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Tether Required Recapitalization in May 2022
- theknocker 4y ago
- chinathrow 4y agoI cannot wait seeing it going down soon enough.
- SemanticStrengh 4y agoI'd wish too but honestly I believe there are powerful enough whales behind it to back it with a superior to dollar peg, there's no possible price crash mechanism like there was for UST if I understand correctly and it is backed at more than 70%
- deleted 4y ago[deleted]
- tomatowurst 4y agoso what happens to the bitfinex gang? giancarlo, ardoino, "frog", CZ, Justin Sun and Marc Andreesen?
- Proven 4y ago
- glerk 4y agoSo Tether is doing something akin to fractional reserve banking? From what I understand, this shouldn’t cause a problem unless there is a massive run (everyone trying to convert their USDT into dollars at the same time). Since most of the USDT is owned by big exchanges who need it to provide liquidity and have no interest in crashing the crypto market, I don’t think this is likely to happen.
- winslett 4y agoCryptocurrency has recreated the wild-cat banking crises of the late-1800s / early-1900s. Go read about the Knickerbocker Trust Company: https://en.wikipedia.org/wiki/Knickerbocker_Trust_Company https://en.wikipedia.org/wiki/Knickerbocker_Trust_Company These events ultimately lead to the creation of the Federal Reserve for banks to participate in a semi-cooperative system that didn't devolve into save-yourself during times of crises. The story here is that "unless there is a massive run" is actually a fairly common event.
- glerk 4y agoThe big crypto exchanges are currently acting as a sort of unofficial federal reserve. None of the big players has an interest in seeing USDT collapse and will step in to bail it out at the first signs of trouble. I'm not saying that Tether the company is not shady. They should definitely be more transparent about what assets they are holding and their collateralization, but I think the risks of total collapse are largely overblown.
- hiq 4y ago> None of the big players has an interest in seeing USDT collapse and will step in to bail it out at the first signs of trouble. As an exchange, if you keep some reserves in USDT and you think it might collapse soon, you might have an interest in dumping your positions before it completely loses value. Maybe exchanges would benefit from responding to such a situation collectively as you suggest, but I think it's likelier that they will just protect their own interests as individual entities.
- winslett 4y agoTotally agree that it’s “unofficial”, which makes it a when-not-if scenario. At some point, total collapse of Tether’s pseudo-dollar will happen when the revenue generating exchanges feel they are support bad-money with good. All it takes is one player signaling a lack of support, and others stop supporting as well. It’s a human psychological problem that’s a old as time. Think crypto can win over human rational to preserve self-interest? (side note: manipulation of self-interest is the goal of “weak hands” / “diamond hands”)
- gringoDan 4y agoThe problem here is that everyone in the crypto industry is taking George Soros's approach to bubbles: “When I see a bubble, I rush in to buy it.” There is more money to be made on the gravy train of providing liquidity for trades, yield farming, etc. than in trying to short Tether and potentially bleeding out before it goes bust.
- billions 4y agoBitcoin is the real stable coin. Everything else is fluctuating in price discovery until hyperbitcoinization completes.
- SemanticStrengh 4y agoIt's only stable at gowing downward
- Centmo 4y agoWas just going to say that about the purchasing power of USD.
- stickfigure 4y agoThe dollar lately is way up against EUR and GBP. It's a good time to buy things from Europe.
- microtherion 4y agoThe Dollar is the real stable coin, thanks to its unbreakable peg to the dollar.
- astrange 4y agoSometimes collectible coins trade for more than face value.
- russellbeattie 4y agoAwesome. You we're just making a joke, but for some reason that one simple statement had my brain looking at the dollar from a whole different perspective for a few seconds. "What is money, anyway????" Nice. It's like when you start to grapple with relativity... "What is time???"
- EVa5I7bHFq9mnYK 4y agoIt's losing its peg to real world things at a rate of 8.5% a year.
- mathgenius 4y agoIt recently occurred to me, with the whole LUNA fiasco, that any "stablecoin" that is 1-1 backed by fiat can come under attack from leveraged traders, and get de-pegged. So it really doesn't matter what backing tether has, although more is obviously better. When the music stops it's anyone's guess what will happen.
- Anderkent 4y agoYou mean any stable coin that is _not_ 1-1 backed?
- mathgenius 4y agoNo, once you have leverage the ratio doesn't matter anymore. It's just whoever has deeper pockets wins.
- NovemberWhiskey 4y agoIf Tether is fully collateralized, then if you sell Tether below 1, the buyer can redeem it for $1 and make an arbitrage profit. The usual expectation is that arbitrage opportunities vanish as the rush of risk-free profit takers closes the price gap. As such, it doesn't matter what other participants are in the market; the arbitrage buyer is always going to be the best bid below 1. You might see temporary breaks from the arbitrage-free price due to liquidity (e.g. in a thin market, there might not be enough buyers initially). If you keep selling, you'll eventually get to a situation where no Tether are in circulation, but every last Tether will sell for ~1. How do you get the idea that leverage matters here?
- lxgr 4y agoThat's not how leverage works. If you're long on an asset and are not lending it out, neither short selling nor leverage can hurt you with a fully backed stablecoin – you can always just go to its issuer and redeem it. As an analogy, consider owning shares of some publicly traded corporation. No matter what happens on the stock market, this doesn't impact your ownership of the actual, physicaly corporation, which entitles you to dividend payments, a proportional share of its assets when liquidated etc.
- axg11 4y agoThe most important point in this article is that whether Tether is fully collateralized ultimately doesn't matter. As long as there are well-capitalized parties (Bitfinex, other exchanges) that want to prop up Tether, it will be fine. Nobody should be under the illusion that Tether is decentralized or anything other than a bet on Bitfinex.
- tlb 4y agoYou have to predict what those well-capitalized parties will do during a market panic. Decision making seems to change quickly when half the money has just disappeared, to focus on salvaging as much as possible.
- Salgat 4y agoExactly. It's not whether Bitfinex is able to prop it up, it's whether Bitfinex thinks Tether can be propped up without too much expense. At a certain point it no longer becomes worth propping up, and that number is very far from the current $74B market cap it's currently at.
- kirse 4y agoAs long as there are well-capitalized parties that want to prop up Tether That's been my personal conclusion as well but it led me to the next question of what # is the breaking point for these well-capitalized parties? I tried looking at the size of other well-known collapses like Enron, LTCM, Lehman Bros, etc. LB reportedly had $700B in assets and liabilities before the underlying asset devaluation precipitated their cave in. Tether survived the recent de-peg due to trading shops like Alameda absorbing the free 1-5% with their cash flow, which I believe is also responsible for the recent 11% drawdown in Market Cap (I assume due to redemptions). That said I'm not really experienced enough to know how these backroom overnight liquidity issues get resolved. My hunch is given the true global reach of the crypto market Tether could easily get to $nnnB or $nT before we experience a black swan event that results in a liquidity crisis. Assuming they survive these short-term recessionary pressures, my long-term prediction is we're just setting ourselves up for another roaring '20s again, with crypto eventually learning all the same fundamental financial lessons we did back then.
- onesafari 4y agoWhat happens if Tether fails, realistically? There's a lot of doomsaying around it, but after seeing the crypto market shrug off the loss of Terra Luna without contagion or bailout ala GFC crisis, the fear may be overblown. Terra was backed entirely by hot air, whereas Tether is mostly backed. Wouldn't the net loss be similar or even less?
- jeremyjh 4y agoWhen a market panics and people “sell” their crypto on most exchanges, what they are actually doing is trading them for tethers. If the tether then collapses they are entirely wiped out.
- winslett 4y agoIt is one step closer to shutting the doors on Bitcoin as an isolated financial ecosystem. Bitcoin-to-actual-USD is a trackable / taxable event. Whales avoid it like the plague. By moving to a pseudo-dollar like Tether, market makers can hang out while they wait for a suspect better buy-in price in the future. Should pseudo-dollars go way, they actual-Dollar transactions get a taxable haircut. Additionally, the friction of going from actual-Dollar to Bitcoin increases. Tether is effectively behaving as a crypto-clearing house with their pseudo-dollar.
- deweller 4y ago> As of this writing, on May 20th, it has yet to regain the peg This is misleading. Tether has consistently traded between $0.998 and $0.999 between May 13th and May 20th. See https://coinmarketcap.com/currencies/tether/ https://coinmarketcap.com/currencies/tether/ Is it trading at 0.1% lower than it was before the Terra USD collapse? Yes. Has it "lost its peg"? No.
- downrightmike 4y agoAnything less than 1.00 might as well be 0.
- patio11 4y agoIt's remarkable that a stablecoin which was able to mostly maintain the peg for years at a time now needs to redefine what being pegged means, and that this state of affairs has continued for more than a week. That's why I mentioned it.
- JumpCrisscross 4y ago> now needs to redefine what being pegged means Completely. For context, "the Reserve Primary Fund broke the buck when its net asset value (NAV) fell to $0.97 cents per share" [1]. [1] https://www.investopedia.com/articles/economics/09/money-market-reserve-fund-meltdown.asp https://www.investopedia.com/articles/economics/09/money-mar...
- makomk 4y agoThat's something different, though. Money market funds are meant to be safe interest bearing investments: they're expected to give a small positive return on investment in normal times, and to be safe enough that people will at least get their original investment back in bad times. That's why it's a big deal when something happens which causes them to return less than was invested by any amount: a safe investment, which gave lower returns in exchange for that supposed safety, wasn't. The goal of Tether is a little different. One USDT is meant to be worth one USD. It's just as much a problem for the purposes people use it for if USDT is trading above one dollar as below, because they're paying more than its value. That is, the Tether peg is meant to be two-sided, both above and below, and all that's happened is that it's gone from trading at slightly above the nominal value to trading slightly below it. That's not really "breaking the peg" in any meaningful sense.
- rickreynoldssf 4y agoI think Tether is the ultimate "Fake it till you make it" organization in crypto. Its kind of a joke now but everyone is in on the joke but it will probably end up being the defacto crypto parking place once things get real in crypto (e.g. you can buy a house with it) and the adults come in and shake out the current management.
- mh- 4y ago> once things get real in crypto (e.g. you can buy a house with it) it feels odd to speak about this scenario like it's a foregone conclusion.
- AlexandrB 4y agoNo kidding. Crypto is deeply unpopular with a significant portion of the public - myself included. This is not the same as the early era of smartphones where you either had one or didn't really know much about them (i.e. were neutral). Many people have made up their minds on the utility (or lack thereof) of crypto and want nothing to do with it. Some of the recent incidents of backlash around NFTs in games come to mind.
- junofan 4y agoIt’s just money. It’s a commodity. If I can get a better deal on a house if I pay with crypto, I’ll do it—don’t need your approval, really.
- greiskul 4y agoIf you want to buy my house, you kind of do. Everybody accepts money as payment. Most people don't accept crypto as payment.
- JackFr 4y ago> It’s just money. Not really. > I’ll do it—don’t need your approval, really Mine? No. You want a title to go with that house ? Well then, yeah, there are some third parties whose opinions matter.
- TameAntelope 4y agoIs this what the earlier "hash drop" tweet [0] was about? [0] https://twitter.com/patio11/status/1527616238586716160 https://twitter.com/patio11/status/1527616238586716160
- ianferrel 4y agoYes.
- lupire 4y agohttps://nitter.net/patio11/status/1527616238586716160 https://nitter.net/patio11/status/1527616238586716160
- dogecoinbase 4y agoHah, good catch. Kind of can't believe he's still doing that after the last time [0] 0: The tweet: https://twitter.com/patio11/status/1241551327743770624 https://twitter.com/patio11/status/1241551327743770624 The, ah, assertion: https://twitter.com/patio11/status/1241553311024603140 https://twitter.com/patio11/status/1241553311024603140 > I am materially wrong about the most consequential thing I've had to have a view on in 15 years. You should probably degrade your estimate of my ability to think through complex problems. The prediction: https://twitter.com/patio11/status/1252584289486565377 https://twitter.com/patio11/status/1252584289486565377 which is a link to https://www.kalzumeus.com/2020/04/21/japan-coronavirus/ https://www.kalzumeus.com/2020/04/21/japan-coronavirus/ , which states, on April 4 2020: > Japan will face a national health crisis within a month. Of course, he then edited it with a framing in which he claims: > The core result was correct. > ... > This prediction was correct. So not only was he wrong, he refuses to acknowledge or understand how and why he was wrong. And continues to tweet hashes as though we should give anything he says any merit whatsoever.
- DebtDeflation 4y agoWait, so on March 25, 2020 he predicted that there was going to be a coronavirus pandemic (and that Japan would be impacted)? The WHO had already declared a global pandemic on March 12, 2020 and there was no reason to believe that Japan or any other country would be spared.
- meirelles 4y agosilly question, being USDT "only" 80B, why does it matter if it collapses? considering cryptos market cap is more than 1T, and 100B's wipeouts routine, sometimes during crypto winters (where we observe -80% across the board) or collapses such as Luna recently (>50B? no idea) Of course, panic would happen, but still. I think people would move on, forget, and continue believing whatever they want to just curious to read counterarguments
- lupire 4y agoPeople need tether to avoid going all the way off chain when they sell.
- Tao332 4y agoGenuinely curious: why do people need that?
- ceejayoz 4y agoGoing off-chain means transferring actual money, which means large transactions get reported, which means authorities get wind of unpaid taxes.
- HideousKojima 4y agoTaxes
- throwaway92394 4y agoDe-fi doesn't _technically_ need it but it's highly preferable. Let's say you want to actively trade ETH against the USD. If you think ETH will go down the you want to sell it. Now if it's in a non-custodial wallet that you control, you would need to send it to an exchange, sell it, then hold USD on the exchange (were you have no control of it and they can seize it for fraud investigations, etc. - basically your money is held by a 3rd party). Instead you can "sell" your ETH by trading it for a stablecoin pegged to the dollar. This way the only risk is the contract for the trade (which can be publically audited) and your money stays in your control. Or if you wanted to accept cryptocurrency as payment but still only wanted the USD because of it's stability - you could accept that (this isn't very common as gas fees are rather high). tl;dr - With exchanges a 3rd party has your money and a IOU. Coinbase has already said user crypto could be at risk in the case of bankrupcy. De-Fi removes this risk while still allowing you to trade against the USD. disclaimer - Whether you want to do this might be a different question, just giving the reason for wanting a stablecoin. edit: For those saying taxes - the US IRS still counts this as a sale and it's still taxed the same as an exchange trade - other countries might differ. Given the KYC/AML requirements and lack of general public knowledge about anonymity of crypto - I think sooner then later we'll see a crackdown.
- deleted 4y ago[deleted]
- labrador 4y agoYour casino chips are fine until the casino blows up https://en.wikipedia.org/wiki/Harvey%27s_Resort_Hotel_bombing https://en.wikipedia.org/wiki/Harvey%27s_Resort_Hotel_bombin...
- syspec 4y agoWow that's a great story!
- hiq 4y agoCan somebody explain why the NYAG required that they publish quarterly attestations given how little reliable information they actually provide? What was the point?
- wyxuan 4y agoPatrick is overindexing on the investments portion of the report – which is a little under 5% of backing. There are investment deals and crypto, but it's unknown if this represents the entirety of the amount fwiw. If we take a step back and look at the key takeaway from the audit report is that amount of commercial paper was reduced and amount of T-bills (essentially cash) was increased by 5 bil. Good news if you think solvency is an issue, but of course they're all scoundrels eh?/s Tether might have done shady things in the past as the article, but the scale to which Tether operates now (10s of bllns), in addition to scrutiny from SDNY, external audit, etc mean that Tether from before is much different from the Tether now, and it has pulled off the made it portion of "fake it till you make it".
- thedstrat 4y agoIts pretty frustrating that people are using these shady stablecoins where you can't see the code or assets backing them (eg USDT), when there are stablecoins that are fully open source and you can see the backing in real time (eg DAI)
- cycrutchfield 4y agoAsk yourself why that might be, I think you might find the answer rather illuminating
- fshbbdssbbgdd 4y agoDAI is to Ether as Terra was to Luna?
- meowkit 4y agoNot quite. Dai is an ERC20 token on top of Ethereum. It might be more accurate to say Dai is a stablecoin coupled to MKR (MakerDAO), a governance token. Dai is over-collaterlized. https://makerdao.com/en/ https://makerdao.com/en/ https://developer.makerdao.com/dai/1/ https://developer.makerdao.com/dai/1/ Terra is a coin with ticker LUNA, and is coupled to a stablecoin UST. As I understand, LUNA/UST was under-collateralized and could not handle what was essentially a virtual bank run. Tether is a centralized stablecoin that is also reported to be under-collateralized, but it has bridges and industry connections to the wider crypto market which has kept it from crashing and burning so far.
- sushid 4y agoYour analogy doesn't make sense for a multitude of reasons. Terra is the blockchain that Luna and UST ran on, not the stablecoin on the ecosystem. More importantly, DAI is overcollateralized using ETH and other coins. UST was algorithmically pegged to the USD with an implicit backing by Luna. DAI still technically has a depeg risk (e.g. if ETH has a flash crash of > 50% that it doesn't recover from) but the risks are much lower. It's _probably_ safe in the long term although my stablecoin of choice is USDC.
- nootropicat 4y agoTether fud in 2022 is truly embarassing and slanderous. The only time they had real problems was when part of their money was stolen and confiscated with connection to Crypto Capital - which only happened because they were refused normal banking. The only way tether fails is if the situation repeats in some way - but it appears American government finally gave up on trying to destroy usdt. As long as the US government itself doesn't try to destroy them again - in few years tether is going into hundreds of billions.
- ceejayoz 4y ago> which only happened because they were refused normal banking They gave nearly a billion dollars to someone without a contract. That's a higher level of stupidity than just "we used a shady banking partner because we had no alternative".
- jcranmer 4y agoIf Tether is telling the truth in their attestation, they held $5 billion in cryptocurrency a month and a half ago, and had only about $160 million in extra assets to cover their liabilities. Given the extent of the collapse of the cryptocurrency market (and markets in general, do note), by Tether's own words, Tether is either insolvent or required someone decently steep infusions of cash. As far as I'm aware Tether has not announced either, so either Tether is lying about its own solvency or... Tether is covering up its own insolvency. Actually, come to think of it, Tether does claim to publish asset and liability totals (if not breakdowns) in near real time, so let's see how it's doing. And, surprise, Tether somehow still has just $160 million in extra assets over liabilities. In fact, between the attestation date of March 31, 2022 and the latest update as of last night, this buffer has changed by just $186. That kind of performance is... well, not credible.
- bogomipz 4y agoThe post states: >"It is well-understood in the cryptocurrency community that Tether’s reserves are a polite fiction. If pushed on this, clueful members of the community, such as their co-conspirators, will (quietly) admit that Tether depends on a de facto guarantee of support from members of its consolidated group, such as Bitfinex, which can inject more equity at will.? Can someone say what is meant but "its consolidated group"? Is this a loose alliance or something more formal?
- patio11 4y agoWhile they were extremely cagey about it prior to suing Wells Fargo and then needing to come clean in court, they share ownership, executives, employees, IT/marketing/etc functions, etc. Bitfinex is Tether and Tether is Bitfinex.
- Animats 4y agoAre there verifiable numbers available on whether Tether has a net outflow of fiat? That's the real question. If they're under-reserved, and there's an ongoing net outflow, they will at some point run out of money. There's definitely outflow. Tether's reported market cap peaked at $83 billion in early May, and now it's down to $74 billion. So at least 10% of Tether has already been redeemed. There are other major stablecoins now, so nobody has to use Tether. This is one of those things that will look fine, until it doesn't. As has now been demonstrated several times, stablecoins have only two stable points: 1 and 0.
- vmception 4y ago> As of this writing, on May 20th, it has yet to regain the peg. Its trading at $0.99974 and has gone over $1 several times just today and over the last week. Which definition of peg matters here? Its not causing mass liquidations in Defi platforms because it trades so close to peg, it is still redeemable for $1.00 if you are non-US and have over 100,000 units. This article has percentages for everything except when they don't reinforce the universally negative view of tether. Is there another source that is less invested to corroborate everything more accurately? Its kind of stupid to observe something different and be seen as “pro tether”, but lets just stick to accuracy.
- anm89 4y agoI have nothing but respect for Patrick, and he has done great investigative Journalism (or at least curation of other peoples journalism) but I still feel like he is cherry picking facts (that there certainly is some shady stuff going on around Tether) here to support a predetermined conclusion(Tether is bad because crypto is bad because crypto's primary use case is money laundering) which seems to be an undercurrent of all of his writing on the topic. If we held the industry that Patrick works in to the standards that Patrick wants to hold the crypto world to we would call all of them "scams". Basically every international bank has a long history of money laundering. Every single large bank is doing much more complicated and riskier things with their balance sheet than Tether. I don't think they are scams but I don't think Tether is either. In many ways this is just the crypto world leveling down to the level of sketchiness that the average large bank exists at. Which is really not a defense, I dislike those banks and I dislike and distrust Tether. But I don't think the risks of some kind crypto solvency contagion event are even as high as what's going on in the traditional banking world right now and that is given that traditional banks balance sheets at least on the surface are in the best shape they've been in in a decade. Any way tldr: I think Patrick is technically correct but framing the large picture according to a big double standard.
- jjallen 4y agoShouldn't the title be "likely required recapitalization"?
- Barrera 4y ago> This essay makes some confident claims about the future and I wish to have cryptographic proof that I did not edit those claims between now and when they inevitably come to pass. The only unconditional claim I saw was that Tether will lie again. Am I missing something? This one is a bit more interesting: > Tether originally promised to back the reserves with cash in a bank account. This was a lie. It was a well-chosen lie, because the value of cash does not routinely fluctuate. Backing a fixed liability with volatile assets and a wafer-thin equity cushion would have the predictable result of causing the liabilities to become unbacked in many stressful situations for any of the backing assets. What's interesting is that I'm not sure many banks would want to hold the cash, regardless of the source. When a bank receives cash deposits it has to do something with it. The money doesn't sit as bank notes in a vault. The bank has a problem. The cash becomes its own liability. The depositor can withdraw the cash at any time and the bank needs to fulfill that obligation. And a lot of cash means a lot of obligation. So the bank desperately wants to turn the cash liability it faces with a deposit into an asset (i.e., somebody else's debt). How do do that? Banks are highly regulated on this point, especially post-GFC. There aren't a lot of options. What they'd like to do is issue loans to high-quality borrowers at profitable rates. But if the quality of borrow is going down the tubes (it is) and interest rates are at historic lows (they were), they would rather not do that. Treasuries are an option. But the demand for short-term treasuries has been so intense that yields have been driven down to absurd levels relative to other instruments. All of which is to say that the very idea of a US dollar-backed "stable" coin may not be possible for any entity other than the US Federal reserve or the Treasury. And this defeats the entire purpose for Tether holders. They can already park cash at a bank. They hold tether to be out of the US banking system jurisdiction.
- csense 4y agoClaims have been circulating for years, now, about Tether's lack of adequate collateralization, and the lack of trustworthiness of their people. And yet, users out there are holding a total of $73 billion worth of Tether. Who are those users holding Tether? Who wants to hold Tether? What's the motive of Tether holders? What market need is Tether addressing, and how can that need be addressed while avoiding Tether's issues? Doesn't DAI work toward basically the same market need as Tether, but in a way that's actually decentralized and actually has checkable reserves? Why don't people desert Tether for DAI?