When Tether Blows Up
paranoidenough.comAs much as I have always had zero faith in Tether since the beginning I've also been reading about how it's going to blow up for about just as long. Here is an article from 5 years ago https://hackernoon.com/what-will-happen-when-the-shit-hits-t...
“The markets can stay irrational longer than you can stay solvent”
It’s hard to predict when things are going to fall apart. Archegos capital worked for quite a while until one day it didn’t.
> “The markets can stay irrational longer than you can stay solvent”
I'm pretty sure if they had damning evidence, a single hedge fund could single-handedly force the market to collapse in a couple weeks.
Keep in mind hedge funds can manage billions of dollars, cryptocurrency market caps are manipulated and the true order book depth is much smaller, and many cryptocurrency people are trading 100x leveraged perpetual futures on dodgy exchanges.
At some point it's disrespectful to even allow the market to exist.
> I'm pretty sure if they had damning evidence, a single hedge fund could single-handedly force the market to collapse in a couple weeks.
Exactly, like they did with GME.
Oh wait.
> I'm pretty sure if they had damning evidence, a single hedge fund could single-handedly force the market to collapse in a couple weeks.
How would you do that? If you knew that Tether had, say, only $10 billion of assets backing it, you'd need to get 10 billion USDT and demand conversion to USD. If you bought those tether, well, it now has $20 billion of assets thanks to you and you lose. Borrowing seems risky, because the people you're borrowing from likely have a vested interest in Tether not collapsing and are going to work against you. So the only safe option is to convince people who hold 10 billion of USDT to cash out for USD pronto.
I will point out that the current drawdown of Tether is consistent with the scenario where liquid fiat assets are fast disappearing from the cryptocurrency ecosystems, and the cryptocurrency companies are fighting among themselves to claim as much of those assets as they can. (NB: There are likely other scenarios that are consistent with available evidence).
You could purchase millions in Bitcoin and other crypto, then sell it to a tether-based exchange for USDT. Then demand it as a withdrawal to USD. Rinse, repeat.
No idea how that would end up panning out but you don't necessarily have to accept new tether in exchange for your USD.
The Bitcoin is still an asset they could sell for USD at a similar rate for what you acquired it for.
Ah, but tether foundation would have to buy it, but more likely a third party buys it with already existing tether.
They would have to liquidate a lot of Bitcoin into USD at once to satisfy a big request for withdrawal, which is a problem since tether's raison d'etre is to provide that liquidity because the dollars weren't there.
I can't see any reason for Tether to have to blow up or motivation for the people running it to let it do so.
Rather than holding US$ to back USDT they have been holding commercial paper ie. loans which pay interest. High quality corporate bonds pay something like 4% so say they invested their $72bn in that they'd be making $2.8bn a year for doing nothing.
They may have invested in iffier stuff but they are on such a nice earner they will be quite motivated not to break it. This is not like Madoff when he was paying 10% interest that was unsustainable. They are paying 0% interest which is not so hard to sustain.
If something gets them it'll probably be anti money laundering regulations, not running out of money.
Not to disagree with your point, but commercial paper rates have been more in the range of 0-2% over the past couple years.
Enron had fraudulent books for over a decade. When I heard that all of Tether's accountants were from the Cayman Islands it reminded me of how Enron managed to convince Arthur Andersen to help them cook the books.
There is nothing that makes Tether seem legitimate and this wasn't an attempt to make it seem so simply because "it hasn't yet collapsed so therefore it won't ever".
At the same time if HN had been around for Enron and year after year month after month there was a post about how Enron was going to collapse for being fraudulent eventually it 1) stops being interesting and devolves into "Enron haters" vs "Enron supporters" in the comments as everything useful has been said years ago 2) starts getting more "they've said that for the last 5 years they must just be wrong" reactions than actually having any positive or actionable impact on the situation.
Money was cheap then: it's not anymore. Default risk has finally reared its ugly head.
The thing about bubbles is being small allows you to pull in fools at a rate sufficient to maintain your price. Once you're large, you can run out of fools since you're a large percent of a given market.
That said, my vague understanding of Tether is that since it's completely opaque and basically rigged, rather than collapsing entirely, the controllers of the "currency" can make it gradually harder for just select customers to remove their money and so support its apparent value without it seeming to collapse (I remember an article a while about a guy who couldn't redeem his tether for reasons unspecified by whatever the exchange, etc).
But if they prevent some people from redeeming, some of those people will go to exchanges and sell for other coins, putting further pressure on the price.
If Tether wants to maintain the peg they have to keep letting people redeem as long as there's more sellers than buyers.
HN posters have successfully predicted 9 out of the last 0 Tether blow ups.
More seriously, it's mostly seething while reposting the same stuff with this article potentially holding the record for being short enough to not even repeat most of the usual let alone add anything compared to the pages and pages of previous posts on the topic[0]. Which doesn't mean it won't blow up, just that those discussions are particularly motivated and low quality.
Markopolos called 9 of the last 1 Madoff blowups, that didn't make him wrong at any point. This isn't helpful to the discourse, it simply shoves real red-ass flags under the rug and serves to legitimize the scam.
Watch this. [1]
> HN posters have successfully predicted 9 out of the last 0 Tether blow ups.
People predicting stock market declines have thus far been predicting something which declines and then eventually bounces back.
This will not happen to Tether - when it blows up, like Mt. Gox, or a host of other crypto scams have - it will not be coming back.
As someone else here said, markets can remain irrational longer than you or I can remain solvent. Bernie Madoff's Ponzi scheme collapsed in 2008 not due to Harry Markopolos talking to the SEC in 2000 (or after) - it collapsed because everyone started withdrawing their money at once, and then the whole house of cards collapsed.
It collapsed because everyone started withdrawing their money at once, and then the whole house of cards collapsed.
That may be happening to Tether now. Take a look at Tether's market cap chart.[1] Click on Overview->Market cap-> 1 month. You can see the cashouts. Between 5:09 AM and 5:14 AM on May 27, 2022, the market cap of USDT suddenly dropped by $750 million dollars. There have been five huge cashouts like that since May 13th. About 12% of Tether has been cashed out in the last 3 weeks.
This never happened to Tether before. Until now, market cap was "line goes up". Biggest previous drop in market cap was about 1% in mid-2021.
So, how long can Tether pay out 4% of its market cap per week? Looks like we're going to find out.
The Tether MC has been leveling off. (See the 1M view of MC on CoinMarketcap -> https://coinmarketcap.com/currencies/tether/)
While Tether may be technically insolvent there looks like there would need to be another $40 Billion in redemptions to really test the peg based on the latest attestation. (They had $82B MC & now have a $72B MC. Cash Equiv. - Comm. Paper & COD = $50B back in March).
My guess is they may have weathered the storm for now. Probably need a few more weeks to fully confirm, but high price today was .9995. If redemptions fully stop or MC goes back up slightly then peg probably returns.
It's only been four days since the last dump, and there was a 3-day weekend in there. Too soon to say it's over.
The 2020/2021 bubble is going to look like a big missed opportunity for the crypto industry to get Tether's books right. It might have been their one and only chance to find enough dollars to actually make their backing 1:1. Now that that bubble is in the past and future bubbles are at the mercy of both public sentiment and macroeconomic conditions, Tether just has to hope that a majority of USDT stays "on the sidelines" and doesn't actually get withdrawn into the real economy. They won't necessarily implode like UST but the possibility hangs over every downturn and panic.
No issue with the author but I wish I could filter HN to not have crypto related news here. It's really polluting my tech related feeds.
The problem is people upvote headlines that support their view regardless of the content. I don't mind high quality posts from either camp, or actual news (on this site called Hacker News), but when we have daily posts like this with nothing new to add, it gets to be a bit much. I'm going to start flagging them like the sibling post mentioned, but this account might be too new for it to matter.
I agree so I just started flagging the crypto related news I see. The discussions rarely follow HN guidelines.
Same, but I also want to toggle it so that I specifically see the stories that are crypto related. Best I can do is search comments several keywords and then sift through batches of them that come from the same story.
Big waste for great minds. But I guess it’s their choice.
> Any exchange with USDT-denominated crypto prices will see those prices explode, as there will be few sellers of crypto for a soon-to-be-worthless asset.
This will also blow up arbitrage bots that move tokens between exchanges, as they quickly and automatically pour coins into a defaulted exchange. A fun “picking up pennies in front of a steamroller” risk in what’s supposed to be a risk free trade.
Tether was invented because crypto couldn't find legitimate outflows through traditional banking institutions. So, converting to fiat was impossible.
Tether and other stable coins came along and said: we'll keep $1 USD for every token we have, so you don't need to cash out your crypto as fiat to see how much it's worth — just trade it for a stable coin!
So, Bitcoin isn't actually worth $30k+, it's worth $30k+ in stable coins because that's what it's traded in. It's only connection to fiat is stable coins.
if ($1 !== $1) // i.e. Tether is a scam that's not fully backed
All crypto will experience a MASSIVE crash
When the fiat inflows stop and instead try to reverse, it's going to be wild.
> It's only connection to fiat is stable coins.
This is simply wrong. There are several exchanges that trade Bitcoin directly with fiat, even USD. It may not be a majority of volume, but it is significant.
When the fiat inflows stop and instead try to reverse, it's going to be wild.
That started 3 weeks ago. See my post above.
Does anyone else not care about cold takes like this? Even if you know something is going to crash, the important bit is knowing when. Guess what, Google, Facebook, and Netflix aren’t going to be around in a trillion years. Shocking, I know.
Not everyone is just trying to trade and ride waves for profit, a lot of people are just putting their life savings in crypto and holding. They should understand the tether risk before doing so.
Awareness is healthily increasing and many people have shifted long-term holdings to a real centralized 1:1 stable (USDC) or extremely over-collaterized decentralized stable (DAI).
The Curve "3crv" pool (which allows large volume low slippage conversion between USDT, USDC, and DAI) has been at >50% USDT for a long time, going up to as high as 80% when people are truly spooked: https://curve.fi/3pool
Well to be fair. The earth itself is only 4.5 Billion years old. Some experts expect our Sun will transition to a Red Giant in ~5 Billion years and stop generating heat.
/sarcasm
A trillion years is a long time. :D
Looking at your Twitter, it seems a more apt article would be covering Solana's failure to function as a decentralized blockchain, rather than the same tired re-hashed Tether fud that most new crypto participants parrot.
https://www.coindesk.com/tech/2020/12/04/solana-devs-call-al...
https://solana.com/news/04-30-22-solana-mainnet-beta-outage-...
Come on, it's only 30 minute late after the clock lost track of time.
https://www.theblockcrypto.com/post/149112/solanas-blockchai...
VC bag holders trying to make the 7 block eth2 reorg some sort of existential threat, while Solana shuts down for a day and they act like it’s no biggie. Absolutely hilarious.
Tether speculation aside, this is a very low quality post. HN bias of crypto is the only reason this piece achieves first page
There are so many interesting things to discuss about Tether, for instance, I would like to know the insides of how Tether is providing shadow banking to crypto exchanges and how does it mean for future scenarios
Anyone has anything shareable?
I feel like Tether wanted to prove, once again, that the entire system is illusory anyway just like how the Bretton Woods system ended in 1971 (no more convertibility of USD into gold).
As long as people use USD effectively, who cares whether or not it is backed by actual gold?
>As long as people use USD effectively, who cares whether or not it is backed by actual gold?
Because unlike all crypto coin asserts, its backed with guns.
The guns really do back the USD.
It's true that value is set by supply and demand for both crypto and USD, but there's a key difference.
Yes, crypto and USD both have a limited supply (at any given time). But the demand for crypto can fall to zero with the only real-world change being a change in people's feelings. But USD demand is more than just feelings. There is a floor in the demand for USD because anyone who wants to live or do business in the United States are obligated by law (and ultimately, guns) to pay taxes in USD. For this reason, USD demand can't go to zero until the entire US economy collapses (and with the aforementioned guns, US economic interests will likely be protected).
Obviously that floor in demand doesn't represent 100% of the demand for USD, but it's a floor on which a lot of confidence and subsequent demand can be built.
100% agree.
The system promised other nations for gold, not necessarily US depositors, remember that. Also that this pillar of the financial system only started operating on the gold standard in the 1930's? The system has been dead for as long as it was ever alive and its continues to be held up as this shining pinnacle of capital market control done right.
It won't be soon enough.
Disagree. Everyone already knows about the Tether scam, so the risk is priced in. Nobody will really lose confidence as everyone expects it to blow up for a decade now. Secondly, people will just switch to USDC.
I don't think 0.9993 counts as "priced in" when the consequences of holding significant USDT during another marketwide panic might be total loss of funds:
Yeah, how is Tether trading at the same as USDC and grandparent commenter says it’s “priced in”?
I think every single large bubble (2008 notably) has used the argument that "since the possibility of this being a fraud been discussed, that possibility is being priced-in by the markets" and yet still the bubbles collapse.
How is risk priced in if it’s trading for $1?
No way it blows up. Too many people have a vested interest in keeping it alive. Tether probably could have blown up years ago. At this point, there are definitely unseen and unknown backers who would prevent it.
I think that’s probably true for some amount of correction, but presumably there’s some amount where the juice just isn’t worth the squeeze anymore, right?
A quick google search says there’s 14b tether in circulation - if that’s true and it falls 50%, who is going to put in multiple billions to try to prop it up?
Tether is at 75B right now, up from 5B pre-pandemic.
> if that’s true and it falls 50%, who is going to put in multiple billions to try to prop it up?
Anyone who has information on the backing assets. If Tether embezzled or lost 30 billion and were able to buy back all USDT at 50 cents, they would make billions in profit as well as erase that shortage.
If tether goes down, so does bitcoin. This post may as well be about bitcxoin going to zero then
>If tether goes down, so does bitcoin.
Doubt that. I’m sure almost anyone here could wow me with technical reasons why they are correlated…
In the end because this is all illusionary and not backed by anything tangible, it’s faith-based speculation.
When Tether pops, Bitcoin probably goes up. No one will have learned any lessons, just that they picked they wrong one, but this one over here is “safe”. It’s all what people can be made to believe, and I’m pretty sure the average crypto gambler can be made to believe lots of things that aren’t rational. Who hasn’t seen that themselves?
The British pound holding its ERM peg had a whole lot of people invested in it, yet it still lost the peg.