But like how? I get why the SEC might have words for Tether the company but I don't get how users of tether have been scammed. You buy coin at around $1 and sell at around $1. Like from an end-user perspective as long as the thing actually functions as a stablecoin for some time interval you care about what else is there?
You can sell around $1 as long as people believe it's worth $1, which it's not, so there's no guarantee they will continue to believe it forever. It's supposed to have enough backing to actually represent a $1 which would mean that faith wouldn't be part of the equation, but that's not the actual situation.
Not to sound patronising but this perspective sounds very myopically focused on crypto “narratives”.
We’ve seen bank runs before. We’ve seen failed currencies. These aren’t unprecedented events.
With that said, the old Buffett quote “it’s only when the tide goes out that you see who’s been swimming naked” has never been more apt than to this situation.
To take your hypothetical example, you’re correct that the user in question is able to trade on their token to someone else for another asset quickly - but as the article states, issuances outstrip redemptions by 20:1.
That means almost all of these tokens are still in circulation. Someone is on the hook for those losses.
The thing is, who’s liable? If the whole marketplace is a fugazi then it’s probably up to the exchanges to organise haircuts as they deem appropriate.
That isn’t even the real problem though. What’s the value of [COIN] if 95% of the market cap is suddenly revealed to be fake money?
I mean, sure, you can assume everyone will just shrug that off and hold what they have while you sell, but it seems really unlikely.
tldr; this information suggests that most of the value in most of cryptocurrency tokens does not and has never existed.
The problem is those two companies that bought most of it have the power to prematurely end that time interval whenever that makes financial sense for them.
Hypothetically speaking if Tether had been squeaky clean and open about holding a fraction backing assets in cash. These companies could have still bought a crap ton of it and caused a bank run if they wanted. That's just how fractional reserve works.
Tether is a scam on a whole other level than this