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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 Tethe

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?

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?