4 ms·

Funny how the only entities that let you short Tether are the ones that will go bust and won't be able to pay you back if you're right.

rhaway84773 4y ago
What this post does more than anything (and I think that is the goal) is illustrates that for all the crypto bluster, it’s currently a terrible financial system that has all sorts of massive risks that are not just hypothetical but have already been realized.
scotty79 4y ago
Isn't it nice that one of the main dangers to your stable coin doesn't exist because shorting it is not profitable enough for the risk?
- toss1 4y ago
  You want to imply that the short is unprofitable because the asset is so good that it'll never decline in value. That is the exact opposite of the reality (and misses the entire point of the article). The point is that shorting tether is likely to be enormously profitable, but you won't be able to collect your profits This is because no well capitalized and stable broker or exchange will touch Tether, and the only counterparties who might lend you the Tether to short are extremely likely to go bankrupt when Tether does collapse. So, you'll put your millions of dollars at risk on deposit, pay your interest, and end up with a $100 million or whatever profit, owed to you by a now-bankrupt exchange, so your profit will never arrive at your bank account, and your best case is suing the husk of a bankrupt exchange whose shady owners absconded to a non-extradition country. The trade is bad because only disreputable and insufficiently capitalized counter-parties will touch it, not because Tether is great in any way.
  - scotty79 4y ago
    > You want to imply that the short is unprofitable because the asset is so good that it'll never decline in value. Absolutely not. I think tether is garbage that benefits almost noone except its creators. I'm just amused by the fact that stability of a bad thing is increased because betting against it is worse than for it. > The point is that shorting tether is likely to be enormously profitable, but you won't be able to collect your profits. Hence not profitable at all. :-) Betting for it is risky, betting against it is risky. Maybe that's a huge part of its stability? Like stability on the edge of the knife held over lava pit. Nobody benefits from going to either side despite equilibrium being uncomfortable?
    - grey-area 4y ago
      No it’s stable because they’re lying about what it is backed by. It’s easy to make a scam look superficially stable if you are not called on it or make it impossible to call you on your promises.
      - scotty79 4y ago
        They have 66bn, of actual money that people paid for tether, in circulation. It won't be that easy to bring it down. Also the question is, do people really want to call them on their promises. That's another thing noone would benefit from.
        rippercushions 4y ago
        It's exceedingly unlikely that Tether has anything close to 66B of "real money" backing it. The most likely theory at this point is that most of it is FTX-style IOUs from other crypto companies marked at absurd pre -crypto winter valuations, which will collapse like a house of cards the instant they are touched or even exposed to light.
        bananapub 4y ago
        > They have 66bn, of actual money that people paid for tether, in circulation. what's your source for that? Tether itself admitted that isn't true: https://cointelegraph.com/news/tether-to-reduce-secured-loans-to-zero-in-2023-amid-battle-against-fud https://cointelegraph.com/news/tether-to-reduce-secured-loan...
sebzim4500 4y ago
Exchanges typically back client USDT/USDC assets partially with USD and partially with fixed interest products. If USDT goes to zero some of the big exchanges will make billions. These are your counterparties when you short USDT vs USD.
dmurray 4y ago
This isn't really true and the guy saying "If someone showed me a way to do it with Goldman Sachs as a counterparty, I’m in" is also misstating things, perhaps intentionally. I'll take the long side of the Tether bet for 30% a year (I'll buy one-year Tether forwards at 70c). I'm not as creditworthy as Goldman, but for small amounts, it's pretty close. I could collateralize the trade with my house, and in any case I don't have the kind of correlated portfolio that means if Tether goes bust, I can't pay you. But enough about me - some trader at Goldman will absolutely do the same deal! Maybe they can even do it for 72c. There is a market-clearing price for this trade if done between two creditworthy parties. I don't know what that price is because there isn't a big public market for it, but if you shop the trade around, you'll find a price. The people bemoaning they can't short Tether mean they can't short it at what looks like it should be the right price, say, paying 5% a year to borrow it. But that's not the right price! That's the price that already includes you taking a lot of wrong-way counterparty risk. Against Goldman, the price is 20% or 30% or something, and you can do the trade, but you don't want to. So the fair price of one-year Tether forwards is 75c or whatever, but the spot price is clearly $1.00. How do you reconcile this in financial markets terms, that the prices don't converge? Same reason other commodity futures might have backwardation - holding Tether provides some value to its owners. Like having steel today allows you to build a skyscraper and start collecting rent, so spot steel trades higher than future steel if the construction business is good. In Tether's case, that value is the freedom to participate in other crypto trades, or perhaps to escape even riskier assets in China, or something else.
- Nowado 4y ago
  There's also a scale issue. If a product is not standardized, that Goldman trader isn't going to work with 'a couple hundred dollars' mentioned in the piece.
drexlspivey 4y ago
When you are shorting something you receive money and you are the one that needs to pay back not them.
- actionablefiber 4y ago
  It is not that simple. In many cases the money you receive from short selling is the collateral for your short position. You need to return the borrowed asset to get your collateral back.

rhaway84773 4y ago

What this post does more than anything (and I think that is the goal) is illustrates that for all the crypto bluster, it’s currently a terrible financial system that has all sorts of massive risks that are not just hypothetical but have already been realized.

scotty79 4y ago

Isn't it nice that one of the main dangers to your stable coin doesn't exist because shorting it is not profitable enough for the risk?

toss1 4y ago
You want to imply that the short is unprofitable because the asset is so good that it'll never decline in value. That is the exact opposite of the reality (and misses the entire point of the article). The point is that shorting tether is likely to be enormously profitable, but you won't be able to collect your profits This is because no well capitalized and stable broker or exchange will touch Tether, and the only counterparties who might lend you the Tether to short are extremely likely to go bankrupt when Tether does collapse. So, you'll put your millions of dollars at risk on deposit, pay your interest, and end up with a $100 million or whatever profit, owed to you by a now-bankrupt exchange, so your profit will never arrive at your bank account, and your best case is suing the husk of a bankrupt exchange whose shady owners absconded to a non-extradition country. The trade is bad because only disreputable and insufficiently capitalized counter-parties will touch it, not because Tether is great in any way.
- scotty79 4y ago
  > You want to imply that the short is unprofitable because the asset is so good that it'll never decline in value. Absolutely not. I think tether is garbage that benefits almost noone except its creators. I'm just amused by the fact that stability of a bad thing is increased because betting against it is worse than for it. > The point is that shorting tether is likely to be enormously profitable, but you won't be able to collect your profits. Hence not profitable at all. :-) Betting for it is risky, betting against it is risky. Maybe that's a huge part of its stability? Like stability on the edge of the knife held over lava pit. Nobody benefits from going to either side despite equilibrium being uncomfortable?
  - grey-area 4y ago
    No it’s stable because they’re lying about what it is backed by. It’s easy to make a scam look superficially stable if you are not called on it or make it impossible to call you on your promises.
    - scotty79 4y ago
      They have 66bn, of actual money that people paid for tether, in circulation. It won't be that easy to bring it down. Also the question is, do people really want to call them on their promises. That's another thing noone would benefit from.
      - rippercushions 4y ago
        It's exceedingly unlikely that Tether has anything close to 66B of "real money" backing it. The most likely theory at this point is that most of it is FTX-style IOUs from other crypto companies marked at absurd pre -crypto winter valuations, which will collapse like a house of cards the instant they are touched or even exposed to light.
      - bananapub 4y ago
        > They have 66bn, of actual money that people paid for tether, in circulation. what's your source for that? Tether itself admitted that isn't true: https://cointelegraph.com/news/tether-to-reduce-secured-loans-to-zero-in-2023-amid-battle-against-fud https://cointelegraph.com/news/tether-to-reduce-secured-loan...

sebzim4500 4y ago

Exchanges typically back client USDT/USDC assets partially with USD and partially with fixed interest products. If USDT goes to zero some of the big exchanges will make billions. These are your counterparties when you short USDT vs USD.

dmurray 4y ago

This isn't really true and the guy saying "If someone showed me a way to do it with Goldman Sachs as a counterparty, I’m in" is also misstating things, perhaps intentionally. I'll take the long side of the Tether bet for 30% a year (I'll buy one-year Tether forwards at 70c). I'm not as creditworthy as Goldman, but for small amounts, it's pretty close. I could collateralize the trade with my house, and in any case I don't have the kind of correlated portfolio that means if Tether goes bust, I can't pay you. But enough about me - some trader at Goldman will absolutely do the same deal! Maybe they can even do it for 72c. There is a market-clearing price for this trade if done between two creditworthy parties. I don't know what that price is because there isn't a big public market for it, but if you shop the trade around, you'll find a price. The people bemoaning they can't short Tether mean they can't short it at what looks like it should be the right price, say, paying 5% a year to borrow it. But that's not the right price! That's the price that already includes you taking a lot of wrong-way counterparty risk. Against Goldman, the price is 20% or 30% or something, and you can do the trade, but you don't want to. So the fair price of one-year Tether forwards is 75c or whatever, but the spot price is clearly $1.00. How do you reconcile this in financial markets terms, that the prices don't converge? Same reason other commodity futures might have backwardation - holding Tether provides some value to its owners. Like having steel today allows you to build a skyscraper and start collecting rent, so spot steel trades higher than future steel if the construction business is good. In Tether's case, that value is the freedom to participate in other crypto trades, or perhaps to escape even riskier assets in China, or something else.

Nowado 4y ago
There's also a scale issue. If a product is not standardized, that Goldman trader isn't going to work with 'a couple hundred dollars' mentioned in the piece.

drexlspivey 4y ago

When you are shorting something you receive money and you are the one that needs to pay back not them.

actionablefiber 4y ago
It is not that simple. In many cases the money you receive from short selling is the collateral for your short position. You need to return the borrowed asset to get your collateral back.