity problems. These are not Ponzis. This distinction doesn't even make sense though. The Tethers aren't redeemable directly from the Tether company. People redeem Tether for USD by market transaction. As these Tethers are just USD IOUs, it doesn't seem to matter much whether they are fully backed by USD, as long as there is liquidity to buy and sell them for their full USD value as required.
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ikeboy 5y ago
It's very easy to short tether, it costs around 4-5% a year. You can do it directly on FTX, or you can do it on ethereum by borrowing tether on aave against, say, USDC, and then selling it for USDC. You can do this in significant size, 8 figures+ if you'd like.
- X6S1x6Okd1st 5y ago
  You can also do this and go long ETH/BTC if you'd prefer. The same ability is spinning up for sushiswap as well if you don't want have any exposure to other assets blowing up and threatening the collateral you care about.
- xondono 5y ago
  > You can do it directly on FTX I’m no expert, but wouldn’t this be unrealizable? If tether were to fall it’s not crazy to think it would take with it most exchanges, given how most of them use USDT for maintaining operations.
  - trophycase 5y ago
    This just isn't really the case any longer. Crypto has matured a lot in the last few years. And if you're still regurgitating the same FUD from 2016 you're in for a big surprise.
    - xondono 5y ago
      > And if you're still regurgitating the same FUD from 2016 you're in for a big surprise. I’ve just given up on crypto at this point. I’m a big proponent in “invest in things you can understand”, and crypto is a space where very little people really understand what’s going. You can call that FUD if you want, but not acknowledging that crypto is a wild, wild west with a lot of shady corners, will set you up for a big reckoning at some point.
      - ikeboy 5y ago
        There happens to be a lot of opportunity now, and lots of ponzis / scams / bubbles / etc. You're right that understanding it is needed, I've done deep dives on many projects and am doing quite well overall. Not for the faint of heart.
fredgrott 5y ago
hmm, I know one real estate investor that has similar hedging ratios. Financial press still claims he is worth billions. Some of you may have heard his name before as he is a former head of state, Trump. Just to point out that it is not hard to fool financial press and others about a firm's true financial position in terms of losses and gains.
tim333 5y ago
It's quite likely they put some of the money into Bitcoin and are well ahead. They pretty much admit holding Bitcoin and things like the Celsius loan are profitable. I don't think they'll collapse due to not having funds. If anything gets them it will be the executives being arrested for money laundering or similar.
Bombthecat 5y ago
Kraken.com has ether. I'm not sure if you can short it there... Nonetheless. The market can stay longer irrational, then you liquid :)

arcticbull 5y ago

It took Liberty Reserve 7 years and 17 countries cooperating to get nuked from orbit. Tether was founded as Realcoin in 2014 by a group including former child star and accused sex offender Brock Pierce, so while it’s technically just rounding the 7 year mark, it didn’t begin in earnest until it was taken over by Bitfinex towards 2015 and didn’t become majorly problematic until 2016/2017 according to the NYAG findings. [1] Given the vastly larger scope here, I suspect we’re going to be dealing with them for a few more years as the wheels of Justice spool up. For anyone wanting to learn more I highly recommend Bennett Tomlins write up. [2] [1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlement_agreement_-_execution_version.b-t_signed-c2_oag_signed.pdf https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen... [2] https://bennettftomlin.com/2020/12/08/an-introduction-to-the-tether-bitfinex-controversy/ https://bennettftomlin.com/2020/12/08/an-introduction-to-the...

soared 5y ago
> by a group including former child star and accused sex offender This makes your argument seem conspiracy-theory-esque, despite your links having some quality information. That quote is more akin to clickbait than it is a valid point in your argument.
- Daishiman 5y ago
  Every other crypto investment seems to be run by someone with past criminal convictions, accusations of sexual misconduct, or shady past. I have somehow been able to avoid all of this in my own career without much effort. It speaks volumes that this is the kind of characters interested in this space.
  - numair 5y ago
    So you’ve never used anything connected to Facebook?
    - skinnymuch 5y ago
      What could this possibly mean? Why single out Facebook?
- arcticbull 5y ago
  It was a little ad hominemey, for color. I'll own that criticism.
adflux 5y ago
Bennett has done a fantastic job. There WILL be a movie about this company when investors lose faith. Like next decades, "the big short".
- fny 5y ago
  But how exactly do you short stablecoins? You can't and even if you did the game is heavily rigged against you. If you remember in the movie, Cohodes got his ass handed to him as banks margin called him out of his position and that's in a regulated market. These guys own their market and the exchange on which it originates. There's no way to even verify if they received dollars for every tether issued and by some miracle the yield on USDT is incredible. You'd be losing 4-5% a year guaranteed holding a short position.

shawabawa3 5y ago

It's trivially easy for anyone to short tether, simply take out a DeFi loan of tether backed by any other crypto collateral (including e.g. USDC so you don't have liquidation risk). It will just cost you a few % APR to keep the position open

NelsonMinar 5y ago
I'm not sure I follow your short structure but you're mentioning other cryptocurrencies. Is there a clean bet where I sell Tethers and get dollars? (USDC are not dollars.)
- louloulou 5y ago
  Yup, you can do it on Kraken (https://trade.kraken.com/charts/KRAKEN:USDT-USD?period=1d https://trade.kraken.com/charts/KRAKEN:USDT-USD?period=1d)
- jkhdigital 5y ago
  So convert the USDC to dollars and withdraw the dollars. Done.
  - graeme 5y ago
    In the event Tether busts, the entire crypto markets will freeze up, and it’s plausible usdc will not be redeemable or face a run. USDC aren’t dollars and have been opaque about their backing. The bulk of their assets are in “cash and cash equivalents” which sound good, except they include less than 90 day commercial paper here! They also don’t state its quality or say how much of their cash/equivalents are CP rather than cash or treasuries. Never been audited, only attestations
    - rdtwo 5y ago
      Yeah but where do they run to? I could see dark money having to run into BTC and ETH because real dollar redemption is a problem if you operate out of China for example.

deleted 5y ago

[deleted]

forgotmyoldname 5y ago

Keep in mind that the original Ponzi scheme ran for quite a while and even had the media defending it as a great investment. Tether (and most crypto) seems like someone copied Ponzi's original scheme 1:1. Put in some money, transfer it to another format (Tether to other crypto, with Ponzi it was stamps), then eventually pull out loads of cash. Some people will undeniably get rich off it. But it's not sustainable.

jimmydorry 5y ago
The part I have never seen elaborated on in the "Tether is a Ponzi" claims is at what point will people using Tether make money? Tethers are IOUs to facilitate moving USD between financial institutions (mainly between exchanges, and mostly used by the exchanges themselves). You can spend $1 USD to get 1 Tether that is "redeemable" (by trade, not through the Tether company) for exactly $1 USD. A Ponzi requires some kind of promised payout, no?
- forgotmyoldname 5y ago
  Tether takes a bunch of money to facilitate users converting to Bitcoin or other currencies. The maintainers of Tether keep sucking up real money, minting Tether that they claim is backed by cash (real currency), but the real cash backing goes poof and they aren't demonstrating that there is any stable backing. But so long as other crypto isn't crashing, they can reliably take real cash, skim off some for themselves, and pay out small amounts of what they receive to people cashing out on Tether. More people are putting money in than taking money out. This is all elaborated in the article. Now if, for some reason, too many people decide to withdrawal and cash out on their Tether, there's not a sufficient cash backing there. It'll completely collapse and people will be left with a bunch of Tether that's no more valuable than any other bunch of random sequences of 0s and 1s on the internet. This is no different from the original Ponzi scheme. Just replace crypto with stamps/international reply coupons and it's absolutely identical.
  - jimmydorry 5y ago
    If too many people decide to withdraw their money from any financial system (e.g. banks, brokers, exchanges, etc.), you can expect there to be liquidity problems. These are not Ponzis. This distinction doesn't even make sense though. The Tethers aren't redeemable directly from the Tether company. People redeem Tether for USD by market transaction. As these Tethers are just USD IOUs, it doesn't seem to matter much whether they are fully backed by USD, as long as there is liquidity to buy and sell them for their full USD value as required.

deleted 5y ago

[deleted]

ikeboy 5y ago

It's very easy to short tether, it costs around 4-5% a year. You can do it directly on FTX, or you can do it on ethereum by borrowing tether on aave against, say, USDC, and then selling it for USDC. You can do this in significant size, 8 figures+ if you'd like.

X6S1x6Okd1st 5y ago
You can also do this and go long ETH/BTC if you'd prefer. The same ability is spinning up for sushiswap as well if you don't want have any exposure to other assets blowing up and threatening the collateral you care about.
xondono 5y ago
> You can do it directly on FTX I’m no expert, but wouldn’t this be unrealizable? If tether were to fall it’s not crazy to think it would take with it most exchanges, given how most of them use USDT for maintaining operations.
- trophycase 5y ago
  This just isn't really the case any longer. Crypto has matured a lot in the last few years. And if you're still regurgitating the same FUD from 2016 you're in for a big surprise.
  - xondono 5y ago
    > And if you're still regurgitating the same FUD from 2016 you're in for a big surprise. I’ve just given up on crypto at this point. I’m a big proponent in “invest in things you can understand”, and crypto is a space where very little people really understand what’s going. You can call that FUD if you want, but not acknowledging that crypto is a wild, wild west with a lot of shady corners, will set you up for a big reckoning at some point.
    - ikeboy 5y ago
      There happens to be a lot of opportunity now, and lots of ponzis / scams / bubbles / etc. You're right that understanding it is needed, I've done deep dives on many projects and am doing quite well overall. Not for the faint of heart.

fredgrott 5y ago

hmm, I know one real estate investor that has similar hedging ratios. Financial press still claims he is worth billions. Some of you may have heard his name before as he is a former head of state, Trump. Just to point out that it is not hard to fool financial press and others about a firm's true financial position in terms of losses and gains.

tim333 5y ago

It's quite likely they put some of the money into Bitcoin and are well ahead. They pretty much admit holding Bitcoin and things like the Celsius loan are profitable. I don't think they'll collapse due to not having funds. If anything gets them it will be the executives being arrested for money laundering or similar.

Bombthecat 5y ago

Kraken.com has ether. I'm not sure if you can short it there... Nonetheless. The market can stay longer irrational, then you liquid :)