8 ms·

The thing that I think some people miss about Tether is that it's not about whether it is backed enough it's either fully backed or it isn't. If it's not, it's

The thing that I think some people miss about Tether is that it's not about whether it is backed enough it's either fully backed or it isn't. If it's not, it's not a question of whether it's back enough to weather this storm, it's about whether the people running it think they can weather this storm. If they think they can keep it running they'll sell whatever backing they have and keep the peg. But if they even think there's a decent chance they can't permanently sustain the peg then the best thing for them to do is take the backing and run, not sink it into a stable-coin they now know isn't going to work. That's going to happen way before they run out of money. Let's say for example, Tether is 20% backed and there's $100Bn of coins so the backing is $20Bn, and people start flooding out of it. Let's say $10Bn floods out. So the guys running it have handed out $10Bn. They now have $10Bn left, and money is still flooding out. Do they really continue to hand over the cash or do they say "Well, the whole thing is about to explode anyway, I'd rather keep the $10Bn cash I've got left". At which point the holders of the coin have to play "Find these fuckers and sue them" which will be difficult since they've got $10Bn to fight/flee/hide.

encryptluks2 4y ago
That'd be great to watch. It is amazing how quick people turn on each other once shit hits the fan. They'll all be pointing fingers at each other full circle.
maxerickson 4y ago
And then, what are the odds they have already taken the money they plan to take.
id 4y ago
The problem with Tether is that for all we know, it could be completely unbacked and therefore worthless.
- t0mas88 4y ago
  Well not completely, in the sense that they seem to be exchanging USDT for USD at a 1:1 ratio if you show up with 100k or more. There have been no reports of people that tried to get that and didn't get it. On the other hand maybe people holding a lot of USDT wouldn't not want to tell anyone else if they were unable to redeem it before they had sold it all on the exchanges...
  - acdha 4y ago
    That last part is key: you’d only publicly share bad news if you had unloaded – and if the news isn’t good they’d have an incentive to offer a major holder a better deal with an NDA.
  - andruby 4y ago
    > There have been no reports of people that tried to get that and didn't get it. Have there been reports of people using the exchange successfully?
  - oldgradstudent 4y ago
    > There have been no reports of people that tried to get that and didn't There were no reports of Bernie Madoff not being able to repay investors until the day he ran out of cash.
    - thaway2839 4y ago
      Even that never really happened, did it? Madoff was never not able to make a payment. His kids reported him to the police before they could be found out by anyone else. Of course, as part of the reporting, they also got immunity from the consequences of the company they worked for being an elaborate ponzi scheme. I suspect it's highly likely that this was a scheme they came up with to ensure that no one in the family, other than Madoff himself, would have to suffer the consequences of their crime.
      - oldgradstudent 4y ago
        > Even that never really happened, did it? Madoff was never not able to make a payment. Until the day it collapsed. It collapsed because he didn't have enough cash to cover withdrawals and he could not find new victims. That's how all Ponzi schemes collapse.
spywaregorilla 4y ago
Amusingly anyone who does know the backing amount has an incredible opportunity to profit off of a decision to flee too
frostwarrior 4y ago
Serious question, how can you sue over this kind of thing? I thought the whole point of crypto is that it's not regulated. And that also meant that if you got screwed then you are SOL.
- gnopgnip 4y ago
  You don’t get to just decide that regulation doesn’t apply. The SEC can decide to regulate you, for offering a security or fraudulent statement later for instance
- alexk307 4y ago
  They can be sued if they claim that they hold more assets than they are issuing. If you tell everyone that it's a dollar per coin, and suddenly there are 5 billion coins, you better have $5 billion to your name somehow. Not sure if there have been similar lawsuits in the crypto world yet.
  - frostwarrior 4y ago
    For that to be true, that coin needs to abide to the same laws as real currency. If I say that "1 dollar = 1 virtual thingy" and suddenly there are a lot of virtual thingies and their price fall, then what's the crime aside me personally being a lying f*ck that can´t be trusted anymore? I don't see how "legitDollarCoins" is legally more legit than, say, lootboxes.
    - encoderer 4y ago
      You don’t need a crime to sue somebody. You need a tort.
    - dragontamer 4y ago
      Turns out that lying to people on a large scale is a crime named 'Fraud'.
    - bb88 4y ago
      It's a security and is regulated as such. So SEC, torts, etc. In this case if you're marketing $TOKEN as a stablecoin and there's no resources to back it up then it's literally a $PONZICOIN. $USDC might be okay, I know they've made moves to back their coin in dollars and treasuries.
whimsicalism 4y ago
Dude, it's at 99.5 cents.. it's dipped this much before.
- lxgr 4y ago
  It was at 95 cents about six hours ago. Not entirely unexpected to see a dip of that magnitude due to limited liquidity at nighttime when most USD payment rails are offline (market makers don't have infinitely deep pockets), but also not exactly confidence-inspiring.
  - capableweb 4y ago
    For the record, USDT was at its lowest point ~$0.91, sometime in April 2017, and seems to have recovered after that as well. I'd never touch USDT for other reasons (why not use Dai?), but I won't say it doesn't seem like the money printer will go on for just a bit more.
    - whimsicalism 4y ago
      It's like people have never heard of Dai? I don't get it.
      - lxgr 4y ago
        Isn't Dai crypto-backed? That would give it a risk profile, but also not make it risk-free: Counterparty risk (Tether) vs. exchange rate risk of the backing assets (Dai).
        whimsicalism 4y ago
        It's multi-collateralized, so backed by crypto, but also backed by crypto that is backed by actual paper (ie. USDC counterparty risk) and is overcollateralized (so the backing is more than how much $ DAI there is by a substantial margin - ~166%). It has a number of additional clever tricks to keep the peg (burning MKR, etc.), but unlike Terra is not only clever tricks.
trompetenaccoun 4y ago
Yep, this fractional reserve scheme they're running sounds shady. Almost like what banks are doing when they create book money out of nothing. Which is of course perfectly legal if you're rich enough to set up a private bank but the difference is they're doing it on a public ledger where everyone can see exactly how much emission there is, while bank books aren't public. Doing it in the open clearly goes too far, they're giving away the bank secrets.
- stephen_g 4y ago
  That’s actually a bit of a misunderstanding of how banks work. “Fractional reserve” isn’t really actually a thing in the real world (just a textbook model). The confusion stems from a rule in the US, where banks were required to have a particular type of asset (central bank reserves) in an amount equaling at least 10% of deposits. People misunderstood this to mean that banks only have 10% of deposits backed with any asset, which is completely wrong! Banks have to have assets backing 100% of deposits, or else they’re insolvent! The reserve requirement was a liquidity thing, and I don’t think it’s actually a requirement at all any more. Most other countries don’t have a reserve requirement either. Now, it is basically correct that banks create money (when they lend, because the created loan (debt to the customer) is an asset to the bank, and at the same time they create a liability (to the bank) that is the deposit (the money loaned)), as you can read about here [1] from the Bank of England. But that’s not a secret, it’s just not commonly known. What Tether is doing, of course, is different, because they seem to create money out of nothing without having the assets to cover them, and/or without the licensing to create assets (loans), which of course carries with it obligations like capital adequacy requirements to be able to cover expected losses with capital (not deposits, a real bank isn’t actually allowed to use customer deposits for lending, but they are used as part of the liquidity that the bank needs). 1. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  - whimsicalism 4y ago
    > Banks have to have assets backing 100% of deposits, or else they’re insolvent! Yeah, by asset you mean "loan to other person", and that person will often deposit their loaned money in the same bank, where it will be loaned out again.
f0xJtpvHYTVQ88B 4y ago
> Tether reserves the right to refuse registration to, to bar transactions from or to, or to suspend or terminate the administration of Services, Digital Tokens Address, or Digital Tokens Wallet for or with, any user for any reason (or for no reason) at any time > Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all. https://tether.to/en/legal/ https://tether.to/en/legal/
- lizknope 4y ago
  crypto currencies need an FDIC Which would defeat the point of crypto currencies
- i_am_jl 4y ago
  Hahaha holy shit, how has there been so much discussion about Tether that doesn't start and end citing these clauses?
jnsaff2 4y ago
If it is 20% backed, haven't they pocketed the other 80bill already anyway? Therefore the 20B left is just a lottery ticket you might as well pay to have a chance to klept some more hundreds of bills? What am I missing here? That the 80 bill has been badly spent on papering over some exchange losses?
- adamsmith143 4y ago
  IT's actually that the other 80% never existed at all.
- mat0 4y ago
  People use USDT to buy and sell other tokens, it's like an on/off ramp to all things "crypto". You give them 1USD, they give you 1USDT, and you can buy whatever fake coin you like. The issue is that it's true that for every 1USD you give to Tether, there's 1USDT, but it's not true that for every 1USDT Tether mints, there's 1USD in some bank. Estimates are in the low 10%, but it's probably less. They have essentially a money printer. (Some) people really believe that USDT is pegged to the dollar, so they really believe that if they have some ETH for instance, and they sell that ETH for USDT, that the translation ETH -> USDT -> USD is maintained, but that's the whole problem, nothing stops them from minting USDT without the real USD existing. So nothing stops them from "buying" your "hard earned" ETH/Bitcoin/whatevercoin with USDT pulled out of thin air. That's why New York said essentially "these people are liers and nothing they say is true". It's just that people continue to play this game. And why is that? Because no financial institution would give you Bitcoin/ETH/whatever for dollars, because if they do, they are essentially banks and all the KyC rules / regulations apply. So they came up with this charade, these "stable coins" are nothing more than a workaround for on and off ramps, because people have FIAT money (real money if you ask me). This is why Bitcoin doesn't go lower than 30.000, because there's huge amount of Tether being used to buy Bitcoin and keep the price up. Once this money printer charade goes bust we will see the actual price of Bitcoin, Ether, NFTs and so on.
  - bb88 4y ago
    Point of clarification. If they give you 1 USDT for 1 dollar that's fine as long as they can return that dollar when you return the USDT. The problem is when the number of coins in circulation not held by Tether is not backed with 1:1 cash or currency equivalents.

encryptluks2 4y ago

That'd be great to watch. It is amazing how quick people turn on each other once shit hits the fan. They'll all be pointing fingers at each other full circle.

maxerickson 4y ago

And then, what are the odds they have already taken the money they plan to take.

id 4y ago

The problem with Tether is that for all we know, it could be completely unbacked and therefore worthless.

t0mas88 4y ago
Well not completely, in the sense that they seem to be exchanging USDT for USD at a 1:1 ratio if you show up with 100k or more. There have been no reports of people that tried to get that and didn't get it. On the other hand maybe people holding a lot of USDT wouldn't not want to tell anyone else if they were unable to redeem it before they had sold it all on the exchanges...
- acdha 4y ago
  That last part is key: you’d only publicly share bad news if you had unloaded – and if the news isn’t good they’d have an incentive to offer a major holder a better deal with an NDA.
- andruby 4y ago
  > There have been no reports of people that tried to get that and didn't get it. Have there been reports of people using the exchange successfully?
- oldgradstudent 4y ago
  > There have been no reports of people that tried to get that and didn't There were no reports of Bernie Madoff not being able to repay investors until the day he ran out of cash.
  - thaway2839 4y ago
    Even that never really happened, did it? Madoff was never not able to make a payment. His kids reported him to the police before they could be found out by anyone else. Of course, as part of the reporting, they also got immunity from the consequences of the company they worked for being an elaborate ponzi scheme. I suspect it's highly likely that this was a scheme they came up with to ensure that no one in the family, other than Madoff himself, would have to suffer the consequences of their crime.
    - oldgradstudent 4y ago
      > Even that never really happened, did it? Madoff was never not able to make a payment. Until the day it collapsed. It collapsed because he didn't have enough cash to cover withdrawals and he could not find new victims. That's how all Ponzi schemes collapse.

spywaregorilla 4y ago

Amusingly anyone who does know the backing amount has an incredible opportunity to profit off of a decision to flee too

frostwarrior 4y ago

Serious question, how can you sue over this kind of thing? I thought the whole point of crypto is that it's not regulated. And that also meant that if you got screwed then you are SOL.

gnopgnip 4y ago
You don’t get to just decide that regulation doesn’t apply. The SEC can decide to regulate you, for offering a security or fraudulent statement later for instance
alexk307 4y ago
They can be sued if they claim that they hold more assets than they are issuing. If you tell everyone that it's a dollar per coin, and suddenly there are 5 billion coins, you better have $5 billion to your name somehow. Not sure if there have been similar lawsuits in the crypto world yet.
- frostwarrior 4y ago
  For that to be true, that coin needs to abide to the same laws as real currency. If I say that "1 dollar = 1 virtual thingy" and suddenly there are a lot of virtual thingies and their price fall, then what's the crime aside me personally being a lying f*ck that can´t be trusted anymore? I don't see how "legitDollarCoins" is legally more legit than, say, lootboxes.
  - encoderer 4y ago
    You don’t need a crime to sue somebody. You need a tort.
  - dragontamer 4y ago
    Turns out that lying to people on a large scale is a crime named 'Fraud'.
  - bb88 4y ago
    It's a security and is regulated as such. So SEC, torts, etc. In this case if you're marketing $TOKEN as a stablecoin and there's no resources to back it up then it's literally a $PONZICOIN. $USDC might be okay, I know they've made moves to back their coin in dollars and treasuries.

whimsicalism 4y ago

Dude, it's at 99.5 cents.. it's dipped this much before.

lxgr 4y ago
It was at 95 cents about six hours ago. Not entirely unexpected to see a dip of that magnitude due to limited liquidity at nighttime when most USD payment rails are offline (market makers don't have infinitely deep pockets), but also not exactly confidence-inspiring.
- capableweb 4y ago
  For the record, USDT was at its lowest point ~$0.91, sometime in April 2017, and seems to have recovered after that as well. I'd never touch USDT for other reasons (why not use Dai?), but I won't say it doesn't seem like the money printer will go on for just a bit more.
  - whimsicalism 4y ago
    It's like people have never heard of Dai? I don't get it.
    - lxgr 4y ago
      Isn't Dai crypto-backed? That would give it a risk profile, but also not make it risk-free: Counterparty risk (Tether) vs. exchange rate risk of the backing assets (Dai).
      - whimsicalism 4y ago
        It's multi-collateralized, so backed by crypto, but also backed by crypto that is backed by actual paper (ie. USDC counterparty risk) and is overcollateralized (so the backing is more than how much $ DAI there is by a substantial margin - ~166%). It has a number of additional clever tricks to keep the peg (burning MKR, etc.), but unlike Terra is not only clever tricks.

trompetenaccoun 4y ago

Yep, this fractional reserve scheme they're running sounds shady. Almost like what banks are doing when they create book money out of nothing. Which is of course perfectly legal if you're rich enough to set up a private bank but the difference is they're doing it on a public ledger where everyone can see exactly how much emission there is, while bank books aren't public. Doing it in the open clearly goes too far, they're giving away the bank secrets.

stephen_g 4y ago
That’s actually a bit of a misunderstanding of how banks work. “Fractional reserve” isn’t really actually a thing in the real world (just a textbook model). The confusion stems from a rule in the US, where banks were required to have a particular type of asset (central bank reserves) in an amount equaling at least 10% of deposits. People misunderstood this to mean that banks only have 10% of deposits backed with any asset, which is completely wrong! Banks have to have assets backing 100% of deposits, or else they’re insolvent! The reserve requirement was a liquidity thing, and I don’t think it’s actually a requirement at all any more. Most other countries don’t have a reserve requirement either. Now, it is basically correct that banks create money (when they lend, because the created loan (debt to the customer) is an asset to the bank, and at the same time they create a liability (to the bank) that is the deposit (the money loaned)), as you can read about here [1] from the Bank of England. But that’s not a secret, it’s just not commonly known. What Tether is doing, of course, is different, because they seem to create money out of nothing without having the assets to cover them, and/or without the licensing to create assets (loans), which of course carries with it obligations like capital adequacy requirements to be able to cover expected losses with capital (not deposits, a real bank isn’t actually allowed to use customer deposits for lending, but they are used as part of the liquidity that the bank needs). 1. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- whimsicalism 4y ago
  > Banks have to have assets backing 100% of deposits, or else they’re insolvent! Yeah, by asset you mean "loan to other person", and that person will often deposit their loaned money in the same bank, where it will be loaned out again.

f0xJtpvHYTVQ88B 4y ago

> Tether reserves the right to refuse registration to, to bar transactions from or to, or to suspend or terminate the administration of Services, Digital Tokens Address, or Digital Tokens Wallet for or with, any user for any reason (or for no reason) at any time > Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all. https://tether.to/en/legal/ https://tether.to/en/legal/

lizknope 4y ago
crypto currencies need an FDIC Which would defeat the point of crypto currencies
i_am_jl 4y ago
Hahaha holy shit, how has there been so much discussion about Tether that doesn't start and end citing these clauses?

jnsaff2 4y ago

If it is 20% backed, haven't they pocketed the other 80bill already anyway? Therefore the 20B left is just a lottery ticket you might as well pay to have a chance to klept some more hundreds of bills? What am I missing here? That the 80 bill has been badly spent on papering over some exchange losses?

adamsmith143 4y ago
IT's actually that the other 80% never existed at all.
mat0 4y ago
People use USDT to buy and sell other tokens, it's like an on/off ramp to all things "crypto". You give them 1USD, they give you 1USDT, and you can buy whatever fake coin you like. The issue is that it's true that for every 1USD you give to Tether, there's 1USDT, but it's not true that for every 1USDT Tether mints, there's 1USD in some bank. Estimates are in the low 10%, but it's probably less. They have essentially a money printer. (Some) people really believe that USDT is pegged to the dollar, so they really believe that if they have some ETH for instance, and they sell that ETH for USDT, that the translation ETH -> USDT -> USD is maintained, but that's the whole problem, nothing stops them from minting USDT without the real USD existing. So nothing stops them from "buying" your "hard earned" ETH/Bitcoin/whatevercoin with USDT pulled out of thin air. That's why New York said essentially "these people are liers and nothing they say is true". It's just that people continue to play this game. And why is that? Because no financial institution would give you Bitcoin/ETH/whatever for dollars, because if they do, they are essentially banks and all the KyC rules / regulations apply. So they came up with this charade, these "stable coins" are nothing more than a workaround for on and off ramps, because people have FIAT money (real money if you ask me). This is why Bitcoin doesn't go lower than 30.000, because there's huge amount of Tether being used to buy Bitcoin and keep the price up. Once this money printer charade goes bust we will see the actual price of Bitcoin, Ether, NFTs and so on.
- bb88 4y ago
  Point of clarification. If they give you 1 USDT for 1 dollar that's fine as long as they can return that dollar when you return the USDT. The problem is when the number of coins in circulation not held by Tether is not backed with 1:1 cash or currency equivalents.