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But you forget about DeFi (decentralized finance). People are using DeFi to make degenerate bets on various crypto projects. That typically involves (1) buyin

But you forget about DeFi (decentralized finance). People are using DeFi to make degenerate bets on various crypto projects. That typically involves (1) buying tether, (2) using it in an overly collateralized loan to borrow tether, (3) then using that tether to buy another crypto, (4) watching/hoping the price of that go up (5) selling that corresponding crypto, locking in gains, and repaying the loan If tether drops dramatically in price due to a lack of confidence, these loans will be affected. Such crypto tokens may be bubbling up only because these DeFi loans are possible.

JumpCrisscross 5y ago
> these loans will be affected Which will wipe out those investors. Not anyone else. People are free to lose their own money. It becomes a regulatory issue when those losses cascade, or if someone who didn't realize they were taking those risks is forced to bear them.
- elliekelly 5y ago
  I don’t disagree with anything you’ve said but I do wonder whether the typical crypto “investor” does realize the risk. In many cases (like Tether, for example) I’m not sure the risk has been adequately disclosed prior to purchase.
  - vkou 5y ago
    Who is the typical crypto "investor", though, that is getting into these schemes? I personally know people who have gotten into the GME craze, I know people who are stupid enough to day-trade options, and I know people who spent a paycheck on buying dogecoin. They are all relatively normal people, and while some of them should not have gotten into these transactions, given what I understand of their personal finances, I understand why this happens. They live in America, where nobody's stopping you from spending your rent money on buying dumb meme stocks, and RobinHood has a cool mobile app for trading options, and maybe you win, or maybe you get burnt, it is what is, yolo, etc. But of all those people, I don't know of anyone who dipping their feet into borrowing tethers to trade crypto on margin, or investing into crypto ponzi schemes. Who, exactly, is getting roped into that sort of thing? Posters on the crypto equivalent of r/wsb? Day-traders? Or is it Joe Average?
    - rjbwork 5y ago
      >I know people who are stupid enough to day-trade options Meaning buying and selling the same options contract in intra-day transactions? Or just retail trading options? They're two very different things and I think only the former is actually stupid.
      - vkou 5y ago
        There's so many ways to screw up buying or selling options, that I believe retail investors should stay away from them, period. There are a lot fewer ways to screw up buying stocks.
- bingohbangoh 5y ago
  But that will affect the price of other crypto assets. How that manifests itself is complicated in a ~$1.5 trillion market.
arrosenberg 5y ago
It doesn't sound like the USD has a ton of exposure here, so how would it bubble up? Does a major bank (Citi, Chase, BofA, etc.) have a large position in Tether?
- JumpCrisscross 5y ago
  > how would it bubble up? A recent fear was Tether holding dollar-denominated commercial paper. If they went under, they'd dump that paper. This happened in '08 with money market funds, and we passed a lot of regulation to ensure that failure mode can't happen again. Fortunately, to the extent Tether holds anything, it isn't cash or U.S. dollar commercial paper. So contagion vector contained.
zzleeper 5y ago
Is DeFi SO large??? Stablecoins have a mkt cap of ~130bn. And it's not like bitcoin (or the stock market), where you can start with 1000 tokens valued at $1 each, and then when the price increases suddenly the nominal wealth increases as well. These are stablecoins after all!
- osense 5y ago
  DeFi isn't limited to stablecoins though. I think the current TVL (total value locked) across all DeFi has to be in tens of billions of dollars ATM, judging from the values I've seen on some of the more popular services.

JumpCrisscross 5y ago

> these loans will be affected Which will wipe out those investors. Not anyone else. People are free to lose their own money. It becomes a regulatory issue when those losses cascade, or if someone who didn't realize they were taking those risks is forced to bear them.

elliekelly 5y ago
I don’t disagree with anything you’ve said but I do wonder whether the typical crypto “investor” does realize the risk. In many cases (like Tether, for example) I’m not sure the risk has been adequately disclosed prior to purchase.
- vkou 5y ago
  Who is the typical crypto "investor", though, that is getting into these schemes? I personally know people who have gotten into the GME craze, I know people who are stupid enough to day-trade options, and I know people who spent a paycheck on buying dogecoin. They are all relatively normal people, and while some of them should not have gotten into these transactions, given what I understand of their personal finances, I understand why this happens. They live in America, where nobody's stopping you from spending your rent money on buying dumb meme stocks, and RobinHood has a cool mobile app for trading options, and maybe you win, or maybe you get burnt, it is what is, yolo, etc. But of all those people, I don't know of anyone who dipping their feet into borrowing tethers to trade crypto on margin, or investing into crypto ponzi schemes. Who, exactly, is getting roped into that sort of thing? Posters on the crypto equivalent of r/wsb? Day-traders? Or is it Joe Average?
  - rjbwork 5y ago
    >I know people who are stupid enough to day-trade options Meaning buying and selling the same options contract in intra-day transactions? Or just retail trading options? They're two very different things and I think only the former is actually stupid.
    - vkou 5y ago
      There's so many ways to screw up buying or selling options, that I believe retail investors should stay away from them, period. There are a lot fewer ways to screw up buying stocks.
bingohbangoh 5y ago
But that will affect the price of other crypto assets. How that manifests itself is complicated in a ~$1.5 trillion market.

arrosenberg 5y ago

It doesn't sound like the USD has a ton of exposure here, so how would it bubble up? Does a major bank (Citi, Chase, BofA, etc.) have a large position in Tether?

JumpCrisscross 5y ago
> how would it bubble up? A recent fear was Tether holding dollar-denominated commercial paper. If they went under, they'd dump that paper. This happened in '08 with money market funds, and we passed a lot of regulation to ensure that failure mode can't happen again. Fortunately, to the extent Tether holds anything, it isn't cash or U.S. dollar commercial paper. So contagion vector contained.

zzleeper 5y ago

Is DeFi SO large??? Stablecoins have a mkt cap of ~130bn. And it's not like bitcoin (or the stock market), where you can start with 1000 tokens valued at $1 each, and then when the price increases suddenly the nominal wealth increases as well. These are stablecoins after all!

osense 5y ago
DeFi isn't limited to stablecoins though. I think the current TVL (total value locked) across all DeFi has to be in tens of billions of dollars ATM, judging from the values I've seen on some of the more popular services.