This doesn't make sense.
You don't "convert" other cryptocurrencies to USDT, you sell your cryptocurrencies to people who have USDT. If there's a big sell pressure on the cryptocurrency, people want to move back to dollars, and there are not enough USD(T) then the price of the cryptocurrency should come down.
By adding more USDT to the picture you're magicking up money out of thin air to prop up a price. You're basically saying that when people want to sell cryptocurrency, dollars should be brought into existence to facilitate this at their preferred price.
I'm not saying that I'm a big Tether fan or anything. However to say that it "doesn't make sense" when they print more Tether during market crashes is false.
Why? It's worth exactly one dollar. Which they have in an account. That's the point. The price of the other cryptocurrency will come down, and the value of USDT compared to that cryptocurrency will indeed rise, as it should when people want to sell to a market where there's more demand on dollars than the asset.
> They are not "magicking" Dollars, they are magicking a commodity (USDT) pegged to Dollar.
But it's supposed to be pegged to the dollar by a real dollar backing. In the scenario you're describing, it's a floating asset not backed by anything, with a value maintained purely by supply manipulation, and being issued to prop up an asset price. The opposite of what it's supposed to be.
> However to say that it "doesn't make sense" when they print more Tether during market crashes is false.
It still doesn't. I mean, it makes sense from a "lets conjure up some money to prop up the price of BTC" angle, sure, but that's not the same as it making sense for something that's backed by cash on a 1:1 basis. Tether should only be issued when people give dollars to the tether foundation. That's the claim on their front page, and the basis of their peg.
In fact printing tether to ensure it's market value is $1 is a fine solution. Except for the fact that the bank accounts that BACK the tether with USD are now in deficit compared ot the UDST supply. So while the crypto market value of USDT is $1 it's no longer backed 1-1.
So now, if they're legit, tether must figure out a way to get the missing dollars back into the bank account. The most efficient way to do this is to find an outside investor and trade him all the newly printed USDT for USD. In practice this would be rather difficult to do consistently in sliding markets, difficult enough that the correlation would be low as I pointed out.
You could also exchange USDT for various COINS then sell the coins for USD which then go into those reserve bank accounts. If you have a willing exchange partner with lots of cash and a need for bitcoins then this could work pretty well. Considering Bitfnex is run by the same dudes as tether, if they are legit then this is probably what they are doing. But all that's just IF they are legit and there's plenty of things wrong with USDT outside of whether it's backed 1-1 with USD.
TLDR: Trading volume and market value of USDT does not relieve tether of actually having USD on hand for each Tether that exists.
Plus, Tether's offical website and documentation state that's not how Tether is intended, they claim it is always 1:1 backed by a real USD reserve in a bank account (which they tell people they will audit, but the auditor backed out after giving a statement that said Bitfinex would not provide the proper documentation and access, later erasing any mention of having been associated with Bitfinex.)
