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With leverage you can long or short more than the available supply of tethers. You are effectively creating fake tether with leverage, and then selling it (or b
by mathgenius 4y ago
With leverage you can long or short more than the available supply of tethers. You are effectively creating fake tether with leverage, and then selling it (or buying it). This stuff also happens with equities, commodities, etc.
If there was no leverage, then yes, a 1:1 backed stablecoin would hold it's value.
EDIT: I mean the story here is far from clear, you also need to consider arbitrage bots that act between exchanges, etc. etc.
- qeternity 4y agoThis isn’t even remotely true. You’re conflating 3 or 4 things with this mistaken understanding.
- UncleEntity 4y agoEven with leverage one would assume that a 1:1 backed asset would survive intact with the people loaning out their coins taking the losses in the case of a run. If they engage in fractional reserve issuance (which it appears they do) then all holders of the coin will be subject to losses if they can’t cash out before the reserves run out. Pretty much guaranteed run by that point.