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DISCLAIMER: Never hold Tether, for obvious reasons That said, Tether can't pop the way LUNA/UST did. UST was basically propped up by the value of LUNA such tha

by px43 4y ago

DISCLAIMER: Never hold Tether, for obvious reasons That said, Tether can't pop the way LUNA/UST did. UST was basically propped up by the value of LUNA such that when the UST peg is lost, more LUNA gets printed to buy back the difference. This causes the LUNA price to crash when the peg is lost, so people who know better try to sell before the rebalancing, crashing the price further, meaning more LUNA needs to get minted for every UST burned, causing rapid deflation. This is all done in a smart contract, and can't really be turned off. Tether is run by humans. Turning USDT back into USD requires actual human interactions. The peg can be lost, and maybe permanently, but it's not going to suddenly go to zero over night.

skybrian 4y ago
If Tether isn't redeeming fast enough for the traders who want to cash it in, won't the market price drop quickly in the meantime, due to the run on it?
- px43 4y ago
  Yes, the price would go down, but there's no way to fully deplete the backing assets as there is with UST/LUNA. Unless iFinex literally says "lol we took all your money and won't be doing any more Tether redemptions", there will still be some people with faith in the system, presumably hoping for partial redemptions.
  - kirse 4y ago
    Unless iFinex literally says "lol we took all your money and won't be doing any more Tether redemptions" You mean like this insane set of requirements that makes it basically impossible for the average retail investor to redeem their USDT for USD? [1] - $150 for KYC + verification, minimum transaction amount is $100,000 - U.S. citizens must be classified as Eligible Contract Participant to redeem USDT via the website (ECP = individual investors with more than $10 million, individuals with $1 million net worth, businesses, etc) - 0.1% fee for withdrawals up to a maximum of $1,000, which means Tether is redeemable at $0.99 for up to $1 million - Any individual who is a U.S. Person and any entity that is a U.S. Person is prohibited from using the Site or any Services, [...] Exceptions to this policy may be made by Tether, in its sole discretion, for Eligible Contract Participants only, which shall be customers solely of TLTD. - There's more, but those are the highlights [1] https://cryptoslate.com/you-can-redeem-tether-usdt-11-on-tether-to-but-theres-a-catch/ https://cryptoslate.com/you-can-redeem-tether-usdt-11-on-tet...
    - ProjectArcturis 4y ago
      As long as there are actors in the system who can liquidate Tether at ~$1, the peg will be maintained. If it goes to 99 cents, those actors would buy and immediately liquidate for risk-free profit. Who cares if you personally can redeem them -- you don't need to, as long as someone can. Whether someone always will be able to is the critical question, and there are certainly enough red flags that I wouldn't touch tether personally.
      - kirse 4y ago
        Who cares if you personally can redeem them I care because I don't require an intermediary to withdraw my USD "IOUs" from a normal bank. In the case of Tether these intermediaries that decide whether or not I get my USD (Alameda, FTX, etc) are located on the opposite ends of the earth stockpiling cash by playing trading games and have a vested interest in ensuring I don't get my USD, especially when they don't have the full capital to redeem. You know this will eventually end up in a redemption crisis that will be magnified by shady loans/guarantees that attempt to stave off a de-peg but eventually blows up. That's really the problem with Tether, they want to be a bank without the regulation, backing, or standard courtesies provided by banks. Everyone will eventually learn their 1920s banking lessons all over again.
      - skybrian 4y ago
        There's a question of what rate these traders are going to do this arbitrage in a bank run situation. To do the trade, they need to pay cash under the assumption they'll be able to get it back later. (How long? A day? More?) Their risk of losing the money might be low on a normal day, but not zero. What if today is the day things get weird? So any trader is going to have a limit on how much cash they're willing and able to put at risk, based on Tether's promises. This limit may be lowered if things look iffy. They do profit if they can buy at a lower price. It's only competition that keeps them from doing that.
      - xg15 4y ago
        Oh suddenly middlemen are fine. I thought crypto was all about cutting out the middlemen? Also, even if you follow that premise, that someone should at least be independent of Tether. With so much of the classification "at their sole discretion", this seems questionable.
  - woeirua 4y ago
    This assumes that the backing assets: 1-actually exist in the claimed amounts, and 2 - are easily liquidated in a timely fashion to provide cash to USDT holders when they trade in. You can cause a liquidity crisis in USDT if either of those are not true.
  - arduinomancer 4y ago
    How do you know the backing assets actually exist?
gitgud 4y ago
> "The peg can be lost, and maybe permanently, but it's not going to suddenly go to zero over night." Commenting for posterity.
zby 4y ago
The problem is the same as with other bank runs: when people withdraw and there are not enough reserves (lets say temporarily - for example when the reserves are too illiquid) the ratio of reserves to obligations diminishes further - so when people get suspicious it will get into the same death spiral - more suspicious -> more people withdrawing -> the rations become worse -> it gets more dangerous -> more suspicious. Eventually there will only be illiquid assets left and a fire sale will get a small fraction of value back. But yeah - initially it should go slower than LUNA.

by px43 4y ago

skybrian 4y ago

If Tether isn't redeeming fast enough for the traders who want to cash it in, won't the market price drop quickly in the meantime, due to the run on it?

px43 4y ago
Yes, the price would go down, but there's no way to fully deplete the backing assets as there is with UST/LUNA. Unless iFinex literally says "lol we took all your money and won't be doing any more Tether redemptions", there will still be some people with faith in the system, presumably hoping for partial redemptions.
- kirse 4y ago
  Unless iFinex literally says "lol we took all your money and won't be doing any more Tether redemptions" You mean like this insane set of requirements that makes it basically impossible for the average retail investor to redeem their USDT for USD? [1] - $150 for KYC + verification, minimum transaction amount is $100,000 - U.S. citizens must be classified as Eligible Contract Participant to redeem USDT via the website (ECP = individual investors with more than $10 million, individuals with $1 million net worth, businesses, etc) - 0.1% fee for withdrawals up to a maximum of $1,000, which means Tether is redeemable at $0.99 for up to $1 million - Any individual who is a U.S. Person and any entity that is a U.S. Person is prohibited from using the Site or any Services, [...] Exceptions to this policy may be made by Tether, in its sole discretion, for Eligible Contract Participants only, which shall be customers solely of TLTD. - There's more, but those are the highlights [1] https://cryptoslate.com/you-can-redeem-tether-usdt-11-on-tether-to-but-theres-a-catch/ https://cryptoslate.com/you-can-redeem-tether-usdt-11-on-tet...
  - ProjectArcturis 4y ago
    As long as there are actors in the system who can liquidate Tether at ~$1, the peg will be maintained. If it goes to 99 cents, those actors would buy and immediately liquidate for risk-free profit. Who cares if you personally can redeem them -- you don't need to, as long as someone can. Whether someone always will be able to is the critical question, and there are certainly enough red flags that I wouldn't touch tether personally.
    - kirse 4y ago
      Who cares if you personally can redeem them I care because I don't require an intermediary to withdraw my USD "IOUs" from a normal bank. In the case of Tether these intermediaries that decide whether or not I get my USD (Alameda, FTX, etc) are located on the opposite ends of the earth stockpiling cash by playing trading games and have a vested interest in ensuring I don't get my USD, especially when they don't have the full capital to redeem. You know this will eventually end up in a redemption crisis that will be magnified by shady loans/guarantees that attempt to stave off a de-peg but eventually blows up. That's really the problem with Tether, they want to be a bank without the regulation, backing, or standard courtesies provided by banks. Everyone will eventually learn their 1920s banking lessons all over again.
    - skybrian 4y ago
      There's a question of what rate these traders are going to do this arbitrage in a bank run situation. To do the trade, they need to pay cash under the assumption they'll be able to get it back later. (How long? A day? More?) Their risk of losing the money might be low on a normal day, but not zero. What if today is the day things get weird? So any trader is going to have a limit on how much cash they're willing and able to put at risk, based on Tether's promises. This limit may be lowered if things look iffy. They do profit if they can buy at a lower price. It's only competition that keeps them from doing that.
    - xg15 4y ago
      Oh suddenly middlemen are fine. I thought crypto was all about cutting out the middlemen? Also, even if you follow that premise, that someone should at least be independent of Tether. With so much of the classification "at their sole discretion", this seems questionable.
- woeirua 4y ago
  This assumes that the backing assets: 1-actually exist in the claimed amounts, and 2 - are easily liquidated in a timely fashion to provide cash to USDT holders when they trade in. You can cause a liquidity crisis in USDT if either of those are not true.
- arduinomancer 4y ago
  How do you know the backing assets actually exist?

gitgud 4y ago

> "The peg can be lost, and maybe permanently, but it's not going to suddenly go to zero over night." Commenting for posterity.

zby 4y ago

The problem is the same as with other bank runs: when people withdraw and there are not enough reserves (lets say temporarily - for example when the reserves are too illiquid) the ratio of reserves to obligations diminishes further - so when people get suspicious it will get into the same death spiral - more suspicious -> more people withdrawing -> the rations become worse -> it gets more dangerous -> more suspicious. Eventually there will only be illiquid assets left and a fire sale will get a small fraction of value back. But yeah - initially it should go slower than LUNA.