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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 lik

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.
    - jdsully 5y ago
      If there is not sufficient USD to back them then its fraud. People purchased these securities relying on the representations they made about it being backed by USD.
      - jimmydorry 5y ago
        Fraud does not automatically make it a Ponzi, and no custodial service will have sufficient USD on-hand at all times to cover everyone withdrawing their funds. The specific claim that was made by GP, and the claim that I see bandied around, is that Tether is a Ponzi scheme. Tether doesn't appear to share any characteristics with a Ponzi scheme, which is why I am puzzled to see people so adament it is one. The most important characteristic (IMO) is that there is no promise of a return. $100 of Tether will only ever be worth $100 maximum. If anthing, Tether is basically operating as an unregulated bank. You're not calling banks Ponzis are you?
        forgotmyoldname 5y ago
        You give your money to X in order to facilitate buying Y. Y is a potential investment opportunity that promises explosive growth. X promises that your money is backed by cash, so there's nothing to lose. People give their money to X and purchase Y. Some people make loads of money and cash out. How exactly is X making a profit when they're just working as an intermediary? Why do they absolutely refuse to show their finances? How exactly are they getting the resources to do all this? Now, am I talking about Ponzi or Tether?
- redisman 5y ago
  It’s not a ponzi per se. My guess is that they take the money from exchanges, mint more tokens at no cost to themselves and buy a bunch of junk bonds with high yields and pocket the 8% or whatever they make in those. Given their market cap that is a lot of money. They always use precise wording about their holdings “commercial paper”. I’m guessing it’s not US treasury bonds equivalents or they would say that explicitly
  - carnitine 5y ago
    Commercial paper is not junk bonds, and is pretty standard for a money market fund to hold. It’s a pretty specific thing and doesn’t really deserve scare quotes.
    - michaelt 5y ago
      Perhaps the "scare quotes" are because Tether can't get anyone reliable to certify their "commercial paper" actually exists.
  - raducu 5y ago
    It is a ponzi/illegal bank scheme the moment they mint more tokens than they have liquid assets. Could they come clean, will there be a bank/USDT run? Depends of how much USDT real clients hold and how much USD they hold, and how likely it is that EVERYONE wants to convert USDT back to USD -- it would take a very catastrophic collapse of cryptos for that to happen. USDT has intrinsic value for money laundering, so even if all other cryptos would go to 0, not everyone would want their USDT converted to cash. While I don't like USDT, and I don't think that's the case --someone printing USDT could have already amassed a great fortune, and if he was benevolent enough, could probably redeem all USDT of all the real people holding USDT.
    - thebean11 5y ago
      Ponzi has a pretty specific meaning..illegal banking scheme sure.
- lmm 5y ago
  It's the combined complex of Tether and other cryptocurrencies that forms the ponzi. Crypo "prices" keep rising, but those prices are denominated in Tether that people pretend is dollars.
- thefreeman 5y ago
  The payout is the complicit exchanges wash trading Bitcoin, SOL, etc., with freely printed and unbacked tethers, in order to drive the price up. The more crypto goes up, the more people FOMO in and trade, the more money the exchanges make.
  - jimmydorry 5y ago
    I don't see the payout. If you buy $100 of Tether, it will only ever be worth a maximum of $100. By what you describe, the crypto purchased with Tether would be the Ponzi... but that's not the subject of this article or my question on why people insist Tether is a Ponzi.
- graeme 5y ago
  1. The high yield defi and centralized funds which have offered 9-20% on stablecoins. That’s ponzi level interest 2. The appreciation of crypto generally. If Bitcoin offered to pay out interest based on how many invested, people would see it more transparently as a ponzi

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.
  - jdsully 5y ago
    If there is not sufficient USD to back them then its fraud. People purchased these securities relying on the representations they made about it being backed by USD.
    - jimmydorry 5y ago
      Fraud does not automatically make it a Ponzi, and no custodial service will have sufficient USD on-hand at all times to cover everyone withdrawing their funds. The specific claim that was made by GP, and the claim that I see bandied around, is that Tether is a Ponzi scheme. Tether doesn't appear to share any characteristics with a Ponzi scheme, which is why I am puzzled to see people so adament it is one. The most important characteristic (IMO) is that there is no promise of a return. $100 of Tether will only ever be worth $100 maximum. If anthing, Tether is basically operating as an unregulated bank. You're not calling banks Ponzis are you?
      - forgotmyoldname 5y ago
        You give your money to X in order to facilitate buying Y. Y is a potential investment opportunity that promises explosive growth. X promises that your money is backed by cash, so there's nothing to lose. People give their money to X and purchase Y. Some people make loads of money and cash out. How exactly is X making a profit when they're just working as an intermediary? Why do they absolutely refuse to show their finances? How exactly are they getting the resources to do all this? Now, am I talking about Ponzi or Tether?
redisman 5y ago
It’s not a ponzi per se. My guess is that they take the money from exchanges, mint more tokens at no cost to themselves and buy a bunch of junk bonds with high yields and pocket the 8% or whatever they make in those. Given their market cap that is a lot of money. They always use precise wording about their holdings “commercial paper”. I’m guessing it’s not US treasury bonds equivalents or they would say that explicitly
- carnitine 5y ago
  Commercial paper is not junk bonds, and is pretty standard for a money market fund to hold. It’s a pretty specific thing and doesn’t really deserve scare quotes.
  - michaelt 5y ago
    Perhaps the "scare quotes" are because Tether can't get anyone reliable to certify their "commercial paper" actually exists.
- raducu 5y ago
  It is a ponzi/illegal bank scheme the moment they mint more tokens than they have liquid assets. Could they come clean, will there be a bank/USDT run? Depends of how much USDT real clients hold and how much USD they hold, and how likely it is that EVERYONE wants to convert USDT back to USD -- it would take a very catastrophic collapse of cryptos for that to happen. USDT has intrinsic value for money laundering, so even if all other cryptos would go to 0, not everyone would want their USDT converted to cash. While I don't like USDT, and I don't think that's the case --someone printing USDT could have already amassed a great fortune, and if he was benevolent enough, could probably redeem all USDT of all the real people holding USDT.
  - thebean11 5y ago
    Ponzi has a pretty specific meaning..illegal banking scheme sure.
lmm 5y ago
It's the combined complex of Tether and other cryptocurrencies that forms the ponzi. Crypo "prices" keep rising, but those prices are denominated in Tether that people pretend is dollars.
thefreeman 5y ago
The payout is the complicit exchanges wash trading Bitcoin, SOL, etc., with freely printed and unbacked tethers, in order to drive the price up. The more crypto goes up, the more people FOMO in and trade, the more money the exchanges make.
- jimmydorry 5y ago
  I don't see the payout. If you buy $100 of Tether, it will only ever be worth a maximum of $100. By what you describe, the crypto purchased with Tether would be the Ponzi... but that's not the subject of this article or my question on why people insist Tether is a Ponzi.
graeme 5y ago
1. The high yield defi and centralized funds which have offered 9-20% on stablecoins. That’s ponzi level interest 2. The appreciation of crypto generally. If Bitcoin offered to pay out interest based on how many invested, people would see it more transparently as a ponzi