Correct, also USDT management does not buy long dated treasury bonds or deposit in banks that do so. That on top of their deep relationships with every major centralized exchange means it’s very difficult to impossible for them to experience a run like USDC has.
> Correct, also USDT management does not buy long dated treasury bonds or deposit in banks that do so.
Wut? How would we know, they don't really share specifics. Last I know they have a lot of money in Chinese corporate bonds that will fare worse when growth slows a tad more but maybe that's outdated.
My understanding is that US Treasury issues a bit more than 1000 billion USD worth T-bills each month. If this is true, Tether must be one of the largest T-bill purcahser (multiple percentages of total issuance every month). Count me sceptic. Somehow I would assume this would be big news in finacial world.
Edit: how do they claim bying them? I thought they had no us banking access?
Disclaimer that I'm a bit of a Tether skeptic, but if I'm wrong and they either were in, or have been able to get to, a fully-collateralized position of mostly treasuries and are earning 5% interest while paying 0% on USDT, good for them and good for regular people who won't be left holding bags.
I'll always consider Tether in the context of their July 2021 CNBC interview with Deirdre Bosa. Timestamps are relative to the copy at https://www.youtube.com/watch?v=ZBEqyiO35cQ
I don't think they've said who the commercial paper counterparties were and claim it was an important trade secret. Traders in the US commercial paper market say they had never heard of the Tether folks which was odd given their attestations would have given them a top 10 global holding (17:20). Explanation, they use intermediaries. Will they give names or details on the intermediaries? Can't, trade secret.
Did they hold Chinese commercial paper? Dodged the question twice (6:30 and re-ask 7:35).
Where are the CEO and CFO of this company that holds $60B of assets? Why don't they talk to media? (24:40)
But hopefully we'll get assurance regarding the reserves soon. They were excited to promise a formal audit in "months not years" during that interview (27:42)... looking forward to this spring so the audit can be released before we hit two years.
They’ve exited the position in ‘commercial paper’ that couldn’t possibly have been true?
What proof verified by third parties is there that any of their assertions are true? There never has been one and there never will be.
Tether are an obvious fraud run by fraudsters, caught several times committing fraud and already banned in many jurisdictions. They deserve zero trust and when this ecosystem collapses they will go to 0.
Yes USDT has management flaws but these are caused by limitations placed on their access to banking services - they have a long history of making sure they can maintain peg in spite of constant attacks from regulatory authorities, short sellers, and negative media publicity.
No, I don’t recommend using USDT. But with the regulated coins being operated much more poorly than USDT, it may be the best option in certain situations.
I would say the flaws are caused by deliberate fraud, and I don't trust their figures or those of crypto exchanges, given they have close relations with several large exchanges.
It's also a general expression of lack of confidence in the US banking system.
Exchanges that offer true "USD" trading pairs ultimately have to store that cash [at a bank] somewhere. But at which bank? Before this week, most people probably wouldn't have paid attention.
Some like Coinbase offer passthrough FDIC insurance [1], but again, if you have more than $250k you're potentially s-o-l just like an SVB depositor.
So weirdly, 1 USDT ("definitely sketchy but somehow has never broken peg") all of a sudden may seem less risky than 1 "USD" at [which bank again?].
> It's also a general expression of lack of confidence in the US banking system.
that's not it. there are far better gauges of dissatisfaction in US banking, share price in banks is a far better gauge. if you want a metric for USD then swiss franc is better.
USDC and other "stable coins" are risky, noisy and generally bad medium to long term investments. Unlike domestic currency they have such small trading volumes that they are easy to manipulate.
Thats great if you're the one doing the manipulation. At best they perform better than cash, but without any of the protection, at worst they go bust. Emerging markets have less fraud than generic crypto backed devices.
USDC is not an investment, it's a tokenized market money fund which you can redeem for 1$. Circle, they company issuing it, said that they will honoring redempetions 1:1 from tomorrow (weekend they can't because of bank closures).
Also the trading volume of stablecoins and of the largest cryptocurrencies is close on most day to NASDAQ's listed equities trading volume.
> USDC and other "stable coins" are risky, noisy and generally bad medium to long term investments. Unlike domestic currency they have such small trading volumes that they are easy to manipulate
How are you supposed to manipulate a currency pegged to the USD? It'll fluctuate a bit above or below, but not by much except in extreme cases. And even in those extreme cases, it seems like the peg gets restored eventually. Talking mainly about USDC, USDT and DAI here, as those have all been "depegged" and subsequently restored their peg afterwards.
> How are you supposed to manipulate a currency pegged to the USD?
To keep a peg you have to "defend" the value of said pegged monetry instrument.
That means when the value drops below the peg, the "owner" has to buy back the "currency" at a high enough value to keep in within the peg. They have to crash liquidate possibly long term investments, or use a credit facility. This is expensive.
As you know, the value of traded things is defined by the current buy/sell price. If you are only trading a few thousand times a day, those people who trade have much more power. All it takes is a few million, and you can trade between a few accounts effectively setting the price of the market.
Left image: USDC: kitchen cabinet with a glass door; you can see on the inside a stack of dishes has mostly toppled, held up only so long as the door is closed
Right image: USDT: photo of kitchen cabinets with completely opaque wooden doors
That meme is a great distillation of the cognitive bias at work here. USDC operates transparently so when there's a minor problem they admit it immediately and publicly, giving people something to overreact to. USDT is totally opaque and has outright lied in the past, so they keep saying everything is fine and people have no choice but to either trust them completely or don't touch crypto.
Same thing happens when autocracies with closed systems and closed markets who pump propaganda about Western liberalized democratic republics with open markets and open systems.
The systems that highlights and addresses problems with more transparency is the one that will be more robust and not blow up, adjustments can be made and it is a pressure release valve.
No - thats what I'm saying. They use a bot to buy/sell USDT to keep the price 1:1... And then they redeem anything purchased by the bot.
Effectively, they will redeem only for themselves.
Could be a neat way to do no KYC or ownership verification or dealing with messy bank transfers to dodgy people, etc. Hides the location and/or existance of funds from redeemers and those able to trace money movements too.
Or could be a way to hide a delicately balanced stack of cards...
I don’t find market making or liquidity providing to be controversial
it still requires capital from their reserves to do what you describe, purchasing USDT for $1 each
the redemption mechanism is an incentive on its own. when Tether is below $1 purchase it yourself (pushing up the price of Tether) and go to the redemption window and get $1 for it regardless.
The hole is worst-case around $500 million. SVB will be liquidated and Circle will see the majority of their money back. They make 5% in interest on $40 billion in assets so they can cover this hole in a quarter. They also have significant backers and the ability to raise money. Short term FUD. I have been buying all the way down to 88c and am already in the money so I’m financially incentivized to convince readers here. But this is just unwarranted panic.
Thanks for the response. I had similar reasoning. I bought at 90 cents. I figured the worst case scenario would be that the 8% assets missing from SVB would stay gone, which would make USDC valued at 92 cents. I also figured they would make interest on their t-bill assets, so this would definitely be a good long position
Genuinely displeased at myself for looking at USDC @ 88-90c with lots of liquidity to 91c last night and simply going to bed because I was too tired. Some people made an insane amount of money capitalizing on stupidity and irrational behavior. I'm not one of them.
EDIT: I think it's most likely that it repegs to $1.00 within a week, but at 96c (current price) there's not enough risk-adjusted return for me.
I think it will go back to $1.00 within a week too, but I wouldn't call trying to arbitrage that 'capitalizing on stupidity and irrational behavior'.
There is a real risk that it breaks - badly. Even if the risk still low, or very low, it's significantly higher than in usual times. And if sharks find the right angle to attack, they will - and could burn it all down to 0 really quickly.
There is basically no real chance the risk of default was actually 12%. I will absolutely buy the risk of default could be 4-5%, which is why you don't see me filling my pockets with USDC at 94-96c.
Below 90c with the information we had on Friday was a silly price.
Not really. Just look at the press releases, the data, and verify USDC's backing, down to the T-Bill number. The balances don't support a significant risk of default outside of a systemic collapse (of which USDC will be the least of our worries).
Do I think there is a small chance of a systemic collapse? Sure, the Fed and the Biden administration are completely capable of blundering. Is that risk double digits? Let's be real.
Again, even if the real risk is as low as 1-2% (which I think it is), on a risk-adjusted return on a limited/capped amount for 4% ROI short-term trade is not a good use of funds for most portfolios. Kelly Criterion and so forth.
Genuine question (I don't really know anything about crypto or finance): why isn't coinbase buying up USDC at these prices? They should have confidence USDC will repeg as they hold the backing assets, and may as well prop up the price of USDC to maintain confidence while keeping any price difference as profit.
As a long time cryptocurrency enthusiast, my recommendation for those who are interested in investing in cryptocurrency is to wait for USDT to collapse. Investing before it implodes will just bring you unnecessary stress, far greater than FOMO.
I don't know whether Tether is a scam or not but something missing from those analysis is that a lot of Tether's shady behavior (e.g. commingling of funds, buying dubious commercial paper, etc.) can also be explained by their difficulty in obtaining and maintaining bank accounts.
Once USDT collapses, crypto might be "down only" as they say. It could be like buying into Beanie Babies after they tanked. There's no guarantee there will be a next bubble.
Who would have thought people would be having more fate in synthetic dollars of which the backing value is a total mystery or outright fraud than synthetic dollars backed by actual dollars stored in regulated American banks. This Monday is going to be interesting.
Ironically, I think the greatest black swan in crypto over the last couple of years is Tether not collapsing. I can't remember a financial entity that has been exposed to such fraudulent behaviour (including very detailed exposes by mainstream media: bloomberg and FT) and yet managed to seemingly thrive and grow in importance in crypto land.
I am very curios to how it managed to go on for so long and remain so dominant, given as someone noted on twitter it is "quilted out of red flags". If I wasn't such a hater I would definitely be making an argument to how it is the true antifragile coin, not bitcoin.
Tether is like BP, catastrophe after catastrophe but still the machine keeps on chugging. People making money can make these things go on forever it seems.
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