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Over the past few years people have presented a lot of (seemingly credible, IMO) red flags that Tether could be something resembling a scam, and on the verge of

Over the past few years people have presented a lot of (seemingly credible, IMO) red flags that Tether could be something resembling a scam, and on the verge of a sudden "bankrun" at any moment. The consensus opinion, at least 6 months ago, was that Tether = scam. Yet they've survived the crypto crash, and their coin is still pegged to the dollar. I'm curious what people make of this? Have opinions changed?

tmpz22 4y ago
If the trade volume is low wouldn't that mean the value of any assets would not be reflective of the market? Like if I peg my stuffed animal to a dollar and then made a bunch of blog posts about the stability of my stuffed animal value, is it really noteworthy? I'm a crypto noob, so my comment is pure curiosity - apologies if its naive of info I'm just unaware of.
- chucksmash 4y ago
  Sure, and I'm free to value my home at 1 gigadollar. Sellers are free to decide what prices they will not sell below, but they do not determine price. It takes buyers and sellers to do that. I'd have a better argument that my home was worth $1 billion if inside the guest bedroom there was USD 1 billion. That'd be a pretty good way to convince buyers that my home's price was pegged to the value of one giga dollar. If it was $900 million in cash and $100 million in IOUs, that'd still convince some people too, so on and so forth. I gather the issues with Tether are a) we don't know just what they have because of a lack of transparency, b) from what we DO know, in chasing yield, they've picked up some higher risk assets that they say are baaaaasically the same as cash (Commercial paper from Chinese real estate developers iirc?) that could be susceptible to losing value in a financial contagion scenario, and therefore be worth less than the dollar put in when Joe Q Crypto wants to take his dollar back out.
mckirk 4y ago
I have to admit, I did not expect them to be able to weather a crash like the recent one, and I've mentally upgraded Tether from 'could go at any moment and take the crypto market with it' to 'will need some good reason to tank, and likely be only one of the later dominos to fall'. That doesn't mean I think of Tether as an asset to put much trust in, since I still expect there to be quite some shenanigans at work in the background, but it seems they've at least built their empire on more solid ground than many people expected.
- TakeBlaster16 4y ago
  If you want to follow this, the thing to watch is the USDT market cap. It fell from $83B to $66B, then climbed to $67.5B. As long as it's not making new lows (i.e. people redeeming their USDT for USD), the chances of failure are basically 0. If it does start dropping lower, that's when people will start getting nervous again.
  - topranks 4y ago
    As with all of these things it’s about confidence. If there is another wobble, and significant redemptions, any hint that they aren’t going to be fulfilled will cause a run. At which point the whole house of cards will fall, if as seems likely they don’t have the $67.5B in the bank.
    - mrguyorama 4y ago
      How can you run on a bank that doesn't allow withdrawals? Tether is very open about how limited their obligation to trade dollars for tethers is.
matheusmoreira 4y ago
Tether's just a fractional reserve bank without all the regulation. Of course they survived. If they ever do suffer a bank run I wouldn't be surprised if some government bails them out. Tether, centralized exchanges... They are all just poorly reinvented banks really. Cryptocurrencies went wrong the second they showed up. They were supposed to replace the USD, not turn into USD backed tokens.
- Red_Leaves_Flyy 4y ago
  The designers solved for a deficiency in their bank accounts not anyone else’s.
- topranks 4y ago
  Why would a government bail them out? I’m not quite sure they pose that much risk to the wider financial markets.
  - uncletammy 4y ago
    Because Tether would be (probably already is) an incredibly valuable honeypot
  - searchableguy 4y ago
    Stablecoin issuers are one of the largest treasury holder today. They are growing and capitalising fast. It's a matter of few years before they pose systematic risk outside crypto.
thematrixturtle 4y ago
The crash has not ended yet, and it's mostly second-tier players that have gone down so far. If somebody like Coinbase or Robinhood collapses, which is quite possible given their dire finances, there's going to be a whole new level of carnage.
smt88 4y ago
> The consensus opinion, at least 6 months ago, was that Tether = scam. I think you're combining two different questions with the word "scam". (A) Is Tether stable and able to keep its peg? (B) Is Tether lying about its reserves (composition, quantity, or both)? The answer to (A) is "not all the time" and perhaps that will turn into "not most of the time" (as we have seen with other stablecoins recently). Tether has actually lost its peg in the past by a substantial margin[1] before recovering. The answer to (B) is still almost certainly "yes". They have resisted legitimate audits and have even said that full transparency would destroy their company[2]. We know they don't hold $1 for every 1 USDT, and some of their other reserve assets are more dubious than others. The company has survived a "slow-motion bank run" recently[3], but it's unclear how much bigger or faster of a bank run it could withstand. Experts and investors are still betting that Tether will collapse in the near future[4]. 1. https://www.coindesk.com/markets/2022/05/12/tether-loses-1-peg-bitcoin-drops-to-2020-levels-of-near-24k/ https://www.coindesk.com/markets/2022/05/12/tether-loses-1-p... 2. https://coingeek.com/tether-claims-revealing-assets-could-destroy-its-business-model/ https://coingeek.com/tether-claims-revealing-assets-could-de... 3. https://www.theguardian.com/technology/2022/may/22/tether-pays-out-10bn-in-withdrawal-since-crypto-crash https://www.theguardian.com/technology/2022/may/22/tether-pa... 4. https://www.politico.eu/article/crypto-currency-tether-finances-spark-broader-battle-over-cryptos-credibility/ https://www.politico.eu/article/crypto-currency-tether-finan...
IfOnlyYouKnew 4y ago
Tether is likely to have the money, or most of. It may not (have) always be(en) as liquid as stated and/or possibly needed. The problem the cryptocurrency community had with them was really more about their use of the tools of the enemy (treasury notes! horror!) rather than cold hard cash.
- TakeBlaster16 4y ago
  This is not correct. The problems people have are (1) lack of transparency/audits, and (2) putting the money in high risk bets like commercial paper and crypto, essentially leveraging the entire crypto sector. Confidence in Tether would skyrocket if they were audited and found to be solvent and had 100% treasury notes. Ihis "tools of the enemy" hyperbole is childish - they literally have "USD" in the ticker symbol.
  - CTDOCodebases 4y ago
    I’ve said it before on here but I think the commercial paper on their books is just the balance of a loan of Tether with the interest payable in USD and the principle payable either in USD or USDT. Essentially what they did was create an unregulated private bank and issue a counterfeit digital USD.
wmf 4y ago
The rest of the theory is that major exchanges are part of the scam and are artificially maintaining the peg.
topranks 4y ago
No. It’s not realistic to believe they got 70 billion dollars cash. Nobody knows exactly when it’ll fall apart but it’s almost inconceivable that it won’t.
LatteLazy 4y ago
I am not sure there was ever a consensus on this. A lot of people who like to say all crypto is a scam liked to say tether was a scam. After Luna, people who didn't understand the difference between an algorithmic stable coin and a fiat backed one said tether would be next. Maybe it is a scam. But there is no evidence of that today and there was no evidence 6m ago...
Smithalicious 4y ago
This is mostly just "the concensus opinion" on HN, which is very skeptical of crypto in general. I used to work in the cryptocurrency industry and my impression was that the concensus of the people actually working on crypto or handling large amounts of money was that there is no particular reason to believe that tether is insolvent. Tether's honesty and integrity aren't held in very high esteem and it might well have been the case at one point that they were printing unbacked tethers, but that doesn't mean tether is not properly backed now - if they used that tether to buy lots of bitcoin, and bitcoin went up, then they would have made out like a bandit. Personally I wouldn't be surprised either way, but I lean towards thinking that tether is not in any immediate danger of collapsing.
- 5350-uiop-1130 4y ago
  > that doesn't mean tether is not properly backed now failing your way to success. that's the dream to aspire to.

tmpz22 4y ago

If the trade volume is low wouldn't that mean the value of any assets would not be reflective of the market? Like if I peg my stuffed animal to a dollar and then made a bunch of blog posts about the stability of my stuffed animal value, is it really noteworthy? I'm a crypto noob, so my comment is pure curiosity - apologies if its naive of info I'm just unaware of.

chucksmash 4y ago
Sure, and I'm free to value my home at 1 gigadollar. Sellers are free to decide what prices they will not sell below, but they do not determine price. It takes buyers and sellers to do that. I'd have a better argument that my home was worth $1 billion if inside the guest bedroom there was USD 1 billion. That'd be a pretty good way to convince buyers that my home's price was pegged to the value of one giga dollar. If it was $900 million in cash and $100 million in IOUs, that'd still convince some people too, so on and so forth. I gather the issues with Tether are a) we don't know just what they have because of a lack of transparency, b) from what we DO know, in chasing yield, they've picked up some higher risk assets that they say are baaaaasically the same as cash (Commercial paper from Chinese real estate developers iirc?) that could be susceptible to losing value in a financial contagion scenario, and therefore be worth less than the dollar put in when Joe Q Crypto wants to take his dollar back out.

mckirk 4y ago

I have to admit, I did not expect them to be able to weather a crash like the recent one, and I've mentally upgraded Tether from 'could go at any moment and take the crypto market with it' to 'will need some good reason to tank, and likely be only one of the later dominos to fall'. That doesn't mean I think of Tether as an asset to put much trust in, since I still expect there to be quite some shenanigans at work in the background, but it seems they've at least built their empire on more solid ground than many people expected.

TakeBlaster16 4y ago
If you want to follow this, the thing to watch is the USDT market cap. It fell from $83B to $66B, then climbed to $67.5B. As long as it's not making new lows (i.e. people redeeming their USDT for USD), the chances of failure are basically 0. If it does start dropping lower, that's when people will start getting nervous again.
- topranks 4y ago
  As with all of these things it’s about confidence. If there is another wobble, and significant redemptions, any hint that they aren’t going to be fulfilled will cause a run. At which point the whole house of cards will fall, if as seems likely they don’t have the $67.5B in the bank.
  - mrguyorama 4y ago
    How can you run on a bank that doesn't allow withdrawals? Tether is very open about how limited their obligation to trade dollars for tethers is.

matheusmoreira 4y ago

Tether's just a fractional reserve bank without all the regulation. Of course they survived. If they ever do suffer a bank run I wouldn't be surprised if some government bails them out. Tether, centralized exchanges... They are all just poorly reinvented banks really. Cryptocurrencies went wrong the second they showed up. They were supposed to replace the USD, not turn into USD backed tokens.

Red_Leaves_Flyy 4y ago
The designers solved for a deficiency in their bank accounts not anyone else’s.
topranks 4y ago
Why would a government bail them out? I’m not quite sure they pose that much risk to the wider financial markets.
- uncletammy 4y ago
  Because Tether would be (probably already is) an incredibly valuable honeypot
- searchableguy 4y ago
  Stablecoin issuers are one of the largest treasury holder today. They are growing and capitalising fast. It's a matter of few years before they pose systematic risk outside crypto.

thematrixturtle 4y ago

The crash has not ended yet, and it's mostly second-tier players that have gone down so far. If somebody like Coinbase or Robinhood collapses, which is quite possible given their dire finances, there's going to be a whole new level of carnage.

smt88 4y ago

> The consensus opinion, at least 6 months ago, was that Tether = scam. I think you're combining two different questions with the word "scam". (A) Is Tether stable and able to keep its peg? (B) Is Tether lying about its reserves (composition, quantity, or both)? The answer to (A) is "not all the time" and perhaps that will turn into "not most of the time" (as we have seen with other stablecoins recently). Tether has actually lost its peg in the past by a substantial margin[1] before recovering. The answer to (B) is still almost certainly "yes". They have resisted legitimate audits and have even said that full transparency would destroy their company[2]. We know they don't hold $1 for every 1 USDT, and some of their other reserve assets are more dubious than others. The company has survived a "slow-motion bank run" recently[3], but it's unclear how much bigger or faster of a bank run it could withstand. Experts and investors are still betting that Tether will collapse in the near future[4]. 1. https://www.coindesk.com/markets/2022/05/12/tether-loses-1-peg-bitcoin-drops-to-2020-levels-of-near-24k/ https://www.coindesk.com/markets/2022/05/12/tether-loses-1-p... 2. https://coingeek.com/tether-claims-revealing-assets-could-destroy-its-business-model/ https://coingeek.com/tether-claims-revealing-assets-could-de... 3. https://www.theguardian.com/technology/2022/may/22/tether-pays-out-10bn-in-withdrawal-since-crypto-crash https://www.theguardian.com/technology/2022/may/22/tether-pa... 4. https://www.politico.eu/article/crypto-currency-tether-finances-spark-broader-battle-over-cryptos-credibility/ https://www.politico.eu/article/crypto-currency-tether-finan...

IfOnlyYouKnew 4y ago

Tether is likely to have the money, or most of. It may not (have) always be(en) as liquid as stated and/or possibly needed. The problem the cryptocurrency community had with them was really more about their use of the tools of the enemy (treasury notes! horror!) rather than cold hard cash.

TakeBlaster16 4y ago
This is not correct. The problems people have are (1) lack of transparency/audits, and (2) putting the money in high risk bets like commercial paper and crypto, essentially leveraging the entire crypto sector. Confidence in Tether would skyrocket if they were audited and found to be solvent and had 100% treasury notes. Ihis "tools of the enemy" hyperbole is childish - they literally have "USD" in the ticker symbol.
- CTDOCodebases 4y ago
  I’ve said it before on here but I think the commercial paper on their books is just the balance of a loan of Tether with the interest payable in USD and the principle payable either in USD or USDT. Essentially what they did was create an unregulated private bank and issue a counterfeit digital USD.

wmf 4y ago

The rest of the theory is that major exchanges are part of the scam and are artificially maintaining the peg.

topranks 4y ago

No. It’s not realistic to believe they got 70 billion dollars cash. Nobody knows exactly when it’ll fall apart but it’s almost inconceivable that it won’t.

LatteLazy 4y ago

I am not sure there was ever a consensus on this. A lot of people who like to say all crypto is a scam liked to say tether was a scam. After Luna, people who didn't understand the difference between an algorithmic stable coin and a fiat backed one said tether would be next. Maybe it is a scam. But there is no evidence of that today and there was no evidence 6m ago...

Smithalicious 4y ago

This is mostly just "the concensus opinion" on HN, which is very skeptical of crypto in general. I used to work in the cryptocurrency industry and my impression was that the concensus of the people actually working on crypto or handling large amounts of money was that there is no particular reason to believe that tether is insolvent. Tether's honesty and integrity aren't held in very high esteem and it might well have been the case at one point that they were printing unbacked tethers, but that doesn't mean tether is not properly backed now - if they used that tether to buy lots of bitcoin, and bitcoin went up, then they would have made out like a bandit. Personally I wouldn't be surprised either way, but I lean towards thinking that tether is not in any immediate danger of collapsing.

5350-uiop-1130 4y ago
> that doesn't mean tether is not properly backed now failing your way to success. that's the dream to aspire to.