Tether Fined $41M for Lying About Reserves

There are three very interesting threads in your comment, as I see them:

1. Tether influencing solvency of other stablecoins.

2. (Tightly related to point 1) Inflation of Tether as it becomes an intermediary.

3. That it is logically inconsistent to view Tether as a scam while also viewing cryptocurrency as a store of value.

Point 3: There is a difference between a store of value and a store of value that is stable with respect to some specific other value.

Consider Bitcoin and Ethereum. The rules by which these blockchains operate are quite transparent. The software is free (as in freedom). Anybody in the world with the means can run a node and participate in these blockchains. Thousands of people are doing so right now. These currencies are open in a sense that no other currency has been open in the entire history of the human race.

Tether on the other hand is completely opaque about its operations. In fact, the people at Tether actively spread misinformation about how Tether operates. It has repeatedly dodged and attempted to fabricates audits of its reserves.

Given all of this, I do not see any logical inconsistency between thinking of Bitcoin and Ethereum as stores of value which is largely orthogonal to the value of the fiat that you hold while simultaneously thinking of Tether as a scam stablecoin whose value is pegged to that of a fiat currency.

Point 1: I agree with you that the existence of Tether improves the solvency of other stablecoins. It reduces the pressure on anyone backing another stablecoin by offering an alternative means of a holder of that stablecoin to realize the dollar value of their stablecoin holdings (albeit with a slight overhead in transaction costs).

I think this is more significant of a factor for centralized stablecoins like USDC than it is for decentralized stablecoins like DAI, although I suspect the existence of USDT puts less pressure on collateralized DAI positions as well.

This is not a compelling reason to encourage or even tolerate the existence of Tether. A true stable coin would not experience any significant difficulties even if Tether became insolvent. I believe that decentralized stablecoins like DAI would only experience negligible effects from Tether's insolvency.

Point 2: This is a very good point and I don't understand it well enough theoretically to confidently make predictions about how it would play out on the market.

My intuition tells me that the most powerful factor against inflating prices of USDC in your scenario is that Coinbase (and the USDC consortium) will stick to their position and always offer $1 in exchange for 1 USDC.

The other factor is that there are many more legitimate stablecoins that could partly fill in the vacuum that Tether would create if it imploded. So not all attention would be focused on USDC. If people really needed a stablecoin, then they would not want to purchase an asset whose value was increasing.

There are a lot of parameters involved, though, and I find this very hard to reason about. Would love any input here.

To be fair, unlike Tether, the Bank of Scotland actually does hold actual cash worth the same as the notes they issue.

Also, although these banks have permission to issue notes (whereas if you went around issuing "bank notes" you'd likely get arrested) the notes aren't necessarily worth anything except in the sense that you can assume the Banks will give you Bank of England notes for them if it came to it since they're required to hold those.

They aren't legal tender (Scotland doesn't really bother having legal tender laws anyway) and retailers can choose not to accept them if they want. You won't have a problem exchanging them for tourist stuff in Edinburgh or buying a fish supper in Dundee, but good luck getting some random corner store owner down South in Cornwall or Essex to accept them - even though these notes are in some sense worth the same as Bank of England notes, there is no law requiring retailers to accept any notes and so they might just tell you to fuck off with your weird-looking money.

Can you provide a link? None of this makes any sense. Why would anybody buy phone credit and then use that to barter instead of just buying whatever they need directly? How do you build a credit score from a record of transactions? Why do Africans that don't have access to banking are so worried about building a credit score? So many questions...

Manipulation by exchanges

I agree completely, the founders should be criminally prosecuted and the fines should be multiple times all time profits from the illicit activity.