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Tether starting to lose its peg too, after Terra did

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Re: Tether starting to lose its peg too, after Terra did

#361

Post by jiggawatts »

pjc50 wrote: post #349
ckastner wrote: post #336

Earlier quoted context omitted.

> Step 2: find a bank willing to let you be a money transmitter for millions of anonymous pseudo-dollars whose owner you have no idea of, setting off every single money laundering alarm in the building. This was the biggest red flag behind Tether to me, where we are talking about not millions but billions of pseudo-dollars. The risk profile is beyond anything reasonable that a bank could or would accept. Tether minti…

The billions of dollars of _backing_ should show up somewhere. https://twitter.com/dsquareddigest/status/140291428628503347... > again - who is on the CP desk at Tether? Who is their account manager at Goldman Sachs? Who do they talk to at, say, the GE corporate treasury? Commercial paper is a short term money market that has to be managed and rolled - you can't just buy and hold the bonds anonymously. Dan's argument…

From what I heard, Tether had invested heavily in "emerging markets" instead of the established US markets, which explains why nobody at Goldman Sachs has dealt with them.

Re: Tether starting to lose its peg too, after Terra did

#362

Post by rswail »

So let me get this straight:

There are bitcoins. They get mined and etc.

There is ethereum, it processes transactions and people pay for the processing with "gas". Gas is ETH. ETH need to be mined and etc.

This could all happily work in a self-contained world, where there's no actual underlying assets reflected in BTC or ETH. But that's not "real" as in, gains/losses can't be turned into fiat currency, which is the government approved way to pay taxes and debts.

So now someone wants to be able to convert BTC/ETH/XYZ/ABC into USD (or AUD or CAD or etc "trusted" fiat currencies).

So the stablecoin is created, supposedly backed 1:1 with fiat USD. However, there's only vague assertions that this is correct and none of the bank regulation that ensures that banks actually are backed.

That stablecoin, Tether, is unaudited and no one actually knows what it holds. But for some reason, people "trust" it.

Now there's another "stablecoin" called Terra, which isn't backed by any assets in the real world. It's entirely "backed" by the fact that it can be converted "freely" into Lunas.

For an even more abtruse reason, people were "trusting" Terra.

Then the tide went out and Terra/Luna is actually naked.

Now that has focused attention on Tether and people are testing it. Because Tether has real assets, it can (for now) convert at 1:1. But it has artificial limitations on that conversion, limiting it to a minimum of USD100K.

So unless you have 100K of Tether, you're relying on finding some other buyer of it if you want to sell. People are desperate to sell, so the "price" of Tether is dropping relative to its USD peg.

Someone is buying that Tether on the market, accumulating at least 100K and then going to tether and converting to real USD.

But Tether have put a whole bunch of artificial time restrictions on that conversion, which means that the tide hasn't gone out yet.

When it does, either Tether does have 1:1 backing of all the Tether out there, in a way that can be easily liquidated so that it can pay out, or it won't, and the "peg" will collapse.

When that happens, anyone holding Tether is left holding the bag.

And that means anyone that had BTC "backed" by Tether is out of luck, so is anyone with ETH, or any of the other endless coins out there.

So the whole thing collapses, those that get out early and convert to fiat will be rich and everyone else screwed.

Gee, sounds like a standard bank run but with extra steps and without the Fed.

Re: Tether starting to lose its peg too, after Terra did

#363

Post by blackoil »

rwmj wrote: post #342
pjc50 wrote: post #325

Earlier quoted context omitted.

> redeem at Tether for $1 Is the redemption window really open? That's something people have been extremely skeptical of.

Apparently you have to bring a minimum of $100K of USDT to get it redeemed into real money. I would say this is an incredibly stupid trade to try because you're relying on Tether actually paying out as promised.

For large players it is 2% instant return, and they just have to be early enough before Tether drops the ball.

Re: Tether starting to lose its peg too, after Terra did

#364

Post by phire »

thkim wrote: post #259
adhesive_wombat wrote: post #30

The fact that they've been minting billions of tether without collateral should make it abundantly obvious that this isn't a stablecoin and never had been. Anyone can pretend to have a peg in the good times, that doesn't mean there's really a peg or that the peg will remain in bad times. And if you can't count on the peg in bad times, it's not a stablecoin. If you've been honestly working on the assumption that it is…

I think Tether can get away with less than 100% collateralization. At the current market cap of 82bn, even if they are only 20% collateralized, it takes 16.4bn one way movement to deplete their reserve. Is that likely event? Guess it depends, but I think market makers would be more willing to backstop them than UST shitshow. UST has "death spiral" structure that makes MMs less willing to backstop them once it goes on…

All that Tether really need is for enough people to believe that they probably have enough collateral to handle any potential bank run. Those people will buy up discounted tether and prevent the bank run from even happening.

Though, the mess with TerraUSD has clearly knocked a bunch of people's confidence in Tether. I wouldn't be entirely surprised to see it crash.

Re: Tether starting to lose its peg too, after Terra did

#365

Post by pjc50 »

benjaminwootton wrote: post #273
usednet wrote: post #225

Earlier quoted context omitted.

That explanation is not correct. Algorithmic stablecoins rely on a pairing with another crypto, in UST’s case LUNA. 1 UST can always be swapped to $1 US dollar of LUNA. It is interchangable, so $1 US dollar’s worth of LUNA can also be swapped for 1 UST. Hence, the “algorithmic” in the name. This way traders are always incentivized to keep the price of UST at $1. There is no collateral requirement. In UST/LUNA’s case…

I still don’t follow why the second currency is required? They will always swap a UST for $1 of LUNA so a UST is implicitly worth $1. LUNA itself doesn’t have anything behind it though apart from concidence. So we have a stablecoin manufactured from a volatile unbacked asset where the market cap can fall arbitrarily low. I know it failed, but it’s not quite clicking for me what they were even trying?

The second currency is required for the same reason that three card monte requires three cards.

Re: Tether starting to lose its peg too, after Terra did

#366

Post by phire »

wcoenen wrote: post #111
EGreg wrote: post #73

Earlier quoted context omitted.

A year ago I advocated this “riskless” strategy on HN… if anyone actually listened to me, would you be up 1,000,000% right now? https://news.ycombinator.com/item?id=26106281

Your idea was basically to short tether at high leverage and wait. But margin trading with high leverage isn't free. You are essentially borrowing the money at a very high interest rate. For example, at Kraken the margin cost is currently typically 0.02% per 4 hours. This is not something you want to maintain while waiting for an event that could take years to materialize. And that's for modest leverage (up to 5x), I…

"Markets can remain irrational a lot longer than you and I can remain solvent"

Re: Tether starting to lose its peg too, after Terra did

#367

Post by rglullis »

CryptoPunk wrote: post #196
shafyy wrote: post #55

Earlier quoted context omitted.

> If you've been honestly working on the assumption that it is, then you deserve to lose your (real) money to some crypto VCs on an island somewhere. The sad reality is that many poorer and financially illeterate people have been tricked by VCs and other grifters into this with billions of dollars spent in advertising. So, no, they don't deserve to lose their money to these assholes. These assholes need to be prosecu…

>>The sad reality is that many poorer and financially illeterate people have been tricked by VCs and other grifters into this with billions of dollars spent in advertising. I'm a consumer of tether. I know the risks, and I take a calculated risk in using it for some applications. I perceive almost everything in the space as an experiment, and I'm willing to run that experiment. I personally believe that my sentiment…

The problem is one of ethics, though: It's one thing to say "I've used it to move money" and "I believe and trust that they have the reserves they claim to have and I'm willing to hold USDT forever". If you just use USDT as a hot potato, your "calculated risk" is meaningless and you should be calling out that Tether is a fraud.

Re: Tether starting to lose its peg too, after Terra did

#368

Post by quickthrower2 »

sdgdfgsfdfgsdfg wrote: post #230
Animats wrote: post #180

Tether is back up to around $0.98, but volume is high. Somebody is pouring cash into Tether to support the price. Similar over at UST. Price is back up to $0.60, but volume is far above normal. Remember, with a stablecoin, there is no upside to holding . Any indication of risk means it's time to get out. Even if Tether has enough reserves to get the price back to $1, there will be substantial cashing out. That's why…

The high buy volume at $0.98 is due to arbitrage. This is to be expected before the final crash. People are using the opportunity to net an instant 2% return. Buy $10M USDT at $0.98, redeem at Tether for $1, take home $200K of profit instantly. Thing is, this will only last until Tether runs out of liquidity. Then all bets are off.

“redeem at Tether”

Ok I have a bridge…

Re: Tether starting to lose its peg too, after Terra did

#369

Post by edf13 »

tome wrote: post #300
imron wrote: post #156

I'm not sure the situation is comparable to Terra. If you can't read the Y-axis on a graph, and you only look at the last 7 days, then it looks like Tether has gone off a cliff. If you read the Y-axis you'll see it's barely moved, and if you zoom the graph out, it's barely a blip compared to previous deviations in price. Now it may well be that Tether is also heading to zero, but it's very different from the Terra fl…

It's a stablecoin. It's not supposed to move at all !

Yes - it is...

It's stable - not fixed.

The stability of the coin allows for minor flucuation in price - these are then arbitraged out.

Today's drop is clearly an indicator of market moves, cash-outs, etc.

Re: Tether starting to lose its peg too, after Terra did

#370

Post by Dagonfly »

t_mann wrote: post #330
Dagonfly wrote: post #312

Earlier quoted context omitted.

> Tether must have been paid tens of billions in fiat dollars Do they? That's an honest question. They only provide attestations and no audits. And those only showed a lot of Commercial paper. If they sell an exchange $1B for Commercial paper related to that exchange. It costs the exchange a lot less than buying $1B in fiat dollars.

The way I understand their business model is: you pay $1 into our bank account, and we'll give you 1 USDT on one of a few chains. We'll invest it in low-risk securities, keep the gains, and give you back $1 for the USDT if you come asking. At least that's the theory, I think they've also been doing lending, it's notoriously shady. But still, a lot of people probably paid them real $ for there to be 78bn Tether. Edit:…

The point I wanted to make is that many (most?) retail customers deposited USD at a CEX like Binance/Bitfinex in exchange for USDT. So your retail fiat dollar didn't go directly to Tether Limited, the exchange bought liquidity from them.
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