"The chief financial officer is Giancarlo Devasini, a former plastic surgeon from Italy who was once described on Tether’s website as the founder of a successful electronics business.
The only reference to him that turned up in a search of Italian newspapers showed he was once fined for selling counterfeit Microsoft software.
Elsewhere on the website, there’s a letter from an accounting firm stating that Tether has the reserves to back its coins, along with a pie chart showing that about $30 billion of its dollar holdings are invested in commercial paper—short-term loans to corporations. That would make Tether the seventh-largest holder of such debt, right up there with Charles Schwab and Vanguard Group.
To fact-check this claim, a few colleagues and I canvassed Wall Street traders to see if any had seen Tether buying anything. No one had. “It’s a small market with a lot of people who know each other,” said Deborah Cunningham, chief investment officer of global money markets at Federated Hermes, an asset management company in Pittsburgh. “If there
were a new entrant, it would be usually very obvious.”"
Well, Bitfinex uses Deltec as their bank. A bank that claimed at the start of this year that they were "55 years old and whose customers were predominantly asset managers and high net worth individuals", until they did a website redesign (more on that below) and overnight were "70 years old".
A bank that had a 33 year old "Deputy CEO" who gave interviews from his gaming rig.
Who claimed to have graduated from HEC Lausanne in Switzerland with a Masters in Science when he was 15...
and then immediately get a job as Professor of Finance at a Lebanese university...
while dividing his time between running funds in Switzerland and oh ... Jacksonville Florida (actually, that last part is the most believable), where he worked for himself, managing a fund that he couldn't even spell correctly on his own LinkedIn profile (Independance[sic] Weath[sic] Management).
Of course, the last interview he gave, the bank removed him from their website within hours once the ridicule started piling on. When people started questioning that, they very quickly re-added him. And then removed the site entirely. And put up a WordPress template website with completely non functional links and buttons a few days later.
I keep waiting for Yakety Sax to start playing, but to the true believers, it never does, and apparently all us nay-sayers are just neanderthal and don't see "the vision".
> I keep waiting for Yakety Sax to start playing, but to the true believers, it never does, and apparently all us nay-sayers are just neanderthal and don't see "the vision".
It reminds me of the initial dot-com bubble, where anybody who asked questions was also painted as not getting it. Ditto the mortgage bubble, come to think of it.
Then when the inevitable crash comes, nobody apologizes. It's either "who could have known" or just moving on to the next grift and never saying another word.
I’ve seen this happen in companies with stupid projects. Same thing happened with the Iraq and Afghanistan wars. Anyone who dares ask questions is ignored, sidelined, or fired.
Seems to be a general pattern when there is an economic or policy “bubble” and big players in an organization or sector are holding the bag.
Everyone who holds cryptocurrency is holding Tether’s bag of poo. No they are not even the majority of money in cryptocurrency, but they are enough to prop up the price a lot given that it’s a fairly thin market. They are also structured so as to make it very easy to use their funny money to manipulate cryptocurrency price.
Their joker CEO sounds like a cutout and fall guy.
> Everyone who holds cryptocurrency is holding Tether’s bag of poo.
Or they recognize you can't time the market, and see upside despite a nearly-inevitable tether crash? If investors had been waiting for tether to crash they would have missed the run from $1k - $30+k, and I don't think you can claim with a straight face that was all tether manipulation. Again, can't time the market.
Everybody holding a bag of poo believes there's upside. That's why they're holding it. I will grant that the cryptocurrency ecosystem is incredibly good at not just finding but creating greater fools. [1] But the fool supply is finite, and more than 10 years on cryptocurrencies still aren't good for much practical. [2]
If you’re criticism is based on payments you have not been paying attention to the space for the last 5 years.
Anyway, it’s easy to make a circular argument of “people buy it because they are fools, and they are fools because they buy it.” You’ll be right whether it goes up or down so there’s not much of a debate to be had..
Well I'm glad we agree that Bitcoin has failed in its original purpose. Perhaps you can set straight all the people who argue otherwise? Because there sure are a lot of them.
The trouble is, it doesn't actually have another one, not a practical one.
Payments is..part of the original purpose. And I think for everyday transactions Bitcoin has failed, so far. Lightning is a step in the right direction though, but it's not there in terms of UX. And volatility is obviously an issue.
If you are actually unaware, and not just arguing in bad faith, most development right now is happening on Ethereum and DeFi apps running on Ethereum. You can get collateralized loans, there are decentralized prediction markets, stuff like that.
Payment was the entirety of the original purpose. As the original paper says, "a purely peer-to-peer version of electronic cash". The first sentence of the introduction starts with "Commerce on the Internet" and ends with "process electronic payments". It has failed both on "peer-to-peer" and "electronic cash". It makes no material difference to internet commerce. It has signally failed in its original purpose.
And yes, more development is always happening. Success is always in the future. Never mind that M-Pesa and Venmo and Android and Tesla all started around the same time. Uber and Lyft and Twitch and TikTok all launched years later. They all have actual success. None of them are hammers blundering around in search of a nail. None of them have to keep blowing smoke about the incredible future ahead.
But in the same way that Bitcoin is making no difference today in the real-world payment markets, none of that development is making a difference today in their equivalent markets. Colateralized loans, if they work, are 0% of the total colateralized loan market. Prediction markets have existed for more than 20 years. Adding "decentralized" doesn't make them better. Most of that "innovation" is in the category of dancing bears: the impressive part is not that the bear dances well, just that it's a bear doing the dancing.
But since you can't name a purpose, I'll just tell you: The actual current purpose of the whole circus is to enable assorted grifts. When Bitcoin got popular, that's what drove it: people seeking unearned wealth, and the people preying on the suckers with money to lose. That has kept snowballing, grift upon grift and with massive effort to create more suckers to keep the grifts going just a little longer.
Are there reasonable people caught up in this? Sure. As Madoff showed, many of the people involve on both sides of a Ponzi scheme are perfectly sincere believers. But neither their belief nor their sincerity changes the underlying truth: there is no value being created. Nobody can admit that, of course, so they just claim that the value creation is just down the road if only you hodl and believe hard enough.
> Prediction markets have existed for more than 20 years. Adding "decentralized" doesn't make them better.
Prediction markets have probably existed for thousands of years, but this is where we disagree. Decentralization is a fundamental improvement to a betting market, because there is no longer a counterparty who is incentivized to cheat you when you win, or incentivized to take on so much risk that they cannot pay you back if they lose.
> Colateralized loans, if they work, are 0% of the total colateralized loan market.
You sure about that? There's nearly $100B locked in DeFi, although admittedly that's more than just collateralized loans.
You can disagree with that but the snarkyness of "you can't name a purpose" isn't necessary, I've named multiple. It's easy to find cases where a company took much longer to become successful that Uber and Lyft and ended up doing much better than both. I don't find that argument very compelling do you?
I think folks on either extreme of "cryptocurrency is going to eat the world" and "cryptocurrency is literally a trillion dollar scam" should really try to second guess themselves a bit. I think emotions get in the way a bit.
No definitely not assuming you can get out before the crash. I'm talking about longer term investors who see the Tether crash as temporary, not a permanent end to crypto.
> Everyone who holds cryptocurrency is holding Tether’s bag of poo
Everyone who holds Tether is holding Tether’s bag. If you don’t own tether, this doesn’t directly affect you. Most of the people I know don’t own (and have never owned) Tether.
How many people who didn’t invest directly in CDOs or subprime mortgages were affected by the Great Recession in 2008?
Tether (or a substitute stablecoin) is currently a requirement for lots of the Wall Street investment in cryptocurrencies. If it turns to poo, lots of that Wall Street investment does too and it creates huge liquidity/ volume issues.
"Then, this year, Tether Holdings started putting out a huge amount of digital coins. There are now 69 billion Tethers in circulation, 48 billion of them issued this year. That means the company supposedly holds a corresponding $69 billion in real money to back the coins—an amount that would make it one of the 50 largest banks in the U.S., if it were a U.S. bank and not an unregulated offshore company."
Not that nobody apologizes, more often than not those early warning voices are singled out. Because obviously, having seen it coming, they could have done something to avoid the crash. So of course they are to blame.
I don't think that's fair, these concerns have been around for probably five years plus and get a lot of media attention. As someone invested in this area it does get a bit old and counter productive being scared of the various boogie mens while missing all the enormous upside so far.
After all, tether is 3% of total market cap, I think it's fair to say the effect if they disappeared tomorrow would be a bit bigger than that in an emotional market, might see a 40% dip or so but after that greed would make a recovery pretty fast and then grind to all time highs like allways. my five cents.
edit: As the Dothraki slaves would say it, tether has pretty scummy people behind it, it is known. but that's ok.
Market cap is a meaningless metric to use here. How many actual dollars are invested into cryptos? When it is revealed that 1 USDT != 1 USD there will be a rush to the exits and you will be begging and praying for only a 40% drawdown.
"Market cap" is not a real thing here, because it implies that there is an asset to value. Cryptocurrencies are synthetic commodities with no use value.
Your basic theory here is that bubbles always keep going up, even if sometimes they go down. But that's not how bubbles work. Tulip bulbs did not "grind to all time highs like allways". Neither did Beanie Babies. They both fell back to something approximating their use value. But what's the use value of some numbers on another person's computer? Approximately zero.
The only part I agree with is the market cap part but my post already accounted for that and for good measure inflated the effect from 3% to 40%. Replace tulips in your sentence with money supply or assets and you'll get a different picture. You seem to have an unshakable opinion without having read the first thing about the subject, suggesting anything by Andreas Antonopoulos. edit: maybe something like "history of money", your "bubble" has been going since before writing.
Tether counts for 80% of the trading volume though, which is the important figure instead of the nonsensical "market cap" value so beloved of crypto fans.
The 55 years old/70 year old thing could have some legitimacy, kinda. Banks like to be seen as being very old, implying stability. There is a popular regional bank where I live that was established in the 1970s. But this bank says that it is more than 150 years old. Why? It turns out that it bought out a bank that was founded around 1860. Since that bank is now part of them, they reason, they have a history that goes back that far. Sketchy if you ask me, but apparently legal. (?) If Deltec bought an older bank, then maybe they are using the same justification.
Wow ... I'm realizing what a completely unremarkable education and career I have. I've been a CTO twice but perhaps this shows what it would take to be a deputy CEO.
Well, I'll have you know I graduated summa cum laude from Lemönade Ständ Universität, which is a very prestigious institution in Luxemburg, when I was 6.
I'll have you know I graduated top of my class in the Navy Seals, and I've been involved in numerous secret raids on Al-Quaeda, and I have over 300 confirmed kills. I am trained in gorilla warfare and I'm the top sniper in the entire US armed forces.
Anybody "fined for selling counterfeit Microsoft software" almost certainly ran a whitebox computer shop, and was successful enough to get noticed and charged in a period where almost everybody's home computers ran pirated Windows and you could buy it on any street corner. In Italy to boot.
Bold! Bold pushback! To use a Fawlty Towers Basil line: "Sooo .... that's all sorted out" knowing full-well it isn't. Don't know Fawlty Towers? Let's go the Monthy Python direction:
JC: "It's not much of a bank."
MP: "Well, it's very clean, sir"
JC: "It's certainly uncontaminated by crypto-backed dollars."
Now I enjoy American TV too but I can't think of an All-in-the-Family, Nightcourt, or Scubbs scene here. But if you know the "aaaaannnnnnnd it's gone" ... line well you can riff from there.
Not just that. The reporter saw their statement listing ownership.
They value their paper “at redemption value” which is a loophole so big they don’t need to lie. They can hold $10 billion worth of paper and value it at $30 billion.
I don't understand how Tether has survived this long. Bitfinex and Tether sure look transparently like a fraud, all the way back to the "no really we have $1 in the bank for every Tether but you can't audit us" days. And yet it continues to occupy its role as the underpinning of most cryptocurrency markets. Why hasn't it blown up yet? My best guess is that it's useful to everyone taking in money from new retail investors. Also there's no clear financial incentive for blowing it up; there's no way to easily short Tether, for instance.
This article talks about the way Tether is loaning out what reserves they have. The Economist looked at this phenomenon and found Tether has a 383-to-1 leverage. That's going to be a complete disaster the moment there's a major blip in the economy. Say, a major Chinese real estate company going broke. Or interest rates in the West finally going up and causing a market correction. Maybe that's what will blow it up.
The good news is the Economist also thinks the inevitable cryptocurrency disaster will be bad but won't destroy world economies. " its holders would lose hundreds of billions of dollars but that the fallout would be manageable." I sure hope that happens before this tower of unregulated investments gets so big that when it falls over it crushes the real economy.
But don't worry folks, this is all good for Bitcoin.
It took Liberty Reserve 7 years and 17 countries cooperating to get nuked from orbit.
Tether was founded as Realcoin in 2014 by a group including former child star and accused sex offender Brock Pierce, so while it’s technically just rounding the 7 year mark, it didn’t begin in earnest until it was taken over by Bitfinex towards 2015 and didn’t become majorly problematic until 2016/2017 according to the NYAG findings. [1]
Given the vastly larger scope here, I suspect we’re going to be dealing with them for a few more years as the wheels of Justice spool up.
For anyone wanting to learn more I highly recommend Bennett Tomlins write up. [2]
Bitcoin effectively is the reason I stopped leaving breadcrumbs for Twitter researchers in the future. I read his research and see forum posts from idiots we use to laugh at on irc, but I myself participated in the pirate@40 ponzi, as other people did - maybe 47 poor souls if memory serves.
What a lot people can’t seem to grasp about 2012 is Bitcoin miners were flush with Bitcoin and no place to spend it, no place to invest or divest it. So you are bored it’s a nascent market you browse the forum it’s all one big joke anyways- until it’s not anymore. But you are looking for something to do with Bitcoin and you have to possibilities: bitcointalk or #bitcoin-otc of freenode
One of these requires a registered gpg to trade, one is a dang website
So flush with bitcoins We were running Perl pool hopping proxy scripts to game block rewards and jump to deepbit last minute pre next block - boosting profits by 25%. Trendon Shavers aka The Jimmy Buffer PonziMan also ran a mining meta pool gpumax.com where we could buy gpu shares, say 10 million shares of hash power from your 10 buddies running 10 rigs stuffed full of gpus and then you point that at one of the two Bitcoin mining pools that were left paying a Proportional payout scheme instead of PPLNS (pay per last n shares) and take most of the whole pool rewards in a flurry of blocks blocks blocks… kinda like satoshidice except fun - maximizing ROI and exploiting Bitcoin mining pool payouts was kinda neat for awhile
I normally don’t do this, but the comments and citations have me feeling nostalgic and I do enjoy reading u/arcticbull
Getting downvoted by people who weren't there, didn't understand the original community or how it worked, that or they just don't believe you. The community was small, I sold you a laptop at one point in it.
It really was all a game in the early days, then it blew up.
Hi Joe . The Laptop that the UPS truck ran over that I bought for $100 in Bitcoin in 2013 still works.
I always get downvoted here because I don’t cite sources :-)
The over the counter chat and trade seemed to end around the first big ATH blow up of 2017. The prices got too high and the conversation ended, my friend.
Can you explain how the proportional payout is broken? It is not immediately obvious to me how the pool hopping worked. Of course I accept it was broken, I've just never seen an explanation of now. Any explanation of PPLN lasts the historic perspective.
Early on Bitcoin mining pools payed proportional to mining hashpower. Not PPLNS, not PPS, just proportional.
Bithopper would basically jump to, or jump away from deepbit( the largest proportional payout pool) on long rounds, long 10 minute blocks.
Deepbit and Bitcoin.lc were basically the only two proportional pools you could overwhelm with hashpower, take block rewards from the pool, and damn anyone’s shares or how long they mined there for how many blocks.
Others could and should be able to speak to pool hopping but this is why the pools pay the way they do - we exploited the payouts early
But how exactly do you short stablecoins? You can't and even if you did the game is heavily rigged against you.
If you remember in the movie, Cohodes got his ass handed to him as banks margin called him out of his position and that's in a regulated market. These guys own their market and the exchange on which it originates. There's no way to even verify if they received dollars for every tether issued and by some miracle the yield on USDT is incredible. You'd be losing 4-5% a year guaranteed holding a short position.
That 100% payout will be in crypto, whose value in USD terms is going to tank if Tether implodes. And that's assuming the lending platform in question survives the carnage.
That's nonsense. When something as big as Tether falls the entire sector is going to fall apart. Everyone will run for the exits, USDC holders as well. I would not coount on Coinbase having enough real money to cover USDC redemptions. https://www.bloomberg.com/news/articles/2021-08-11/coinbase-...
Would you gamble your entire investment on that? If Tether collapses, there will be major outflows from all stablecoins, and we'll find out which ones have been swimming naked.
Circle [0] and Coinbase [1] have recently reported that they are shifting their USDC reserves fully into short-term liquid assets. Given that both Circle and Coinbase are US-regulated, and given the attention being paid to stablecoins specifically by US regulators right now, USDC is probably the safest on-chain asset that currently exists (assuming that you consider USD itself to be a safe asset to hold).
Domiciled is probably a better term than "regulated" for USDC. To quote their homepage disclosures box:
> Digital asset markets and exchanges are not regulated with the same controls or customer protections available with other forms of financial products and are subject to an evolving regulatory environment. Digital assets do not typically have legal tender status and are not covered by deposit protection insurance.
They're regulated as money transmitters like Venmo, and depending on the state, that can mean as little as "pay us a few thousand dollars and we'll ignore you." This regulatory framework was created as a way of side-stepping the more onerous regulations that apply to real depository institutions. Thats why they were able to invest the backing in ... whatever before the SEC came knocking.
> that can mean as little as "pay us a few thousand dollars and we'll ignore you."
This is simply not the case. Most, if not all, state money transfer regulations mandate financial reporting to the state, and place limitations on the permissible investments that a licensed entity may hold as backing for customer obligations held in trust. Any failure to comply will result in fines and/or loss of the license (which effectively results in the closure of the money transmission business).
A number of states (California and New York among them) also conduct on-site examinations of licensees' businesses (paid for by the licensed entity). As someone who was has served as a senior executive at a company that undergoes these examinations regularly, I can assure you that they tend to be rigorous and all-encompassing.
> This regulatory framework was created as a way of side-stepping the more onerous regulations that apply to real depository institutions.
This regulatory framework was not created as a way of sidestepping anything. It was created as a way to proactively regulate money transmission.
Money transmitters are not depository institutions; they serve a different, more narrow economic function, and existing regulations are properly tailored to that economic function. In practice that means that money transmitters are required to maintain 100% reserves backing any and all customer obligations, they must hold their reserves only in certain permissible investments (i.e. government debt and bank deposits), and they are required to obtain surety bonds to further insure those obligations.
Venmo, PayPal, Western Union, Money Gram and dozens of other companies are all subject to these requirements, and there has never been any instance that I am aware of where this regulatory arrangement has resulted in consumer funds being lost, in the twenty years since this regulatory regime began to be fully implemented after passage of the USA PATRIOT Act.
Furthermore, I am not seeing what the material difference is between the outstanding obligation represented by USDC and the outstanding obligation represented by a PayPal or a Venmo account. The fact that the law treats them the same is entirely appropriate.
Tether is a problem precisely because it is unlicensed and has thus far illegally evaded these regulations. The fact that Tether is operating illegally in the US should not impugn its competitors that are in fact operating legally.
I would. I'd wager Tether's collapse would cause inflows to other stablecoins. It's also worth noting that smart contract based stablecoins, such as DAI, are incapable of being under-collateralized.
Knowing pretty much zero about DAI (and honestly, not too interested to spend any time to learn), this still sounds incredible. Does that incapability hold even if prices of whatever underlying assets are not continuous? Like, at one point of time the asset is trading at 100 dollars, and at the very next moment it trades at 1, with no possibility for anyone to trade at 50 at any point in between?
I very much assume not. If you think that is laughably stupid to assume that prices would not be continuous, well, you are in good company, even some Economics Nobelists have fallen on that trap. And lost billions. In that case you may want to spend some time researching what comes up when you search for LTCM.
From where? USDT will be worth exactly $0 so some 80% of all trading volume in crypto will evaporate instantly, and so will probably 80% of its dollar equivalents.
Very easy to do on FTX or aave for basically as much size as you'd like. Yes, it costs 4-5% a year to short. If it blows up in the next few years you'd make a killing though.
Why do you think that? They treat USDT as any other coin, has no special status in the system. FTX is very well capitalized. Can you show me even napkin math that shows FTX going under if USDT blows up in a realistic scenario? (Going from $1 to $0 instantly isn't realistic.)
Why isn't going from $1 to $0 not realistic? Tether is completely centralized and has the ability to prevent token transfers on all major networks it operates on. They regularly add to their blacklist, much more often than other stablecoins. Were it seized by the DOJ, they could simply freeze all transfers subject to proof of AML/KYC and source of funds analysis. That would nuke the market for them immediately.
I believe FTX has some 10+ billion USDT on hand. That'll put a serious hole in their balance sheet. Not to mention whatever would happen to their futures insurance fund when the collateral evaporates. I'm trying to find my source for their balance sheet size, will follow up.
It's not realistic instantly. Even Madoff's victims got a recovery eventually. From OP we know at least 25% of tether's reserves is in a bank in cash. If it was seized I could see the market heading to 50-75c or so, there will be lots of people that want to gamble on an eventual recovery.
I'm very skeptical that FTX has 10B USDT on the balance sheet. OP here says Sam has billions of tether, which makes sense but is not enough to blow them up, and is likely in Alameda being as he says it's for trading, not in FTX.
(Of course it's possible that FTX has 10B in USDT deposits, but that belongs to their customers who would be very sad if it nuked but doesn't directly hurt FTX.)
Futures insurance fund may be an issue, yes, especially in scenarios where it shifts very rapidly. If you have math on a plausible scenario and total losses across the major markets I'd be interested in seeing it. But you'd have to be looking at several billion in losses or at over 1B directly attributable to FTX for them to go bust - they've raised over a billion and make 350M/year per recent Forbes article, so that's a lot of capital.
There is USDT lending available. Even more, there is decentralized collateralized lending available.
If someone wanted to short USDT there are plenty of opportunities to do so. (And there might be a lot of people doing so, specially now that the shadyness is being reported on some of the more reputable traditional newspapers)
You can only do that at exchanges that are seriously exposed to systemic Tether risk and will also collapse if USDT goes down. So even if you're right, you won't get paid on USDT/USD swaps. Shorting USDT at Bitfinex is like shorting Caesars chips at Caesars. News flash: if Caesars goes bankrupt just which cashier do you think is gonna give you which dollars?
At this moment you can deposit defi borrowed usdt into Coinbase pro, swap it for usdc there, and then swap the usdc back to USD and withdraw to your bank account. Then if tether collapses you'd be able to pay back the borrowed usdt for pennies on the dollar.
The first step (borrowing usdt on a defi platform) needs you to collateralize that loan with some other form of cryptocurrency. You are forced to have exposure to crypto to make the trade that shorts it.
Have you ever seen the bit in a show (or, hell, been caught by a street hustler) where someone asks for help breaking a large bill, and then after a few rounds of confusion and money being handed back and forth walks away with everything?
> by a group including former child star and accused sex offender
This makes your argument seem conspiracy-theory-esque, despite your links having some quality information. That quote is more akin to clickbait than it is a valid point in your argument.
Every other crypto investment seems to be run by someone with past criminal convictions, accusations of sexual misconduct, or shady past. I have somehow been able to avoid all of this in my own career without much effort.
It speaks volumes that this is the kind of characters interested in this space.
Also don't understand what moving the market means in this context. The market is at 1:1 for USDT/USD, if there's selling pressure that would lead USDT to trade under $1, the only way to manipulate that is to buy lots of USDT from everyone who wants to sell, which tends to support the peg. Not even sure why that's called manipulation. If there's a real panic and tether turns off withdrawals there's no way anyone has the money to buy everything up at peg.
FTX in particular has standard coin/USD pairs and also USDT pairs. No reason that USDT collapsing would cause FTX to go bust. Alameda and other market makers might lose a ton if they didn't see it coming.
This just isn't really the case any longer. Crypto has matured a lot in the last few years. And if you're still regurgitating the same FUD from 2016 you're in for a big surprise.
FTX has received nearly 30% of the $48,000,000,000 in tethers that have been "minted" in the last year. You are telling me if tether fails they aren't going to be affected?
That belongs to their customers who will lose a lot if tether fails. Unclear why it would cause FTX directly to lose money - main mechanism is if insurance fund isn't enough to cover liquidations if the price shifts very rapidly but that still doesn't seem enough to blow through their significant capital.
> And if you're still regurgitating the same FUD from 2016 you're in for a big surprise.
I’ve just given up on crypto at this point. I’m a big proponent in “invest in things you can understand”, and crypto is a space where very little people really understand what’s going.
You can call that FUD if you want, but not acknowledging that crypto is a wild, wild west with a lot of shady corners, will set you up for a big reckoning at some point.
> I’m a big proponent in “invest in things you can understand”
How many people understand the US banking system? What a bank is allowed to do with your $, how inter-bank payments are settled; how a bank secures its records; under what circumstances a bank might lose its records; what recourse you have in the case that your bank loses your records or makes what you believe is a mistake… yet everyone gives money to their bank.
2012 Bitcoin was great: it takes all of an hour to understand the entire protocol, the act of building/installing bitcoind shows you the entire surface area, and everyone interacting with it understood as much about it as you did. Contrasted to the substantially more opaque banking system, where most people don’t understand it, but trust it due to the test of time.
2021 crypto is indeed different. Now it’s approaching similar complexity to the existing banking system. But do I still understand it better than banking? For the low-level abstractions: BTC, ETH, etc: absolutely — especially so now that we’ve seen them fork and understand the hypotheticals there better. Higher-layer social protocols like NFTs… maybe not. So I stay away from those. Crypto gives you optionality that existing digital investments completely fail at. So that’s nice from your “invest only in what you understand” perspective, right?
There happens to be a lot of opportunity now, and lots of ponzis / scams / bubbles / etc. You're right that understanding it is needed, I've done deep dives on many projects and am doing quite well overall. Not for the faint of heart.
You can also do this and go long ETH/BTC if you'd prefer.
The same ability is spinning up for sushiswap as well if you don't want have any exposure to other assets blowing up and threatening the collateral you care about.
Doing this on aave would actually be net profitable right now with the "liquidity incentives" they offer, and you can apply leverage (deposit USDC, borrow USDT, swap for USDC, deposit again, ...). The rates aren't fixed, so you'd have to watch it, but it would be an interesting strategy.
Keep in mind that the original Ponzi scheme ran for quite a while and even had the media defending it as a great investment.
Tether (and most crypto) seems like someone copied Ponzi's original scheme 1:1. Put in some money, transfer it to another format (Tether to other crypto, with Ponzi it was stamps), then eventually pull out loads of cash. Some people will undeniably get rich off it. But it's not sustainable.
The part I have never seen elaborated on in the "Tether is a Ponzi" claims is at what point will people using Tether make money? Tethers are IOUs to facilitate moving USD between financial institutions (mainly between exchanges, and mostly used by the exchanges themselves).
You can spend $1 USD to get 1 Tether that is "redeemable" (by trade, not through the Tether company) for exactly $1 USD. A Ponzi requires some kind of promised payout, no?
Tether takes a bunch of money to facilitate users converting to Bitcoin or other currencies. The maintainers of Tether keep sucking up real money, minting Tether that they claim is backed by cash (real currency), but the real cash backing goes poof and they aren't demonstrating that there is any stable backing. But so long as other crypto isn't crashing, they can reliably take real cash, skim off some for themselves, and pay out small amounts of what they receive to people cashing out on Tether. More people are putting money in than taking money out.
This is all elaborated in the article.
Now if, for some reason, too many people decide to withdrawal and cash out on their Tether, there's not a sufficient cash backing there. It'll completely collapse and people will be left with a bunch of Tether that's no more valuable than any other bunch of random sequences of 0s and 1s on the internet. This is no different from the original Ponzi scheme. Just replace crypto with stamps/international reply coupons and it's absolutely identical.
If too many people decide to withdraw their money from any financial system (e.g. banks, brokers, exchanges, etc.), you can expect there to be liquidity problems. These are not Ponzis.
This distinction doesn't even make sense though. The Tethers aren't redeemable directly from the Tether company. People redeem Tether for USD by market transaction. As these Tethers are just USD IOUs, it doesn't seem to matter much whether they are fully backed by USD, as long as there is liquidity to buy and sell them for their full USD value as required.
If there is not sufficient USD to back them then its fraud. People purchased these securities relying on the representations they made about it being backed by USD.
Fraud does not automatically make it a Ponzi, and no custodial service will have sufficient USD on-hand at all times to cover everyone withdrawing their funds.
The specific claim that was made by GP, and the claim that I see bandied around, is that Tether is a Ponzi scheme.
Tether doesn't appear to share any characteristics with a Ponzi scheme, which is why I am puzzled to see people so adament it is one.
The most important characteristic (IMO) is that there is no promise of a return. $100 of Tether will only ever be worth $100 maximum.
If anthing, Tether is basically operating as an unregulated bank. You're not calling banks Ponzis are you?
You give your money to X in order to facilitate buying Y. Y is a potential investment opportunity that promises explosive growth. X promises that your money is backed by cash, so there's nothing to lose. People give their money to X and purchase Y. Some people make loads of money and cash out.
How exactly is X making a profit when they're just working as an intermediary? Why do they absolutely refuse to show their finances? How exactly are they getting the resources to do all this?
It's the combined complex of Tether and other cryptocurrencies that forms the ponzi. Crypo "prices" keep rising, but those prices are denominated in Tether that people pretend is dollars.
It’s not a ponzi per se. My guess is that they take the money from exchanges, mint more tokens at no cost to themselves and buy a bunch of junk bonds with high yields and pocket the 8% or whatever they make in those. Given their market cap that is a lot of money.
They always use precise wording about their holdings “commercial paper”. I’m guessing it’s not US treasury bonds equivalents or they would say that explicitly
It is a ponzi/illegal bank scheme the moment they mint more tokens than they have liquid assets.
Could they come clean, will there be a bank/USDT run?
Depends of how much USDT real clients hold and how much USD they hold, and how likely it is that EVERYONE wants to convert USDT back to USD -- it would take a very catastrophic collapse of cryptos for that to happen.
USDT has intrinsic value for money laundering, so even if all other cryptos would go to 0, not everyone would want their USDT converted to cash.
While I don't like USDT, and I don't think that's the case --someone printing USDT could have already amassed a great fortune, and if he was benevolent enough, could probably redeem all USDT of all the real people holding USDT.
Commercial paper is not junk bonds, and is pretty standard for a money market fund to hold. It’s a pretty specific thing and doesn’t really deserve scare quotes.
The payout is the complicit exchanges wash trading Bitcoin, SOL, etc., with freely printed and unbacked tethers, in order to drive the price up. The more crypto goes up, the more people FOMO in and trade, the more money the exchanges make.
I don't see the payout. If you buy $100 of Tether, it will only ever be worth a maximum of $100.
By what you describe, the crypto purchased with Tether would be the Ponzi... but that's not the subject of this article or my question on why people insist Tether is a Ponzi.
1. The high yield defi and centralized funds which have offered 9-20% on stablecoins. That’s ponzi level interest
2. The appreciation of crypto generally. If Bitcoin offered to pay out interest based on how many invested, people would see it more transparently as a ponzi
It's quite likely they put some of the money into Bitcoin and are well ahead. They pretty much admit holding Bitcoin and things like the Celsius loan are profitable. I don't think they'll collapse due to not having funds. If anything gets them it will be the executives being arrested for money laundering or similar.
It's trivially easy for anyone to short tether, simply take out a DeFi loan of tether backed by any other crypto collateral (including e.g. USDC so you don't have liquidation risk).
It will just cost you a few % APR to keep the position open
Absolutely do not do this. Do not bet against the house inside casino walls.
If you have enough capital to weather potential dislocations, the only real way to play this is to be long off shore (perps, probably) and short CME. This position is long BTC/USDT vs short BTC/USD, the net of which is short USDT/USD. The reason for doing it this way is if it doesn’t play out, or goes to 100k first, you’re just wearing a bit of spread and funding risk, but let’s call it delta neutral. OTOH, if Tether nukes, crypto will explode in Tether terms (since it’s worthless) and implode in USD terms. Now, you won’t actually get paid on your offshore long because the house is bust, so you’ll have a paper cut there (keep as little margin as possible). But your CME short will pay you nice, hard, centrally cleared greenbacks.
I don't entirely understand this; could you provide a concrete example, or actual trades, that could be involved in such a position? (I'm just curious how it would actually look like in practice.)
CME: short $1m BTC futures (which are dollar settled and thus BTC/USD)
On Binance you are long BTC, and short USDT. On CME you are short BTC and long USD (implicitly on the fiat legs).
So if we add that up, the BTC positions net off and you’re just left with short USDT and long USD which is the desired outcome.
In practice, if Tether implodes I would expect everyone to sell Tether (by buying crypto with it) and then due to panic, to send that crypto to exchanges with fiat off ramps where they will then sell it. So the price of BTC on Binance goes to the moon, and the price on CME collapses. You will likely lose whatever money you had on Binance (your profit is denominated in worthless USDT and Binance is probably bankrupt at this point) however you should make multiples of that with your CME short.
This is all of course not investment advice and extremely hypothetical.
I'm not quite sure I follow - in the event that Tether implodes, if you expect the long $1m BTC/USDT exposure to be worthless (assuming you lose the money you had on Binance, and Binance goes under), and your short BTC/USD exposure to make money (since it's a short position, you can only make 100% gain at maximum), doesn't that net out to zero PnL (-$1m loss in long BTC/USDT, and +1m gain in short BTC/USD)?
The difficult part seems to be getting someone lending you $1m in USDT, isn't it? From their POV, you're getting exposed to BTC volatility, and the collateral is likely to be too high to make this practical.
Basically, how do you buy $1m worth of BTC/USDT perps without depositing $1m of USD into Binance? Let's say if we put in $100k USD with a 1:10 leverage, it means the position on Binance is wiped out if BTC drops by more than 10%. So the only way for this to work is to deposit $1mil of USD into Binance and opening the position. But this means we lost a whole $1m when Binance implodes, cancelling our gain in the short position.
Otherwise, we need to borrow $1mil of USDT to open the Binance BTC/USDT position.
On May 19th, Binance froze up and prevented people from adding margin. Lawsuit about it now. The claims are that Binance was insolvent and redid the trades to stabilize themselves. See Frances Kim for info or an FT article about the lawsuit.
Whatever the reason, no guarantee you can deposit collateral.
No, this doesn’t work. You’re not short USDT/USD in the above which is what people really mean when they say short Tether (since we’re talking about losing the peg).
You’re already short USDT anytime you buy crypto in USDT terms (i.e. BTC/USDT). But if Tether nukes, and you’re long BTC/USDT you will likely lose a lot of money, even if BTC/USDT goes to the moon. Why? Because BTC in terms of all other fiat (BTC/USD) will implode.
You must have a short crypto vs long fiat leg to net off and leave you with a true Tether vs fiat structure.
> If I buy BTC with USD and then transfer it to an exchange with a BTC/USDT pair, I'm not suddenly "short USDT".
It does, it just doesn’t make you short against USD which is what you’re thinking of. It only makes you short vs. BTC which we expect to collapse in price as well. This is why you need the other leg.
> So I don't see why buying BTC with USDT directly makes me short USDT either if I didn't borrow the USDT but bought it with USD
Which is why I keep talking about margin and perpetual swaps. Since we expect to lose our shirt on Binance, we need a levered position which means borrowing the USDT which will ultimately become worthless. This borrowing happens implicitly in a swap or future.
Back to your first question, when you buy something, you’re going to denominate that in some unit of account. We usually write this price as saying asset A is $X or asset B is €Y. But in reality every market is two asset pairs, no different to FX or crypto. We could have talked in terms of A/USD being X or B/EUR being Y. It’s just a different convention.
So when we talk about (for instance) the price of AAPL stock, what we really mean is AAPL/USD. Or when we talk about the price of crude oil we really mean CL/USD. I am buying AAPL, selling USD. Or I am selling crude oil, buying dollars.
To illustrate let’s say that you’re long AAPL (AAPL/USD). If shortly after you buy AAPL, the dollar loses purchasing power versus all other currencies, net net we would expect AAPL to go up in price (otherwise known as inflation). It’s not that AAPL became more valuable, it’s that the USD became less valuable. So you’re implicitly short the dollar. You sell your AAPL, and pocket your profit. You could frame this as being short USD and then covering your short. Same thing.
The opposite also holds true. Let’s say you short AAPL (remember: AAPL/USD). This leaves you long USD. If the purchasing power of USD increases, ceteris paribus, the price of AAPL should fall (otherwise known as deflation). You cover your short, and pocket your profit. You can view that as being short AAPL and AAPL going down, or you can view that as being long USD and the dollar going up. It’s the same thing.
>So when we talk about (for instance) the price of AAPL stock, what we really mean is AAPL/USD. Or when we talk about the price of crude oil we really mean CL/USD. I am buying AAPL, selling USD. Or I am selling crude oil, buying dollars.
This sounds eminently reasonable to me.
However, it immediately reminds me of all the people (I haven't seen one in a while though) who go on about the geopolitical significance of what currency oil or other commodities is denominated in.
I'm just not sure how numerous and influential the latter sort of view is, and it unsettles me at times when they appear to be everywhere and the things you say aren't.
I appreciate you have some sort of issue with me from our other comments, and for that I'm sorry.
It's not always clear when talking about complex domains, what is obvious and what isn't. My first comment in this thread explained why a simple USDT/USD short is not a good idea. I thought I had explained it in very simple terms, to help people with less experience understand.
HN has a wide spectrum of users, and obviously some people still needed more info, which I was happy to provide. I thought I had explained it plainly but obviously I hadn't. It's easier said than done to imagine a good explanation for something like this without having any experience in the area.
Nope, occasionally exchanges will manipulate the price up to liquidate shorts - for instance the highest recorded trade price of USDT was about $1000 and dexes leave you at risk of flashbots and smart contract bugs.
Can you cite this? I have seen some pictures of Kraken wicks but not liquidations on Aave and not trades on FTX USDT quarterly futures above $1.10 or whatever.
I haven't just cited it! I said I saw a screenshot. I don't have a date or whatever, but if someone has a date then I can download the ticks from that day and check it out.
Without a date I can't compare the short interest at Kraken to e.g. the $100,000,000 OI in USD-settled USDT futures at FTX today.
If something that weird (a USDT price spike to $1000) really did happen, somehow nobody noticed and nobody was affected, in spite of millions of dollars of daily trades in that market at that time
It's probably a glitch in Kraken's historical chart
Many people noticed. It’s not a big deal because the market is mostly wash trading.
It’s not a glitch. How you can say it’s “probably” a glitch is beyond me, you have zero evidence to support that. There have been other instances of Tether spiking well above $1, that is simply the most egregious.
Can you find any contemporary report of that May 11, 2019 USDT price spike incident at all? Because, if 'many people noticed' it, as you claim, then that should be easy
But I'll tell you now, to save you time: there are no such reports, because it did not happen.
I don't know anything about 'other instances', I only assume that spike on the Kraken chart that you linked to must be a glitch, because I found zero corroborating evidence for it. As you yourself have implied, such an insane price spike would have been a significant incident so it could hardly have gone unnoticed.
Your arguments would be more persuasive if you based them on facts.
DeFi exchanges operate algorithmically with published smartcontracts, so they can't be deliberately manipulated like that[1] -- can you link the example of the DeFi where USDT traded at $1000?
Or were you just equivocating between DeFi and centralized exchanges in response to a comment that specifically suggested DeFi?
[1] Which is not to say they can't be manipulated at all, but you'd have to go after the entire market or exploit some existing bug; it's different from the ones where centralized exchanges pull arbitrary shenanigans on their own platforms.
OP is obviously talking about CEX since it’s not possible for a DEX to have a USD market (like the above mentioned USDT/USD).
As for DEXs being manipulated, absolutely not sure why you believe that’s the case? This has nothing to do with DEXs and everything to do with margin (which is coming to DEXs).
DEXs and AMMs make it much more expensive to provide liquidity in terms of capital efficiency versus CEXs, and thus more vulnerable to manipulation. But without margin, there’s not much economic benefit for a bad actor.
Certainly -- I agree OP (arcticbull) was replying to a comment about DeFI by explaining the dangers of a centralized exchange! That makes it a confused, unhelpful response, not one that "obviously" meant something coherent if you squint hard enough and practice sufficiently strained exegesis.
>As for DEXs being manipulated, absolutely not sure why you believe that’s the case? This has nothing to do with DEXs and everything to do with margin (which are coming to DEXs).
Margin has "come to" DEX the moment smartcontracts offer collateralized DeFi lending, which they have, so I'm not sure what you mean here.
>DEXs and AMMs make it much more expensive to provide liquidity in terms of capital efficiency versus CEXs, and thus more vulnerable to manipulation.
The reason (I'm claiming) centralized exchanges are more vulnerable is that
a) they own the platform and are the word of god on it -- whence the stories of people getting margin called at flash-crash prices that don't exist on other platforms. If they say prices are trading at some level, you just have to deal with it. That's not possible when you have to trade how the algorithm says.
b) If someone "stupidly" buys in one direction on a DEX, "for manipulation", they've vulnerable to the entire universe of arbitrageurs who can exploit the resultant price differences. Inter-[centralized] exchange arbitrage is much harder.
I brought up the point simply to emphasize that, to the extent that there's manipulation, it does not look like the manipulation you'd see on CEX, which was how OP was basing his argument.
Furthermore, even the issue of more expensive liquidity from transaction fees wouldn't be true for the far-cheaper L2 sidechains.
(Btw, you might want to use the terms in their unabbreviated forms at least once just to make it easy on people who aren't up to speed.)
> Margin has "come to" DEX the moment smartcontracts offer collateralized DeFi lending, which they have, so I'm not sure what you mean here.
Ok, fair. What I mean is high leverage, which is the fuel for the type of manipulation I’m referring to.
To your point about CEX lying about price, that’s a very risky proposition for the arbitrage reasons you mention (CEX arbitrage actually easier for a number of reasons, but I understand why you’d think DEX is easier).
If I run a CEX, unless I collude with every other venue I risk all the arbitrageurs buying/selling my fake prices which means it’s not fake, I’ve just traded against them.
> Furthermore, even the issue of more expensive liquidity from transaction fees wouldn't be true for the far-cheaper L2 sidechains.
No, I said capital efficiency, not execution cost. DEX costs are crazy, but that’s by choice, whereas the capital efficiency is a structural issue. If I want to provide liquidity on 100 CEX markets, I only need enough capital to wear the orders I actually get filled on at any given point in time. As an AMM I’d have have enough capital to be in a 100 different LPs.
To illustrate: let’s say I want to provide $1m of resting liquidity in 100 CEX markets. Let’s say that in doing this, I end up having positions at any point in time that require $10m of capital. If I want to provide the same $1m of liquidity in 100 DEX markets, I need $100m.
So a CEX ends up being 10x more efficient from a capital use perspective.
>Ok, fair. What I mean is high leverage, which is the fuel for the type of manipulation I’m referring to.
Why does that make a difference? And how is it any more coherent to talk about margin "coming to" DEX? The moment anyone can borrow on margin, it has "come to" DEX. You keep speaking with a mental model of DEX that doesn't jibe with reality, like they're walled gardens rather than platforms open to anyone with little friction other than gas fees.
>To your point about CEX lying about price, that’s a very risky proposition for the arbitrage reasons you mention (CEX arbitrage actually easier for a number of reasons, but I understand why you’d think DEX is easier).
It's fun to idly speculate about this, but we know for a fact that flash crashes have happened on centralized exchanges, which is stronger evidence than any of your assertions of superior understanding of how they work. Furthermore, people have had their margin liquidated on those CEXes at the fake prices.
>No, I said capital efficiency, not execution cost. DEX costs are crazy, but that’s by choice, whereas the capital efficiency is a structural issue. If I want to provide liquidity on 100 CEX markets, I only need enough capital to wear the orders I actually get filled on at any given point in time. As an AMM I’d have have enough capital to be in a 100 different LPs.
If that's what you meant, then it's coming from the same dubious mental model I complained about above -- when you enter into a liquidity pool, you are providing liquidity to the entire cryptocurrency's network, not just people who are "on" that DEX (which isn't a coherent concept). Anyone and everyone has the option to accept that offer (sorry, "remove that liquidity"). Several protocols look at the entire DEX market to find the best (combination of) price(s). You do not need to be in multiple liquidity pools (which, again, not a coherent concept).
LPs are not something you have to "be in"; you as a trader are free to accept the offers (sorry, "remove the liquidity") of any LP in existence.
> If that's what you meant, then it's coming from the same dubious mental model I complained about above
It’s not, because I’m saying something different than you think I am.
> when you enter into a liquidity pool, you are providing liquidity to the entire cryptocurrency's network, not just people who are "on" that DEX (which isn't a coherent concept).
Um, what?!? I’m really not sure you understand how this works. What do you think it means to be an LP?
> Several protocols look at the entire DEX market to find the best (combination of) price(s). You do not need to be in multiple liquidity pools (which, again, not a coherent concept).
No, just no. You keep saying it’s not coherent but I don’t think you understand how it works. You might be in an optimizer that moves your capital around, but a given unit of capital can only be providing liquidity for one LP at a time.
> LPs are not something you have to "be in";
Uh, if you’re not in it, then you’re not providing liquidity. This whole conversation is premised on providing $X liquidity to Y market. In a DEX that requires $X, whereas in a CEX, it requires a maximum of $X and in practice a fraction of $X.
>Uh, if you’re not in it, then you’re not providing liquidity.
Why did you cut off the rest of that sentence, which clarifies that I was referring to traders not having to be in an LP to accept an offer (sorry, "remove liquidity")?
People who really have some deep, coherent insight don't have to resort to that.
Furthermore, the point was that, even though you provide liquidity "to" a liquidity pool, that liquidity is available to the entire cryptocurrency's market, so "being in" the LP isn't a meaningful concept (with respect to whether you can buy from it -- though you'll still probably cut this off).
>I’m saying something different than you think I am.
The great thing about a discussion forum is that you can point to specifically where someone misinterpreted what you said and correct it. If you're just going to assert that someone totally misinterpreted you, but never clarify what you claim that deep insight was, then I'm not sure what you think you're adding to the conversation.
>Um, what?!? I’m really not sure you understand how this works. What do you think it means to be an LP?
It means that a) you have locked up tokens in the pool, and b) you receive a fraction of the fees when someone trades with it. You're still working from the (incorrect) mental model that thinks a DeFi LP is some walled off garden. This is in error. The LP is available to trade with everyone using that cryptocurrency's blockchain. So it's not very meaningful to speak of traders who can't trade with you because they're not "in" "your" LP. Once your liquidity is in any LP, everyone can access it. You do not need to provide it to more than one pool, as your premise requires.
Alright, last attempt. I never said anything about other traders being in the same liquidity pool or whatever you think I said. Let me spell it out.
Let’s say I want to be a market maker on Binance, in both BTC/USD and ETH/USD. Let’s say that I have a strategy where I can provide $5m in liquidity to each of those markets (i.e. $5m of orders for other traders to aggress) for a total of $10m of liquidity. But because most of the time those orders are just resting unexecuted, it turns out I actually only need $1m in capital to run my market making algos.
In the DEX example, if I want to provide $5m liquidity to a BTC/USDT LP and $5m to an ETH/USDT LP, I need $10m to do this.
So to run my $10m liquidity provider on a CEX I only need $1m whereas in order for an AMM to provide $10m in liquidity, it needs $10m in capital.
That ... isn't your last attempt, actually. It's your first; you haven't said anything like this before, even though it would have been the natural thing to bring up in any of your three previous replies. Why you didn't, I can't tell.
Now that I see what you're saying, it still doesn't prove what you think it does. If you can remember back to the original point, the question was whether DEXes can be manipulated to the point of forcing margin calls. I was skeptical, since we have seen localized flash crashes on CEXes (when you insist are not possible because of super-easy inter-CEX arbitrage) that forced liquidations, while we have not seen that on DEXes [1].
I further expressed skepticism since any manipulation would have to be via "stupidly" overpaying in one direction on one LP, which would just draw traders -- from the entire market -- in to exploit the price difference, and correct it.
You kept appealing to the MM capital-inefficiency issue, but that isn't relevant because my point was that the counteracting force is from liquidity consumers, not providers -- the traders that accept the LPs' (formulaic) offers, and profit from the attempts to artificially push the price one direction across the entire market.
Your latest reply feels like a further confusion, because (AFAICT) you're effectively saying, "Don't worry, CEXes are more manipulation-resistant because I can falsely represent myself as being able to trade in $10m when I only have $1m".
If anything, that would mean they're more vulnerable to false signals about price support/resistance: If you can't actually put in $10m, you weren't really providing $1m of liquidity, and DEXes simply make this transparent.
Btw, re: DEXs I was thinking specifically of flash loan manips that exploited a number of platforms a few months ago. These involved briefly breaking the peg of stable coins on DEXs via short-term loans. [1] I think it's brilliant.
> One of the most notorious flash loan attacks to have ever hit the space is the exploit on DeFi protocol bZx, where the attackers borrowed funds from the platform and quickly swapped them with stablecoins (sUSD). Since the stablecoin is governed by a smart contract, the attacker had manipulated its price by placing a large buy order on sUSD, which pushed the price of the stablecoin to $2, doubling its pegged value. Then, the attacker took a larger loan from the higher-priced sUSD, repaid his loans, and took the profit with him.
It's relevant here because stable coin prices can be manipulated at DEXs too, or at least have been in the past. I'm not sure there's a long enough track record to guarantee it won't happen again before things go pear shaped if you're trying to take your short structured this way via DEX. There's smart contract bug risk, counter-party risk in the stable coin collateral and peg risk. Also regulatory risk.
The relevant question is whether the peg can be broken long enough for the loan to get margin called (by someone else exploiting the smartcontract to liquidate collateral). Lasting for the length of a flash loan isn’t enough.
Flash loans have to be paid back in the same block or everything the flash loan funded reverts. And to ensure this happens, it usually is all wrapped up on the same transaction bundle.
But liquidations are only triggered on oracle updates. And those happen at fixed intervals (measured in time or price movement), and can only happen a block at a time, in blocks after the flash loan has been closed.
Here's a question, how do you guarantee that every USDT was backed by a dollar at origination? Say USDT holds a bond that defaults, what do they sell to offset the risk? Where does the 5% yield on tether even come from? This is the most plausible form of manipulation: unbacked liquidity. The only way you'll ever find out is with a bank run, and with massive yields and a hyped crypto space, it may be a while before that happens.
I'm not sure I follow your short structure but you're mentioning other cryptocurrencies. Is there a clean bet where I sell Tethers and get dollars? (USDC are not dollars.)
Short version is no unless you actually get someone to loan you their tethers under contract, and you sell them to someone else for USD with the promise you'll return them.
This architecture doesn't exist AFAIK - certainly no trustworthy parties are offering it (since why would they want Tethers?).
In the event Tether busts, the entire crypto markets will freeze up, and it’s plausible usdc will not be redeemable or face a run. USDC aren’t dollars and have been opaque about their backing. The bulk of their assets are in “cash and cash equivalents” which sound good, except they include less than 90 day commercial paper here! They also don’t state its quality or say how much of their cash/equivalents are CP rather than cash or treasuries.
Yeah but where do they run to? I could see dark money having to run into BTC and ETH because real dollar redemption is a problem if you operate out of China for example.
It’s called leverage. Every player in the financial system uses it; some have cut deals with the government to socialize catastrophic losses so we pretend the leverage doesn’t exist but there it is. As long as Coinbase allows on-demand redemptions nobody is going to care about an audit because it’s trivially easy to just convert all your USDC to real dollars almost immediately. Can’t say the same for Tether.
> As long as Coinbase allows on-demand redemptions nobody is going to care about an audit because it’s trivially easy to just convert all your USDC to real dollars almost immediately.
And what happens if Coinbase were unable to convert all the USDC because the demand exceeded their stockpile of USD?
It's like people didn't live through 2008 and discover the magic phrase "counterparty risk", or something. I guess that was 13 years ago, so maybe they didn't.
And USDC can be converted back into actual dollars, on demand, not via a market transaction but literally a 1:1 conversion, through a variety of exchanges. You cannot say the same of Tether.
Today they will, for a few people, for small amounts.
The problem being discussed here is that they can't every day for arbitrary numbers of people and amounts, because they don't have enough USD on hand.
Yes, but no money market fund (which is how any centralised stable coin is structured) can face extremely high redemptions (which a collapse of Tether would likely trigger) without breaking the buck.
…okay, so if I deposit USDC at Coinbase, I can instantly convert the entire balance into USD, and then withdraw that USD to my bank account. The statement that “USDC is not USD” means nothing to anyone who has access to instant and reliable conversion between the two.
Are you serious? When there's a run on something, like Tether, by definition everybody is going to be trying to dump their crypto simultaneously and cash it out for dollars. And the entire problem here is that the system does not have $69B cold hard cash floating around, meaning that the vast majority of people will be left with nothing if (when) the crash happens.
USDC is backed by Coinbase (USDC are issued by Centre, a joint venture of Coinbase and Circle if I'm not mistaken). And Coinbase is an HN unicorn.
Everybody at Coinbase is known, it's operated from the US.
Coinbase ain't anywhere, not even remotely, like tether/bitfinex. There totally exists a world in which USDT goes to 0 while USDC is still worth 1 USD.
Doesn’t matter that much whether it’s “100% backed” or whatever. The time it takes to (1) send USDC to Coinbase, (2) convert that USDC to USD, and (3) withdraw the USD to a bank account is short enough (less than a day by wire transfer) that the counterparty risk is pretty darn minimal.
Until it's not. Part 1 and 2 of your list require Coinbase's implicit consent and cooperation, and if there is a bank run on USDT, that cooperation may be in short supply.
I would bet money that Coinbase has a button on their admin panel that says "Pause redemption of USDC" or equivalent, so you're just hoping they don't push that button in extremis. I find that silly, if what we're hypothetically betting on is that the crypto system will be in extremis.
No, the logic is that it is less likely. Anyways, Coinbase allows on-demand conversion of USDC to USD so you really only have to hold the USDC (and Coinbase’s counterparty risk) for about a day for that process to complete. At some point that window might close but given that Coinbase is a publicly traded stock in the US and must report financials, there is quite a bit less risk compared to Tether.
Agreed, the risk that it goes bust by itself is less than that Tether goes bust. However, what we are taking about is repercussions of Tether going bust: how will it affect Coinbase if suddenly 69B are trying to get cashed out?
People have been yelling about Tether for years, myself included. But nothing seems to stop it. Not lawsuits, not major news articles.
The conclusion I draw is that, yes, the game is rigged - AND EVERYONE IS OK WITH IT. As long as it's making everyone money, no one will really complain.
What I also find interesting, is that if tether ever DOES crash, the result might be a big boost for Bitcoin. If you hold Tether, and you want to cash out, the path leads through Bitcoin.
Re your second claim, that’s a common misconception. The price of bitcoin would skyrocket against USDT but pancake against USD.
Who in their right mind would sell their (actually worth USD) Bitcoin for your worthless Bahamian IOUs? Absolutely nobody. So you’ll see a massive skyrocket against USDT and as soon as people realize what’s going on, it’ll go no-bid. RIP.
Then the ensuing panic will cause selling on USD markets, arb bots will turn off, and that selling will be accelerated by the few who got BTC from their USDT piles as they run for the exit. Then exchanges will go down for “maintenance.”
You don’t need to believe me, this happens with every exchange insolvency. It happened at Gox and it happened at Quadriga.
You bring up a very important but often overlooked point about market panics: the problem is not really everyone rushing for the door, it is market makers pulling bid liquidity so that “normal” selling volumes tank the price (which triggers the avalanche).
What? Who told you this? Market makers, especially in crypto, do not have long holding periods. The big moves in crypto are because of coordinated manipulation to trigger stops and liquidations (forced, price insensitive buying and selling).
I don’t know if this is /r/wsb leaking but markets do not tank because market makers pull back…that’s just not the business they are in.
If tether crashed I guarantee every MM would pull their bid, nobody wants to be left holding the bag. I don’t care if they’re obligated by contract to provide a bid/ask at all times—if USDT went bust, BTC/USDT liquidity would evaporate very quickly. The contract would be irrelevant since the exchange would die.
Either that, or their bid will be 0, like on 0DTE options that are far out of the money.
Yes, I agree. But if all MMs withdrew but you had lots of other stickier liquidity, spreads might widen but it would cause a crash. Of course if Tether implodes, all the long term buyers will evaporate, which is my point: medium/long term price is dictate by swing and positional traders, not market makers.
> Either that, or their bid will be 0, like on 0DTE options that are far out of the money.
What? This doesn’t make any sense. 0dte options are often some of the most actively traded. But I’m not really sure you get this stuff.
> What? This doesn’t make any sense. 0dte options are often some of the most actively traded. But I’m not really sure you get this stuff.
Did you miss the “far out of the money” part of my comment?
What’s the bid/ask on the Oct 8 SPX 4550C going to be at open tomorrow, assuming SPX opens around 4400? Bid 0.00, Ask 0.05
I also understand there is resting (and possibly hidden, depending on the order types allowed by the exchange) liquidity on the order book that would be there if USDT collapsed and MMs pulled out, but how long do you think it would take for orders to evaporate for an asset that is rapidly approaching a 0 dollar valuation?
I’m just a dumb amateur, but I have a basic grasp of the mechanics.
You do understand my original comment chain was talking about a complete tether collapse where it has 0 value and not just a temporary dip in price.. right? Go read arcticbull’s comment about 6 levels up, that’s the scenario I was referring to in my comment.
I’ve traded both ES and SPX options so you can stop quizzing me about them. By the way, minimum price tick on ES options is .25 (which is $12.50) lmao. If you don’t believe me, look at the option chain, mr career hedge fund options trader guy (your words, not mine).
Separately from all this, there are SPX options, they're cash-settled European index options (for those on the sidelines American options can be exercised any time up to expiry, European only on the day of expiry) with a $100/tick notional contract value. They're super useful if you want to trade indices (as compared to say SPY options) because you don't have to deal with dividend-triggered exercise risk and they offer 60% long term capital gains tax treatment no matter how long you hold them for (like futures and futures options). [1]
[edit] They do trade under various tickers depending on the exchange though, so maybe that's some of the confusion? Btw, not trying to explain it to you in particular, just to passers-by.
Yes, you've got the CBOE crap, you've got a gazillion other smaller venues, and you've got desks at every bank which will write you options on whatever you like.
OP is talking about trading ES and SPX, and it was more likely they had confused it with SPY given the other confusion around tick sizes and given the size of the big daddy SP contract (and the language suggested this person had just gone to the CME site and did a bit of copy paste...especially the language about on tick being $12.50, which any spoos trader will know by heart).
Anyway - going to leave this one, I think I've added all the value I can add.
What I don't think most folks realize is that USDT is heavily centralized. They have an extensive 'blacklist' of tokens they've frozen, and they add to it regularly. Far more so, I believe, than any of the other stablecoins. They were the first (only?) to freeze tokens coming out of the Poly hack. [1]
I believe they even forced a change to Omni to support blacklisting after they were 'hacked' [2] a few years ago (scare quotes because it was never investigated or IMO resolved). [3]
It's highly antithetical to the Satoshi white paper.
If Tether gets shut down and their leadership banged up, I strongly suspect custody of the network will fall with the DoJ and they could, at their discretion, freeze all tokens pending full AML/KYC and source-of-funds of holders. Whether this is a credible fear or not, the ensuing fear and chaos would almost certainly break the $1 peg, especially once their exchange friends stop supporting the peg and turn states witness.
I think it would increase as tether would need to dump into btc on exchanges like bitfinex and most know this dynamic by now. But who even cares. If it craters like it did during covid from fear selling it just comes back in a month or so.
It only came back because of USDT. This is true according to the chat transcripts in the NYAG filings between Bitfinex’ Merlin and the money launderers they parked money with.
Surely you can provide a source for that (where exactly this was said)? As far as I have seen they dont show anything demonstrating this. And this tin foil hat theory about tether pumping btc has been debunked repeatedly.
It was in the NYAG settlement. [1] Transcripts here. [2]
Merlin is Bitfinex/Tether CFO Giancarlo Devasini. [3] Oz and CCC is Oz Yosef - their contact at the Panamanian money launderer Crypto Capital Corp. Here, they parked almost $1B of co-mingled funds without a contract at all and had it seized by various world authorities.
Merlin [15.10.18 10:01]
I need to provide customers with precise answer at this point, can't just kick the can a little more
Merlin [15.10.18 10:02]
the international I mean
CCC [15.10.18 10:02]
I will keep you posted here
CCC [15.10.18 10:02]
On the process of all international payments.
Merlin [15.10.18 10:02]
please understand all this could be extremely dangerous for everybody, the entire crypto community
Merlin [15.10.18 10:03]
BTC could tank to below 1k if we don't act quickly
For once, I believe Giancarlo. I recommend reading the rest of the transcripts in [2].
> And this tin foil hat theory about tether pumping btc has been debunked repeatedly.
I mean, you can keep repeating that, but of course, it hasn't. I don't know there's conclusive evidence at this point although a massive class action suit against Tether for market manipulation was recently allowed to proceed by a judge after rejecting Tether's request for summary judgement. 5 of the 10 claims were dismissed - a few on technicalities - but 5 claims were approved to continue on the basis of suitably compelling evidence and off to court we go. [4]
>> The court did dismiss RICO charges against the defendants. However, it found the plaintiffs adequately alleged monopolization, market manipulation, common law fraud, and violation of the Commodities Exchange Act. [4]
Just to be clear, none of what you've provided concludes that tether manipulated (pumps) the btc market. Its still a tin foil hat theory from people who just dont like cryptocurrecy.
Me: > I don't know there's conclusive evidence at this point...
I already said there was no conclusive evidence yet, but that's not the same thing as "debunked." A judge agrees. Had it in fact been "debunked repeatedly" then the lawsuit would not be permitted to proceed.
>> The court did dismiss RICO charges against the defendants. However, it found the plaintiffs adequately alleged monopolization, market manipulation, common law fraud, and violation of the Commodities Exchange Act.
A judge literally found based on the plaintiffs evidence that they have adequately alleged market manipulation.
So, let's see where that goes then, shall we?
Either the judge is wearing a tinfoil hat too, or I suggest new talking points.
Of course I don't like cryptocurrency, lol, it's hot garbage IMO. However, I wouldn't like it any more or less at $1,000 than I would at $100,000 (well, except that Bitcoin's environmental footprint cap is proportional to its price - so lower is better for the planet).
The most plausible conspiracy theory I've seen for the complete lack of regulatory action against Bitcoin or Tether is that they're being used to launder money by the US intelligence community.
My version of this theory is less far out: just that there are now sufficient number of people in the elite with significant exposure to cryptocurrency. When you see folks on CNBC talking about trading BTC like it's pork bellies, you know something's going on...
What kind of hopium is that? Once Tether collapses, the entire crypto market loses its faith as they've been trading against fraud and the market structure was as imaginative as it could be.
Bitfinex has a very profitable system with Tether (loaning USDT out, and earning 5-6% interest), so they're incentivized to keep it running as long as possible. If they're smart, they have liquid reserves to cover the first x% of withdrawals.
Which means - you would need something like a large drop in their backing assets (crypto, commercial paper, etc) + a confidence drop in the system large enough to cause a run on the bank, burning through all of their reserves.
If no catalyst like this occurs, the game could easily continue on for years.
Exactly, the entire fiat financial system is rigged and yet we are forced to participate in it... Tether is probably rigged too but at least we are not forced to participate. So at least it's a more robust asset than fiat in this 1 critical way.
The entire system is a fraud and the only things holding it together are people's ignorance and hypocrisy. They cannot bring down Tether without revealing the lies and hypocrisy of the entire financial system since the same arguments could be applied to either side.
I would not want to be a judge or lawyer on this case. There is no logic involved, the only way to debate this are extortion threats and threats of physical violence.
"After I returned to the U.S., I obtained a document showing a detailed account of Tether Holdings’ reserves. It said they include billions of dollars of short-term loans to large Chinese companies—something money-market funds avoid. And that was before one of the country’s largest property developers, China Evergrande Group, started to collapse. I also learned that Tether had lent billions of dollars more to other crypto companies, with Bitcoin as collateral. "
> Management’s accounting policy is to value assets and liabilities at historic cost plus any accrued interest and less any expected credit losses, or otherwise the redemption value where applicable. The realisable value of these assets and liabilities could be materially different if any key custodian or counterparty incurs credit losses or substantial illiquidity.
At least in principle they are supposed to mark down "expected credit losses". It would be nice if they spelled out what that means a little more, though.
One dollar of Evergrande's debt -- that is, a promise to pay one dollar -- is not worth anywhere near a dollar. So besides the sketchiness of having lots of Chinese company paper on their "asset" books, there's the whole question of how they are valuing said paper.
In other words, when they say they have $1 dollar of assets for every $1 of issuance, is the asset an Evergrande promise to pay $1? Or is it an amount of stuff they can liquidate easily to obtain $1?
It's the former, of course. And the "auditors" they used checked and said "yep, they have the right amount of promises to pay from distressed Chinese companies that, if those companies actually pay, it will be enough money."
Makes me wonder if there's a financial "weapon" a country could use in geopolitical conflict where they intentionally create an inscrutable bubble in another's economy, and then once it's grown big enough they suddenly pull off the veil and let the whole thing collapse
Not that this one sounds intentional, but it makes you think
They said the debt isn't with Evergrand. That being said, there's no way to verify that, and when Evergrande falls apart it's likely the entire chinese bond market will.
Not uncommonly, what looks like a shortcoming of existing systems to an innovator, is actually an important feature that you will suffer from the absence of. Sometimes cryptocurrencies seem like they're recapitulating the history of money and banking, without having learned any of the lessons from it.
It seems to come up every time Tether is mentioned, so I will make a top level comment: do not short USDT/USD. You will not win. The only way you might (emphasis on might) short Tether is to be long off shore and short CME (I explain why in a comment further down).
Is it theoretically possible to be the last one holding the tether bag in the event of a crash (i.e, set a ridiculous ask price for BTC like millions of tethers each) -- and end up owning enough of the USDT (say like 50 Billion of them) to then sue Tether the company and its owners for their assets? (like the real USD money they make investing/skimming their actual holdings)
If this goes on for a few more years, with broader investment from traditional investors (ETF), when Tether collapse I half-suspect that the cryptocurrency markets will bring the NYSE down with it in the fall as people sell to cover losses
The last time Bitwise tried to list an ETF, they revealed to the SEC that 95% of all bitcoin trading volume was fake. If the SEC permits a real BTC ETF that would represent a serious failure on their part, IMO, and I agree the potential for Tether contagion would increase materially. [1]
[edit] this financial cancer can’t get excised quickly enough. The longer we wait the more will get hurt.
> The last time Bitwise tried to list an ETF, they revealed to the SEC that 95% of all bitcoin trading volume
95% of Bitcoin trading on *unregulated* exchanges was fraudulent. There’s a reason why people don’t use CoinMarketCap anymore and it’s precisely because it shows bad metrics from fraudulent exchanges.
Presumably wash trading that doesn't reflect any actual transaction. Or just straight up fake reporting of "off chain" trades that never happened by exchanges.
I don't know why people don't understand this. There was a twitter spaces a few weeks ago after one of these ETF delays where a bunch of bigwigs pushing these ETFs seemed clueless or willfully ignorant of this fact. Its just pathetic.
That old Upton Sinclair quote comes to mind: the finance guys are making a ton of money getting people to ante in and when you buy a cryptocurrency the only way you get your money back is by talking it up so anyone who's already in has a big incentive not to ask questions.
You massively overestimate 1) how much capital would flow into a bitcoin etf and 2) how large that would be relative to the rest of the US (or global) equity space.
Bitcoin has a trillion dollar “market cap”. That’s about 4% of the US equity market cap. In reality bitcoin’s market cap is nonsense, the real float is much smaller, and the real market is much much smaller.
$GBTC has $35B aum, and that is mostly due to the massive bull market in the last 18 months (thanks to Tether). The amount of hard cash that has flowed in is a small fraction of that, perhaps something like $7B (and since done 5x in performance).
But $GBTC is OTC and so not everyone can invest, and a vanilla ETF would likely garner more interest. How much more I don’t know. But $NKLA was a $30B fraud at its peak and yet in terms of market health, it was hardly a blip on the radar.
It's actually an interesting thought experiment to try to figure out what would (will?) happen when all this comes crashing down.
I am an extreme skeptic on all things crypto, I don't hold any and I think it's basically a gambling fad. But, with that said, I grudgingly recognize that it now has some powerful establishment interests behind it and things that have that tend to defy the laws of gravity, often forever. So I have no idea what will happen.
But it's interesting to contemplate scenarios. One obvious one might be that crypto values would be highly correlated to the values of specific stocks that are in favor by crypto enthusiasts (aka "meme stocks" or maybe Tesla, etc) and that if there's a full on crypto crash those specific stocks will be annihilated by margin calls, since it's the same set of retail investors.
That's one hypothesis, I'm sure there's many other interesting ones.
The federal government should have shut down Tether years ago. At this point, Tether growing its tendrils into the real economy and becoming a systemic risk almost feels like an inevitability. Madoff 2.0, but even more obviously fraudulent.
Once you have big enough following, having enough systematic risk, you, average scammers can enter "too big to fail" category, especially in democratic countries.
If USDT successfully turned half of the U.S. families holding 25% of cryptocurrency-related assets, they can work out any scamming issues they have in hand.
You can short Tether on FTX. You have to pay ~4% funding per year to short USDT-PERP. But if you think Tether collapses within 25 years its a good bet (probably going to come a lot sooner).
Doesn't shorting depend on someone else agreeing to pay you no matter what at the end of its runtime? I don't see that happening. And who would be liable, the party loaning you the share? They would disappear. The exchange? Bankrupt. Tether itself? It'll vanish pretty much overnight.
There are no guarantees that you would get any money if you short something unregulated like tether.
The thing that's always surprised me about Tether is the confidence people have in it without a fully transparent accounting being available of their collateral. Also they by their own admission in 2019 they only had 74% of the liabilities covered but people still seem to have confidence in them having 100% reserves. Collateral issues have been known since at least as far back as 2019: https://www.ccn.com/tether-lawyer-shocker-only-74-backed-by-...
It kinda ties in with modern-day anti-establishment conspiracy thinking; big banks are bad, just like science is bad. It kinda started with the vaccines cause autism trend, which quickly devolved into vaccines are Bill Gates' 5G chips for mind control, gargle bleach instead.
It’s too bad he didn’t reference bitmex or deribit. I mean you don’t need tether to simulate dollars from Bitcoin. Arthur Hayes was a close second to Matt Levine in the quality of his financial analysis in his crypto digest.
Curious. Is that true? I ask because I read papers on digital cash years before Bitcoin and never saw any reference to financial system instability. It was just "being able to send money digitally like cash would be useful and cool", perhaps with a bit of "banks and western union are bandits with their fees". I always thought the alternative financial system stuff was added later to make the scene more interesting to prepper types.
Bitcoin doesn't eliminate the need for bailouts. It doesn't even do lending, at least nobody is crazy enough to borrow something that is going up in value.
I think it's more a point that it's a currency that it is effectively impossible for anyone to change the supply more than it doesn't need to be bailed out.
Well, essentially it seemed to be pointing out that existing financial systems are inherently unstable by design. Whether these alternatives do any better is a different topic, I was merely answering the question above.
Yeah, it gives an exit for people avoiding a total financial wipe-out from irresponsible governments around the world who cant keep their greedy little fingers off the printing press to stay in power. Amongst other things. Remember when it took 3 days to transfer money before crypto showed up? That was ridiculous and other things still are (like banks taking your money and giving you almost no interest for the profits they make off it).
You don't have to use crypto. Obviously some people want to be involved in crypto, so why not just respect their right to do with their own time/money what they want. If the environment is your concern, then you should propose application agnostic restrictions on emitting CO2. Not use the environment as an excuse to selectively prohibit an activity you personally dislike.
Any economic activity is basically actively destroying the environment though. The big difference is that there are a few supply chain steps that get bypassed before value is created. I know I know, someone will take issue with that and say that no value is created with crypto when a coin gets minted and the rewards are distributed while value is created along each supply chain step when you manufacture a car. But if it wasn't creating value people wouldn't do it at this scale.
Who outside of the cryptocurrency industry would notice if they disappeared?
Who outside of the automotive industry would notice if cars disappeared?
That's your answer: pollution is still a concern but only one of those is balanced against significant real-world benefits for people other than the sellers.
I was thinking about miners, they get bitcoins as a reward for helping to keep the network secure. So what I'm saying is that they get rewarded for their work in much the same way that all the cogs in the supply chain machine get rewarded for their work. There are just fewer steps.
There's interplay with other actors of course, the people that trade bitcoin are one of those actors. This kind of interaction also exists for physical objects like cars, they also only get their value by interacting with the rest of the world.
But yes if cars would disappear this would have an impact on more people simply because there are more people involved in the manufacturing process.
> But yes if cars would disappear this would have an impact on more people simply because there are more people involved in the manufacturing process.
I was thinking more about the impact on users, not just producers. There are millions of people living in low-density housing where they have limited alternatives to go to work, shop, etc. – maybe e-bikes could be an option for some but in most cases you’d be talking redesign of entire cities. Many, many businesses would be disrupted - some fatally.
That’s what it looks like for people outside of an industry to depend on a technology. This can be seen especially in the case of the web: 30 years ago, a company in San Francisco making a mistake would not have meant that people in cities around the world would have trouble communicating or taking orders from customers. People find WhatsApp so useful that they based their daily life on it. Repeat for online ordering, advertising, support, etc.
Contrast with Bitcoin: statistically, almost nobody uses it for business or personal transactions and the few who do almost always have alternatives — usually cheaper and faster, if ideologically unsatisfying. If it disappeared tomorrow, there would be no lines at stores, no accountants wondering how to pay suppliers, nobody waiting for their paycheck or unable to get a mortgage.
The automotive industry, and the machines they create, produce orders of magnitude more pollution than crypto. It’s a poor choice of comparison for whatever point you’re trying to make.
Note that I didn’t say otherwise but rather that cars have beneficial effects for people outside of the automotive industry. I’d love to ban them personally but that would negatively impact millions of people unless we first made massive investments in transit, bike/pedestrian infrastructure, etc. - quite the contrast with cryptocurrency, which could disappear tomorrow without any noticeable impact outside of speculators.
The automotive industry is 100+ years old whilst Bitcoin is only 13 years old, so you can't fairly compare them on the basis of "who would notice".
My previous skepticism of Bitcoin and cryptocurrency was due to short-sightedness. You almost have to dip your toes in, in order to understand its potential.
Okay, use the web. Within a couple of years of its creation it had transformed businesses in all kinds of industries, government, education, recreational activities, etc. By the time it was as old as Bitcoin, the world was completely different and people were walking around with web clients in their pockets; in contrast, the most impact Bitcoin has had outside of its own community seems to be that it can be slightly cheaper than Western Union to send money to another country.
I'm going to disagree with your timescale, mainly in the use of 'web' rather than 'internet'. The 'internet', which set the foundation for the 'web' started its existence in the 70's, and the 'web' wasn't really invented until the late 80's / early 90's.
Memory of time passing seemingly gets very compressed the further back you go.
Additionally, Bitcoin is an attempt at disrupting elements of the financial world (and cryptocurrencies as-a-whole are going after ALL of finance, not just elements of it). This is _the most powerful and well-funded aspect of modern civilisation_, so there's going to be severe resistance (to put it mildly) to any threat.
It's also difficult to understand the concepts that are foundational to cryptocurrencies, and the average persons eyes glaze over (personal terminology my wife uses when I try to explain technologically difficult things that she really has no interest in) at the slightest dip into its technicalities.
Better examples may be smart phones, but mobiles have been around since the mid-80's at least (that suitcase-sized portable phone in Lethal Weapon), and laptops are of a similar vintage (my argument being that smart phones are a combination of these two existing technologies).
Smart phones also have that immediate-dopamine-hit working for their adoption rate whilst Bitcoin and cryptocurrency are a 'longer game' (arguably you could say those already on the 'inside' for crypto get the dopamine hit of profit or potential riches - rightly or wrongly, healthily or otherwise).
Think of cryptocurrency as building a brand new Central Banking and Wall Street infrastructure. 13 years is still breast-feeding against that behemoth.
Smartphones, internet, web – these things had perceived value without complicated language.
Bitcoin, crypto, NFTs, it's always the same: "You don't get it, because you don't understand the fundamentals. <Insert obscure lingo here>".
It's just wrong. There is no real value for most people. That's why crypto bros hide behind complicated terminology. That's why the value proposition of Bitcoin changed a couple times. That's why the terminology shifts all the time as well. "DeFI" wasn't mainstream until like a year ago or two. The next bullshit terminology is "web3".
"It's just wrong" is wrong. It's complicated because it's complicated. Try explaining quantum physics. Complexity is a function of the shoulders upon which the new thing is standing. Cryptocurrency sits atop cryptography, which is conceptually difficult to grasp even for HN regulars.
The potential (I say potential because I'm aware enough to know that certain things are not yet proven) value for "most people" is a reduction of the corruption inherent in the processing of financial transactions. This is far enough separated from the average persons day to day that it doesn't seem to have value. But things like the GFC bring that awareness to the fore... briefly.
The terminology doesn't "shift all the time" and if that's how you see it then you're not keeping up and therefore your opinion and commentary carries little weight. The terminology you're talking about is new functionality offered by the ecosystem, it's not a rebranding or business pivot, it's a new branch of services.
DeFi is an example of the services that can be built upon cryptocurrency (with smart contracts) and, like the cause of this discussion, takes time to build awareness and a customer base.
Web3 is just another branch of functionality that can sit atop cryptocurrency / smart contracts. The terminology may well be bullshit, just like "social" was web-2-point-oh way back seven years ago, but it's the concept that matters, and the alternative, or disruption, that it facilitates.
Web3 appears to be a kind of meta-internet. Bullshit terminology aside, I'm interested to see what will come of it.
Okay, use the Internet and computer networks in general. Network connectivity was expensive and slow until the late 90s. Computers were very expensive, further limiting reach, until the personal computer revolution opened it up and prices came down in the 1990s. Software was primitive, too, limiting reach and capabilities - people who could afford Macs or Amigas had GUIs but that wasn’t mainstream until the Windows 3.1 era, arguably Windows 95.
The pricing for hardware, software, and especially connectivity meant that this was an upper-middle-class or richer phenomenon at first and it wasn’t until the mid-to-late 90s that it had become common for lower-middle class families to have a networked computer.
All of that is completely unlike Bitcoin’s day one availability to a billion people.
Despite those barriers, because network connectivity had actual value to people who weren’t selling it, unlike Bitcoin, many normal people paid money to get access to services like Compuserv or GEnie, the earliest ISPs started connecting businesses and schools, you’d hear about people taking an elective at the local college to get a student account, etc. Technical work adopted as allowed - email/Usenet support, FTP sites, Telnet access to applications and forums, etc. were all common before the web – but so were people reading the news, getting stick quotes or researching, playing games, or socializing - the first met-online marriage happened in the late 1970s if memory serves. Real people found it useful enough to pay extortionate telco rates, deal with modems, even getting second phone lines to avoid disruption.
That all contrasts sharply with Bitcoin which arrived in a world where a billion people had the ability to use it. The lack of adoption has been due to the lack of a need – and especially the community’s tendency to say “you don’t get it!” and rant when people explain real concerns such as cost, fraud, or lack of benefit over the other options. This is a dead tell for when people have major conceptual problems: if you can’t explain a system to a non-specialist at a high level, something is wrong. The fact that 13 years in people are still unable to come up with a compelling pitch for why someone would want to use Bitcoin beyond speculation tells us that long-term success won’t happen without major changes.
The central bank analogy doesn’t work, either, because that didn’t arise out of nothing but was rather formalizing existing banking relationships with goals like stability. That evolved over centuries and, most importantly, constant daily use — nobody went from storing money in the couch cushions to a central bank without an intermediate state. Similarly, central banks are backed by some form of real value. A pure fiat currency like Bitcoin with weak backing, plenty of competition, and no innate demand is not what you’d use for such a system — and, indeed, anyone who is familiar with the history can see that’s the concept people who’d bought into Bitcoin pivoted to after failing at the original goal of being a currency.
Step in how? Anyone I know who has ever held crypto for a significant amount of time is a working class person and it has changed their life for the better. If that's endangering financial stability then our system is a joke.
> about $30 billion of its dollar holdings are invested in commercial paper—short-term loans to corporations. That would make Tether the seventh-largest holder of such debt, right up there with Charles Schwab and Vanguard Group.
"Would", because nobody in those markets has seen them.
At some point I suspect that they’re going to be exposed as holding billions of dollars in ultra-high-risk junk Chinese ABCP. Even before the current economic and political climate, that stuff was toxic — you can buy dodgy SCP for about a penny on the dollar given how poorly regulated the China commercial debt market is.
This is sounding eerily like the Jeffrey Epstein case, where he was this storied super-successful trader and speculator, but there was no paper trail of the trades that made him into a billionaire.
At the rate they're going if you compare their holdings to revenue (not particularly accurate, but I'm going for an analogue to try to represent relative size), they're on track to eclipse Alphabet, AT&T and even Saudi Aramco by the end of the year.
Apple, Microsoft, Google, Verizon Communications and Pfizer COMBINED hold $400B in reserves.
Seems there is a (very large) market for a legit version of Tether. What's stopping some other company from doing what Tether does with more traditional commercial paper / US based short term loans / govt. bonds / etc.?
Why not use more traditional commercial paper / US based short term loans / govt. bonds / etc. directly then? I mean you can rephrase it but you quickly end up with reinventing the wheel - an old, established, well-regulated, secured and guaranteed wheel.
If you want fiat currency, use fiat currency. If you want a secure location to store and transfer your money, use a bank.
If you want to support a dodgy organization's fake digital money printing scam though, go with Tether.
The point of the article is that Tether is already doing all of this traditional finance stuff under the hood, but just with Chinese paper so they can rake in more yield, but is way riskier.
What I don’t understand is why market participants don’t use those rather than Tether. If I had a bunch of Tether today, why wouldn’t I move it to USDC or similar?
USDT has more supported trading pairs and liquidity, particularly for crypto exchanges in Asia. It just seems more popular there for whatever reason.
If I had to choose USDC or USDT though, I'd rather hold funds in USDC. In general I'm not much of a fan of stablecoins though, but I do acknowledge the quick, 24/7 transfers they offer is interesting, as well as the high APRs for lending them. However, I'd still rather just hold fiat vs stablecoins. I find other cryptos to be much more compelling.
Was coming here to say this. Bennett and Cas are well-informed and run a fabulous podcast, give deep dives on crypto history and its shady characters. If digging into True Financial Crime is your thing, with lots of “wait, that CAN’T be true, that character/event sounds TOO crazy” entertainment, this podcast is for you.
I dont understand why this is so big though. Surely few people own tether long term. Ie you use it to buy crypto, not sell your crypto and hold thether. I can imagine traders buy and sell a lot but that wouldn't add to tens of billions.
Another strange phenomenon is that the supply of tether never seems to decrease. It only ever increases or stays stable. Maybe the odd 0.1% decrease here and there.
Everyone knows Tether is a scam but everyone knows that the fiat system is also a scam... Buying Tether using fiat is just exchanging one phony financial instrument for another phony financial instrument.
The elites are working hard to promote scam projects in the crypto space. Only allowing unscalable projects to gain traction... But it doesn't matter, they work just well enough to do what they were intended to do.
The fiat system is making a mockery out of itself faster than it's making a mockery out of crypto.
My 2c: large crypto investors have no choice but to use stablecoins and they've made such crazy gains they don't care if tether "breaks the buck" - to them, it's just another day in the market where their assets go up and down by 10+%.
Does anyone have an explanation for why Tether is never actually equal to $1 ?
If you look at the Tether/USD chart on coinmarketcap or whatever other exchange, it always seem to slightly fluctuate by a few decimal digits around the 1 dollar level.
It's not a fixed price asset, it's still a market and Tether relies on arbitrageurs to take profits from inefficiencies in the price when it drops below $1 or rises above.
Best article I have seen in a while. Direct line drawn between crypto/wildwest is funny/true. Still HODL tons of USDT though. Real question if deposit/loan ratios can/should ever be enforced in cryptoland :)
Most of the cryptocurrency enthusiasts I have ever met only care about price increases and speculation. Which is why they don't like nasty Tether news getting any views.
Yes, that's why I put "actual" in there. In the crypto communities I know Tether was heavily criticized pretty much from it's very inception, not just more recently since it's getting bad press in the mainstream. But traders who who're in it for the money do seem to use it. Those people don't care about the tech, they often don't even understand what they're buying. They're speculators.
This happens for most things which are critical of cryptocurrencies, unproven COVID-19 treatments, etc. There's a group of people who try to flag them off of the homepage but the moderators appear to block that after confirming that the article is of legitimate interest.
Yeap – I think it also shows how a lot of our traditional management techniques were more effective when it was more mischief or small-scale campaigns, rather than when a lot of people have an ideological or financial motive to coordinate. The Metafilter approach is expensive to scale, not everyone wants it, and I don't see too many other successes dealing with this.
"Solana, up 9,801% in 2021 for seemingly no reason at all"
No reason at all, huh? Anybody with even a remote interest in crypto knows why Solana has exploded. It's L1 season and Solana is a direct competitor to ETH, which suffers from high usage fees.
Every other L1 has exploded in value. As said, L1 season. These kind of statements make me suspect the author never used crypto in their life.
The cultural gap between crypto and non-crypto is pretty hilarious. The reason crypto holders don't give a shit about any of this, is because to them, a 50%, 80% or even 90% pullback of a coin is just an ordinary Thursday.
You can't threaten a crypto holder with "losing it all", because that's an everyday reality for them. And so is multiplying their wealth by 2, 5, 10, 100.
Why would so many people engage in this degenerate gambling? This is the part skeptics just won't get. Because the existing financial system/situation doesn't work for them.
Young people are locked out of any and all assets. They can't afford real estate or any meaningful amount of stock. Savings accounts have a negative yield.
Crypto is the asymmetrical bet. There's the sizable risk to lose it all, yet an upside potential that is countless times larger. And in the case you lose it all, it wasn't that much anyway.
It is an act of desperation and a sign of very unhealthy issues in our "regulated" economy: low wages, job insecurity, student debt, inflation, low interest rates, inequality, the list goes on.
For sure there will be another crash. Nobody cares. Because they have nothing to lose anyway and will just start over. Because the underlying economic issues did not change.
You say this as if it’s a valid thesis outside of CT. Solana has exploded because Alameda, Cumberland and related VCs have made it so.
> Young people are locked out of any and all assets. They can't afford real estate or any meaningful amount of stock. Savings accounts have a negative yield.
Casually ignores Robinhood and equity markets, where most of any under 50s should have most of their wealth. Fixed income is a much bigger problem for old people than young people. Real estate, I will agree with you. But none of this justifies crypto.
The rest of your comment is truly bizarre. You’re defending it pretty strongly while also seemingly admitting that there’s little real economic value being created and that will result in a crash with people getting wiped out and starting over.
Why accept this? Why not focus on the real issues, instead of just accepting degen apeing with open arms?
I think their point is that crypto is an interactive lottery ticket. If you have $5 to spare, you can't turn it into $10 000 with Robin Hood in a year, but you might with crypto.
I really don’t get why people say this. The only periods of time when it has been true, when coins are doing 1,000x are during massive Tether fueled bubbles (2017 and 2021). If you believe the writing is on the wall for Tether, then this is not a +ev strategy.
Well, the problem is...they have no wealth. They may have low paying jobs or even two jobs. Or a reasonable job yet high debts or living expenses. Barely getting by, with no prospect of ever building up more meaningful wealth.
It's super cool that their 5K turns into 6K in 10 years time, but that doesn't do anything. You might as well turn it into 100K. Or lose it all. Fuck it.
I don't think you understand the dire situation of younger generations. In my country, the AVERAGE home costs 485K USD.
The median salary is 36K. Young people have salaries lower than that. This allows for a mortgage of 166K.
So unless you're born rich, you won't ever get a house. Perhaps they can rent then, and meanwhile save up? No. Private rent eats up so much of their salary that there's no room to save. Which would be pointless anyway as real estate appreciates faster.
They can't move out, they can't start a family. These people have a life to live. My dad was 19 when he had a rental house, married, two kids, and 50% of disposable income on a job requiring no education. Now people are 35 and still don't have the basics in place.
Hence, crypto. Which is not just a bet. It's an expression of full distrust against the supposed "sane" traditional system.
Why not focus on the real issues? Because they are unsolvable. Wages cannot rise significantly as nations compete in global capitalism. Real estate won't become much cheaper. Jobs security will not increase and student debt is unlikely to be forgiven.
If a young person working full time cannot afford a roof over their head or start a family, is in perpetual debt, and has zero job security, perhaps some start to wonder what the point of it all is.
> It's super cool that their 5K turns into 6K in 10 years time
Ok, I get it. You’ve not actually looked at what other investments are like. 20% return over 10 years? The S&P 500 is on track to do that this year, after one of the biggest rallies in history last year. $5k invested just before the covid collapse would still be worth far more than $6k, and that’s 18 months through a global pandemic.
That said, your answered your own issue: homes are unaffordable. I’m with you on that: we turned housing into retirement plans for boomers. And now we don’t know what to do about it.
There’s an old adage in commodities trading: the best cure for high prices is high prices. The meaning behind this is that when prices are too high and people can’t or won’t buy, then prices can only go down. Over the next few decades, young people will either earn substantially more, or housing will become substantially cheaper.
You can’t sell anyone a home for $485k if they can only get a $166k mortgage. So these things will converge.
As much as I enjoy pissing on boomers, older home owners did nothing for their houses to appreciate. It's just something that happens due to monetary policy, low interest rates, local scarcity of supply and a growing population.
A lesser known reason is that since the 2008 crisis, hardly any new homes got built. Whilst the underlying demand was still in place, and growing.
"You can’t sell anyone a home for $485k if they can only get a $166k mortgage"
You only need enough buyers that can afford a 485K mortgage to meet supply. So when supply is very low (which in my country is very much true), if only 25% of the potential buyers can afford that mortgage it's still enough to buy the supply. Which they do, and they even overbid still.
So this can keep going for a long while. Not even a crash solves it. Our 2008 crash dropped prices by 20% only. Which is now the gain in a single year.
So that leaves the only other option you mention: wages.
> As much as I enjoy pissing on boomers, older home owners did nothing for their houses to appreciate. It's just something that happens due to monetary policy, low interest rates, local scarcity of supply and a growing population.
All the things you mention, boomers did that. Monetary policy was drafted by boomers, for boomers, to protect and enrich boomers (low interest rates being one outcome). We printed trillions last year to protect boomers at the expense of young people. Scarcity is a function of zoning laws, again drafted by boomers to protect the value of their nest egg. It’s 100% their fault.
>enrich boomers (low interest rates being one outcome)
Why does it matter if you pay $1000 per month on interest or $1000 per month on the principal? The monthly payment is the same. The only difference is that the bank takes less of your money.
That's not a boomer thing at all, it's a human thing.
As soon as younger generations secure a home, and when they resell later, they aren't going to give discounts to the next generation. Surely you can't belief they will?
Everybody that owns a home, regardless of generation, wants their home value to at least persist and ideally grow. Likewise, people want to protect their neighborhood, as it directly affects the quality of living.
It's natural and normal behavior, and not an issue in itself. The real issue is the infinite growth mindset in a finite world.
Your problem is not with “boomers.” It’s with a population pyramid that has actually just fallen apart — but those effects won’t show up for another 20+ years.
>population pyramid that has actually just fallen apart
True, but the effects do show up today. When people have less children, the economy also consumes less, meaning less work needs to be done leading to a scarcity of the holy "well paying full time job". Instead you get a rise in part time jobs and as wages go down you also get an increase in "meaningless" employment in the service industry.
The lack of children that are consuming more than they produce has basically created a huge demand hole in the economy that the rise of "consumerism" is trying to fill. Meanwhile working age people try to save for (early) retirement and reduce consumption themselves.
Nope. The problem is zoning laws which are a boomer invention. The population shift may actually solve the problem as there will be enough homes to go around despite it being de facto illegal to build new ones anywhere anyone wants to live.
>Wages cannot rise significantly as nations compete in global capitalism.
They can. If every country did balanced trade then there wouldn't be anything wrong with global trade. You'd get the benefits without any of the downsides. It's when countries export more than they intend to import that things are getting worse. Of course, balanced trade wouldn't allow the existence of global reserve currencies. The USD would have to give up a meaningless benefit.
> Nobody cares. Because they have nothing to lose anyway and will just start over. Because the underlying economic issues did not change.
If crypto was only these people, I'd have more sympathy for them. But in reality, it's some of those people, and then tons of far more sophisticated people who are trying to take advantage of the rubes. In the end, the Tether people will make out like bandits, and everyone else will be left holding the bag. It's like justifying Madoff because of the desperation of elderly people to extend their savings.
Like I said, that doesn't sound threatening or scary at all. Because it happens all the time. Crashes, rug pulls, hacks...all regular occurrences.
That's the price to pay for the incredible upside potential. People that can't stomach this, should simply not be in the game.
Alternatively, and the wiser strategy, is that you put a portion of your wealth in crypto, say 10-25%. The absolute worst thing that can happen is to lose it all, which is only possible if you don't know what you're doing. But is still survivable, as you still got your 75%.
Let's assume you're "sophisticated" and have 100K.
If you're not a complete moron, you then turn that 25K into 100K. It's stupidly easy to make money in crypto. Wait for a crash, get in, wait for the bull market. Which comes and goes. Allocate 75% to Bitcoin and ether and take more risk with the other 25% on midcap coins. Derisk by deploying a progressive profit taking scheme and auto buy small amounts using a DCA strategy. None of this requires even touching Tether.
So let's do the math. Your downside potential is from 100K to 75K. Your upside potential is from 100K to 175K. A reasonable timeline is 2-3 years, given cycles.
That's a 400% return on the crypto part. Doing only 400% in crypto terms makes you a shitty trader, it means you're very bad at it.
So that's why they call it an asymmetrical bet. The upside is many multiples of the downside. Asymmetrical bets are rare, once in a generation.
It is easy to make money right now because crypto just had one of the greatest bull runs of all time. How could you say that it would be the case in the future? 400% is easy? Easy to look at a chart and assume you can grab a chunk before it moons. How do you know there will be more 100%+ gains in the future? With the gaining popularity, bitcoin and eth will probably only fluctuate less and less over time.
It's not just easy to make money right now, it's been like that for over a decade. Crypto in general is still growing exponentially (in usage and holders) at a rate faster than the rise of Facebook and the internet.
It's being mainstreamed, Wallstreet discovered it, the first nation has implemented it, VCs are massively investing, the first batch of musicians/artists are embracing it and Twitter is about to integrate both Bitcoin and NFTs.
There's plenty of very serious signs for further growth. It's still early in a way.
But I could be wrong, but that doesn't invalidate the point. Sizable downside risk, far larger upside potential. If you want something risk-free, just stay out.
Note that earning 400% is not only achieved by buying low and selling high. You can drastically speed up earnings using derivatives and leverage. Which is also the fastest way to lose it all, so don't. It's for the pros.
What underlying economic issue do you mean? You mean the fact that the old people don't want to give up their posts to the new generation? Real estate has almost nothing to do with the financial system. The fact that there are monopolists ripping you off will happen even in a barter system.
AS someone who has seen his friends for years toute crypto, but never bitten.. i did this year. (those friends have passive incomes in the 10k's per month now in crypto that can be readily exchanged for dollars)
Parallel economies exist. In the mainstream economy, your mainstream interests have every aspect of the market cornered. You only get in once they have taken all the worthwhile positions.
In the crypto economy, and yes, its a fully fledged economy and social network in 1, u can get in on the ground level and ride that hype up. You dont have to know that guy at that investment firm with that connection to that hot deal.
DeFi and the blockchain are allowing you to startup international companies in the blink of eye. Just the way traditional companies outsourced to the 3rd world, then import these goods and sell to a premium in local markets - as a crypto enterprenour u can now employ these same "call centre staff" (who were layed off in covid) to "play games for you" and you are able to pay them a HIGHER RATE then Apple or insert any any "tradtional stock" "traditional company". in phillipines for instance, you can get loans against SLP, u never need fiat. You can pay for goods at corners stores with SLP. micro-transactions in e-sports is legit and it will only get bigger.
People forget that captialists have BUILT a system and REINFORCED that system to ensure THE STATUS QUO. Crypto is about giving those people the FINGER. Those people kicked and screamed, but now they are ON BOARD. Bloomberg isnt as effective at causing a dip then say Elon though. Tether, like the real-estate markets all over the world, couldnt handle a big sell off. Covid showed that.
Sorry Bloomberg, your consoles days of cornering the market as gone! Your traders now need to keep there ear to the crypto ground, cause the crypto cultists are using there social networks to come for YOU. They can organise millions of bids in minutes. Your incumbents are not the only people who can pump and dump on retail investors. Tether is simply using tactics established by centralised finance. They poineered the China hustle years ago. https://en.wikipedia.org/wiki/The_China_Hustle
Lets stop pretending that the traditional stock market is built on fair and sound princples. Lets stop pretending that bankers get held to the same accountability as the ordaniary folks. These tradtionalists are incumberant in every aspect of the mainstream socio-poltical life. Like, the whole stock section of the nightly news is just as a way placate the general public and further there position and ideaology. One that preys on moms and pops and superannuation schemes.
Well, like all crypto you can buy it and hope it goes up in value :)
But as for actual usage, it's a smart contracts blockchain that is fast, proof of stake, yet has drastically lower fees than Ethereum.
Anything can be built on top of it but this particular rush was caused by a second hype wave of NFTs. As more people want to join the NFT frenzy, it got really expensive to mint one on Ethereum, hence people rushed to this alternative.
For the record, I don't own any solana and never have, just explaining what it is. I wish I did own it a year ago though.
Both the typical stock holder and crypto holder see a number on screen and hope it goes up. That's it. Most stock trading is done by algorithms, not even people.
A typical stock holder can never claim any underlying asset nor do they have voting rights, so you're really stretching.
The difference is simply in risk appetite. People are going to keep drinking Coca Cola at large scale so owning their stock is low risk. But also low return.
Crypto is high risk, extremely high return. There's a sizable chance to lose your money but a larger chance to get returns that are astronomical. I'm talking 5x - 10x in mere months.
No, but you’re strongly implying that there’s significantly more chance of making a large return than losing a lot of money, which you have no way of knowing.
The reason the rest of us on the other side of this fence aren’t being as loud is not because we consider the jury to be out - it’s because we’re being responsible with our claims. It’s why no-one is countering you with a claim that it’s all going to zero - as no-one can guarantee that will happen either.
Joining the cryptocurrency pyramid in 2021 and expecting 500% returns is foolish. Could it happen? Sure it could. It doesn’t make it as likely as those inside the religion are implying.
Skilled crypto day traders make money whether it goes up or down, that's what a large volatility makes possible. In fact, a real pro flips the charts: green when down, red when up.
A separate reply on the gambling part (my other reply is about utility).
You're not listening. Crypto holders don't care about those concerns. They willingly gamble. You can ban and shut down all of crypto (in reality, you can't) and they'll move to meme stocks or betting on sports.
You can't stop it or regulate it. Because it's a culture. It's an entire generation that is fucked anyway. Even the modest ambition of a middle class life style is out of reach. So they have nothing to lose, and will bet it all.
They aren't dumb or ignorant. They are fully self-aware, and self-identify as plebs, degenerates and ape investors. They know what they're doing.
The "concern" is misplaced and fails to impress. From their point of view, "regulation" is the traditional system which is exactly the reason why they're in crypto. The traditional system failed them.
The real concern should be aimed at the economic conditions that young people face. For as long as skeptics don't get that, they will never understand crypto and its culture.
The problem is as a society this isn't a positive thing, and we should put some energy into stopping runaway gambling fads because they are highly destructive when it all comes crashing down.
I'd prefer society puts more energy into a more balanced, sane and stable economy and financial system. To address the actual disease rather than the symptoms.
The other thing cryptocurrencies potentially offer is an alternative financial system to the status quo. There are lots of bugs to be worked out, but it's well on its way, and Solana and Ethereum (as only two examples of many) have the ability to act as the platform upon which these financial services can be built.
I'd say most people hope it makes them rich, not necessarily expect it. More likely, aiming for a high return they can't get anywhere else.
It's a distribution like anything else. A handful of billionaires, a larger group of millionaires, and then comes the sweetspot.
The sweetspot for crypto is middle class (from lower middle class to higher middle class) doing a 5-10x from whatever they put in. Not enough to retire, but meaningful wealth. This return is within reach for almost anybody with some study, patience, and proper risk management.
The above shows the 400 or so things built on top of solano. I would expect for most projects to not be very useful to the masses and likely most will fail. Which isn't different at all to the typical startup scene.
I consider most of it garbage, and I would expect you to conclude the same. Which is fine. The only counter point I have is to not dismiss the entire space as a whole. Things are moving very fast, and some concepts are intellectually interesting, just poorly executed.
For example, NFTs are considered the most ridiculous thing ever now, but that doesn't mean they will be in this state forever. The next-gen NFT containing the actual art, copyright integration, and smart contract integration are a matter of time.
Imagine a photographer, currently sharing photos to stock services for pennies, with zero control over terms. Middle men milking them dry. With a fully integrated NFT chain, the photographer can claim and prove ownership and dictate terms. They can decide to sell 10 copies, and dictate that if they are resold, the photographer gets a 20% royalty. The photographer can make higher-end versions available, at higher resolution, wider color gamut and ask more for that version. This independent and advanced type of reselling is hardly possible traditionally. And importantly, 100% of the revenue goes to the creator.
NFTs can be entirely interactive, and can be anything. A photo, a song, a 3D model, a plot of land in a game.
Imagine being an amateur talented 3D model builder right now, and Hollywood directly buying your model. Which is something that won't happen right now because of B2B contracts and the complexities of dealing with small vendors. Soon it's just the click of a button, done. The possibilities of making a "digital living" will drastically expand.
Outside of objects having serious undisputed value (like 3D models), you may think nobody cares if you "own" the rights to a JPG. One can trivially copy it after all. This attitude, that all digital content is worthless and frankly has no owner, is curious. Even more so in a society almost fully digital.
Take Instagram, for example. Instagram takes everybody's photos for free and intermixes it with ads. Facebook gets 100% of the revenue and personal data, and you as the person actually creating the photo gets...fuck all. A 100% tax. In return you get "likes" or "exposure". Instagram may change terms at will, bury your photos in favor of video, or simply deplatform you.
I find this contradiction interesting. The Hackernews community rightfully challenges Big Tech on a daily basis yet refuses to spend a single thought cycle on the only concept that has the potential to break it down. Which is not regulation, it's the opposite: decentralization. Returning power and ownership to users.
I didn't say it was a scam, I said it was gambling.
There are only two killer use cases for crypto: speculation and prohibited transactions.
That's not snarky those are actually pretty great use cases that have massive demand and centuries of success behind them as a product category.
A large part of crypto is scams, but it's clear not all of it is. You couldn't really argue that bitcoin, in general, is just a scam for example.
But beyond that it's basically all gambling. People put money into crypto hoping to get more money out. Period.
That's a really fucking desirable product it should be pointed out. It's so desired by people that you can build an entire city in a desert on the concept, it's common to all societies in all eras of history. People just absolutely fucking love to gamble.
Every argument against this seems to be a variation on "Well sure, but one day they might..." and so on.
Which is cool. You're absolutely right to say that. One day it might not just be gambling.
I superficially agree that most activity is speculation, which in some cases you might as well name "saving", or "investing". I also agree that actual breakthroughs in utility (DeFi, NFT, Metaverse, Web3) haven't materialized yet.
I only disagree on details. Like the use cases you missed, some of a humanitarian nature.
For example, still a significant part of the world is unbanked, and has no access to the financial system at all. Crypto, permission-less and only requiring the internet and a smartphone provides a solution.
For people living under highly inflationary regimes (Turkey, Libya, etc), crypto can be an unconfiscatable asset to protect their savings.
Immigrants often send money back to their home country, and by means of international banking, lose a whopping 30% in transaction fees. Crypto can do it for near-zero fees.
A hardcore cynic may call these just variations of "gambling" but to me these details matter. Further, like you said, the very point of any asset is persist value and ideally grow in value. That's even true for just basic currency. So this deep moral outrage that people are trying to earn money is misplaced, it's the damn point of any participant in an economy.
>They can decide to sell 10 copies, and dictate that if they are resold, the photographer gets a 20% royalty.
Suppose that I want to sell my copy, but do not want to pay the 20% royalty. What stops me from selling it for 1 cent on-chain, but buyer paying me real price off-chain? How can a creator realistically expect to receive their royalty cut?
It's an interesting loop hole. That can actually be solved with a smart contract that wouldn't allow you to sell below the purchase price, or at least not that far below it.
Anything can be programmed in a smart contract, and they're transparent, so if the royalty rules are not acceptable to you, don't buy it.
The flip side of such a contract is that you would be locked out of selling the item if its value dropped too far (thereby depriving the creator of royalties), and if the value increased, the royalties would only be ensured on the original price.
I think this is more than just a loophole - it's a fundamental weakness of the smart contract system. The smart contract can audit things which are on the blockchain, but cannot govern external actions. This is fine when the only objects the contract cares about are digital tokens, but once you integrate things like real-world art and associated rights, it becomes very easy to circumvent.
I'm not sure I'm getting you. If you want to do things outside the blockchain against the terms set by the NFT owner, you're in violation of rights (if copyright is properly integrated, currently not the case).
Can you do that? Sure. But it's no different from pirating anything.
I think we're overstating this example. An NFT owner might also claim zero resell royalties and instead go for a higher first-sale price. Or set the royalty percentage lower. I think some balance will be found.
A far bigger issue with NFTs is a single person buying their own NFTs using different wallets. This artificially boost the price, some fool falls for this high perceived value, buys it, and is then forever stuck with it.
The other big issue is front running. Knowing ahead of time which projects will be dropped on major marketplaces. It's insider trading basically.
For example, if I want to send US dollars to someone, I fill out a form and my bank charges me $20 and then emails me asking to call them and then I call them and wait on hold for half an hour and then I have successfully sent the US dollars to the person, so they'll have it within a day or so (unless there's a weekend or a holiday). If I want to send SPL USDC to someone, I do not pay $20 and I do not wait on the phone and the person has the SPL USDC within a few seconds.
I'm not an experienced folk, but I can confidently predict that USDC will be fine. That's why it's already taken over most stablecoin functions in Ethereum DeFi.
Increase in supply is not inflation. It’s quite unlikely to cause any actual measurable dilution. But let’s pretend for a second. Given that all major stable coins are pegged to or benchmarked against the dollar, any inflation in the dollar would carry over into stable coins 1:1 so the remark would be a nonsequitur.
No. USDC was long considered the adult in the room, but they started going off the rails earlier this year, dropping the 1:1 promise, delaying attestations and also now facing heavy regulatory scrutiny.
If anything, USDC has been reducing its risk profile from what I'm seen. Recently they announced they will be replacing all of their remaining corporate-bond-backing with USD cash and US treasuries. Source for your claims to the contrary?
The August 2021 change seems to be in response to a disclosure, that revealed more about USDC, than had been known in the past. This is a move toward more transarency and accuracy, not in USDC becoming less backed.
And CoinGeek is a notoriously anti-decentralization media outlet. It's a mouthpiece for BSV, whose founder, Craig Wright, has called for anonymity to be abolished in cryptocurrencies, and for miners who process decentralized exchange transactions to be jailed.
There is no indication that this is due to some recent misbehavior by USDC's issuer, as opposed to an independent decision by the SEC to subject stablecoins in general to its control.
I’m a major skeptic of the space, and even I haven’t actually heard anything shady about the Gemini dollar. Which is why I suspect nobody is uses it, but I digress.
Freicoin exists and nobody adopted it. That kind of tells you everything you need to know. Freicoin was designed with a -5% interest rate to defeat speculation and encourage people to spend their money quickly. It also means that Freicoin loans are very affordable because even a 0% loan lets the lender avoid paying -5% interest.
Binance is the last institution you should be stapling the concept of stability to. They’re literally under investigation by every major world financial authority, including by the Cayman Islands monetary authority.
BUSD is a co-brand issued by Paxos.
No idea how it would hold up once the bear trap snaps shut on Binance.
Is free banking seeing a resurgence with all these stablecoins? Basically, people replaced bank notes with cryptocurrencies. It's still the same concept.
MIM - they lean into the “magic internet money” meme because they don’t need to convince people of its seriousness. It is collateralized by asset backed and interest bearing cryptos that earn transaction fees such as xSUSHI
DAI - but the MakerDao system has worse collateral than MIM, no interest bearing assets to my knowledge, but that can easily change with votes
I'm a bit of a finance noob; is there any practical way to enter a long-term short position on usdt that would actually be redeemable if the Bitcoin ecosystem were to collapse after its downfall?
1) Find someone you know and trust who owns enough USDT.
2) Borrow their USDT, then immediately sell them for USD.
3) Pay some fee over time for the loan, and then have the contract expire at some point.
You would need some kind of contract for the fees and end condition, but it could just be an email that you agree to. If you don't know and trust any cryptofans, then no, there isn't a good way.
I've seen the gold in the basement at the federal reserve in NYC. Or at least something that looked a lot like gold. It isn't all owned by the USG though.
The other issue is that usdt has zero privacy! Which is why I'm waiting for xUSD from https://havenprotocol.org/knowledge/
. This brings a suite of stable coins, protected by Monero grade privacy!
I find it ironic that people seem intent on holding Tether to a much higher standard than banks. I know there are certain legal guarantees applied to banks along with regulations, but all evidence points to Tether being in a much safer position than banks with their tiny fractional reserves. People are dissatisfied with anything less than fully-backed when it comes to 'crypto'.
A bank having assets to only cover 100% of its liabilities would be in violation of banking regulations. Since the 2008 financial crisis, the general breakpoint you're looking for is about 110% as the minimum asset-to-liability ratio for a viable bank.
There's also this not-small matter of making sure that banks aren't relying on overly optimistic valuations that won't bear out, especially in a dire market (if you're a too-big-to-fail bank, the government looks at your books and run its own numbers assuming a pretty severe economic crisis). In this regard, Tether's non-transparency is ringing alarm klaxons.
Maybe you can explain this message from the Federal Reserve [0] to me, because I must be misunderstanding.
> As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
I've been swayed by the MMT videos on youtube which I know are controversial, but it seems to me that when a bank makes a loan, its deposits on-the-books increase, they do not have to have deposits equal to liabilities, and in fact a loan is not a liability to the bank, it is a liability to the borrower. Am I wrong?
There are several different kinds of requirements that banks have.
The "reserve requirement ratio" basically means that for every $1000 the bank has in deposits, it is required to keep $X in its account with a Federal Reserve bank. Very specifically, it has to be money sitting in that account--a literal stack of $20 bills doesn't count for the reserve requirement. This has dropped to 0% because the Federal Reserve figures there's better ways of maintaining bank solvency.
Instead, most attention nowadays is paid on the capital ratio. This basically says that the bank needs to hold $X equity for every $100 of risk-weighted assets. My understanding is a little fuzzy here, but I believe that the equity here is completely separate from what's normally counted as assets for a bank.
For liquid assets maybe. But if total assets -- liquid and otherwise -- are insufficient to cover all liabilities, then the bank is straight up insolvent.
You misunderstood. I wasn’t saying money market funds are invulnerable. Failure of the Reserve Primary Fund caused the worst of the Great Financial Crisis.
I was saying 100% backing is the standard they’re regulated too and they published their backing in a very detailed way that anyone can check.
Tether doesn’t do this. They refuse to disclose their counterparties and they defined their own accounting standards where junk debt is valued at redemption value rather than market value
Ironic how? Isn't it crypto people who constantly talk about how neanderthal the banking system is and how crypto is "Banking, Evolved"? Shouldn't that imply a higher standard.
> People are dissatisfied with anything less than fully-backed when it comes to 'crypto'.
If banks these days failed (or their founders, friends, "hackers" ran off with the contents of the "vault") with the same frequency as crypto providers and exchanges, they would too.
