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hodlefer

Why Tether won't matter in the long run

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This is my understanding of the problem with tether:

Let this be all the tethers 

T T T T T T T T T T T

And each has a dollar in a bank account at Tether Towers which is allocated to each tether, exchangeable on demand

T T T T T T T T T T T
$ $ $ $ $ $ $ $ $ $ $ 

However they create more tethers without the $ to back up

T T T T T T T T T T T T T T
$ $ $ $ $ $ $ $ $ $ $ ? ? ?

This is where we are now.  Their auditor has walked away from making sure there's a $ for every T.

So the first to withdraw their tethers get their dollars, leaving

T T T
? ? ?

Those remaining tethers are worth nothing.  Toxic idea.

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2 minutes ago, bachmanity said:

The chains are view-able by the public and transparent.

Yes, you are correct, I do not understand blockchain technology very well - kindly excuse my ignorance.

https://xrpcharts.ripple.com is a website run by Ripple and everything on there has to be taken on trust (not that I am for one second doubting it).

 

Regarding Tether, I think the issue is that many simply do not trust that Tether has a Dollar for every USDT

 

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2 minutes ago, MooseInTime said:

This is my understanding of the problem with tether:

Let this be all the tethers 


T T T T T T T T T T T

And each has a dollar in a bank account at Tether Towers which is allocated to each tether, exchangeable on demand


T T T T T T T T T T T
$ $ $ $ $ $ $ $ $ $ $ 

However they create more tethers without the $ to back up


T T T T T T T T T T T T T T
$ $ $ $ $ $ $ $ $ $ $ ? ? ?

This is where we are now.  Their auditor has walked away from making sure there's a $ for every T.

So the first to withdraw their tethers get their dollars, leaving


T T T
? ? ?

Those remaining tethers are worth nothing.  Toxic idea.

Basically yes.  Except the idea of cashing out tethers isn’t real.  They have changed their documentation and disclaimer to say that USDT are not redeemable for USD

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So, how does that cause a problem with the rest of the market? Those remaining Ts are worth nothing, 0.00001 XRP probably.

I'm not familiar with the connection with BTC.  I understand Tether started on Bitfinex, that's about it.

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54 minutes ago, RippleHerToShreds said:

How do we know that they don't have a Dollar for every USDT?
How do we know that only 100 BN XRP exist?

Surely, it's just a question of who we chose to trust?

I wish I had a dislike button. Blockchain data is absolute. You should not have money in something you lack basic understanding in. Educate yourself.

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Just now, hodlefer said:

Basically yes.  Except the idea of cashing out tethers isn’t real.  They have changed their documentation and disclaimer to say that USDT are not redeemable for USD

That's a very interesting CYA move.

I find it funny that a token that calls itself USDT and pretends to act like a digital equivalent to the dollar is completely legal, while the creator of the Liberty dollar was raided by the Feds and forced to stop all operations because their coin looked a little too much like an official coin. And they wanted the end of the Fed and fiat currency much more than bitcoin does.

https://en.wikipedia.org/wiki/Liberty_dollar_(private_currency)

Regulation is coming.

tumblr_mzj1ujd9iG1qlt9quo1_500.jpg.69eefdbb5b6254da70bea15207cd53fd.jpg

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14 minutes ago, MooseInTime said:

This is my understanding of the problem with tether:

Let this be all the tethers 


T T T T T T T T T T T

And each has a dollar in a bank account at Tether Towers which is allocated to each tether, exchangeable on demand


T T T T T T T T T T T
$ $ $ $ $ $ $ $ $ $ $ 

However they create more tethers without the $ to back up


T T T T T T T T T T T T T T
$ $ $ $ $ $ $ $ $ $ $ ? ? ?

This is where we are now.  Their auditor has walked away from making sure there's a $ for every T.

So the first to withdraw their tethers get their dollars, leaving


T T T
? ? ?

Those remaining tethers are worth nothing.  Toxic idea.

Well put. 

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Just now, Dutchpinoy said:

Basic understanding. Get out of here with your passive aggressive remarks if you are unable to digest well placed criticism.

My exeprtise is markets. You do not need to understand anything at all about the underlying to trade markets, Sir. I know this from experience.
And your reply was very much pot and black kettle! Kindly keep it civil or simply ignore.
 

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3 minutes ago, RippleHerToShreds said:

My exeprtise is markets. You do not need to understand anything at all about the underlying to trade markets, Sir. I know this from experience.
And your reply was very much pot and black kettle! Kindly keep it civil or simply ignore.
 

I honestly don't know where you're coming from. If you are unable to appreciate one of the pillars of what makes blockchain of any use, at all, your expertise means absolutely nothing. Being an expert in 'markets', surely you should know not to invest in what you don't see the intrinsic value of? Never have I implied being an expert in anything. But lacking basic knowledge as you have so adamantly demonstrated, is nothing short of going all in on bitconnect, sir.

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27 minutes ago, jag216 said:

I find it funny that a token that calls itself USDT and pretends to act like a digital equivalent to the dollar is completely legal, while the creator of the Liberty dollar was raided by the Feds and forced to stop all operations because their coin looked a little too much like an official coin.

They had their activities in the US so it was easy for the FBI to stop them.

Tether and Bitfinex operate from the Virgin Islands / Hong Kong / wherever and it is not even clear who is behind it. So much more difficult to investigate or take action.

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I'll try to explain why Tether is a clusterfk:

On the surface it may seem that Tether is in essence just another crypto, albeit one that is pegged to 1 USD.   There is nothing particularly problematic with this arrangement, and having a cryptocurrency pegged to 1 USD is actually useful in a fluid and dynamic market as it allows market participants to jump in/out of the market without undergoing slow fiat conversion at every step. 

However, in order for this to work, it must be accepted and guaranteed that 1 USDT can in fact be exchanged for $1.   For this guarantee to hold true, one of the following two things must likewise be true:

  1. Each USDT must be backed by one actual US dollar.  1-to-1 relationship is therefore always guaranteed, meaning that any profits or positions stored in USDT are as good as being stored in actual dollars, because that ARE backed by actual dollars.
  2. USDT market must be extremely liquid.  In this scenario, 1 USDT is backed up by exactly nothing, however the liquidity of USD->USDT market is such that at any given point and in all market conditions 1 USDT can be exchanged for exactly 1 USD, and vice versa.  This effectively has the same effect as #1 point above, except that rather than 1 USDT being backed by 1 actual USD, it allows 1 USDT to be backed by 1 USD on demand by sourcing that $1 from a pool of market liquidity.

Having said that, here is what is actually going on:

  • Market for Fiat<->USDT is virtually non-existent.   Option #2 above is therefore not going to hold as Tether cannot effectively be exchanged for US dollars.
  • Most exchanges allow for trading in USDT-based pairs.  Since other CCs can be purchased using Tether, this effectively makes Tether a legitimate cryptocurrency tender (as legitimate as any other CC in the market that is backed by exactly nothing).  Tether can therefore be used to enter the market, but not exit the market.  Any actual money that enters the market via USDT must be sunk into other CCs that are exchangeable into Fiat before that money can exit the market.
  • Any USDT profits realized by virtue of trading require that additional USDT be printed.   1-to-1 pegging could not be maintained without adequate Tether supply, meaning that as market grows so does the volume of USDTs in circulation.  For Tether to be effective, it does therefore need to be printable out of thin air.  However, as soon as the Tether becomes printable, the 1-to-1 physical backing that may have existed now goes out of the window.  For example, a deposit of $1000 may have produced an initial credit 1000 USDT, but now that 1000USDT was invested in Ether that subsequently went up 50%, and closing that position produced a total of 15000USDT.   There is still only $1000 USD in the piggy bank, but there are now 15000 USDT in existence.  In order for pegging to work, the circulation therefore must be variable and the currency unbacked.
  • Bitfinex states that each USDT is backed by $1, however no audit has been completed thus far to confirm that statement, and Bitfinex is putting up a smokescreen.  Based on all points above, it should be clear to all that there is no way in hell that Bitfinex has enough cash on hand to cover all USDT in existence.  However, this is also not necessarily a problem;  as long as all market participants understand that 1USDT is nothing more than a transient note used solely for trading, then all should be well.

Ok, so if none of that presents a problem, than what does?  The fact that Tethers can be used to enter the market, and that no guarantees or audits have been performed to confirm that Tethers are printed either in response to actual USD deposits, or as a result of increased market demand for USDT which required circulation to be increased in order to maintain 1-to-1 valuation.  Absent such guarantees, Tether is essentially a backdoor into the entire market.  While all CCs are to an extent created out of thin air, price for each is set based on market forces of supply and demand.  This is where Tether sets itself apart; its circulation is variable, but its price is not;  increasing the number of tethers in circulation thus literally creates purchasing power out of thin air.   This "purchase power creation" is the root of the entire tether debate.

Here is how the tether problem could be solved:

  1. Eliminate use of USDT altogether.  Since USDT much be washed into other CCs, I would imagine that pulling the trigger on USDT would not be particularly disruptive to the market.
  2. Create a liquid USDT-USD market
  3. Pre-mine a some large number of USDT coins (few trillion), place them in custody, and establish stringent and auditable controls on their distribution. 

Barring any of the three options above, absence of controls and/or audits means that no checks and balances exists on the mechanisms by which Tether enters the market.  Since the entire situation is a complete cluster, it would be very easy for a company such as Bitfinex to inject Tethers into the pool that are neither backed nor produced by increasing market demands on volume, meaning that it would be completely fake money entering the market.  This fake money could then be used to purchase other CC assets and drive up their prices.  The entire process would be equivalent to a pump-and-theft.

Of course, there is no good way to confirm this aside from performing an audit, so here we are.  Just because Bitfinex "could" do these things, doesn't mean that they are.... but noone knows for sure. 

Given the present state of the market, the simplest way out seems to be to start working on abandoning tether all together.  The idea may have been a good one, but as it turns out controlling money supply might be better left to central banks to handle.

 

 

 

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