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Tether Required Recapitalization in May 2022

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Re: Tether Required Recapitalization in May 2022

#321

Post by runarberg »

tyrfing wrote: post #305
runarberg wrote: post #290

Earlier quoted context omitted.

I’m sorry but I’m still confused. Who are the people taking these inconvenient, unoptimal and expensive loans, when they can get better and cheaper loans through traditional means? Something doesn’t smell right. Also ‘governance tokens’? This smells like another term for “money from new users entering the system”. Which is precisely how Ponzi schemes work. EDIT: I went on a little scouting mission on google (well DDG…

> Who are the people taking these inconvenient, unoptimal and expensive loans, when they can get better and cheaper loans through traditional means? USDC is at 2.3% APR, USDT 3.78%. I think you'll find that most people cannot obtain unsecured loans that low, and the forms of collateral a bank will accept are much more limited. The biggest reason is also the reason why people like Elon Musk have massive loans: avoidin…

Looking at these rates they are all over they place, but I at least understand now that this probably isn’t a ponzi scheme. I see that the borrowing rate is always higher then the savings rate, and therefor the money people are making adds up.

That said GP’s claim was that these yields are “much better "passive" interest than bank deposits or treasuries” however that doesn’t seem to be the case for all but few of the currencies. I get better interest rates at my credit union. For those currencies that are actually yielding higher interest (USDT being one of them) are also being borrowed with higher interest then loans at my credit union. So I think GP’s claim is simply wrong. Yields are only higher if you offer your money in a lending scheme with abnormally high interest.

As for who takes these loans. I don’t see that though. You need up to 2× the loan amount as collateral in an asset that is already as liquid as the cryptocurrency you are getting. Normal people would just use the money they already have and pay 0% interest, not put it up as collateral so they can borrow half that amount. I don’t even see how this could even be used as a tax evasion scheme because the collateral is equally liquid to your lending amount and should be under the same tax clause. The only use case I can see are speculators. And the only way to make these higher yields, is if a speculator makes a financial blunder, which is not sustainable either.

Re: Tether Required Recapitalization in May 2022

#322

Post by lxgr »

lxgr wrote: post #216
mathgenius wrote: post #52

Earlier quoted context omitted.

No, once you have leverage the ratio doesn't matter anymore. It's just whoever has deeper pockets wins.

That's not how leverage works. If you're long on an asset and are not lending it out, neither short selling nor leverage can hurt you with a fully backed stablecoin – you can always just go to its issuer and redeem it. As an analogy, consider owning shares of some publicly traded corporation. No matter what happens on the stock market, this doesn't impact your ownership of the actual, physicaly corporation, which ent…

Would the downvotes care to explain how it works instead?

Re: Tether Required Recapitalization in May 2022

#323

Post by clairity »

imtringued wrote: post #313
clairity wrote: post #289

Earlier quoted context omitted.

futures don't guarantee a profit, only a price. it's up to the farmer to decide whether the price is worth the planting (regardless of profit). and the pricing function only works well in an uncorrupt market. the problem isn't the existence of the futures markets, but the same kind of over-consolidation that corrupts every laissez faire market, making them inefficient and brittle in the long-run. if regulation encour…

You mean growth dependence. When you are forced to grow every year and you can't grow by getting new customers you must steal existing customers from other companies by acquiring them.

'growth dependence' is just a symptom of greed, which is also the root driver of over-consolidation/corruption in markets. that's why a thoughtful regulatory stance is essential to high-functioning markets (e.g., anti-trust, not price controls), rather than the slapdash shit we have now, where parts of markets are highly over-regulated to ensure regulatory capture, while other parts are highly under-regulated to externalize risk.

Re: Tether Required Recapitalization in May 2022

#324

Post by graeme »

grapehut wrote: post #63
graeme wrote: post #46

Earlier quoted context omitted.

It’s not just 0.1% off the peg. It’s 0.1% off and facing large redemptions. That makes the peg loss seem significant

The large redemptions are what is causing them to be 0.1% off the peg...

Definitely. But a lot of people have looked at the small depeg and said “it’s not big, and they’ve depegged in the past. What’s the issue?”

It’s seeing the redemptions that show it is significant

Re: Tether Required Recapitalization in May 2022

#325

Post by graeme »

vagab0nd wrote: post #299
TameAntelope wrote: post #279

Earlier quoted context omitted.

I very much don't understand how markets and order books work, but people who do understand those things tell me pretty consistently how big of a deal it is when a money market fund loses its peg, even by a tiny amount.

Define "tiny". Is 0.1% tiny? 0.01%? 0.001%? USDT maintains its peg by allowing certain entities to redeem USDT 1 to 1. How much USDT's price fluctuates depends on how well that mechanism works, and market conditions.

By claiming certain entities can redeem 1:1. No one has ever documented a Tether redemption. They have a very tiny number of clients and the terms say they don’t have to redeem at all.

Re: Tether Required Recapitalization in May 2022

#326

Post by drexlspivey »

graeme wrote: post #325
vagab0nd wrote: post #299

Earlier quoted context omitted.

Define "tiny". Is 0.1% tiny? 0.01%? 0.001%? USDT maintains its peg by allowing certain entities to redeem USDT 1 to 1. How much USDT's price fluctuates depends on how well that mechanism works, and market conditions.

By claiming certain entities can redeem 1:1. No one has ever documented a Tether redemption. They have a very tiny number of clients and the terms say they don’t have to redeem at all.

> No one has ever documented a Tether redemption

Are you just making stuff up? There were $10B worth of redemptions only last week.

Re: Tether Required Recapitalization in May 2022

#327

Post by JumpCrisscross »

cinquemb wrote: post #292
JumpCrisscross wrote: post #139

Earlier quoted context omitted.

> holding it a fraction of a cent under isn't hard for a moment each day It shouldn't be. Not for a dollar-pegged asset. Fractions of a cent on billions of dollars, dollars easily lent and borrowed every day, every minute, is millions of dollars a year for an arbitrageur [1]. Hundreds of billions of dollars are deployed into funds exploiting smaller differentials on rates and futures curves. > what patio11 has said w…

> Hundreds of billions of dollars are deployed into funds exploiting smaller differentials on rates and futures curves. Legally, IRDs and futures trade/settle on a few centralized exchanges with maybe one CCP (at least going by clarusft numbers on monthly dv01 volumes [some products way trade more on different venues compared to others], esp compared to all the places USDT trades) with many times rehypothicated US tr…

> With no slippage/spreads on dex's or cex's to be able to do this with any stablecoin? Pipe dream.

Slippage for an arbitrageur is price correction to the market. I made a math error in my comment: call money at 2.75% is less than a basis point a day. The trade makes money with no collateral.

I--me!--could call my broker and borrow $10mm at 5.75% (call money + 300 bps, because I'm not a billionaire) by lying and saying it wasn't for trading, buy 10 million Tethers for 0.9987, redeem them and pay back the loan the next day to turn an $11,425 profit.

I'm not going to do this. Because in that interval between buying and redeeming, an interval I'm sure would be marred by unnecessary delays--with my borrowing cost the trade breaks even between days 8 and 9--there is more than a 1 in 875 chance that Tether blows up [a]. (In other words, I'm betting, by not doing this trade, that Tether has no more than a few years to its name.)

[1] 1 / (11,425 / $10mm), the 11,425 being about $10mm - [$10mm * 0.9987] - [$10mm * {(2.75% + 3%) / 365} * 1 day]

Re: Tether Required Recapitalization in May 2022

#328

Post by Dangeranger »

axg11 wrote: post #12

The most important point in this article is that whether Tether is fully collateralized ultimately doesn't matter. As long as there are well-capitalized parties (Bitfinex, other exchanges) that want to prop up Tether, it will be fine. Nobody should be under the illusion that Tether is decentralized or anything other than a bet on Bitfinex.

> As long as there are well-capitalized parties (Bitfinex, other exchanges) that want to prop up Tether, it will be fine.

This reads like the honest description of a Ponzi scheme.

As long as the originating parties, or newbie rubes, continue to prop up this sham it will not collapse.

Re: Tether Required Recapitalization in May 2022

#329

Post by SkyMarshal »

ironlake wrote: post #127
PKop wrote: post #59

Earlier quoted context omitted.

If you just sit in Tether sure, but the ecosystem of stablecoins gives you access to DeFi yield opportunities with much better "passive" interest than bank deposits or treasuries, so the bet is a little more sophisticated than dollar for dollar.

Terra Luna offered some great DeFi yield opportunities. Unrealistic yield is one of the hallmarks of a ponzi scheme. The DeFi yield opportunities require more money to flow in than to flow out. Apple stock, for example, pays a dividend that is not dependent on more people buying Apple stock but on the company profits for the next quarter.

>The DeFi yield opportunities require more money to flow in than to flow out.

Not exactly. In DeFi they just give you newly printed tokens. That's the "yield". Why wait for money to flow in when you can instead print it at will.

Re: Tether Required Recapitalization in May 2022

#330

Post by jazzyjackson »

PKop wrote: post #302
jazzyjackson wrote: post #119

Earlier quoted context omitted.

> sophisticated aka obfuscated does the yield come from anywhere other than funds deposited by new users?

Interest on lending, and trading fees from liquidity pools. During a bear market in crypto certainly these yields will decline. The 2 sources I mentioned above are essentially flows that accrue during the bull markets. It's not magic, when people want to long assets they borrow stables. If you lend into these markets you'll get the yield. With liquidity pools you can get some transaction fees even during market volat…

Am I to believe people are paying > 20% interest to borrow crypto ?
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