More worryingly, there’s a widening spread in btc price between bitfinex and gdax. That implies people are getting out of tether on bitfinex and selling btc on other exchanges to get dollars.
The last time seems to have been in May 2017, when there were 'only' $60 million tethers floating around, compared to the $2.2 billion in existence now...
Here’s what I never understood - how come Tether (the company) never arbitraged the USDT/USD pair when it traded at a premium? Seems like easy money for them.
The money that’s backing the Tethers. As an example - you deposit 1mm USD with Bitfinex, and they give you 1mm Tethers. Bitfinex invests your 1mm USD every night at overnight Libor, earning interest each day they do so. When someone (you?) wants to redeem the 1mm Tethers, Bitfinex gives them the 1mm USD, but keeps the interest it earned. You question is a good one, though - why would people ever pledge USD to create Tethers in the first place, given that treasuries have a higher (non-zero!) return? One example: if your 1mm USD came from a criminal enterprise, then you couldn’t deposit it at a brokerage and buy treasuries (due to KYC rules, etc).
I believe that's their business model. When there's a market pullback and many want to go into USDT, they sell their USDT for $1.04 or so, and when there's a bull-run and people want out at USDT, they buy back around $0.96.
Vitalik Buterin, the founder of Ethereum, published a post on coins like Tether a few years ago:
My understanding is that unless there's a "tether-run", where everyone wants to get out of Tether at once and the company behind Tether isn't well prepared for it, then that's when the coin may actually crash. Otherwise, it will self-stabilize by putting more Tether on the market, or taking Tether out of the market. So in a way, I guess it works a little like the Federal Reserve.
As for not having enough money to "back Tether", this is bad in the sense that they promised they would, and they're not showing proof that this is true. However, it's "only" as bad as any real-world bank that uses a fractional reserve banking scheme. So just like a fractional reserve banking entity would crash as soon as there is a major bank run, similarly Tether would crash if they don't actually have 1:1 USD:USDT backing.
So Tether is about as "shady" as any of the major US banks - and yes, I would agree that both are pretty damn shady. But this seems to be the status quo right now, so if you don't trust Tether, I surely hope you're not keeping your money in a bank either, because I think we're getting close to another financial bust, and we'll go through the same crap or worse that we went through in 2008 with the defrauding banks.
The second part of your post is utter nonsense. If a company makes money from issuing tokens and lying about them being backed by the USD, it's definitely more shady than a regulated financial institution which makes money by lending money at a higher rate than it borrows it, and is definitely more at risk of a "run" even without ignoring all the rules in place to ensure that banks will always be able to borrow at less than they lend, and protections for deposit holders in the event of a bank's loan portfolio going under.
In a normal bank run, the problem is that the people want the money back now but the bank has lend most of it and the money is locked in a 20 years mortgage. In some sense all the deposits of the bank are 100% backed. They just can't go immediately and reposes a house and send a bunch of brick to the people that want their deposits.
There are also some cases when the bank has no enough money (bad lenders selection, promised a too high interest rate, fraud, ...). In this case the deposits are not fully backed. But this is not the normal state of a bank.
Lots of downvotes, and a couple of replies from people who don't understand what fractional reserve banking is, and that the institutions lend (and trade, which was then more heavily regulated following the last crash, and is in the process of being deregulated again) on many multiples of what they actually have in deposits.
That said, they never claim to be 1:1. They claim to be operating within the legalities requires for fractional reserve banking.
People know exactly what fractional reserve banking is, and understand that it is ignorant at best to assert that banks creating credit and informed parties accepting that credit at parity with Fed-issued reserve notes because both parties understand how the system works and can access those reserve notes on demand where required and a criminal enterprise selling a claim on a nonexistent asset to people that believe their fraudulent representations are the same thing.
Banks profit from the repayment of loans, not directly from the issue of money, and banks' willingness to accept each others' credit at parity to m0 reflects their knowledge of the facts about other banks' expected future income streams and guaranteed access to an m0 lending facility, not ignorance of their counterparty not having what they claim to have. If everyone wants to withdraw their USD from a bank as cash, the reserve lending system is designed to actually allow this to happen. Banks fail, infrequently, because the number of people who fail to meet repayment obligations to the bank exceeds expectations, not simply and inevitably because not enough Peters are willing to be robbed to repay Paul.
The two are similar only in the same sense that a futures contract and a shyster selling you the Brooklyn Bridge both involve the other party selling something they might not be able to deliver.
> institutions lend .. on many multiples of what they actually have in deposits.
That is not true at all. You are probably thinking of the minimum capital requirements (banks leverage) which measures all lending (bank assets) against their common equity. Deposits and credits are roughly equal and the minimum capital is required to cover mispricing on their assets. And no, banks are not being deregulated in this regard. In fact Basel III which regulates those reserve ratios is much stricter and it took several years for banks to recapitalize to the new minimum levels.
Or you are thinking about the bank's deposit with the fed (the fractional reserve part). But those reserves are not a problem for banks because if there is lack of reserves on the interbank market and the price (interest rate) of borrowing reserve increases above the fed's funds rate, then the Fed steps in and provides the reserves at the rate it wants to keep. This is part of central banking because a central bank cannot simultaneously control the amount of reserves AND the interest rate.
If there really is such a strong need for this 1:1 USD type service why not create a legit, fully transparent, US based company to compete. Use the float to generate income. Even 1 or 2% on 100s of millions adds up.
If someone is interested in 1:1 USD crypto assets, I recommend looking into the mechanics of smart-assets such as bitUSD [1] on the Bitshares DEX. These are backed by at least 175% of equivalent value of Bitshares. Thereby these smart-assets achieve a stable 1:1 USD value in a decentralized way [2]. If the value of the collateral of a short position falls below 175%, the position is margin called automatically by the blockchain. Another advantage is that you can trade them within the blockchain without any central party [3]. In my opinion this decentralized bitUSD is much better in comparison to Tether, which is intransparent and centralized. In recent months trading volume really picked up esspecially in bitCNY/BTS, but also for bitUSD/BTS. I would be happy to hear other opinions about these decentralized alternatives.
Disclaimer: I own some bitUSD, bitCNY, BTS, but I am not involved in other ways with the project.
Is there sufficient incentive to issue bitusd if you hold bitshares ? I guess you can loan yourself about 60% of the value you hold in bitshares if you issue yourself some bitusd. but is it any more than a leveraged position in bitshares ? Could be risky for the issuer unless they are prepared to really support the price of bitshares.
Yes, that is how I understand it. But I am also still learning about it. It was interesting to see the margin calls during the 40% price drop of the crypto market two weeks ago. Basically, before the drop some people had enough collateral above the 175% threshold, but during the drop these positions entered the margin call area and the orderbook of the decentralized exchange was automatically filled with USD buy orders, so that they were forced to close their position.
The major draw of Tethers is to allow people to "hold" "dollars" while avoiding anti-money laundering and know-your-customer laws. If you wanted online dollar handling services that abide by these laws, you get a bank account and send wire transfers and ACH transfers.
That's not true, it's very desirable to have something that spends like a crypto-currency (fast transaction time, low fees) but doesn't fluctuate wildly. Nobody's going to send a $1.00 ACH transfer to tip a web comic artist.
People can and do all the time, they usually just link Paypal to their bank account (or something similar) as an intermediary to avoid handing out their bank account number to strangers.
And furthermore, how is the web comic artist going to pay their rent? Landlords don't take tethers, so at some point they need to cash out to actual dollars and receive an ACH transfer from an exchange or the like. Are they really better off being forced to trust a crypto exchange?
Does it even need that? ETFs can keep their price stable with as few as five or ten entities being allowed to trade the underlying basket of assets for the ETF. Those who aren't allowed to directly exchange the assets for the ETF can instead trade with those who are allowed, or trade with someone who can trade with them. There's no need for everyone to be able to deal directly with the ETF issuer, and the same should apply to USDT.
> There's no need for everyone to be able to deal directly with the ETF issuer
But there is the need for everyone to trust the ETF manager. Authorised participants (APs) must trust they can redeem ETF units for a basket of the underlying shares and vice versa. Other market participants, in turn, must trust that process to manage tracking risk.
ETF managers earn that trust by contractually guaranteeing APs' creation/redemption rights, being regularly audited like normal companies, being regulated like securities companies, and having their holdings vouched for by other market participants, e.g. banks, clearing and settlement services, et cetera. Literally none of the preceding apply to Bitfinex nor Tether.
More broadly, a structure like Tether is inherently incompatible with anti-money laundering. No jurisdiction will let a bank say "these $2 billion are held by unknown beneficial owners." If we wanted that, we'd just re-authorise numbered, i.e. anonymous, bank accounts.
Thinking outside the box here -- why not just set up a bank? It might not be easy, but given the amount of capital floating around in crypto land, I assume it should be a non issue.
It's very hard to get regulatory approval for a banking charter right now. The FDIC has been approving less than 1 new bank a year since 2009, as compared to an average of 154 a year in the eight years prior to 2009[1]. And that's just one of several regulatory bodies that would need to approve a crypto bank.
There might be shell companies with a remaining active banking license, that were approved pre-2008? Seems like regulators are preferring that you acquire a charter over acquiring a new license.
Commodity ETFs get by with having audited assets stored somewhere in the vault (GLD). They just need to be periodically audited by a trusted third party (or two).
The whole point of tether is to create a link back to fiat while at the same time avoiding the iron fist of the Empire and it’s labyrinth of rules and regulations, using what they consider to be a legal loophole. (Good luck convincing the Imperial Stormtroopers of that ...) Having a US based company do this would be impossible and defeat the purpose.
If Bitfinex was publicly held, they'd have to file an "auditor changed" statement with the SEC, and the auditor also has to file a statement about what happened. That's to prevent companies from switching auditors when they don't like the audit findings. But Bitfinex is private, and the SEC is about protecting shareholders, which Tether holders are not.
Tether will probably collapse in the next big downturn. That's when Bitfinex has to spend real money to buy Tether units back to prop up the price. Tether, like a Ponzi scheme, seems to work as long as net inflow of money exceeds net outflow. When it doesn't...
The point of Tether, afaict, is to make a bunch of people bagholders while the folks running it walk away with both the cryptocurrencies and whatever bank account balances they managed to acquire.
That doesn't really have much to do with it. The whole point of USDT is that it's supposed to be backed by real dollars. If it turns out that it's a lie then USDTs will crash, regardless of where they are.
I am not sure about the "best". One way is getting a hardware wallet like Leger Nano S[0]. It doesn't support "all" coins but popular coins like BTC, ETH, BCH, XLM, LTC, NEO etc are supported.[1]. I use it and it's convenient, so far.
Funny how the price of both products has gone up. I purchased a Ledger Nano S (unused as of now) for about 70 EUR. Now its 95 EUR, with "Shipping is scheduled from March 26". This chart on Amazon (regarding Trezor) is also telling [2]. I guess people wanna join the hype bandwagon. On the official website the Trezor is 89 EUR "without VAT". Which is illegal to advertise in NL unless you're specifically targeting businesses (who prefer to not have VAT mentioned).
A disadvantage of the Ledger Nano S is that in order to use it, it requires Chrome [3]. I'm not sure that's true for Trezor. It also has a Chrome extension but iI seems it can function with just the "bridge" [4]
I was a bit put off by the Chrome Apps too, but it hasn't been a problem in my actual use. Also they're writing non-Chrome apps now because of Google end of life-ing Chrome Apps. I'd love to get a Trezor as well but they want me to pay an extra 20 EUR to get one or wait until after February.
Keep them anywhere where you control the key, ideally with a seed that you can write down and store safely. If you're a bit paranoid, wallets like Electrum also support multi-sig wallets.
Considering the reactionary nature of most casual traders, how much of this dip is caused due to panic based on blogposts such as these? There is no reliable source of truth here and just random blog posts which mostly read as opinion pieces.
Really unsure about bitfinex, I feel like it's got no real value, just piggybacking of the tech of ether - its like creating value out of thin air, something like these - https://www.starregister.org (not real obviously)
Once a huge exchanger like Bitfinex fails, there will be a run on exchangers. Nowhere is safe. Never keep coins with an exchange, even if your uncle is the CEO.
Depends on your perspective. Prices dropped significantly because people started to prefer dollars to some extent. Several of the large exchanges that existed back then are still around, however, and others were acquired. Examples of those still around: Coinbase, Bitstamp, Bitfinex, Kraken. Sure I'm missing others.
I mention the above only to say it didn't feel like a true bank run to me at the time. People were still able to get in and out, but prices were certainly depressed. And several of the exchanges survived.
there was a huge spread between the price of bitcoin on the exchanges.
i also distinctly remember people sending money to mt gox LONG after every mention of them on the internet was followed by angry people calling them a scam.
Seems like exchanges should be fine as long as their books balance. Even in a “run” you would just have delays waiting for cash outs to process, they would go through eventually.
Binance is the best by a wide margin right now. Most stable, good tech, great job scaling, and lowest fees. The crypto market moves very fast though. “Standing the test of time” isn’t really a thing.
None of those things tell me Binance is safe. Binance is not even a year old! Low fees and the fact that their servers haven't crashed yet are hardly reassuring. Being based in China doesn't help me trust them either.
I don't know about scaling, at least technology wise. Their trading web interface maxes out my CPU core at just 4-8 tx/s. And that's usually the time of big movements, exactly when you don't want trading interface to freeze up on you.
The only exchange I've been able to get verified on successfully (and I've tried Coinbase, Gemini, Kraken, Bitstamp and probably others that I am forgetting) was Luno[1].
While it was relatively easy to get verified on Luno, their "instant sale" prices are quite high and I see no way to place bid/ask orders directly.
At the moment you can only trade (place bids/asks) on Luno with the following currency pairs: BTC/IDR, BTC/MYR, BTC/NGN, BTC/ZAR (largest volume) and ETH/BTC.
I think they started out as a South African only exchange a few years back.
Hrm, this is interesting. I looked up Bitstamp on Wikipedia and somebody edited the website from bitstamp.net to bitstamp.one recently[1]. Seems like a phishing attack.
Here's a suggestion: Don't trust any exchange (or, let's face it, any company) whose only contact details on their website are email addresses or instant messenger. Binance looks as shady as they get.
Yet I've never had an issue withdrawing from them, where as I've had countless problems withdrawing from basically every other exchange, including (especially) the ones that have a US address listed on their website.
Binance fees are low but not so low that I doubt how they make money. They have a huge number of pairs without having too many shitcoins. Many of their pairs are now ETH/___, which is much better for many people due to high BTC fees.
But yeah, I'm going to completely ignore a great level of service and security, and instead be worried because they don't list an address on their website. /s
What good is a non-[insert your country] address really going to do for you anyway? A small-time crypto trader isn't going to have any power to get anything from most foreign domiciled companies without very significant effort.
Finally: this goes against the entire principle of cryptocurrency. The point is that I don't want to have to trust my nation (or any other nation). I trust Binance because they haven't fucked me over. The same can't be said for legally domiciled US exchanges I've traded on and the US government.
Binance actually has an active subreddit with actual employees from Binance that answer questions and do customer support there which is unheard of in the age of waiting weeks to get support tickets answered at places like Coinbase. Binance is as good as it gets for customer service in crypto in my opinion.
There are tradeoffs you have to accept. Coinbase used to be great- super user friendly and reliable, and most importantly, FAST. Buying anything from Coinbase now is a joke, and they have repeatedly committed fundamentally unacceptable actions for a company dealing with money and related analogues like, after a transaction was supposed to settle, push out the date that you'll receive your assets.
Unfortunately they are the best when it comes to quickly cashing out, and in terms of buying I have no other alternative that I've used thats reliable. Depending on the asset you might have some luck with Cex.io or others.
You’d think they would make it easier to buy, the price would end up higher that way and they’d get more fees.
My only thought is maybe they slow down buys to get themselves a look-back period where they can decide to cancel transactions that don’t go their way before filling the order. That would maximize the average revenue per transaction a lot during periods of significant volatility. It would skew profitability upward, at the cost of user experience and goodwill.
Seems like more of a short-term strategy by a company that is trying the milk the crypto craze as much as possible and willing to burn market share in the long run as the fad dies down.
If bitfinex doesn't have dollars to give for usdt, all they have to do is give an equivalent amount of bitcoin based on a bitcoin index like the one cme, cboe, and bitmex use. I just wish binance, kraken, poloniex would support bitusd also. Two of them support bitshares already, so atleast there is a path to bitusd. unfortunately bitusd float is nowhere as big as usdt.
Edit: disclaimer: own some bitshares.
Edit2: would be interesting if bitmex converted or pegged some of their swap products into decentralized currencies that you could trade on other exchanges.
That is beyond silly. They used the fake tethers (USDT) to buy up bitcoins increasing the price. And you think that it is okay for them to pay their debts in the very currency they manipulated?
Ah, the lovely world of yesteryear, reminiscent of 2008s synthetic instruments. At least this time these people are actually greedy POS looking for money in a zero sum game. With 2008 ordinary people got hurt badly for just having 401ks. Here you simply have greed overpowering logic. Oh my.
Greed is anticorrelated with logic as it is usually a vice that causes poor decisions made by overweighing possible gains and minimizing possible losses. It is a non rational mode of human weakness, and can even be correlated with evil ie. Nestle and formula / water fiasco, Microchip companies hushing fab workers with birth abnormalities/ health issues
