This is how you get a 2008-type crash - loans which seem to be unrelated but are tied to a common market.
About 11% of Tether has been cashed out in the last month.
The real problem for Tether is simple. Why would anyone buy Tether at this point? There's zero upside potential, after all. And the competition, USDC and GUSD, looks better backed. So a steady outflow is to be expected. We're going to find out how strong their backing is.
Watch out for heavily promoted Tether-based "staking" schemes designed to prevent cash-out.
Tether, and "stablecoins" in general are known as the casino chips of Crypto. A way to exchange more volatile crypto for what is supposed to be essentially dollars without creating a taxable event. Assuming crypto is still something people want to trade, that's still a valuable service. Tether isn't supposed to be an investment. It's a money laundering scheme to facilitate the other investments outside of the taxable economy and outside of KYC regulation. Seen from that vantage point, staking pools and "potential upside" is actually not desirable.
I don’t see how tether helps you avoid taxes unless you’re going to lie about your transactions and hope nobody notices.
If that's not the case, they have as much rope as they have ability to liquidate. IE they can keep buying their own coin to defend the price for as long as they can.
Imo, stablecoins are a good example of everyone knowing the score but systemic risk accrues regardless. Stabkecoins just the worst kind of risk. Low risk/reward on a daily basis. Risk of catastrophic collapse on a bad day. It's the type of risk that gets financial companies/complexes into trouble.
Backing by USD is not required. As you say, anything they can liquidate is good. Doesn't have to be USD. This works best when you are over-capitalised, ie when you have a thick equity cushion, so that when your assets go down in terms of USD, you still have enough balance sheet assets left to cover all your USD obligations.
You are right that trying to be stable makes things more systematically risky. If Tesla stock drops by 20% over night, some people are going to lose money, but the finance system won't collapse. If supposedly stable assets drop by 20%, everything can go wrong.
That's part of why government backed deposit insurance for banks and too-big-to-fail are problems.
[0] https://twitter.com/thelastbearsta1/status/14690072004965908...
What I find more believable is the commercial paper is actually from crypto hedge funds and exchanges incorporated in Hong Kong.[0]
[0] - https://protos.com/tether-papers-crypto-stablecoin-usdt-inve...
In August 2021 The Economist estimated Tether to be leveraged 383-to-1. That's incredibly unstable. https://www.economist.com/leaders/2021/08/07/why-regulators-...
How does this happen again 15 years later? Is it because we ineffectively dealt with 2008? A result of the repeal of Glass-Steagall? Or have we over regulated banking to the point the miscreants went underground to build things like crypto?
I don't get it. Crashing over and over doesn't seem good for anyone.
The answer on regulation is a mix, then. Some of it has been effective (if only at scaring off potential investor dangers completely), some of it is difficult, some of the response is underwhelming. So far there hasn't been a 2008-scale meltdown because it hasn't been a big enough market to have a domino effect, and I still don't think it is yet, so really now's the time to take preventive measures but it's not too late for that. It is too late to protect all the people who've lost big so far, but that is a much smaller number than those who suffered in 2008. In my opinion the movers and shakers who care about worldwide financial stability are tuning in around the right time and are overwhelmingly accepting that regulation is going to be necessary. I predict the EU and the US will both push some pretty solid efforts soon; EU through explicit regulation, US through maybe some legislation but definitely through better enforcement.
People are convinced that since its cryto, it won't be vulnerable to the same old issues that every other traded instrument has had since the south sea bubble/tulip mania.
the 2008 market crash was similar as you pointed out, in that it involved wholesale fraud (using a subset of good mortgages to market worthless ones) that were "validated" by ratings agencies.
Here, there were no real third parties to provide ratings. Just people saying "Look its crypto, you can loose because its backed by real something or other"
Hence they are not regulated.
So even keeping GS (which was limited to big banks and a few similar institutions) wouldn't have made any difference. Not that keeping it would necessarily have been a bad ide...
It didn't stop. Lehmans were thrown under the bus and business continued like there's no tomorrow with more and more financial instruments created and investment bankers putting their clients money in crap positions.
> I don't get it. Crashing over and over doesn't seem good for anyone.
There's money to be made on crashes, too. And if someone got rich before, they can patiently wait. There'll be money to be made before next crash, too. I doubt the pattern bothers them. Have you heared how Buffet assigns blame[1]?
Voila, instant correlation.
It's human nature to create and participate in systems that are untenable over time but are tempting for short-term speculation.
Normally, in advanced economies, we try to use regulation to prevent or limit these events. But crypto explicitly avoids regulation, so of course it's going to pop up there. It's got nothing to do with not cleaning up after 2008.
Cryptocurrency is a new asset class, of course it's going to go through some of the painful learning experiences that traditional finance has. I've been saying since 2013 that we're going to see the exact mistakes of finance repeated with cryptocurrency.
Very similar to Madoff's derivatives transactions. He was so big, but there little evidence of him transacting his main "strategy" in the market.
Eh, the problems in 2008 were ultimately caused by (many) central banks around the globe letting nominal gdp drop. All loans (and dividends etc) are ultimately paid out of aggregate nominal income; so obviously they are all correlated with nominal gdp: it's basically the same as aggregate nominal income.
Perhaps it's in the form of debt from exchanges. Tether could buy short-term notes from the exchanges paying them in Tether -- maybe at a slight premium to make sure the exchanges go along. The terms would stipulate that Tether could call the loan at any time allowing them to quickly pull Tether off the market as needed to maintain their peg.
How long the dance can go on would depend on the premium they've offered the exchanges and how much free Tether they've minted for themselves.
Obviously, this is all pure speculation.
Because the most liquid trading pairs and futures use USDT. The same companies who borrow USDT from Tether happen to be the same people who run exchanges or act as market makers.
Will it still be true next month or next year?
Seems to me the slow abandonment of Tether has become faster.
The interesting idea behind crypto once was to have a totally different system.
Yet in reality, with greedy apes on a spacerock, it was an unreachable Utopia
the problem with this idea is that this idea of a "different" system is just merely going to evolve back into what we have today. The fundamental needs of a financial system doesn't change much, and what we have today is fit for purpose (mostly - there's efficiency to be had and red tape to cut).
Depends. In the USA, yes, your banking system is utterly shite, despite the supposedly numerous volume of different banks who are supposedly able to innovate and compete.
But.
that red tape is there to prevent a bank from collapsing. Its been imposed as a reaction to numerous financial crises.
There loads of rules that govern how much money a bank can loan, and how much they have to have on hand and in what classes they need to store deposits in.
A bank can be wildly profitable if it doesn't care too much who it lends to. Riskier debts yield much greater interest. The problem is, as soon as confidence takes a knock, the entire bank collapses because the value they claim they have is not backed by any kind of liquid asset.
This is the same with crypto. A stable coin is wildly profitable when people are pouring cash into it. but all it takes is a small wobble, people rushing to convert the "coin" into another asset class, and the whole thing crashes. This might be because they really don't have enough reserves to cover the withdrawl, or it was fraud. They aren't regulated, so we'll probably not know.
and Open Banking has been working on this steadily in many countries.
When states and countries can just block your access to your bank accounts, because you're on the other side of interests, it gets...Interesting
With a decentralised approach, such actions would've needed to be implemented in the real world, not merely by the flick of a virtual lever.
It's like converting your office paperwork to digital. Highly efficient, but you might get hacked or lose your keys and lose it all at once.
It’s totally possible the whole thing is unworkable and dies out. Another option is that it survives in some niche area that provides value or just becomes entrenched like HFT.
And it’s possible a world changing blockchain startup hasn’t been invented yet. Any tech breakthroughs with processing power or storage could have a huge effect on blockchain.
I am pretty sure they won't though.
In contrast to other crypto currencies, nobody is holding it for speculation. I doubt anybody expects stable coins to be a better store of "dollar value" than the dollar itself.
Yet, someone holds those $150B worth of stable coins. Who and why?
The same reason you would hold dollars in a bank account.
My local currency (GBP) is weak atm and falling against the dollar. I want to be able to use crypto services (easy transfers, buying/selling crypto, borrow/lend on DeFI), but I don't want any more exposure to the currently volatile crypto markets, so I hold a lot of USDC
Some of that USDC is being lent making ~2%, better than most banks. I can transfer it to someone else ~instantly and very cheap, instead of waiting 3-5 days for a bank transfer (I recently put some money in a crypto investment fund, transferred my investment in USDC)
Sure about that bit? This may be the perception – that holding your assets in 'the crypto system' avoids tax issues – but the taxman will disagree.
Swapping $BTC for $USDC or whatever your tether of choice is is a 'taxable event'. You've sold one security in exchange for another. It doesn't matter that they're both crypto.
Now, it might be harder for the taxman to detect this event, which is a different thing.
But who is doing it? What is the use case?
IIUC:
a) exchanges for short-term liquidity
b) traders for whom going in and out of actual USD is a giant PITN
Are exchanges really holding stablecoins for this purpose?
Perfect for P2P on and off ramps too.
Also some countries such as Argentina have literally stolen the money of their citizens bank accounts in the past. So stable coins are more trustworthy than the banking system.
[1] https://bam.kalzumeus.com/archive/stablecoin-mechanisms-and-...
If someone is invested in e.g. Bitcoin and thinks they can sell the peak, turning it into $stablecoin is the easiest way, and the only compelling reason to then move that value into sovereign currencies is: you want to spend it, or there's reason to hedge on the stability of the peg. If you're planning to re-enter the market later, (actually stable) stablecoins are just as good, and are what a lot of these traders will have when they sell, so why do two additional transactions, even if they don't trigger taxable events, which they would.
I don't own stablecoins.
> USDC has grown 20% with $10.6 billion more tokens in circulation. BUSD boosted up 22% — representing growth of $4.2 billion. USDT has shed about $4.1 billion, a 5% reduction, while DAI dwindled by 30% — from $8.9 billion to $6.2 billion.
If I am not mistaken, USDC (coinbase) is properly and regularly audited for proof-of-reserves?
Not so sure about Binance though.
But at any rate, if capital starts to migrate to audited stablecoins from POS (and by that, I don't mean proof of stake) like Tether, sounds to me like a good thing.
I've only found attestations just like USDT, where did you see an audit?
From what I've seen so far in most cases "stable-" isn't really stable and currency definitely doesn't work like one.
Or am I just biased by sourcing my information from HN and only seeing the cases where crypto crashes and burns instead of all the successful ones no one here is talking about. Are there any?
It is never 100% risk free, though. The best way to maintain peg to dollar is just to hold the dollar. Many stablecoin holders are taking on this higher risk as they seek yield in protocols like Aave and dYdX, or to have ready liquidity to deploy this in the crypto investment market.
I despise shady accounting practices and I'm sure Tether is on par with a good american financial institution, but I highly doubt it they will ever default.
I know it's a long shot, but hear me out:
1. Their redemption process can be handled in a way to prevent an uncontrolled bank run. You can redeem 100.000 minimum, hence it's a not a retail bank run for sure. 2. They print the dollars for much of the old school crypto ecosystem, with all players acknowledging their importance. So unless the key players in the field want to take USDT down, it's not going down. Even the NYAG tried and gave them a penny fine instead.
And even the article here really lacks context. The USDT reedeming right now is tied to all the negative publicity in the media. I've traded through this current depeg (a week ago), that was purely speculative and generated by the panic. A twitter thread stared to report a depeg, and more and more people piled on the exchanges to swap USDT for BUSD and USDC. In the end a lot of USDT was redeemed, nothing happened, expect that some people made a lot of money on the panic itself (and the premium).
I've been hearing the same story for the past 6 years. USDT will fail, they don't have any backing, US will shut them down,.... And the world keeps on turning. Sorry to break it to you. Nothing is going to happen until key crypto players have a legit alternative that will keep the ecosystem alive.
DAI is said to have 150% over-collateralization. ETH & WBTC have dropped more than half. Let's say just off by 50%. USDP and others seem got wiped out. $150 x (43.8% + 32.1%/2 + 11.3%/2 + 0%) = ~$98. That means $150 of collateral is worth only ~$98 now, not enough to back $100 of DAI for 1-to-$1 redemption.
Looks like DAI is at the verge of de-pegging.
Isn't Tether's cap alone around 10 times that?
Is this an observable trend or just a small spike of an otherwise generally volatile phenomenon?
No one knows (or would admit publicly if they did, lots of money to be made if you do) what’ll be the linchpin causing a full blown run and a rapid decapitalization of remaining stablecoins. If and when it occurs, it will happen slowly, and then all of a sudden as counterparties race to the exits. Last folks out hold the bags.
https://www.kalzumeus.com/2022/05/20/tether-required-recapit...
Tether's cap is not the same as Tether's available liquidity to redeem the token. We don't know what's the limit of withdrawals they can handle in reality.
Used to be that you couldn't redeem unless you were a whale. Unless you weren't a US national. Unless you'd given 90-120 days notice. Unless there was a fee paid.
People literally put up bounties hunting any successful redemption of Tether. Especially since, and this is as true now, as it was then:
"Tether makes no guarantees, promises or arrangement that the Tether stablecoin is or will be redeemable in any way, shape or form."
Yes that's a fair point (and it's likely some of the other stablecoins share that problem), but still, isn't $7B a rather tiny portion of the overall stablecoin market cap?
Like if you short it and the price doesn't move (by design) are you out any money?
The price won't go up (by design) because nobody's going to spend too much money from their reserves to support a price over US$1.
But it's possible for the reserves to run dry in which case the price goes down and you win.
I do it; on Aave you can deposit USDC and borrow USDT against it, earning an interest on USDC and paying interest on the USDT. It currently costs me about 3 APR to short Tether. What's nice is that you can iterate the strategy, e.g. deposit 1000 USDC, borrow 950 USDT, swap this USDT for USDC, deposit the USDC, borrow more USDT...
https://app.aave.com/ offers "E-mode", which lets you borrow stablecoins worth up to 99 % of the stablecoins you deposited.
the fact that defi shorting is available is a great improvement. now there's only smart contract risk, which for aave is negligible compared to exchange risk.
if i had gone through with it, i would have paid 5 years of interest for close to no return, including in 2018 when crypto fell 90%.
also, if enough people are levered short, crypto traders could short squeeze you. the price just needs to go up temporarily.
also, there's counterparty risk. is the exchange you're trading on going to stay up if tether goes to 0? depends on which one.
My guess is you would want to short it without exposure to eth and then idk.. You could do the same with USDC.
All of them should be trying to limit their exposure as much as possible as fast as possible.
We know from the CFTC settlement, and statements from Celsius CEO Alex Mashinsky, that Tether Inc has a history of issuing tethers and then accounting the loan itself as the backing for the issuance - literally just printing pseudo-money out of thin air.
I would first presume the tether "redemptions" were just cancellations of these loans. No dollars or other consideration left Tether Inc.
If you say something is worth 0.01BTC - you need to know the exact date. Otherwise it could be a >50% difference ($400+).
And honestly 4% is nothing in crypto world.
Can this problem be solved without crypto? Probably, but currently crypto is looking like the best way to be able to do this.
Now about decentralization, I believe that most people hold their transactional crypto funds in a handful of exchanges and thus the dream of decentralized crypto transactions is rarely realized.
But most importantly why does the end user care if the transaction was decentralized or went through a series of transactions through one or more centralized intermediaries.
All people care is have funds that left place A showed up in place B
Now do the same thing with sending money to Russia. I just checked WISE. "We temporarily stopped sending money to Russia".
Yeah.. thanks..
a better way to frame your comment: why does the world use Stripe and PayPal when you can just go to your bank and ask them to setup a multi day long wire process from bank A to B for less fees?
My issue is that people don’t even need to see crypto actually succeeding at the use cases people talk about to be considered a good investment. People will invest in crypto regardless. I believe crypto does have value but the valuation in no way matches the actual present day value of the crypto or even a plausible projection of its future value. People just say “crypto to 100 trillion! Smart contracts!” and nobody has to see any real results that justify those numbers.
Why should I be impressed that something has potential? Many things have potential.
To me, it’s strange that you can agree that most cryptos are scams but don’t understand why there is so much hate for them.
Why is this necessary? I have banks in three countries and generally pay nothing to move money between them or to pay others. This really doesn't feel like a problem that needs to be solved except by those trying to avoid taxation.
You also have to pay transaction fees transferring crypto, it's build into the protocol.
It's not solved by real world implementations of any major blockchain.
> Sure 99% of crypto schemes are b.s and ponzi.
That second sentence explains the first, really.
Anyway, so the remittance industry is estimated to be USD 15.27 Billion as of 2021 so if you could tap into that market, you'd do pretty well. Or rather, you would, if you charged some sort of fee to use your services, so you need to charge some sort of a fee, which negates that advantage of using crypto. Coinbase makes it easy to get into crypto, but they do charge a fee for that.
There are at least a dozen countries that I can think of that have massive restrictions on how many flows in and out of the country, preventing people from being able to keep their money safe from raging dictators or changing rulers.
It's a lot more than 1%.
If I'm sending a remittance or similar paying $$$$ in fees is absolutely not desirable. And with current gas prices the cost of sending anything less than 50k is pretty comparable with just doing a wire transfer.
for payments over 10K the fees may be less than Wise or a wire, and faster.
for average users the end game is L2 and direct on- and off- ramps from CEX and services like Ramp, and more payment processors accepting crypto so off-ramps will not be always needed. fees in L2 are in cents.
wish i could frame this quote