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I am incredibly tired of hearing this same argument, especially because DEXes like AAVE and Compound does not have anywhere close to the liquidity it is needed

I am incredibly tired of hearing this same argument, especially because DEXes like AAVE and Compound does not have anywhere close to the liquidity it is needed to short Tether to the point it causes any trouble (or even slight discomfort) for them. I just checked, and it seems like the total size of the borrowing pool of USDT there is about $500MM (~$330MM AAVE, $170MM Compound v2), which, together, makes 0.73% of their total market cap. That could probably cause trouble if Tether was, say 0.5% capitalized? But we know that number is probably above at least 20%, as in, Tether may have ~$13.6B in cash that they can and will spend to defend their peg. So the liquidity is enough for small fishes to take bets that they don't know is actually swindling them out of their money. However, it is not large enough for an institutional/activist investor with a few billion in capital to take up a real position against Tether/Bitfinex.

pcthrowaway 4y ago
I'm sure getting to tens of billions of USDT is more difficult, but in general, if borrow interest flows in, supply will chase it, as the supply rate automatically adjusts according to the ratio of the pool which is being borrowed. More people borrowing drives up the supply rate, until more suppliers come in. You can probably only get so much Tether into the protocols that way, maybe $5-10B I didn't realize you were talking about shorts of larger size though. I think you'd have a hard time shorting, say, 20% of the supply of a stock also
- tsimionescu 4y ago
  The point being made is that no one can profit by shorting USDT to the point where they would be shown not to have anywhere close to the reserves they claim. So the argument "no one has successfully shorted USDT, so Tether must actually hold the needed reserves" is false. This of course doesn't prove that they don't the reserves, it's just that this is a bad argument.

pcthrowaway 4y ago

I'm sure getting to tens of billions of USDT is more difficult, but in general, if borrow interest flows in, supply will chase it, as the supply rate automatically adjusts according to the ratio of the pool which is being borrowed. More people borrowing drives up the supply rate, until more suppliers come in. You can probably only get so much Tether into the protocols that way, maybe $5-10B I didn't realize you were talking about shorts of larger size though. I think you'd have a hard time shorting, say, 20% of the supply of a stock also

tsimionescu 4y ago
The point being made is that no one can profit by shorting USDT to the point where they would be shown not to have anywhere close to the reserves they claim. So the argument "no one has successfully shorted USDT, so Tether must actually hold the needed reserves" is false. This of course doesn't prove that they don't the reserves, it's just that this is a bad argument.