6 ms·

> Can Tether survive a net outflow? Probably not. They don't have the collateral. Luckily for Paolo & friends, their terms of service clearly state that they d

> Can Tether survive a net outflow? Probably not. They don't have the collateral. Luckily for Paolo & friends, their terms of service clearly state that they do not ever have to offer redemptions of USDT for dollars. Or even whatever IOUs and bits of string they may or may not have in reserve. Out of all the stable coins its the most likely to withstand a "run" because they do not have to pay you if you ask. In fact if you're a US person, you're not eligible at all. If you're not a US person, it's at their discretion to deem you a "customer." Even if they do that, they can delay your withdrawal arbitrarily. Even if they don't do that, they can pay you out with whatever is actually in their backing. [1] What would get destroyed in a run is every other crypto, as folks desperately try and exchange their USDT for something they can sell at a fiat-backed exchange. The Crypto-USDT pairs will quickly go no-bid, and as people rush for the narrow exits at fiat exchanges, prices will plummet. [1] tether.to/legal

roywiggins 5y ago
I don't get it. If everyone starts selling their Tether (because they're afraid of it not being able to maintain the peg), even if they can't sell the Tether back to the company, won't that crater the Tether price- possibly to zero- effectively killing the currency? Like, this happens with currencies that are pegged to the dollar. The government that's supposed to be maintaining the peg starts to run out of dollars and starts limiting dollar redemptions. People turn to the black market to obtain dollars. The price of a dollar (in that currency) goes up. The value of the currency (again in dollars) drops. Now the peg is broken. Tether the company could walk into the sunset with whatever they're holding- they can just honor "friends and family" withdrawals, but that doesn't prevent the coin going to zero for everyone else. It actually makes it even worse for the currency: suppose it's collateralized at 50%. Tether could honor withdrawals at 50 cents on the dollar, force every holder to take a 50% haircut. The price might settle to something less than $1 but more than $0 and continue on. But if they abscond with the money instead, the currency will have even more reason to drop to nil.
- potatolicious 5y ago
  Exactly this - the idea that Tether not being legally obligated to let you cash out USD somehow being a shield against a run seems ridiculous. Being unable to redeem your USDT for dollars - regardless of reason (because Tether is out of money or Tether is refusing) - is what causes the run and the crash. An entity that is holding a bunch of cash but refusing to honor IOUs it has issued will find that the value of those IOUs will rapidly approach zero. Permanently. Even if it laters starts honoring those IOUs, the IOUs have lost their utility forever and the price will remain at/near zero.
- arcticbull 5y ago
  The reason it hasn't collapsed already is that all the exchanges are in on it. It's crypto's equivalent of "too big to fail." Individuals will be told they're not customers by Tether (this happened on Twitter a while back, someone set out to prove you could and Tether stonewalled them, so he deleted his account). They're offered a piddly USDT:USD market pair on a few exchanges, like Coinbase and Kraken, as a distraction. There, they can sell their USDT to folks trying to buy it (for instance, to fund a DeFi position) or the exchange obo Tether, Inc. to keep the charade going. Only institutional parties like exchanges, Alameda and Cumberland are "deemed customers" and they'll never redeem because they know they can't. Everyone's in on this. I think only a court-ordered exchange liquidation could possibly end the game, like a Binance collapse for instance.
  - roywiggins 5y ago
    Oh, I understand why it hasn't collapsed already. I just don't see how Tether refusing to honor redemptions makes it more resilient to a run in progress, rather than less. If nobody wants to buy 1 USDT for a dollar, the peg will break all the same. If Tether stepped in as a buyer of last resort, that would make it more resilient- but if it doesn't, that worse for the peg, not better. It's better for anyone with physical custody of the Tether assets I guess (they have a pile of gold to Scrooge McDuck dive into) but the currency is even more boned than if they'd propped the market up by buying Tethers back. A 100% collateralized stablecoin that just hands everyone back their dollars if they ask can survive anything, a 50% collateralized one can spend a lot of it back into the market to prop the price up, at least for a while. But if Tether can't or won't, that's going to make maintaining the peg a whole lot harder!
    - arcticbull 5y ago
      Ah I see. The point I was making is that since it brazenly doesn't have backing and it openly gets to choose who is allowed to redeem, a run would be very hard to actually start. The exchanges themselves are incentivized to backstop the pegs (up to a point) out of their own capital to ensure their own survival. Beyond that, you are correct of course!
kirse 5y ago
After that hedge fund issued a $1M reward on Tether backing I did some more investigation and the thing I realized is that 1) Tether is inherently backed by BS and 2) crafting any sort of Tether short is near impossible because everyone in the game - Tether, the exchanges, etc. - will all be against you if you're winning in the short. There's that scene in "The Big Short" where Mark Baum and crew know the subprime bonds are junk but they visit the ratings agency and they're not downgrading. [1] That same thing will happen if crypto has a major run. The exchanges already conveniently "go down" when Bitcoin dumps even now. Every single time, it's become a running joke. If we had a serious Tether blow-up or BTC move that would rock the boat, everything would get locked down and you'd have no way to buy back your Tether short for pennies on the dollar. When tril/billions are on the line, ain't no way you're getting your millions, especially in this unregulated wild west. [1] https://www.youtube.com/watch?v=9xZx1lf2tvs https://www.youtube.com/watch?v=9xZx1lf2tvs
- oarabbus_ 5y ago
  >That same thing will happen if crypto has a major run. The exchanges already conveniently "go down" when Bitcoin dumps even now To this point specifically: is there any proof this is malicious? Amazon, Facebook, Google have all had outages before; shouldn't we apply Hanlon's Razor when a cryptocurrency exchange fails to serve requests during a massive traffic spike?
  - graeme 5y ago
    The exchanges never go down when the crypto price rises, only when it falls. Further, an honest exchange makes money on people’s trades. Going down when volume is high means giving up peak profits. Equivalent of amazon reliably going down on black friday.
    - jimmydorry 5y ago
      Most exchanges started as garage-based operations and most were built quickly or shodily. It wouldn’t be surprising if most of them have enormous piles of technical debt, especially as the number of alt coins exploded. Making a robust exchange is hard and requires an amazon level of development. Huge movements in price correlate with massive increases in volume. The simplest explanation remains firmly in the realm of poor platform, in my mind, rather than nefarious and illegal manipulation. Just look at Robinhood. They offer a sleek looking product, but their crypto offering falls down under load (positive and negative) regularly.
qeternity 5y ago
> The Crypto-USDT pairs will quickly go no-bid I think what you mean is the Crypto-USDT pairs will go no offer (i.e. no USDT bid) as people turn to dump crypto against a fiat leg.
- ChainOfFools 5y ago
  and on the way the corresponding cryptos will all appear to shoot toward infinity, except the exchange shuts down for "maintenance" before that happens
- arcticbull 5y ago
  Oof, my bad. You're of course correct.
tuesdayrain 5y ago
>The Crypto-USDT pairs will quickly go no-bid History has shown that this does not happen in crypto. Even for coins like Bitconnect and Confido that plainly turned out to be scams, there were still buyers long after the news was revealed. People like to bet on dead cat bounces, or some kind of news after the fact that redeems the coin.
- arcticbull 5y ago
  It did happen at Gox and Quadriga, although I suspect you're probably right that the market will equalize above zero.
quickthrower2 5y ago
Moot point? If tether tends to $0.01 USD on the exchanges then whether it is officially a "run" or a "crash" doesn't matter to the holders.
hef19898 5y ago
So in a sense the guys behind Tether seem to be pretty conscious and smart about what they do. Would be curious to see that playing out in court so.
bradwood 5y ago
You guys seriously seem to think that run risk exists more in the cryptosphere than fiatland. With the exception of shitcoins, I think the risk is more of a run on fiat... When you start using something like BTC as your unit of account and stop measuring your net worth with a shrinking fiat yardstick you'll realise this. Fiat onramps will become less and less necessary. We'll hold everything in crypto and buy a bit of fiat from time to time when some backward merchant or hyperinflated backwater country requires it...
deleted 5y ago
[deleted]

roywiggins 5y ago

I don't get it. If everyone starts selling their Tether (because they're afraid of it not being able to maintain the peg), even if they can't sell the Tether back to the company, won't that crater the Tether price- possibly to zero- effectively killing the currency? Like, this happens with currencies that are pegged to the dollar. The government that's supposed to be maintaining the peg starts to run out of dollars and starts limiting dollar redemptions. People turn to the black market to obtain dollars. The price of a dollar (in that currency) goes up. The value of the currency (again in dollars) drops. Now the peg is broken. Tether the company could walk into the sunset with whatever they're holding- they can just honor "friends and family" withdrawals, but that doesn't prevent the coin going to zero for everyone else. It actually makes it even worse for the currency: suppose it's collateralized at 50%. Tether could honor withdrawals at 50 cents on the dollar, force every holder to take a 50% haircut. The price might settle to something less than $1 but more than $0 and continue on. But if they abscond with the money instead, the currency will have even more reason to drop to nil.

potatolicious 5y ago
Exactly this - the idea that Tether not being legally obligated to let you cash out USD somehow being a shield against a run seems ridiculous. Being unable to redeem your USDT for dollars - regardless of reason (because Tether is out of money or Tether is refusing) - is what causes the run and the crash. An entity that is holding a bunch of cash but refusing to honor IOUs it has issued will find that the value of those IOUs will rapidly approach zero. Permanently. Even if it laters starts honoring those IOUs, the IOUs have lost their utility forever and the price will remain at/near zero.
arcticbull 5y ago
The reason it hasn't collapsed already is that all the exchanges are in on it. It's crypto's equivalent of "too big to fail." Individuals will be told they're not customers by Tether (this happened on Twitter a while back, someone set out to prove you could and Tether stonewalled them, so he deleted his account). They're offered a piddly USDT:USD market pair on a few exchanges, like Coinbase and Kraken, as a distraction. There, they can sell their USDT to folks trying to buy it (for instance, to fund a DeFi position) or the exchange obo Tether, Inc. to keep the charade going. Only institutional parties like exchanges, Alameda and Cumberland are "deemed customers" and they'll never redeem because they know they can't. Everyone's in on this. I think only a court-ordered exchange liquidation could possibly end the game, like a Binance collapse for instance.
- roywiggins 5y ago
  Oh, I understand why it hasn't collapsed already. I just don't see how Tether refusing to honor redemptions makes it more resilient to a run in progress, rather than less. If nobody wants to buy 1 USDT for a dollar, the peg will break all the same. If Tether stepped in as a buyer of last resort, that would make it more resilient- but if it doesn't, that worse for the peg, not better. It's better for anyone with physical custody of the Tether assets I guess (they have a pile of gold to Scrooge McDuck dive into) but the currency is even more boned than if they'd propped the market up by buying Tethers back. A 100% collateralized stablecoin that just hands everyone back their dollars if they ask can survive anything, a 50% collateralized one can spend a lot of it back into the market to prop the price up, at least for a while. But if Tether can't or won't, that's going to make maintaining the peg a whole lot harder!
  - arcticbull 5y ago
    Ah I see. The point I was making is that since it brazenly doesn't have backing and it openly gets to choose who is allowed to redeem, a run would be very hard to actually start. The exchanges themselves are incentivized to backstop the pegs (up to a point) out of their own capital to ensure their own survival. Beyond that, you are correct of course!

kirse 5y ago

After that hedge fund issued a $1M reward on Tether backing I did some more investigation and the thing I realized is that 1) Tether is inherently backed by BS and 2) crafting any sort of Tether short is near impossible because everyone in the game - Tether, the exchanges, etc. - will all be against you if you're winning in the short. There's that scene in "The Big Short" where Mark Baum and crew know the subprime bonds are junk but they visit the ratings agency and they're not downgrading. [1] That same thing will happen if crypto has a major run. The exchanges already conveniently "go down" when Bitcoin dumps even now. Every single time, it's become a running joke. If we had a serious Tether blow-up or BTC move that would rock the boat, everything would get locked down and you'd have no way to buy back your Tether short for pennies on the dollar. When tril/billions are on the line, ain't no way you're getting your millions, especially in this unregulated wild west. [1] https://www.youtube.com/watch?v=9xZx1lf2tvs https://www.youtube.com/watch?v=9xZx1lf2tvs

oarabbus_ 5y ago
>That same thing will happen if crypto has a major run. The exchanges already conveniently "go down" when Bitcoin dumps even now To this point specifically: is there any proof this is malicious? Amazon, Facebook, Google have all had outages before; shouldn't we apply Hanlon's Razor when a cryptocurrency exchange fails to serve requests during a massive traffic spike?
- graeme 5y ago
  The exchanges never go down when the crypto price rises, only when it falls. Further, an honest exchange makes money on people’s trades. Going down when volume is high means giving up peak profits. Equivalent of amazon reliably going down on black friday.
  - jimmydorry 5y ago
    Most exchanges started as garage-based operations and most were built quickly or shodily. It wouldn’t be surprising if most of them have enormous piles of technical debt, especially as the number of alt coins exploded. Making a robust exchange is hard and requires an amazon level of development. Huge movements in price correlate with massive increases in volume. The simplest explanation remains firmly in the realm of poor platform, in my mind, rather than nefarious and illegal manipulation. Just look at Robinhood. They offer a sleek looking product, but their crypto offering falls down under load (positive and negative) regularly.

qeternity 5y ago

> The Crypto-USDT pairs will quickly go no-bid I think what you mean is the Crypto-USDT pairs will go no offer (i.e. no USDT bid) as people turn to dump crypto against a fiat leg.

ChainOfFools 5y ago
and on the way the corresponding cryptos will all appear to shoot toward infinity, except the exchange shuts down for "maintenance" before that happens
arcticbull 5y ago
Oof, my bad. You're of course correct.

tuesdayrain 5y ago

>The Crypto-USDT pairs will quickly go no-bid History has shown that this does not happen in crypto. Even for coins like Bitconnect and Confido that plainly turned out to be scams, there were still buyers long after the news was revealed. People like to bet on dead cat bounces, or some kind of news after the fact that redeems the coin.

arcticbull 5y ago
It did happen at Gox and Quadriga, although I suspect you're probably right that the market will equalize above zero.

quickthrower2 5y ago

Moot point? If tether tends to $0.01 USD on the exchanges then whether it is officially a "run" or a "crash" doesn't matter to the holders.

hef19898 5y ago

So in a sense the guys behind Tether seem to be pretty conscious and smart about what they do. Would be curious to see that playing out in court so.

bradwood 5y ago

You guys seriously seem to think that run risk exists more in the cryptosphere than fiatland. With the exception of shitcoins, I think the risk is more of a run on fiat... When you start using something like BTC as your unit of account and stop measuring your net worth with a shrinking fiat yardstick you'll realise this. Fiat onramps will become less and less necessary. We'll hold everything in crypto and buy a bit of fiat from time to time when some backward merchant or hyperinflated backwater country requires it...

deleted 5y ago

[deleted]