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ELI5, how? Isn't USDT supposed to be a 1:1 with USD? Update: I get it thanks, so 1 USDT == 1 USD, but the USDT token in itself could be bought/sold at any pric

ELI5, how? Isn't USDT supposed to be a 1:1 with USD? Update: I get it thanks, so 1 USDT == 1 USD, but the USDT token in itself could be bought/sold at any price. I mean that's pretty obvious but I never thought of USDT as a separate instrument, I thought it was a literal "map of USD into the crypto world" (which it is, kind of, but not really, dang). So, USDT is pretty much a future backed by USD, right?

haolez 4y ago
You can't control the secondary market. I can sell my Tethers for whatever value I want. If I think that, for some reason, their value is zero, I can try to sell at a discount before others realize this.
- LegitShady 4y ago
  The point is that tether is wlsupposed to be willing to buy back tethers at $1 each so that if the price drops below $1 they buy all the sub $1 tether until the price returns to $1. You can sell it at a discount but why if you can get $1 for it. That makes no sense. For tether to depeg something else must be going on
  - deleted 4y ago
    [deleted]
  - peteradio 4y ago
    Wonder if its a friction thing. Do you have to setup a special account to redeem on the primary channel?
    - pjc50 4y ago
      The "official" channel has a MOQ of $100,000: https://tether.to/en/fees/ https://tether.to/en/fees/ There is a huge amount of friction. It's not clear whether they run market-maker operations to pick up the spread between Tether and $1. As always, the question is what actual assets Tether has to meet its claims.
      - rosnd 4y ago
        > It's not clear whether they run market-maker operations to pick up the spread between Tether and $1. Of course they do.
      - benaadams 4y ago
        Alameda Research (re: FTX exchange) normally makes a ton of money doing the arbitrage between dollars and tether but its having liquidity problems, so not doing it currently.
  - shawabawa3 4y ago
    It can temporarily depeg if there are more people selling than there are people who are able to redeem who are incentivised to defend the peg On Bitfinex the peg has held strong because Bitfinex have a close relationship with Tether and enabled customers to convert USD/USDt freely (for now) Other exchanges are experiencing either a temporarily blip (will eventually get arbitraged away) or it's the beginning of Tether being insolvent. Time will tell
    - LegitShady 4y ago
      >people who are able to redeem who are incentivised to defend the peg This doesn't make any sense. Either you can sell it for $1 or you can't. If you can then it's free money to buy tether from people selling below $1 and selling it back to tether for $1. I would describe the relationship between tether and bf as more than "close" they have the same owner.
  - compsciphd 4y ago
    so thinking about this. assumption: bitfinex has "dollars" to backup every USDT. If bitfinex will buy a USDT for a $1 if it drops below $1 to maintain the peg, they can do this because they have "dollars" backing each share. however, they would also have to destroy that USDT on purchase (as they just spend the $1 backing it). They could print more USDT (/ sell that back) for $1 and they would be whole again, but if there is downwards pressure on USDT, one should expect to see the market cap for tether to drop while bitfinex is buying/destroying currently existing USDT. If one doesn't see this drop, wouldn't that be indicative of a problem?
    - LegitShady 4y ago
      Does destroying currency (reducing the amount in circulation) put downward pressure on it? Not in my experience.
      - compsciphd 4y ago
        I (believe) what I said if there's downward pressure on the currency, therefore to maintain the peg they have to buy it (and in a sense destroy it). not that destroying it leads to downward pressure, but that we should see a reduction in market cap. I'm wondering if we can see this fluctuation in market cap.
  - benaadams 4y ago
    They are, they just aren't buying them back on coinbase. Tether don't manage the secondary market (cexes and dexes) Though the minimum redeemable amount is $100k https://tether.to/en/fees https://tether.to/en/fees Why they are depegging is people are selling for under a dollar on coinbase (perhaps in panic); and Alameda Research (re: FTX exchange) who normally makes a ton of money doing the arbitrage between dollars and tether is having liquidity problems, so not doing it currrently.
988747 4y ago
Yes, it is, which in practical terms means that the company behind Tether should own real-world assets that cover all the outstanding USDT. The fact that people are willing to trade their USDT coins for less than 1 USD means that they do not believe those "real-world assets" exist in sufficient quantity. In other words, they are afraid that Bitfinex (USDT issuer) is scamming them and prefer to convert to American dollar, even at slight loss.
- Bubble_Pop_22 4y ago
  > Yes, it is, which in practical terms means that the company behind Tether should own real-world assets that cover all the outstanding USDT. Asset. Not assets. There is only one asset that an operation so big and trusted by so many should hold and that is U.S. Treasuries. If you feel frisky you could do G-8 govt. bonds but that's about it really. And you are taking a chance on the forex exchange. FTX just imploded because they didn't realize this simple fact. If you are a custodian and you are not advertising yourself as an active asset manager you should stick to US Treasuries and even that could be considered a breach because you should keep USD in a bank. Keep USD in a bank and you have nothing to fear.
  - AccountAccount1 4y ago
    > FTX just imploded because they didn't realize this simple fact. They fully knew this. There is no business in keeping USD in USD (or US bonds for that matter.)
    - Bubble_Pop_22 4y ago
      Trading fees when your volume is billions? Nothing? Also what about IPO so that you can exit and enjoy 500M-1B of real net worth? 1 real billion > 20 make believe
  - pjc50 4y ago
    You can't really keep $69,613,437,845.79 (at time of writing) in a bank. At that point, you are the bank. In the case of Tether, Deltec in the Bahamas. https://www.deltecbank.com/about-us/?locale=en https://www.deltecbank.com/about-us/?locale=en Tether themselves seem to be based in Taiwan: https://assets.ctfassets.net/vyse88cgwfbl/RPHIloRD3eE4J5QYNRnYX/bed2f368b73776c14e067088028f8a5c/Tether-Letter.pdf https://assets.ctfassets.net/vyse88cgwfbl/RPHIloRD3eE4J5QYNR... Taiwan's extradition situation is .. informal. Because Taiwan does not officially exist. But there have been extraditions from Taiwan to the US.
mudrockbestgirl 4y ago
People are selling on exchanges, so the price goes down. That's unrelated to what it's backed by. You can officially redeem USDT 1:1 for USD. If you believe that it's fully backed and that the company honors all redemptions, you would buy a lot of USDT below $1 now, redeem it, and make a good profit via arbitrage. These buys will drive the price up again so that it goes back to $1. Thus, the price reflects the trust in USDT backing.
- lazide 4y ago
  Can you give an example Tether actually doing redemptions? Never really happened, as far as I am aware.
  - fisf 4y ago
    This most definitely happened (also for private people).
    - lazide 4y ago
      Can you provide a cite/link for a private individual being able to redeem tether? I’ve never seen a confirmed case. Just a lot of misdirection, bs, and confirmed cases of people not being able to actually do it despite promises.
      - evdubs 4y ago
        Sure, > “I’ve been minting/redeeming USDT on an institutional scale for over 3 years with multiple desks!” – said Ryan Salame, Head of OTC at Alameda Research, before adding https://www.trustnodes.com/2021/01/05/alameda-research-reveals-tether-records https://www.trustnodes.com/2021/01/05/alameda-research-revea...
        lazide 4y ago
        So not a private individual, and also the guy at the center of the major crypto collapse right now, whose exchange is imploding? Because they apparently can’t find the cash they need to service customer requests? [https://www.bbc.com/news/business-63577783 https://www.bbc.com/news/business-63577783] Got it. Do you have any others?
mughinn 4y ago
You technically can trade your USDT for 1 dollar to the issuer (I don't know how, but it is probably harder than just going to market and selling) But this is people buying and selling their USDT, in a market, they can try to sell for a any price and if there is a lot of people trying to sell and not so much trying to buy, it naturally goes down in price This variation though, while large, isn't that uncommon AFAIK
johnasmith 4y ago
The way it's meant to work is tether acts as a market maker, always willing to buy and sell tokens at parity. Nobody would buy below that if they know tether is around. Tether, having issued the coins, should have sufficient capital to play that role. But if they spend too much of their capital, they lose the ability to fulfill their role.
- tcbawo 4y ago
  Could a drop in the value of USDT represent a rush to get back into Bitcoin, Ethereum, etc after the recent fall rather than people attempting to convert USDT to dollars?
lopatin 4y ago
It's fear. When everyone is making money, confidence is high in crypto institutions and pegs are strong. But when a major crypto institution like FTX (that was supposed to be as legit as the come) becomes insolvent after apparently squandering the deposited funds of users which weren't supposed to be invested in the first place, people start to think that maybe the party is over, and that maybe, just maybe, Tether doesn't have the funds to back up the USDT peg.

haolez 4y ago

You can't control the secondary market. I can sell my Tethers for whatever value I want. If I think that, for some reason, their value is zero, I can try to sell at a discount before others realize this.

LegitShady 4y ago
The point is that tether is wlsupposed to be willing to buy back tethers at $1 each so that if the price drops below $1 they buy all the sub $1 tether until the price returns to $1. You can sell it at a discount but why if you can get $1 for it. That makes no sense. For tether to depeg something else must be going on
- deleted 4y ago
  [deleted]
- peteradio 4y ago
  Wonder if its a friction thing. Do you have to setup a special account to redeem on the primary channel?
  - pjc50 4y ago
    The "official" channel has a MOQ of $100,000: https://tether.to/en/fees/ https://tether.to/en/fees/ There is a huge amount of friction. It's not clear whether they run market-maker operations to pick up the spread between Tether and $1. As always, the question is what actual assets Tether has to meet its claims.
    - rosnd 4y ago
      > It's not clear whether they run market-maker operations to pick up the spread between Tether and $1. Of course they do.
    - benaadams 4y ago
      Alameda Research (re: FTX exchange) normally makes a ton of money doing the arbitrage between dollars and tether but its having liquidity problems, so not doing it currently.
- shawabawa3 4y ago
  It can temporarily depeg if there are more people selling than there are people who are able to redeem who are incentivised to defend the peg On Bitfinex the peg has held strong because Bitfinex have a close relationship with Tether and enabled customers to convert USD/USDt freely (for now) Other exchanges are experiencing either a temporarily blip (will eventually get arbitraged away) or it's the beginning of Tether being insolvent. Time will tell
  - LegitShady 4y ago
    >people who are able to redeem who are incentivised to defend the peg This doesn't make any sense. Either you can sell it for $1 or you can't. If you can then it's free money to buy tether from people selling below $1 and selling it back to tether for $1. I would describe the relationship between tether and bf as more than "close" they have the same owner.
- compsciphd 4y ago
  so thinking about this. assumption: bitfinex has "dollars" to backup every USDT. If bitfinex will buy a USDT for a $1 if it drops below $1 to maintain the peg, they can do this because they have "dollars" backing each share. however, they would also have to destroy that USDT on purchase (as they just spend the $1 backing it). They could print more USDT (/ sell that back) for $1 and they would be whole again, but if there is downwards pressure on USDT, one should expect to see the market cap for tether to drop while bitfinex is buying/destroying currently existing USDT. If one doesn't see this drop, wouldn't that be indicative of a problem?
  - LegitShady 4y ago
    Does destroying currency (reducing the amount in circulation) put downward pressure on it? Not in my experience.
    - compsciphd 4y ago
      I (believe) what I said if there's downward pressure on the currency, therefore to maintain the peg they have to buy it (and in a sense destroy it). not that destroying it leads to downward pressure, but that we should see a reduction in market cap. I'm wondering if we can see this fluctuation in market cap.
- benaadams 4y ago
  They are, they just aren't buying them back on coinbase. Tether don't manage the secondary market (cexes and dexes) Though the minimum redeemable amount is $100k https://tether.to/en/fees https://tether.to/en/fees Why they are depegging is people are selling for under a dollar on coinbase (perhaps in panic); and Alameda Research (re: FTX exchange) who normally makes a ton of money doing the arbitrage between dollars and tether is having liquidity problems, so not doing it currrently.

988747 4y ago

Yes, it is, which in practical terms means that the company behind Tether should own real-world assets that cover all the outstanding USDT. The fact that people are willing to trade their USDT coins for less than 1 USD means that they do not believe those "real-world assets" exist in sufficient quantity. In other words, they are afraid that Bitfinex (USDT issuer) is scamming them and prefer to convert to American dollar, even at slight loss.

Bubble_Pop_22 4y ago
> Yes, it is, which in practical terms means that the company behind Tether should own real-world assets that cover all the outstanding USDT. Asset. Not assets. There is only one asset that an operation so big and trusted by so many should hold and that is U.S. Treasuries. If you feel frisky you could do G-8 govt. bonds but that's about it really. And you are taking a chance on the forex exchange. FTX just imploded because they didn't realize this simple fact. If you are a custodian and you are not advertising yourself as an active asset manager you should stick to US Treasuries and even that could be considered a breach because you should keep USD in a bank. Keep USD in a bank and you have nothing to fear.
- AccountAccount1 4y ago
  > FTX just imploded because they didn't realize this simple fact. They fully knew this. There is no business in keeping USD in USD (or US bonds for that matter.)
  - Bubble_Pop_22 4y ago
    Trading fees when your volume is billions? Nothing? Also what about IPO so that you can exit and enjoy 500M-1B of real net worth? 1 real billion > 20 make believe
- pjc50 4y ago
  You can't really keep $69,613,437,845.79 (at time of writing) in a bank. At that point, you are the bank. In the case of Tether, Deltec in the Bahamas. https://www.deltecbank.com/about-us/?locale=en https://www.deltecbank.com/about-us/?locale=en Tether themselves seem to be based in Taiwan: https://assets.ctfassets.net/vyse88cgwfbl/RPHIloRD3eE4J5QYNRnYX/bed2f368b73776c14e067088028f8a5c/Tether-Letter.pdf https://assets.ctfassets.net/vyse88cgwfbl/RPHIloRD3eE4J5QYNR... Taiwan's extradition situation is .. informal. Because Taiwan does not officially exist. But there have been extraditions from Taiwan to the US.

mudrockbestgirl 4y ago

People are selling on exchanges, so the price goes down. That's unrelated to what it's backed by. You can officially redeem USDT 1:1 for USD. If you believe that it's fully backed and that the company honors all redemptions, you would buy a lot of USDT below $1 now, redeem it, and make a good profit via arbitrage. These buys will drive the price up again so that it goes back to $1. Thus, the price reflects the trust in USDT backing.

lazide 4y ago
Can you give an example Tether actually doing redemptions? Never really happened, as far as I am aware.
- fisf 4y ago
  This most definitely happened (also for private people).
  - lazide 4y ago
    Can you provide a cite/link for a private individual being able to redeem tether? I’ve never seen a confirmed case. Just a lot of misdirection, bs, and confirmed cases of people not being able to actually do it despite promises.
    - evdubs 4y ago
      Sure, > “I’ve been minting/redeeming USDT on an institutional scale for over 3 years with multiple desks!” – said Ryan Salame, Head of OTC at Alameda Research, before adding https://www.trustnodes.com/2021/01/05/alameda-research-reveals-tether-records https://www.trustnodes.com/2021/01/05/alameda-research-revea...
      - lazide 4y ago
        So not a private individual, and also the guy at the center of the major crypto collapse right now, whose exchange is imploding? Because they apparently can’t find the cash they need to service customer requests? [https://www.bbc.com/news/business-63577783 https://www.bbc.com/news/business-63577783] Got it. Do you have any others?

mughinn 4y ago

You technically can trade your USDT for 1 dollar to the issuer (I don't know how, but it is probably harder than just going to market and selling) But this is people buying and selling their USDT, in a market, they can try to sell for a any price and if there is a lot of people trying to sell and not so much trying to buy, it naturally goes down in price This variation though, while large, isn't that uncommon AFAIK

johnasmith 4y ago

The way it's meant to work is tether acts as a market maker, always willing to buy and sell tokens at parity. Nobody would buy below that if they know tether is around. Tether, having issued the coins, should have sufficient capital to play that role. But if they spend too much of their capital, they lose the ability to fulfill their role.

tcbawo 4y ago
Could a drop in the value of USDT represent a rush to get back into Bitcoin, Ethereum, etc after the recent fall rather than people attempting to convert USDT to dollars?

lopatin 4y ago

It's fear. When everyone is making money, confidence is high in crypto institutions and pegs are strong. But when a major crypto institution like FTX (that was supposed to be as legit as the come) becomes insolvent after apparently squandering the deposited funds of users which weren't supposed to be invested in the first place, people start to think that maybe the party is over, and that maybe, just maybe, Tether doesn't have the funds to back up the USDT peg.