The big question with Tether has been, if they are holding commercial paper, whose commercial paper? Traders who deal in commercial paper of real companies that do real stuff don't see Tether present in that market. The dollar amounts are too big to hide. The suspicion is that their "commercial paper" is high-interest loans to other cryptocurrency companies. With the whole crypto sector in decline, those loans are at risk.
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.
> Why would anyone buy Tether at this point? There's zero upside potential, after all.
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.
Technically, isnât selling one asset and buying another precisely the definition of a taxable event?
I donât see how tether helps you avoid taxes unless youâre going to lie about your transactions and hope nobody notices.
It is indeed a taxable event. People who exchange crypto for âstableâcoins are generally doing so to stay out of the KYC banking realm so they can lie about their transactions to their countryâs tax authorities.
I think a lot of Americans are in for a surprise when they finally report their gains, the IRS audits them and does a little digging ("You reported a sale of USDT, where did the USDT come from? You say you traded BTC for it? You never reported a sale of BTC."), and they find out they have owed taxes on trades for years, plus penalties and interest.
If you sell something for actual money, and use that actual money to buy something else, that sale would usually be a taxable event (well, it would be a realization event which may or may not be a taxable event, but in casual conversation just saying "taxable event" is fine).
If actual money is not involved, for example I trade my X with you for your Y, then it gets quite interesting. In the US there are generally two ways that tax law handles this. I don't know how far along the law is with fitting all the various cryptocurrency things into this.
One way is to treat it for tax purposes as if I sold X at its fair market value and you sold Y at its fair market value, and then I bought Y and you bought X. I'm taxes on my gains from that imputed sale, and take that price as my basis in Y. Similar for you.
The other way to treat it is as a non-realization event, putting off any tax consequences until I actually sell Y or trade it for something that gets handled as an imputed sale. My basis in Y is the same as the basis I had in X.
What determines which of these applies is whether or not the exchange is a "like-kind exchange". If the exchange is a like-kind exchange it gets the "swap basis" approach. If it is not like-kind it gets the "imputed sale" approach.
Sometimes this is clear cut. Suppose I bought an old guitar at garage sale 50 years ago for a couple dollars that is nowadays a valuable vintage guitar worth $100k, and 50 years ago you bought a new comic book that is now worth $100k to collectors.
If we trade, that would be an imputed sale because guitars and comic books are not like-kind.
When things are in the same category it gets much harder, and the case law is full of courts having to go deeply into philosophical questions of what makes things like-kind.
Say we trade paintings. Are all paintings like-kind? Or would a Monet not be like-kind with a Picasso because they are different artists and/or different styles? Is a male horse like kind with a female horse? Is an electric guitar like kind with an acoustic guitar? Is a comic book that is valuable because of the first appearance of a character like-kind with a comic book that is valuable because of who inked it?
You don't report income on every item you shuffle.
In the spirit of US law (since crypto is t precisely classified), if you are a professional trader, you only pay taxes on your overall annual trading profits, not each individual trade. Same as how a a retail store doesn't have gains and losses on every individual item in inventory.
Casino chips is right. Imagine you are in a casino happily playing, and then rumors go around that the house can't cover the dollar value of the chips in everyone's hands. Pandemonium ensues.
I think what OP meant was why would anyone hold Tether at this point instead of a more transparent and less fudded stabelcoin like USDC
The temptation is too great. If the stablecoin has a non-zero administrative cost, someone has to pay it. And if no-one wants to pay it, then it is going to have to invest a portion of the dollars it holds to make up the difference (and to ultimately reward the creators / seed investors).
There are probably no 100% cash-backed stablecoins.
Either way, unless they are fully backed by USD... stablecoin is just an unregulated bank and it can run.
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.
Properly unregulated banks are actually less likely to experience runs.
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.
Being stable just gives it a certain risk profile: regular profits, with a chance of occasional apocalypse. Modest, of course, relative to the sum "under management." Two-and-twenty. The kind of game we've been known to lose.
I don't think it really matters what the underlying assets are. Once the bank runs, it'll probably run dry. "Equity cushions" don't work. The banks own shares suck as a hedge against a run. Assets do hedge against a run. But, once a run is truly happening... it's unlikely to stop. Eventually reserves run out. Assets, credit, etc. I don't buy the idea of assets "calming" a run. In a collapse, the assets are only good as a currency to literally pay out exiting holders.
That said, it's possible to keep the game going a long time. Decades even, depending on the levels of greed and luck.
Stablecoins are still new. The derivatives death star is still not fully operational.
Stablecoin is only risky while you hold it. You can convert to Bitcoin or Eth to adjust your risk profile, and take profits occasionally in national currency.
Russian roulette is only dangerous while youâre playing. In fact, itâs honestly risk free unless itâs your turn.
Oh itâs even worse. For a while now some[0] have suggested part of the backing is in bonds issues by Chinese real estate companies
[0] https://twitter.com/thelastbearsta1/status/14690072004965908...
It could be worse than that. It could be commercial paper from Bitfinex or one of their other related party holdings.
Bitfinex seems like a very good business. I mean at least since 2016 - but 8 years is enough. It is possible that they still mismanaged it catastrophically - but fees are really good in crypto exchanges and margin loses are socialized - so they are not a risk factor for the exchange.
Chinese real estate would be considerably better than crypto company loans, tbh.
Chinese real estate companies are defaulting on their international bonds en masse and CN government has shown no interest in bailing them on that end.
According to Advchina, the underlying asset is of such poor quality that they will be torn down or abandoned. And from my understanding owning a property doesnât mean you own it forever. Itâs time limited by the government.
This comes from the rumor that the commercial paper is from China.
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...
So tether could be theoretically backed by...bitcoin?
No the big questions with Tether are: do they have backing assets? How much? And where are they? Whose commercial paper is a second tier question.
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-...
The moment I learned that people want to buy crypto as a means to get rich in (evil ;)) fiat money, I knew I had a ponzi scheme in front of me.
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 interesting idea behind crypto once was to have a totally different system.
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).
> 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.
In my opinion crypto (i am talking about PoS with smart contracts) is about having a decentralized open source/standards cloud for financial services/ transactions. That opens up many possibilities but everything has been completely drowned out by VCs starting defi ponzi schemes and other shenanigans.
The problem is that there's adverse selection going on here: people who aren't running ponzi schemes and other shenanigans are generally content with the regular banking system, so scammers are disproportionally present in the crypto world. Given that environment, it's mostly risk and little benefit for legit users in crypto.
The killer app for decentralized finance so far is sidestepping laws. No wonder it's a den of snakes.
PoS is centralizing by it's very nature.
> mostly - there's efficiency to be had and red tape to cut
and Open Banking has been working on this steadily in many countries.
Can you show me any tangible results of open banking? I used to work in the space and it was a shitshow of bureaucracy that never went anywhere.
Ethereum IS ALREADY an ecosystem of programmable money APIs, and it works TODAY.
It is until you're on a list, for whatever reason.
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.
Does this really matter though? Is it any different to drug lord having a tonne of dirty cash they canât use anywhere because all the useful places you could put it want nothing to do with you? Watching from the sidelines, the Crypto world seems to just be morphing into the normal financial world.
Whatâs truly decentralised? Miners are increasingly centralised and can effectively block/ignore transactions if they like. They may conceivably end up compelled to blacklist certain wallets, as some exchanges already do.
And thatâs before we get to stuff like Luna, where the decentralised authorities took the centralised action of halting the chain entirely
Those lists can come in quite handy when you need to deal with people like Russian oligarchs âŠ
We need the lists for drug dealers and oligarchs. There are lists for a reason.
It's impossible to have a totally different system while the fiat system exists in parallel. Even if people used crypto just for payments and didn't assign a dollar value to it, it would still have a dollar value because if you know that 0.0001 BTC buys 1 kg of something then you can infer the dollar value
yep. bitcoin has been, from the start, about replacing the whole fiat financial system, not interfacing with it, depending on it, and being regulated.
With so many startups how can you be sure all of them will fail to provide value?
Itâs 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 itâs possible a world changing blockchain startup hasnât been invented yet. Any tech breakthroughs with processing power or storage could have a huge effect on blockchain.
What are people holding all those stable coins for?
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?
As someone that holds a lot of stable coins (USDC, not USDT)
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)
It's surprising how many times the question you are answering gets asked and people still don't get it.
> My local currency (GBP) is weak atm and falling against the dollar
That's an edge case that isn't a concern for Americans who are most enthusiastic about crypto and most involved in the crypto revolution. This is pointed out often and the crypto enthusiasts don't get it. Crypto for most of us is YAGNI
YAGNI! Because you ain't gonna need it https://www.youtube.com/watch?v=fPJohxVLJu0
Yeah but crypto is bad, so why would I buy crypto?
There's no reasoning to be had here.
Easier to trade, no issues with tax&bank issues, and a lot of crypto exchanges charge to convert from crypto -> cash, whereas crypto -> crypto(stablecoin) is usually just exchange fees, less than the USD charge.
> no issues with tax&bank issues
Sure about that bit? This may be the perception â that holding your assets in 'the crypto system' avoids tax issues â 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.
Sorry all, should have been specific: Australia.
https://www.ato.gov.au/General/Other-languages/In-detail/Inf...
But be careful! Actually read what your local tax office puts out. Assume nothing: it can be very easy to get yourself in to trouble.
For example:
- You buy BTC @ $1
- You exchange BTC @ $11 for $RANDOM
- You just made $10 :-) and you owe the taxman ~$3 (if you're in Australia)
- $RANDOM falls to ~$0
- So you didn't actually make a material profit
- But you still owe the taxman $3! (though you might be able to claim some sort of offset on your material loss of $RANDOM; IANAA)
- Now multiply all amounts by 10,000 and be sad
It's analogous to selling any asset. You buy gold, you sell gold at a profit and buy silver. You owe tax on the sale of the gold; you assume you'll pay this from the value you now hold in silver. The price of silver plummets. You still owe the tax on the sale of the gold.
You mean taxable for US tax office?
In my country it is not taxable, only exchange to fiat currency is. (and this is explicitly mentioned).
Depends on the jurisdiction. In most European countries for example, you only pay tax when cashing out
That makes no sense. You pay taxes on realized gains (i.e. when you cash out), not unrealized ones... otherwise people like Elon Musk would have to pay tens of billions of dollars in taxes and sell off part of their stock to even be able to pay the tax (and probably ruin the company in the process). The same applies to crypto, and even though it's mostly not needed (you pay tax on realized gains in most countries and it makes common sense crypto would be similar), some countries alredy explicitly codified this, just to be crystal clear: You pay your taxes when you convert back to cash. That's the "taxable event". Same as when you sell your stock.
Ok, I understand that a stablecoin it is easier to handle than the dollar.
But who is doing it? What is the use case?
Trading. Quick arbitrage, day trading, pump and dumps, leverage. The same thing you can do by having dollars on your stock trading account you usually need coins on your crypto account and it would be crazy to have the volatile ones.
Traders and tax evaders. With stablecoins you can trade on decentralised smart contracts, and they even allow something called flash loans where you borrow the stablecoin, trade it for profit and then pay it back in one rollbackable transaction! Also there are many high yield investment schemes based on holding stablecoins.
> Who and why?
IIUC:
a) exchanges for short-term liquidity
b) traders for whom going in and out of actual USD is a giant PITN
I associate the term "short-term liquidity" with money that can be used to pay employees and suppliers.
Are exchanges really holding stablecoins for this purpose?
No, Crypto isn't used by people who have "employees and suppliers", those people use currencies instead.
The crypto community just like to co-opt all sorts of terms from economy to give themselves a veneer of faux credibility.
I was mining BTC when it was 68K. Should have transferred it over to a stable-coin right there and then. Now I still hold the same amount in BTC but its worth a lot less.
Clickbait title it seems; USDT and DAI lost some market share while BUSD and USDC have grown more.
> USDC has grown 20% with $10.6 billion more tokens in circulation. BUSD boosted up 22% â representing growth of $4.2 billion. USDT has shed about $4.1 billion, a 5% reduction, while DAI dwindled by 30% â from $8.9 billion to $6.2 billion.
> while BUSD and USDC have grown more.
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.
> USDC (coinbase) is properly and regularly audited
I've only found attestations just like USDT, where did you see an audit?
Iâm sure Iâve seen an audit before but because Coinbase is a public company all finances have to be released so you should be able to see it there too?
Gemini Dollar (GUSD) might be one of the few stablecoins that supposedly have audits backing them:
I don't have any loyalty to a coin, so I'd love it if someone could say something against them so I can weigh the risks appropriately. :)
BUSD is just rebranded Paxos Standard iirc.
Youâre thinking about USDP, if I am not mistaken. BUSD is Binance dollar.
It seems we have a serious problem with the first generation of cryptocurrencies being mainly a vehicle for scams and otherwise extracting value from gullible people.
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?
USDC and DAI are both collateralized and doing fine at the moment and can operate as a decentralized currency and payment rail.
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 donât think any stable coins hold 1:1 because it would be impossible to earn much money on the float?
I really wonder if USDT bashing will get old or will people finally get that USDT will not just disappear overnight. They've redeemed 11% of their total capitalization and nothing happened.
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.
As long as there is a BTC/USDT and a BTC/USD market, Tether will work. If someone wants to sell USDT for USD, All Tether has to do is buy BTC with USDT, then sell the BTC for USD.
Large US Banks are required to handle a 10% of capitalization bank run. So USDT has already exceeded widely accepted fractional reserve requirements.
The collateral for DAI are hihgly crypto correlated - 43.8% USDC, 32.1% ETH, 11.3% WBTC, 5.9% USDP, and others. ETH and WBTC are just Ethereum and BTC, both of which have dropped considerably recently. USDP somehow dropped to ~$0 since April. USDC is sworn to be 100% USD backed so let's take that at face value.
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.
I'm sorry but you don't know what you're talking about. Look into how Dai works, or check daistats.com
DAI's current collateralization ratio is 157.67%. You can verify this straight from the Ethereum mainnet.
Doubtful, Dai is automatically destroyed as the value of its collateral falls via the mechanisms of liquidations and loan paybacks.
Nope, you are completely wrong. Wrong USDP, no discussion of how vault liquidation prevents this from happening, Dai is overcollateralized right now at 159% not 98%, USDC is not necessarily crypto correlated, Dai doesn't have $1-to-$1 redemption as it is not a centralized stablecoin, etc. etc.
Is $7B a lot?
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?
It is potentially the slow start of a run as interest rates rise and lower risk assets offer improved yields versus crypto offerings. Besides Luna, Tether recently required recapitalization, so there is evidence of stress.
No one knows (or would admit publicly if they did, lots of money to be made if you do) whatâll 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...
> Isn't Tether's cap alone around 10 times that?
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.
Yeah, about that.
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."
You can redeem $0.30 worth of tether right here:
https://trade.kraken.com/charts/KRAKEN:USDT-USD
There's very good reason to do a lot of KYC and set limits on people who want to get USD for their USDT. The last person who tried to operate such a business was locked up in a US prison for nearly a decade. Good motivation to not deal with retail customers and the slow burn US justice system don't you think?
https://www.nytimes.com/2012/10/25/us/liberty-dollar-creator...
What you want to happen to void this criticism would get the Tether execs put in prison. Though I guess that's what some people here secretly want anyway.
> We don't know what's the limit of withdrawals they can handle in reality.
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?
Surely it's 100%, surely the Tether project was not abjectly lying about their entire raison d'ĂȘtre this whole time.
Nah, the raison d'ĂȘtre of the project (like anything cryptocurrency related) is earning the creators tons of money. Scamming a whole bunch of cryptocurrency users by selling them tokens, and then absconding with the assets theyâre supposedly backed by would be a highly effective way to do that
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