4 ms·

OK so Tether went from 83bn to 73bn... what's the big deal? It's not like LUNA.

by thkim 4y ago

logifail 4y ago
> what's the big deal? It's not like LUNA It's not yet like Luna. Just yesterday the Financial Times ran this story: "Binance promoted terraUSD as a 'safe' investment just weeks before the stablecoin and its counterpart luna collapsed in a $40bn wipeout that shook the crypto industry"[0] [0] https://www.ft.com/content/d459f435-edff-412c-85a5-0961d50aba69 https://www.ft.com/content/d459f435-edff-412c-85a5-0961d50ab... / https://archive.ph/OQmjW https://archive.ph/OQmjW
thematrixturtle 4y ago
The big deal is that it's highly likely that Tether is backed up by way less than 83 billion in actual dollars. Let's say, for argument's sake, that they were 50% backed a week ago and had $40B in actual dollars. If $10B was pulled out, that was into actual US dollars or equivalent, meaning they now have $70B backed up by $30B. If another $10B drains in the next week, it'll be $60B vs $20B. This incentivizes other holders of Tether to also pull out so they're not left holding the bag (= Tether's stash of dodgy loans etc), basically kicking off a slow-motion version of the same death spiral that we saw for UST/LUNA, until Tether runs out of assets and the whole crypto economy goes poof.
- cowtools 4y ago
  I don't know if it will necessarily cause crypto prices to crash
  - wing-_-nuts 4y ago
    I'm a complete layperson when it comes to crypto, but from what I have heard a good bit of the recent bitcoin volume has been done via tether. if tether crashes, I don't know how this doesn't cause a crash when volume dries up?
  - boc 4y ago
    Crypto is priced on the exchanges in terms of USDT, USDC, etc. If USDT dies then BTC goes to like $500 on Binance. The cascade effects will cause runs on other exchanges, and then you're betting that they have enough reserves to cover a run. I'd want to be far away from the scene when that happens. The fiat banking system is backstopped against this behavior by the FDIC, which guarantees your funds are safe even if the bank holding the funds goes under. This prevents customers from mass withdrawals in times of crisis. Crypto doesn't have anything like that, therefore it's going to look like the bad ol' days of 19th Century financial panics when a run occurs.
    - woeirua 4y ago
      Yep. A good old 19th century bank run, happening at the speed of light around the world simultaneously. It truly will be breathtaking how fast the entire crypto ecosystem will implode. I fully expect that when the dust settles multiple banks will be bankrupt and have to be bailed out too.
    - hiq 4y ago
      > If USDT dies then BTC goes to like $500 on Binance. Do you just mean that confidence will be so low that people will try to shun cryptocurrencies and dump their positions, or are you talking about another mechanism?
      - Spivak 4y ago
        No, literally. The price of lots of coins is specified in USDT on lots of exchanges so if USDT crashes then the price of coins relative to USD also crashes. Now, would there be lots of manual intervention by exchanges to fix this as fast as possible, absolutely but that's the parents point.
      - boc 4y ago
        When people say that BTC is worth $30,000 on Binance right now, what they are really saying is that BTC is worth 30,000 Tether dollars (USDT) on Binance, because there's no mechanism on Binance to exchange BTC for US Dollars in a direct swap. You have to buy USDT and then use that USDT to buy BTC.* Basically USD -> USDT -> BTC. Today the ratio is 1 -> 0.998 -> 30,000, so in theory BTC priced at 30,000 USDT is currently worth 29,940 USD. If the USD -> USDT relationship breaks and "USDT dies", then what happens is the prices goes 1 USD = 0.05 USDT, which means that 30,000 USDT worth of BTC on Binance [1] is now worth just $1,500 USD. [1] https://www.binance.com/en/trade/btc_USDT https://www.binance.com/en/trade/btc_USDT * You can buy directly with a credit card, but that's likely settled off-chain with a banking relationship. If you want to use a direct bank transfer, you have to buy a stablecoin first on Binance.

OK so Tether went from 83bn to 73bn... what's the big deal? It's not like LUNA.

by thkim 4y ago

OK so Tether went from 83bn to 73bn... what's the big deal? It's not like LUNA.

> what's the big deal? It's not like LUNA It's not yet like Luna. Just yesterday the Financial Times ran this story: "Binance promoted terraUSD as a 'safe' investment just weeks before the stablecoin and its counterpart luna collapsed in a $40bn wipeout that shook the crypto industry"[0] [0] https://www.ft.com/content/d459f435-edff-412c-85a5-0961d50aba69 https://www.ft.com/content/d459f435-edff-412c-85a5-0961d50ab... / https://archive.ph/OQmjW https://archive.ph/OQmjW

thematrixturtle 4y ago

The big deal is that it's highly likely that Tether is backed up by way less than 83 billion in actual dollars. Let's say, for argument's sake, that they were 50% backed a week ago and had $40B in actual dollars. If $10B was pulled out, that was into actual US dollars or equivalent, meaning they now have $70B backed up by $30B. If another $10B drains in the next week, it'll be $60B vs $20B. This incentivizes other holders of Tether to also pull out so they're not left holding the bag (= Tether's stash of dodgy loans etc), basically kicking off a slow-motion version of the same death spiral that we saw for UST/LUNA, until Tether runs out of assets and the whole crypto economy goes poof.

cowtools 4y ago
I don't know if it will necessarily cause crypto prices to crash
- wing-_-nuts 4y ago
  I'm a complete layperson when it comes to crypto, but from what I have heard a good bit of the recent bitcoin volume has been done via tether. if tether crashes, I don't know how this doesn't cause a crash when volume dries up?
- boc 4y ago
  Crypto is priced on the exchanges in terms of USDT, USDC, etc. If USDT dies then BTC goes to like $500 on Binance. The cascade effects will cause runs on other exchanges, and then you're betting that they have enough reserves to cover a run. I'd want to be far away from the scene when that happens. The fiat banking system is backstopped against this behavior by the FDIC, which guarantees your funds are safe even if the bank holding the funds goes under. This prevents customers from mass withdrawals in times of crisis. Crypto doesn't have anything like that, therefore it's going to look like the bad ol' days of 19th Century financial panics when a run occurs.
  - woeirua 4y ago
    Yep. A good old 19th century bank run, happening at the speed of light around the world simultaneously. It truly will be breathtaking how fast the entire crypto ecosystem will implode. I fully expect that when the dust settles multiple banks will be bankrupt and have to be bailed out too.
  - hiq 4y ago
    > If USDT dies then BTC goes to like $500 on Binance. Do you just mean that confidence will be so low that people will try to shun cryptocurrencies and dump their positions, or are you talking about another mechanism?
    - Spivak 4y ago
      No, literally. The price of lots of coins is specified in USDT on lots of exchanges so if USDT crashes then the price of coins relative to USD also crashes. Now, would there be lots of manual intervention by exchanges to fix this as fast as possible, absolutely but that's the parents point.
    - boc 4y ago
      When people say that BTC is worth $30,000 on Binance right now, what they are really saying is that BTC is worth 30,000 Tether dollars (USDT) on Binance, because there's no mechanism on Binance to exchange BTC for US Dollars in a direct swap. You have to buy USDT and then use that USDT to buy BTC.* Basically USD -> USDT -> BTC. Today the ratio is 1 -> 0.998 -> 30,000, so in theory BTC priced at 30,000 USDT is currently worth 29,940 USD. If the USD -> USDT relationship breaks and "USDT dies", then what happens is the prices goes 1 USD = 0.05 USDT, which means that 30,000 USDT worth of BTC on Binance [1] is now worth just $1,500 USD. [1] https://www.binance.com/en/trade/btc_USDT https://www.binance.com/en/trade/btc_USDT * You can buy directly with a credit card, but that's likely settled off-chain with a banking relationship. If you want to use a direct bank transfer, you have to buy a stablecoin first on Binance.