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> and they try to defend the peg in order to not admit that it's insolvent What do you think this means? Tether is not an algorithmic stablecoin.
by eaurouge 4y ago
> and they try to defend the peg in order to not admit that it's insolvent
What do you think this means?
Tether is not an algorithmic stablecoin.
- ivalm 4y agoThey will continue redemption until they run out of money, at which point the remaining tether will be fully unbacked/worth 0.
- eaurouge 4y agoRight. As I suggested in another comment, this belief is more of an article of faith than one based on actual facts. But, my point to GP is that USDT redemption is offchain, and peg defense (for algorithmic stablecoins) or price discovery (for Tether) is onchain. So the market determines the onchain rate. If it goes to 70c, for example, arbitrageurs will likely step in to pick up cheap USDT and take on the redemption risk. Of course if the market loses complete faith and no party is willing to take on the redemption risk (an unlikely scenario imo), the onchain rate could fall to zero.
- lmm 4y ago> If it goes to 70c, for example, arbitrageurs will likely step in to pick up cheap USDT and take on the redemption risk. Only if Tether is visibly doing redemptions. If they freeze redemptions then you'd be dumb to pay 70c for their magic beans. So there's a tight linkage between the onchain price and redemptions.
- rhaway84773 4y agoIf it’s 70% backed for example, not being algorithmic is exactly why they will first redeem at $1 for the first 70% withdrawals, and then declare bankruptcy and the last 30% are worth $0. In practice if this is the case they will probably redeem the first 50%, and then run and hide with the remaining 20% USD they have.