I’m not saying tether is fully backed (I think it’s been admitted they’re not), but do people not understand how it even ostensibly works?
When people sell other crypto for tether/USDC, they are essentially “buying” tether/USDC. Which tether and circle “print” out of thin air… but ostensibly back by selling the other crypto they just received for real dollars.
With the huge crash, a lot of people were selling their crypto.
It feels like people don't understand Tether. Tether was originally created to be an intermediary between exchanges and anyone that wanted to move large amounts of USD without paying price spreads to buy / sell on either end.
Tethers are essentially IOUs pegged to USD. While the Tether organization may have originally waited for the Tether purchaser to transfer the money into their accounts before issuing the Tether, by 2018 at the latest, this has to have changed when Tether was forced to cease dealing with US citizens. If not from the start, their model of trust must have allowed their large clients (the exchanges, etc.) to hold onto the USD and instead issue "Commerical Paper" to back the Tethers issued.
Tether obviously isn't going to reveal the exact arrangements here, and from the outset, their claims of having bank accounts with billions of dollars was suspect... but this revelation has been nothing new, and if anything, things look positive now. Tether doesn't appear to just be printing Tether with absolutely no backing.
You're missing the point, OP is suggesting that Tether isn't really backed by USD. So instead of trading something backed by USD for BTC, they're just creating worthless IOUs and buying BTC (typically bidding it up on down days). It smells a lot like fraud.
There's alternative explanations for a lot of the very strong accusations made against Tether.
People always refer to Tether 'printing money out of thin air', but they never consider the prospect that investors are wiring money to exchanges, having Tether printed for their use, and then using that USDT to purchase cryptocurrencies.
Bitfinex is huge. Bitfinex also has an OTC counter, which has been known to broker trades in excess of 10-50M USD. USDT is often the medium for which these trades are executed, so it makes sense that a lot of Tether needs to be printed when BTC is crashing, as that's when the larger players decide to buy in the most.
There is a lack of transparency, and I wouldn't be surprised if things don't look perfect behind the scenes, but that doesn't mean the entire thing is a billion dollar scam conspiracy that the largest exchanges are all in on. Not all transparency is in the users' advantage in this area either. Do you know why Bitfinex doesn't tell you exactly where their servers and wallets are located? Probably because they hold over a billion USD in BTC in a single address.
Keep in mind that the market clearly values Tether at around $1USD, almost always. That's a good sign that the market as a whole does not think Tether is going to suddenly collapse and take the entire ecosystem into it at any point in time.
It's important to read criticism like this and consider it, but not believe it blindly. There are a lot of feasible middleground scenarios between "is a complete fraud and scam" and the exact opposite.
I've been reading for years now articles saying that Tether isn't properly backed like they claim.
If that's both true and widely known, who's buying the Tether? The supply's increased from $4 billion-ish to $60 billion-ish over a year.
For that matter, even if the NY AG's claim that Tether was lying is bunk, and Tether is solvent, who wants to bet so big on the US dollar given the Fed's money printing and Congressional spending? It should be pretty clear the dollar's headed for weakness if not an outright crash, and you should put your money into limited-supply crypto like BTC/ETH, gold, or equity in productive businesses. (Disclaimer: This is not investment advice. Even it was, taking investment advice from some random person in an HN comment thread would still probably be a bad idea.)
Who's buying all those Tethers? What motive do they have to buy them, if there's all this buzz talking about how Tether's a scam? Even if Tether isn't a scam, how do you within the space of a year find $50 billion in the hands of people financially literate enough to know what crypto is and how to use something other than BTC / ETH, but financially illiterate enough to put tens of billions into a long USD bet? Isn't that a good way to lose your shirt simply due to macro-economic fundamentals?
Everyone knows how Tether works. I bought some after the de-peg before the most recent one anyway because I needed something worth about $1 USD to buy Monero. And I'd still be happy to point out that USDT is unbacked and extremely risky (ie, going to collapse eventually by design).
It is obvious that the people who own "wealth" in Tether will lose it sooner or later. If there are a large pool of people who believe Tether is 1:1 backed they:
1. Haven't read any news about Tether.
2. Haven't researched it at all.
3. Aren't a member of any social network like HN where Tether's flaws are trumpeted.
4. Are quite gullible.
EDIT 5. Haven't looked at a price chart of Tether showing it's regular de-pegs.
Such a person will fall for any scam, Crypto-related or otherwise. Regulated industries will still have people willing to take all their money since they aren't financially literate.
> The Federal Reserve also manipulates supply to try to keep prices stable.
Prices rise continuously, that isn't stable. The Fed tries to keep the rate that the US dollar loses value stable. The backers of Tether are making better guarantees than the Fed are - actual stability. They have less power to force people to go along with them though.
>When people sell other crypto for tether/USDC, they are essentially “buying” tether/USDC. Which tether and circle “print” out of thin air… but ostensibly back by selling the other crypto they just received for real dollars.
You're missing the previous links in the chain. When you sell your crypto at an exchange, your counterparty isn't the exchange, it's another person who wants to buy crypto. Therefore you making the trade doesn't cause new USDT to be printed. That happens before the trade, when your counterparty made the deposit.
Money flowing into the cryptocurrency ecosystem causes tethers to be printed; money flowing out causes it to be destroyed. If people were all simultaneously cashing out (on net), it would stand to reason that tethers be destroyed, not issued.
Wait I don't get it, it's not fully backed but it's still backed somewhat right? I thought it was only a chunk of USD that was missing? Or did they completely abandon the usd backing?
If it's still somewhat backed and just that chunk of usd that remains unaccounted for, printing tether isn't exactly a scam? People trade their usd for printed tethers and use that to buy bitcoin, so it's still essentially people exchanging usd for bitcoin
I don't get it. tether sucks. If you hold tether it may turn into air. But your bitcoin is still bitcoin. Also, when tether is going down wouldn't you want to sell it thus creating pressure in btc/tether market and value of of tether/btc going up? It's always been clear to me that USD/BTC and USDT/BTC are two different markets. USDT is just another cryptocurrency. Many of them were scams and disappeared and many more will. Same with exchanges. It seems like describing somebody maliciously selling fake or paper gold and concluding that gold is bad.
Tether isn’t a traditional “scam coin”. Tether is the currency used on many major exchanges, they don’t use USD they use USDT and if tether have printed 2bn in fraudulent dollars that underly the entire crypto market they could wipe out huge portions of the market when it implodes. The market cap isn’t the amount of money invested, a hundreds of billions market cap can come from a few billion in “real” dollars — and if those dollars don’t exist, well...
Tether backing is not just dollar. They recursively use bitcoin as part of their reserve.
Bitcoin price rises, and they print more usdt to buy more btc.
It's hard to say how much btc would drop or pump.
Tether bootstrapped crypto demand, even if it was done so fraudulently
On low volume price reacts to changes in sentiment more than on high volume, this is not evidence of anything shady.
Tether has been discussed many times and for all the doom prophecies of past five years, it’s been quite anticlimactic.
Audits and bookkeeping aside, the argument “omg have you seen tether printed X amount of BTC to pump the price” laughably misses the point, that it’s exactly what stablecoin are - when somebody wants to buy large amount of BTC through tether, they send real USD which get converted into “printed” USDT which then is traded for BTC on exchange, driving the price up. That’s like literally what one should expect of how this system should work, what’s the issue?
And lastly, if your hands are shaking checking the price - you shouldn’t be trading, you’re killing yourself.
Lets pretend Tether has no backing what so ever. They could still defend the peg 1:1 completely. How? Well if someone wants to sell a bunch of tether, they simply print even more tether, use that to buy crypto on exchanges, and sell that crypto to anyone willing to buy it that generates dollars to pay of the person selling their tether. But that also leves them with the tether that was sold back to dollars, which they can then buy more crypto with an either just hold or also sell to generate dollars. The visuals of this from an outside ends up looking effectively like there was just ton more new money coming into the system when in fact the exchanges and new money took a hit, and the money printing people just raised their perceived holding without backing. That is to say, that in this case the event of someone wanting out looks like the market is rising. You can keep this going as long as your un-backed coin can be exchanged for other liquid crypto.
As long as they have a blindly trusted money money printing machine, they can use it to defend the illusion that it's printing real money. This is thes standard playbook for a pyramid scheme. You use new money to keep the illusion of a big holding and you can keep that going as long as the illusion holds.
Because they're not claiming "We can maybe somehow come up with the money that the Tethers represent in the future." they're saying they have the money right now.
And again, you're missing the point that it doesn't seem like they are selling the USDT for anything, BTC or otherwise. They're just printing it and buying BTC with it.
EDIT:
That may seem like splitting hairs but the point is they aren't issuing them in exchange for value, they're just creating them and then using the value they supposedly have based to purchase BTC.
An analogy if you still don't understand the difference; it's the difference between buying a $50 Gift Certificate to a store with $50 USD or just printing one on my printer. One represents $50 USD that exist and were exchanged to buy it, and the other represents nothing.
Let's assume that it's impossible to sell Tethers for dollars. I don't think that's completely true, but that's the "steel man" argument.
Even if you can't sell for dollars, you definitely can sell for BTC, ETH, XRP, etc. Why don't people liquidate their Tether to buy other cryptocurrency?
You would know this was happening if the price of Tether dropped far below $1.00, or if the supply of Tether contracted as Tethers were destroyed on redemption.
The fact that we don't see either of these things tells me that the backing isn't actually "meaningless". Rational traders with their own capital at stake don't appear to be selling.
When people sell other crypto for tether/USDC, they are essentially “buying” tether/USDC. Which tether and circle “print” out of thin air… but ostensibly back by selling the other crypto they just received for real dollars.
With the huge crash, a lot of people were selling their crypto.
reply