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There's something deeply ironic about a flight to safety in the form of Tether, which has famously been described as being "quilted out of red flags". But if y

There's something deeply ironic about a flight to safety in the form of Tether, which has famously been described as being "quilted out of red flags". But if you can't redeem it and it's not backed by anything remotely approaching normal assets, I guess you can't have a bank run on it either... until the music stops and the insiders propping it up run out of chairs.

pclmulqdq 4y ago
There's something to be said for everyone knowing the risks of doing business with you, and behaving consistently (consistently badly) so that those risks don't change. That's the regime of Tether. Nobody will even be mad when the rug gets pulled. The federal reserve could stand to learn a thing or two, honestly.
- espadrine 4y ago
  What could the Federal Reserve learn? The structure of risk is similar for both Tether and Circle, AFAICT. While USD risk is heavily distributed across many regulated banks and there are measures in place to mitigate bankruptcy, USDC/T is fairly centralized and the fall of a single bank can put the entire currency at risk, cause sudden and extreme inflation (as is the case now), and potentially stop being accepted by even more merchants. USD risk exists, but seems lower than USDC/T risk, and the same is true for its volatility. All in all, I am not surprised that there are more merchants that accept USD than USDC/T, and the change in methodology that would make the latter competitive would likely require taking a page from the Federal Reserve, not vice-versa.
  - pclmulqdq 4y ago
    Perhaps they could learn that doing consecutive 50-75 bps rate hikes for an entire year will bring with it a lot of adverse effects in a world where they are expected to hike 25 bps at a time? Nobody pricing interest rate risk would have priced what happened last year correctly - it would have been considered a one-in-a-million event, not a routine response to high inflation.
    - dantheman 4y ago
      I'd say they should learn that super low interest rates are nonsense.
      - pclmulqdq 4y ago
        The point is that consistent bad behavior is probably better than inconsistent good behavior. That makes you predictable.
    - Analemma_ 4y ago
      This is just not true. I saw many people predicting that after leaving interest rates low for so long and breezily treating inflation as transitory, that the Fed would have to frantically overcorrect with rapid hikes to keep their credibility. And if I saw that multiple times in public places, big institutions with experienced people probably knew it even better, which is probably why SVB is hosed while CDSs at JPMorgan/GS/etc. have barely budged- they knew what they were doing.
    - HWR_14 4y ago
      I don't know anyone who expected sub 50 bps raises each quarter for a while now.
      - pclmulqdq 4y ago
        SVB bought those assets 2 years ago, prior to the yield curve inversion or any of the current macro conditions. Also, the last rate hike was 25 bps, and early in 2022 people were expecting a slowdown to 0-point hikes by now. Prognosticating about this stuff to price long-term fixed-income vehicles is tricky.
    - mitthrowaway2 4y ago
      I think what really drove actors like SVB to indulge in speculative yield-chasing was central banks driving rates to zero, saying they'd be near zero for a long time, and as inflation ticked up that they weren't even "thinking about thinking about raising interest rates", and then continuing to hold them at zero while calling inflation transitory as it reached multidecadal highs. This trained everyone to speculate that the Fed was ignoring inflation on purpose and they should allocate accordingly. So many people unbuckled their seatbelts as the driver sped through several red lights while saying he wasn't even planning to touch the brakes. When he did eventually slam the brakes a moment later, the passengers flew through the windshield. The driver deserves blame, but blame him for speeding, not for slowing down -- the latter is the only responsible thing he did.
- bombolo 4y ago
  USD is backed up by USA army. If a country refuses to accept USD they will have a democracy problem and get attacked.
  - xref 4y ago
    Unlucky for the UK coffee shop that wouldn’t take my USD this morning I guess? Not quite sure what you’re trying to say, if a country doesn’t want to accept usd…they don’t have to
    - wil421 4y ago
      Except a $100 bill is likely accepted. I’ve been to developing countries that will accept local currency, dollars, and euros. I doubt they would accept any pounds, tethers, or other fake electronic currency.
      - fabian2k 4y ago
        You won't get anywhere with a $100 bill in many developed countries, outside of some very tourist-y areas maybe. At least not in regular shops, of course you can exchange it at a bank. But if you try to order a coffee with US dollars, you won't get one.
        deleted 4y ago
        [deleted]
        wil421 4y ago
        If I’m visiting a country it’s usually as a tourist. Even on my business trips I spent half the time being a tourist.
        fabian2k 4y ago
        Handling a foreign currency is a lot of overhead, you will only find this accepted in locations where it is quite common for people to not have the local currency. If you're in the middle of Europe you'll have a hard time finding a place that will just accept US dollars outside of some very tourist focused destinations. And even there I'm not sure if it'll work. The places where I've seen this mostly work was near borders, and it makes sense that you'd accept the neighbour currency there even if it is some overhead. If you can quickly hop over the border you're much less likely to exchange currency before than if you plan a full trip in a different country.
- jefftk 4y ago
  > Nobody will even be mad when the rug gets pulled. Happy to bet on that ;)
- bananapub 4y ago
  > Nobody will even be mad when the rug gets pulled. this is one of the silliest comments I've ever seen on HN.
deleted 4y ago
[deleted]
raverbashing 4y ago
Tether is pretty much being propped up by thoughts and prayers at this point
- dannyw 4y ago
  Tether has successfully maintained its peg for nearly 10 years now, despite being an enemy of the US government. That is actually an incredible achievement.
  - simmerup 4y ago
    It helps that you can only turn it into real money in 100k chunks.
    - drexlspivey 4y ago
      You can turn it into real money in any amount by selling it on the market. Market makers will handle the “100k chunks” problem for you.
      - simmerup 4y ago
        Exactly. It’s a neat way to prevent a run, especially if the market makers are acting in cahoots.
andrepd 4y ago
Nobody has quite explained to me how that is different from deposits at a bank (modulo government guarantees).
- gus_massa 4y ago
  There is also government regulation, like how they must prove that they are solvent and how much they must have in liquid assets to stop bank runs.
- scott00 4y ago
  Lack of redeemability, lack of transparency, and a history of fraud. Banks contractually guarantee the right to redeem deposits for cash. Redemption of tether for USD seems to be subject to the discretion of its operators. Banks are fairly transparent about their assets to the public, and completely trasparent to their auditors and regulators. Tether is an unaudited, unregulated black box. IMO, tether is no longer a fraud, but it definitely was for a while when they were claiming 100% cash reserves but actually running with fractional reserves. Banks don't lie about their reserves.
lordfrito 4y ago
Bitcoin fixes this. Few understand.
merlinoa 4y ago
Tether is better run than any other stable coin. Yes, it could go to zero for many different reasons, but the main reason it gets so much flak (compared to other stables) is because it is less compliant with US regulators than USDC and the other major stable coins. Being less complaint with US regulators is also the reason it is used more than any other stable (highest volume by a wide margin); because people without US bank accounts can actually use it. Tether is a very helpful resource to a lot of people that otherwise would not have access to USD.
- acomar 4y ago
  if you think tether is well run, I have a bridge to sell you
  - merlinoa 4y ago
    Better run than other stables. I have some USDC to sell you. Do you have any tether?
    - acomar 4y ago
      I mean if you set the bar beneath the floor, yeah, sure. but my bar is "not a scam" so hell no. why the hell would I touch tether or any other stable coin following six whole years of reporting on how much of a scam stable coins are? am I supposed to trust their reserve "audits", which amount to a "trust us bro" letter sent to the auditor? are you aware that these verifications of reserves were done by depositing the requisite amount of money into a bank account that was set up for the auditors to have access, with no indication of where the money came from or whether it even belongs to tether? are you aware of their incestuous relationship with bitfinex, a fact that should raise a hell of a lot of questions, especially after the collapse of Alameda and FTX? you can't sell me USDC because I'm not buying. "X scam is more of a scam than Y scam" is not a sales pitch for Y. it's a statement that should lead you to reconsider why you have any money with any of these people. or, you know, you can be another notch on the belt of the grifters, scammers, and vultures that dominate crypto. I guess the second is a more exciting way to live.
- 4y ago

pclmulqdq 4y ago

There's something to be said for everyone knowing the risks of doing business with you, and behaving consistently (consistently badly) so that those risks don't change. That's the regime of Tether. Nobody will even be mad when the rug gets pulled. The federal reserve could stand to learn a thing or two, honestly.

espadrine 4y ago
What could the Federal Reserve learn? The structure of risk is similar for both Tether and Circle, AFAICT. While USD risk is heavily distributed across many regulated banks and there are measures in place to mitigate bankruptcy, USDC/T is fairly centralized and the fall of a single bank can put the entire currency at risk, cause sudden and extreme inflation (as is the case now), and potentially stop being accepted by even more merchants. USD risk exists, but seems lower than USDC/T risk, and the same is true for its volatility. All in all, I am not surprised that there are more merchants that accept USD than USDC/T, and the change in methodology that would make the latter competitive would likely require taking a page from the Federal Reserve, not vice-versa.
- pclmulqdq 4y ago
  Perhaps they could learn that doing consecutive 50-75 bps rate hikes for an entire year will bring with it a lot of adverse effects in a world where they are expected to hike 25 bps at a time? Nobody pricing interest rate risk would have priced what happened last year correctly - it would have been considered a one-in-a-million event, not a routine response to high inflation.
  - dantheman 4y ago
    I'd say they should learn that super low interest rates are nonsense.
    - pclmulqdq 4y ago
      The point is that consistent bad behavior is probably better than inconsistent good behavior. That makes you predictable.
  - Analemma_ 4y ago
    This is just not true. I saw many people predicting that after leaving interest rates low for so long and breezily treating inflation as transitory, that the Fed would have to frantically overcorrect with rapid hikes to keep their credibility. And if I saw that multiple times in public places, big institutions with experienced people probably knew it even better, which is probably why SVB is hosed while CDSs at JPMorgan/GS/etc. have barely budged- they knew what they were doing.
  - HWR_14 4y ago
    I don't know anyone who expected sub 50 bps raises each quarter for a while now.
    - pclmulqdq 4y ago
      SVB bought those assets 2 years ago, prior to the yield curve inversion or any of the current macro conditions. Also, the last rate hike was 25 bps, and early in 2022 people were expecting a slowdown to 0-point hikes by now. Prognosticating about this stuff to price long-term fixed-income vehicles is tricky.
  - mitthrowaway2 4y ago
    I think what really drove actors like SVB to indulge in speculative yield-chasing was central banks driving rates to zero, saying they'd be near zero for a long time, and as inflation ticked up that they weren't even "thinking about thinking about raising interest rates", and then continuing to hold them at zero while calling inflation transitory as it reached multidecadal highs. This trained everyone to speculate that the Fed was ignoring inflation on purpose and they should allocate accordingly. So many people unbuckled their seatbelts as the driver sped through several red lights while saying he wasn't even planning to touch the brakes. When he did eventually slam the brakes a moment later, the passengers flew through the windshield. The driver deserves blame, but blame him for speeding, not for slowing down -- the latter is the only responsible thing he did.
bombolo 4y ago
USD is backed up by USA army. If a country refuses to accept USD they will have a democracy problem and get attacked.
- xref 4y ago
  Unlucky for the UK coffee shop that wouldn’t take my USD this morning I guess? Not quite sure what you’re trying to say, if a country doesn’t want to accept usd…they don’t have to
  - wil421 4y ago
    Except a $100 bill is likely accepted. I’ve been to developing countries that will accept local currency, dollars, and euros. I doubt they would accept any pounds, tethers, or other fake electronic currency.
    - fabian2k 4y ago
      You won't get anywhere with a $100 bill in many developed countries, outside of some very tourist-y areas maybe. At least not in regular shops, of course you can exchange it at a bank. But if you try to order a coffee with US dollars, you won't get one.
      - deleted 4y ago
        [deleted]
      - wil421 4y ago
        If I’m visiting a country it’s usually as a tourist. Even on my business trips I spent half the time being a tourist.
        fabian2k 4y ago
        Handling a foreign currency is a lot of overhead, you will only find this accepted in locations where it is quite common for people to not have the local currency. If you're in the middle of Europe you'll have a hard time finding a place that will just accept US dollars outside of some very tourist focused destinations. And even there I'm not sure if it'll work. The places where I've seen this mostly work was near borders, and it makes sense that you'd accept the neighbour currency there even if it is some overhead. If you can quickly hop over the border you're much less likely to exchange currency before than if you plan a full trip in a different country.
jefftk 4y ago
> Nobody will even be mad when the rug gets pulled. Happy to bet on that ;)
bananapub 4y ago
> Nobody will even be mad when the rug gets pulled. this is one of the silliest comments I've ever seen on HN.

deleted 4y ago

[deleted]

raverbashing 4y ago

Tether is pretty much being propped up by thoughts and prayers at this point

dannyw 4y ago
Tether has successfully maintained its peg for nearly 10 years now, despite being an enemy of the US government. That is actually an incredible achievement.
- simmerup 4y ago
  It helps that you can only turn it into real money in 100k chunks.
  - drexlspivey 4y ago
    You can turn it into real money in any amount by selling it on the market. Market makers will handle the “100k chunks” problem for you.
    - simmerup 4y ago
      Exactly. It’s a neat way to prevent a run, especially if the market makers are acting in cahoots.

andrepd 4y ago

Nobody has quite explained to me how that is different from deposits at a bank (modulo government guarantees).

gus_massa 4y ago
There is also government regulation, like how they must prove that they are solvent and how much they must have in liquid assets to stop bank runs.
scott00 4y ago
Lack of redeemability, lack of transparency, and a history of fraud. Banks contractually guarantee the right to redeem deposits for cash. Redemption of tether for USD seems to be subject to the discretion of its operators. Banks are fairly transparent about their assets to the public, and completely trasparent to their auditors and regulators. Tether is an unaudited, unregulated black box. IMO, tether is no longer a fraud, but it definitely was for a while when they were claiming 100% cash reserves but actually running with fractional reserves. Banks don't lie about their reserves.

lordfrito 4y ago

Bitcoin fixes this. Few understand.

merlinoa 4y ago

Tether is better run than any other stable coin. Yes, it could go to zero for many different reasons, but the main reason it gets so much flak (compared to other stables) is because it is less compliant with US regulators than USDC and the other major stable coins. Being less complaint with US regulators is also the reason it is used more than any other stable (highest volume by a wide margin); because people without US bank accounts can actually use it. Tether is a very helpful resource to a lot of people that otherwise would not have access to USD.

acomar 4y ago
if you think tether is well run, I have a bridge to sell you
- merlinoa 4y ago
  Better run than other stables. I have some USDC to sell you. Do you have any tether?
  - acomar 4y ago
    I mean if you set the bar beneath the floor, yeah, sure. but my bar is "not a scam" so hell no. why the hell would I touch tether or any other stable coin following six whole years of reporting on how much of a scam stable coins are? am I supposed to trust their reserve "audits", which amount to a "trust us bro" letter sent to the auditor? are you aware that these verifications of reserves were done by depositing the requisite amount of money into a bank account that was set up for the auditors to have access, with no indication of where the money came from or whether it even belongs to tether? are you aware of their incestuous relationship with bitfinex, a fact that should raise a hell of a lot of questions, especially after the collapse of Alameda and FTX? you can't sell me USDC because I'm not buying. "X scam is more of a scam than Y scam" is not a sales pitch for Y. it's a statement that should lead you to reconsider why you have any money with any of these people. or, you know, you can be another notch on the belt of the grifters, scammers, and vultures that dominate crypto. I guess the second is a more exciting way to live.
4y ago