Tether skeptic here. This is not a depeg. Most likely this is just because of the current sell-off of crypto currencies - there are a lot more sellers than buyers out there right now.
Right now, when you can buy a tether at $0.997 and (in theory) sell it back to tether at $1, there's not much scope for profits after costs. So there's not going to be a lot of money pushing the price back up. IOW it's kind of 'expected' that a stablecoin might drift tiny amounts away from its theoretical peg. It's just not worth it. (n.b. even Tether themselves charge a 0.1% fee to redeem their coins)
If/when tether drops below (say) $0.99, and there's no influx of money trying to support it, that's when USDT is in trouble.
Stable-coins should be drifting slightly-high during mass-selloffs of the more volatile cryptocurrencies, as more people try to get onto stable ground. And if you check the "slightly" more reputable stable coins like USDC, TUSD and BUSD, they are indeed drifting slightly high.
But instead Tether is drifting low, quite low. I agree it's not quite a depeg, but it shows that many people distrust Tether and want to get rid of it at times like this.
It depends upon where you think the money is going. If you believe people are parking their assets in USDT, then yes, you'd expect there to be upward pressure on the price of tether.
If instead, people are getting out of crypto altogether, they won't be holding USDT, instead they will be getting hold of actual dollars (which, depending upon the coins, might involve selling a random coin for USDT and then trading that for USD). In that case, there would be selling pressure on USDT.
Sounds right but if there was a general departure from crypto, I don’t expect Phire’s observation that “USDC, TUSD and BUSD, they are indeed drifting slightly high” to hold.
Departing from crypto is generally done in two steps, first convert from speculative to stable then convert from stable to fiat.
If some exchanges are making the second step much harder than the first, then a lot of people attempting to depart crypto could have the effect that we're seeing.
Stable ground is not a cryptocurrency, what is stable are USA national bonds. The Federal bonds of the USA are the safest asset in the world, and it is what all traders go for when they need safety. No national government of a English speaking country has defaulted on its debt since the Stop of the Exchequer in 1672, and the USA has a huge military which further protects its bonds
To be fair, part of this is that since around that time the major English speaking countries of note could print the money the bonds were issued in (first the British Empire, now the American one).
This means that there may have been "effective defaults" where instead of defaulting on the bond, the currency was weakened.
If I'm reading the sources correctly, the CSA never technically defaulted until it ceased to exist as a meaningful entity. The CSA never paid the interest on the junk bonds, but those bonds appeared to have a clause permitting it to defer any payments while the war was ongoing; the cotton bonds were actually serviced in full throughout the entire war.
Yeah, this. You can’t go broke if you can print the money. What is going to be interesting in the next 10y is BTC denominated bonds. Then we will see exactly who can and will default.
Yes, depegging is an instantaneous event that happens when Tether fail to redeem a Tether at "face value". As long as they continue to do that, the value of Tether on an open market is only relevant in that it expresses the concerns of traders that they will eventually depeg.
Obviously as the price drops it becomes increasingly profitable to buy on the open market and sell back to Tether, depleting their fiat reserves and bringing closer the moment when they stop exchanging at face value, and it all ends.
Why does tether not “buy back” all of those coins that it would be a loss to redeem? It seems like that would drive up the price and reduce their reserves by less than the alternative.
I've no doubt they are doing that right now, they would be insane not to. It is presumably what they did to restore confidence during last month's price dip. The problem arises if (my guess is when) they no longer have the funds to do so.
They probably can't move big money into the exchanges fast enough to keep up. Possibly quite a lot of panicked exit from so-called stable coins going on.
Look, I said I was a tether skeptic, but I think it is undeniable that Tether are buying back tethers from some people. If they weren't doing that right now, we'd see a whole lot of stories like "I tried to redeem $100M of tether and they refused!" out there.
Tether undoubtedly has several large trading partners that buy and sell large volumes of coins from them. If they stopped redemptions, you can bet that everyone would soon hear about it.
Now, it's absolutely true that their crappy terms & conditions give them complete freedom to refuse redemptions from anybody at any time for any reason. And that (in my view) makes it a very dubious company to rely on. But you are completely and utterly wrong to say that "No, you can't. Not even in theory".
This isn't the same thing though. They may be buying Tether. I'm not aware of evidence that they do this, but I'll believe it because it seems logical that they would.
You cannot REDEEM the coins. Which may look a lot like just selling it back to them for $1 but it's not the same. That's a problem. They can stop buying tethers whenever they want and, theoretically, you have no recourse. It's only going to keep going while it suits them.
edit: and, importantly, you cannot even SELL tether back to them for $1. They just won't do this right now. They'll do market price at best.
You’re referring to selling the USDT back to the market at the market rate. OP and GP are referring to selling USDT back to Tether at its face value when that face value has deviated from the market price.
That's not redeeming. Redeeming is sending your Tethers to Tether and receiving a USD wire transfer. Fairly few entities can do this. We can't do it yet.
So imagine you get what you want here, and tether open trading for all customers down to those who want to redeem 20 cents...
Ignoring that the last person who tried to create a digital token pegged to USD.
Ignoring all the AMC/KYC risks
You'd actually be happy? You truly wouldn't just move onto accusing them of facilitating money laundering on a massive scale as tethers can move across borders for a few cents?
It's not clear that we will succeed at the fairly simple KYC process. A lot of exchanges have fairly stringent requirements around customers' directors' citizenships, and those that do not often like to play 100 round matches of email tag with us.
If you work for Tether and you created a new Hacker News account to offer to onboard us, that sounds great :)
If you buy/sell $100k USD and pay the relevant transaction fees; and if tether doesnt run of out capital just as you are doing it.
Which, at <1$/$, tether should now be bankrupt. It's presently advertising free money: just buy at <1 and sell back at 1. If it were actually possible to do that, tether would be out of capital tomorrow.
That's not really true. The amount of redemptions needed to restore the peg is capped at the size of their reserves, and in reality is probably a lot less.
I think a lot of commenters get confused about why big crypto firms don't defend the peg more aggressively. The reason is that defending the peg less aggressively is more profitable.
the argument is not that you can’t exchange 1 usdt for 1 usd today.
the argument is that nobody, not tether and not any exchange, is committed to maintain this exchange rate peg. in fact the topic of this thread is a discussion on how (long) and whether the peg can be maintained.
I have a question on this. If the redemption fee is 0.1%, then that makes a USDT worth $0.999. Why is it assumed that a tether should be worth $1.00 and not $0.999?
You're correct. To expand a bit, in general, when demand for crypto trading is going up, Tether should be worth about 10bps more than a dollar (because this is what Tether will charge you to create new Tethers, and the supply is mostly expanding), and when demand for crypto trading is going down, Tether should be worth about 10bps less than a dollar (because this is what Tether will give you for your Tethers, and the supply is mostly contracting).
That's exactly the case, and I would consider a price below $0.999 or a price above $1.001 to be a depeg. It's just that few people cared enough about such a tiny fee so Tether can earn $2m out of every $1b minted. At its worst times Tether charged 3% redemption fee, making 1USDT equal 0.97USD, but by disguising it as a fee they could claim that 1USDT is just 1USD.
Where can you redeem tether for $1? If the answer is “nowhere” it’s a depeg by definition.
If you can trivially redeem tether for $1 why is it trading for less than that?
Money market funds are considered to have broken the peg the minute you can’t get a dollar for dollar out of them, why are we redefining the term for crypto?
You can get a dollar for a dollar, it's just not worthwhile to do so yet for arbitrageurs due to the tiny magnitude of the drift. Tether actually depegging happens when someone tries to redeem with them and they can't do it, the market price is misleading.
An analogous money market fund example would be if I can't redeem until tomorrow noon yet need to urgently meet some financing need today, I could sell to someone for a tiny discount and they can redeem tomorrow.
The peg breaks when Tether refuses/is unable to redeem USDT for USD. Obviously in any secondary market whether order book or AMM based there is going to be trading within a range.
Not only is there a 0.1% fee--and so of course USDT can easily be sitting at $0.999 without it even being strange--but it will take a day or two to round-trip the money through the antiquated legacy banking systems with Tether, so you have to additionally take into account the lost opportunity cost.
It amazes me that HN consistently falls for fear mongering and conspiracies when it comes to anything finance related. Quite remarkable for a forum full of tech savvy people. That site OP linked to doesn't even load currently. Apparently their servers got fried. Looks like today, someone's not making bank... man.
Edit: Apparently it can do Chrome but has issues with Firefox.
Hacker News is somewhat good for Tech, especially if the commentor actually is a domain expert, but outside of it can be quite woeful.
Ironically, every once in a while an article or post about something like the Dunning-Kruger effect comes up, everyone is suddenly fully aware of how this applies to them.
The thing that frustrates me the most about crypto is that we tried to replace the traditional financial system of fractional reserve, predatory lending, excessive leverage and we recreated the entire thing again. I just assume this is a natural tendency for human beings at this point.
> ...they’ll learn why the gold standard stopped being cool.
Because governments are massive borrowers and the gold standard tilts the market towards people having to repay their debts from time to time?
Literally the reason not to be on a gold standard is to enable money creation. Creating money has winners and losers - the losers shouldn't be happy about that. I own enough assets that I've been making out like a bandit (eg, by owning gold) but the situation is hardly fair to people who think that working productively at a job should be linked to better outcomes.
>I own enough assets that I've been making out like a bandit (eg, by owning gold)
The returns for gold have been absolutely trounced by just about every asset out there. It's worth less today than it was 10 years ago. I know, because I also own some. Even with inflation, it has a ton of ground to make up versus real estate or SPY or BTC.
So, pray tell, how have you "made out like a bandit" by owning gold?
> It's worth less today than it was 10 years ago. I know, because I also own some.
You're dating yourself with this comment, you hit a pretty small window around 2012 to manage to lose money. I didn't buy then so I'm doing well. Now, admittedly, the reason the price was high in that window was because a lot of people panicked and wanted to buy in so there are probably an unusual number of stories of people who managed to lose money.
But the rest of the time gold is posting (alleged) real returns. Which is fantastic work for a shiny rock. People call what is happening in bitcoin crazy, but the idea that I'm making a productive contribution to society by owning a rock is bananas. Really it just means that money is losing value faster than the powers that be admit.
> The returns for gold have been absolutely trounced by just about every asset out there.
Well yeah, it sits there and does nothing. The return is not competitive with more productive assets. Still crushing the poor fools who think that they should be using inflation as a reference point to plan/negotiate their finances. Or anyone who thinks they can use wages to get ahead; they're getting washed out by the money hose that has been pointed at assets for the last 15 years.
The linkage in the banking system was to the price of gold, as fractional reserve lending slowly increased the amount of deposits in the system, the price of gold drifted up, and the amount of lending increased with it.
Then the entire system eventually broke apart (several times), because gold wasn't evenly distributed, and so the resulting rates of money creation drifted apart in different countries.
Gold has had a weak return vs most assets over the past decade and is usually upsold as a worthwhile asset by the people making money off selling gold. It sounds like you're drinking the flavor aid.
You had me at everything except why the gold standard isn’t cool. I actually think the whole world is about to get a lesson in why the gold standard was cool.
Perhaps, but replacing the gold standard with no backing is not then the answer. There should be hard accountability on anyone who can create money. Cryptographic measures seem promising in this regard, but I have never heard of governments funding research on limiting themselves. China has been doing some work in digitizing its money, but it seems it is making the government even more powerful.
>Cryptographic measures seem promising in this regard
Have you not seen the absolute mess of stable coins? Tether has 'printed' the equivalent of 86 billion dollars from nothing.
>There should be hard accountability on anyone who can create money.
The bigger issue is a lack of accountability on the political systems. Most of which have been rife with corruption.
They print dollars and give it away with 0 accountability of whether economic value is returned for what is being printed.
High speed rail, national broadband, national healthcare, upgraded powerlines, renewable infrastructure, desal plants. Food for kids in schools, shelter for the homeless, high rise infrastructure (rather than shitty suburban shits that bankrupt cities in 50 years).
The above are effective, efficient and provide multiple dividends for the initial capital. Yet are viewed as socialist policies frankly and hence political suicide.
The Government can't even recognize how cryptocurrencies are by itself a negative sum game and hence should be heavily taxed or made illegal.
“The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust." -Satoshi Nakamoto Feb. 11, 2009
I have to agree with Satoshi that these central banks have not done a great job at that haha.
The economy requires trust to work, including the cryptocurrency economy.
Cryptocurrency supporters like to mythologize about everyone managing their own wallet and running their own nodes, but practical reality shows that to reach any kind of scale you need trust.
Somehow all the cryptocurrency advocates who pan trusting central banks don't seem to have nearly the same issues with trusting a company like Tether or Binance who have far less accountability..
We are not in control of what happens. No one is at the console pressing buttons. We are growing because millions of individuals are making individual decisions resulting in run away growth. The best we can do is alter the incentives and hope we did it well enough that those individual decisions change. Given that, sticking to a system where you know the population is growing at a rate where you cannot keep up by growing the supply of gold is locking yourself into deflationary currency. That is BAD for everyone in the system considering we want money moving not sitting idle.
The typical argument is that the value of gold is somehow super stable (often the story is brought up that in biblical times, an amount X of gold would purchase Y loaves of bread, and today it is still the same!). By contrast, the dollar lost 96% or so of its purchasing power over the last century, so clearly gold is much better, and if you tie the value of the currency to gold (=gold standard), you have the best of both worlds.
However, that story neglects many things.
1. A worker can buy many more loaves of bread (not to mention other things) with a week of wages than two thousand years ago. So, who cares about the price of gold?
2. Everyone is free to buy gold with their money, anyway, if desired [0].
3. A moderate amount of inflation is not bad, and in fact what most central banks target for, and what they have achieved for decades.
4. If you have a lot of money lying around, invest it in the markets (or into gold), don't leave it in currency.
5. A gold standard would remove the central bank's ability to control the money supply, and hamstring its ability to conduct monetary policy. Gold standard proponents consider that a feature, but almost all modern economists consider it a bug. An instructive parable is the story of the Babysitting Coop [1].
My overall take is that
good fiat > gold standard > bad fiat,
and policy should be focused on good fiat, ie keeping the central bank competent and politically independent and with a clear mandate.
The problem with “good” fiat is that it is never good for everyone. Inflation usually hits discriminatorily. And it doesn’t last. Even the US now has high inflation.
The gold standard has its problems, but putting hard limits on currency creation and manipulation is prudent.
I personally have a lot more trust in the competency of a central bank than some random, unchangeable numbers an anonymous person pulled out of their hat in 2008. Or the gold mining cartels, for that matter. At least the central banks have some vague semblance of democratic control.
Said Central Bank was famously killed once, for equally good reasons, in our country's history. We've quite literally built in "endless growth" imto the fundamental architecture of our monetary system, which breaks the fractal self-similarity between the different levels of abstraction of an ideal State.
(Given nature's love of pattern reuse, finance on micro ()individual), should resemble finance slightly more macro (family), dhould resemble finance even more macro, (industry, state, nation))
Whereas what we have now is some horrible abomination where at the top-end, we get these debt fueled monstrosities that continually push asset prices into more and more ludicrous places where barrier to entry gets higher and higher, and the requisite concentrations of resources one must accrue before the power laws start kicking in relegates a greater and greater portion of the population to basically treading water in the hopes less than a single percent of it makes good capital allocation decisions.
Call me a contrarian nut if you want, but something is completely off. I accept unintuitive things can exist, but modern economic theory requires too mich fairy dust (Dude, trust us) to keep churning along for my liking.
.
https://wtfhappenedin1971.com is a good start. The wheels seem to start falling off of everything when you can just create fake money out of thin air. Most of the money goes to those near the money printer and you get massive wealth inequality and all the problems that causes. Maybe gold is silly but it at least pegs the money creation to something.
Gold itself is just another fiat currency, with the only advantage being that almost every society known to mankind has somehow evolved to accept gold as the one and only "true value" storage. Only 10% of the world's gold production goes to industrial usage (mostly electroplating of connectors), the rest off to plain investment and jewelry.
That is factually rather incomplete. Silver was the original metal of currency and was far more widely used historically. Silver wasn't fully supplanted by a gold only backed currency until 100-200 years ago in many countries.
I am always curious why silver never gets any love from the "gold is the only true currency" crowd."
And if that happens and a the end of it here's a parallel system or systems on the internet that look a lot like what we have today[1] but exist globally and outside the surveillance and control of governments, then crypto has to some extent succeeded.
How much those systems are controlled by their users rather than just different concentrated groups holding a majority of power and wealth is in some ways a measure of that success. I am not too optimistic about this for bitcoin and systems based on it, but bitcoin is far from the only game in town.
Whether or not the space needs to learn every lesson, no matter how obvious, by regularly losing money reproducing each crisis in turn remains to be seen. As someone who spent a long time in finance and can see that many of the experiments/"products" in crypto are dumb and won't work, I would certainly hope we can do a bit better, but if that's what it takes, so be it.
[1] Hopefully we can at least improve some bits of the actual products and systems along the way as well as getting the basics in place, too.
The system we have today requires surveillance and control of governments to function. The parallel system or systems on the internet would also require some form of external, i.e. off blockchain, control to function as well as the current system. So far humanity has not invented anything better than democratically elected governments to implement such controls.
Blockchain cannot in principle replace governments because governing comes down to use of violence. Unless, of course, you are advocating going back to times when barons fought each other with private armies.
> The system we have today requires surveillance and control of governments to function. The parallel system or systems on the internet would also require some form of external, i.e. off blockchain, control to function as well as the current system.
Two issues here:
1. The assumption that such, let's call it "government style" control (or at leaast a significant part of it) is necessary for such a system to function as well as the current one (a whole other question is what "as well as" means here). That seems possibly reasonable, but is certainly an assumption worth testing.
2. The assumption that you need a government to exert this "government style" control. Maybe humanity hasn't invented anything better and never will. But also maybe such things can exist, especially within a limited field like finance, and even if they can't, I'd take the Democratically Elected Government of Cyberspace[1], should such a thing be needed/emerge, over the squabbling and overreach of nation state governments into the internet.
There are already plenty of projects experimenting with "on-chain governance" and there are a myriad areas of research into governance of decentralised systems. It is perfectly possible that a system of financial (or other) projects/protocols might emerge that all subscribe to a protocol for such governance, which could even go as far as enforcing collateral ratios, risk reporting, whatever, but would still be fundamnetally controlled by its users in a way outside of government control. Or perhaps individual protocol level governance will be enough. Either way it seems completely unlikely that the present system is the best we can do.
In this case, there would still of course continue to be the wild west of systems outside that regime, in competing regimes, or even working within the legacy financial system, but that freedom to innovate is a feature not a bug.
> Blockchain cannot in principle replace governments because governing comes down to use of violence. Unless, of course, you are advocating going back to times when barons fought each other with private armies.
This is why I qualified the goal with "on the internet". If you have privacy, pseudonymous participation, Tor (or Tor-like networks/blockchains, like Nym) , etc. and smart contract platforms that can issue, move, and lock up/control funds using composable code, run entirely on chain, then of course you can build protocols and systems that govern them that sit outside government control as long as they manifest themselves only virtually.
It is only at the edges, where you interact with and move to and from virtual (the internet) and physical society that you become subject to state violence. Blockchains and related technology might help organise the push for some kind of change to how governments work (as the internet itself has), but whatever happens, you can probably do what you like when it's purely online, and you will probably still need a good answer to questions like "where did you get that money?". I think that's OK.
Let me repeat: any kind of government comes down to monopoly on use of violence. It does not matter if it's Henry VIII or Kim Jong Un or Democratically Elected Government of Cyberspace or Pablo Escobar. The core of any government is a monopoly on violence. If your Democratically Elected Government of Cyberspace cannot or will not use violence to enforce its rules then it's not a government.
Second: you can't eat blockchain, you can't fill your gas tank with blockchain, blockchain won't protect you from cold rain. You have to convert your cybercoin to real-world goods at some point. That means a contract "BTC 1000 for 1 loaf of bread". This contract has to be enforced off blockchain because 1 loaf of bread is not on blockchain (no, NFT is not a loaf of bread, you can't eat NFT). And you guessed it right: this contract has to be enforced with a threat of violence. That means off-blockchain government.
> There are already plenty of projects experimenting with "on-chain governance"
I bet you a $1 none of them will go anywhere. Like all those experimental applications of blockchain that IBM, Maersk, and many others played with. Hard no useful outcome, complete failure each and every time for fundamental reasons. Like a complete failure each and every time anyone tries to build a perpetuum mobile.
There is one ONE (hard 1, like in math) use case for blockchain: circumvention of regulations. Once regulations are implemented on blockchain, it would lose its one and only use case.
> Let me repeat: any kind of government comes down to monopoly on use of violence. It does not matter if it's Henry VIII or Kim Jong Un or Democratically Elected Government of Cyberspace or Pablo Escobar. The core of any government is a monopoly on violence. If your Democratically Elected Government of Cyberspace cannot or will not use violence to enforce its rules then it's not a government.
There are things the government cannot know, and therefore things the government cannot control. Yes, they are ready to use violence to enforce their rules, no that doesn't help them read my encrypted data/messages/transactionds if I don't give them the key.
It doesn't matter if the governance on the blockchain can't use violence if it also controls how some system you wish to use works, as long as that control is sufficient to build a useful version of the system (which, again, from the above, can work on the internet without the support of a violent governmnet).
> Second: you can't eat blockchain, you can't fill your gas tank with blockchain, blockchain won't protect you from cold rain. You have to convert your cybercoin to real-world goods at some point. That means a contract "BTC 1000 for 1 loaf of bread". This contract has to be enforced off blockchain because 1 loaf of bread is not on blockchain (no, NFT is not a loaf of bread, you can't eat NFT). And you guessed it right: this contract has to be enforced with a threat of violence. That means off-blockchain government.
Once again: on the internet. I am not saying you can live a completely parallel physical life, and again, if the government of wherever you live ask where you got the money, you're going to need a good answer (and perhaps proof that breaks your anonymity). That's completely outside my point.
Firstly, you can choose to abide by the relevant local laws while also operating in a system that allows you the freedom to break the law. You do this when you drive a car within the speed limit or use end-to-end encrypted messaging legally. This alone is enough to justify building such systems. It is unacceptable to have compliance enforced on us as the current financial system does (and it's honestly crazy to me how many people who would not let governments agents regularly search through their stuff are fine with it when it comes to data or financial transactions), even if we intend to abide by all the rules under the threat of government violence.
Secondly, you may think a parallel online society/financial system is not useful if you can't turn its money into your government's favourite fiat currency, but I strongly disagree. There are many interesting and important uses, for such a system. These include organising activists, civil disobendience and protest, resistance of corrupt or authoritarian regimes, etc. as well as emerging online communities and "places" like the metaverse. (No, I can't think of any reason to NFT a loaf of bread either.)
> I bet you a $1 none of them will go anywhere. Like all those experimental applications of blockchain that IBM, Maersk, and many others played with. Hard no useful outcome, complete failure each and every time for fundamental reasons. Like a complete failure each and every time anyone tries to build a perpetuum mobile.
We'll see. I'd take that bet — I certainly expect some forms of governance (not necessarily government) to make sense on blockchains and work out to be pretty useful, though I'll reserve judgement on exactly what that will look like for now.
> There is one ONE (hard 1, like in math) use case for blockchain: circumvention of regulations. Once regulations are implemented on blockchain, it would lose its one and only use case.
Not that I agree with this statement, but if the alternative is round the clock surveillance and authoritarian enforcement of regulations then it's incredibly important that this use case succeeds and is available to everyone!
> Yes, they are ready to use violence to enforce their rules, no that doesn't help them read my encrypted data/messages/transactionds if I don't give them the key.
You are mistaken. There is a technique called "rubber-hose cryptanalysis" which works wonderfully in cases like the one you described. Once applied, you will gladly give up your key and anything else they ask for. That's what violence means.
If you do not control real world then you do not control anything. There is no way around violence. At least for as long as humans have physical bodies and live off blockchain.
> unacceptable to have compliance enforced on us as the current financial system does
You are arguing that because the current system is excessively regulated, then a system with no means to enforce the rules will work better. The problem with that is that blockchain is a lot more expensive to operate per transaction that the conventional systems. Because of that it can only be used when the conventional system cannot be, specifically for circumventing the regulations, i.e. breaking the law.
> but I strongly disagree.
You say you disagree, but you actually agree. All the cases you listed are cases of "circumvention of regulations".
> We'll see.
It's been long enough to see. Believing otherwise is like believing that this contraption with a few more tweaks will produce perpetual motion.
> some forms of governance
It's either able to enforce the rules with real-world violence, or it is irrelevant. It's really that binary 0 or 1. Nothing in between.
> Not that I agree with this statement
It's basic math as in 2 greater than 1. It does not matter if you disagree with it.
> but if the alternative is round the clock surveillance and authoritarian enforcement of regulations
That's not the point. Blockchain is a tool that helps you circumvent regulations (good or bad authoritarian or not, does not matter). It's a tool which has only one use: to facilitate circumvention of regulations. The point is if blockchain is regulated then it's no longer a useful tool for breaking the law and consequently irrelevant.
> You are mistaken. There is a technique called "rubber-hose cryptanalysis" which works wonderfully in cases like the one you described. Once applied, you will gladly give up your key and anything else they ask for. That's what violence means.
You aren't really engaging seriously. There is a difference between expensive targeted violence to coerce specific information from individual citizens, and dragnet surveillance and the power to freeze or seize money from anyone's account at will.
> You are arguing that because the current system is excessively regulated, then a system with no means to enforce the rules will work better. The problem with that is that blockchain is a lot more expensive to operate per transaction that the conventional systems. Because of that it can only be used when the conventional system cannot be, specifically for circumventing the regulations, i.e. breaking the law.
As one small example, to give a case where I actually know the numbers. I've done cost per trade analysis for major investment banks (while working at them, with full access to their internal data) and it's certainly not the case that blockchains always cost more per transaction, even with the current irterations of the technology. Not even close.
> You say you disagree, but you actually agree. All the cases you listed are cases of "circumvention of regulations".
Avoiding surveillance is not circumvention of regulations unless submitting to that surveillance is legally required. Certainly where I live, it is not. We can use cash, we can spend crypto, and if the government want to know what we did, they have to ask us (or coerce it out of us) with proper legal basis. There is no regulation requiring submission to constant financial surveillance that I'm aware of, but using the current financial system (ex. cash - so all electronic money and sll financial products) involves submitting to it anyway.
> It's been long enough to see. Believing otherwise is like believing that this contraption with a few more tweaks will produce perpetual motion.
Says who? I don't remember learning about a time limit to turn new technological develpoments into practical or useful inventions or companies. What about new aglorithms and research that have come about since the first networks were built, do they get to reset the timer and have a chance at it too or do they have to stop building because bitcoin didn't meet your targets by the cut off?
Really, there are many reasons massive technological change can, and usually does take a long time. Many layers of abstraction need to be built. Take the internet - we had networking, then TCP/IP, then many protocols some of which were "big" for years and are now dead, then HTTP, then TLS, and JavaScript and "Web 2.0", and cloud hosting, etc. etc. This literally took decades and is still going on! All the while the software was maturing, integrations were built, and adoption took off - first very unevenly and then everywhere.
I wouldn't be surprised at another 10-20 years to see really pervasive use of blockchain technology, but I see leaps toward that future all the time.
> It's basic math as in 2 greater than 1. It does not matter if you disagree with it.
Really no idea what you are on about here. Use cases are not mathematical. The technical use case for byzantine fault tolerance is to reach consensus on a set of facts (or operations or data or whatever) within a group of actors that you individually distrust, without needing to appeal to authority. If you are telling me you can (mathematically?) prove that the only possible use for that is to circumvent regulation, I'd love to see the proof, but without it I think it very much does matter that I see no reason to believe it.
> The point is if blockchain is regulated then it's no longer a useful tool for breaking the law and consequently irrelevant.
If "blockchain is regulated" goes as well as "speed limits on motorways are regulated" and "copying of digital media" is regulated, not to mention the war on drugs, then I think the application of regulation to it is likely to be of little practical concern to those who do want to use it to break laws.
Do you really want to switch discussion to personalities?
> and dragnet surveillance and the power to freeze or seize money from anyone's account at will
You still miss the point. Crypto is money only if it can be used to buy real world goods. If I control the real world then you can have all the crypto you want and still not be able to buy a loaf of bread.
> I actually know the numbers
Actually no. You are comparing apples to oranges. A transaction in a centralized database is always cheaper than in a distributed one. No exceptions.
> Says who?
I do. All your arguments still miss the fundamental issue with the distributed ledger: it's more expensive to operate than a centralized ledger. It's really that simple. 2 > 1. No amount of research and algorithms will change the fact that 2 is greater than 1.
The only reason you would pay more if you cannot get it for less. In case of a distributed ledger you would use it only when the centralized one is not available. The only known case when the centralized is not available is when it's unlawful.
> This literally took decades
No. All the techologies you listed were immediately useful. Blockchain has been around for more than 10 years. It's still not used for anything but circumvention of regulations.
Cash is great when the people you want to deal with are all in the same room, or at least can easily arrange to be (though governments are quite good at stopping them getting together when it suits them).
You're also subject to control as soon as you try to interact with financial products or "the financial system", even with cash. Try opening a bank account or buying equities without giving a real name and address.
I would like a type of cash that works wherever the other parties happen to be. I'd also like to see that privacy and freedom to transact extend across the full system.
No, crypto is a giant experiment with making the regulatory response to all those lessons infeasible. Something like Monero is the tipping point - once there is plausible deniability over all aspects of the transaction I really don't see how a regulatory system could be implemented. Did I buy? Did I sell? Did I trade? Do I own any? These are questions that any chump can now cheaply avoid answering in ways that are extremely expensive to resolve for a government bureaucrat.
Whether you agree with the regulatory state then colours whether this is probably the dawn or end of civilisation.
> I really don't see how a regulatory system could be implemented
I think that may be more a failure of imagination than a likely failure of the regulatory environment.
For example, cash transactions are largely anonymous. Financial regulation seems to cope ok by focusing on the points it interacts with the rest of the financial system and controlling it in the large. I can easily imagine it doing the same with the likes of Monero if it so desired.
I could send you $10k worth of Monero today. Literally you. I won't but I could. You'd have it by this afternoon. It'd basically be you posting a public key. Safe, secure, we'd still both have plausible deniability that anything had even happened. There'd be a comment on HN, for whatever that was worth in court.
I have a hard time seeing, logistically, how I would get $10k worth of cash to you. I'd need to organise planes, couriers, figure out your address (there'd be a paper trail from that too). Assuming I was willing to cover the transport costs there'd still be quite a lot of risk at the endpoints of someone walking off with the money, and a massive paper trail/fingerprint across a couple of third parties. Probably issues at customs and it'd be a slow process.
Technically you can argue that this is the same thing, but I don't think it is. The practical differences are big.
> I think that may be more a failure of imagination than a likely failure of the regulatory environment.
Maybe. I'm quietly confident. Go in to detail here. Say, hypothetically, I just bought a house from my mate Morris for $350k and you think I also gave him an off the books $100k in Monero to avoid paying taxes. You're the regulator, what happens next? How do you police this? How do the costs of policing this compare to traditional measures?
I wouldn't think that was feasible with cash, it'd be too obvious I was gathering $100k, the risks of something happening to that cash would be too high & there'd be $100k in cash sitting around for police to find in a raid. But good luck proving that I have a secret 2nd crypto wallet. If I do, which I might not.
Exactly, if there were n+1 transactions where n where in the blockchainland and 1 was for the real world, that’s the only thing governed and regulated.
> I just assume this is a natural tendency for human beings at this point.
You have 10 well behaved dog pups running around and a single bloody mouth foaming pit bull on a leash. You decide that leashes are evil and cut the pit bull loose. The pit bull kills half the pubs before you have him back on the leash.
You come to the conclusion that it is natural for all dogs to go on bloody killing sprees.
> traditional financial system of fractional reserve
Please stop thinking of what the current system is as "fractional reserve"—re-lending of savings—as it is not accurate. Tobin called it the "Old View" in 1963:
> My bank can loan out 10x its reserves. It only can find enough good risks to loan out 0.5x.
Your bank can loan out as much as it wants as long as it's happy with the risk, regardless of its current holding. This is because the loans come first, and any reserve requirements are then taken care of after the fact. So if there's a good loan opportunity it is issued, and then the bank goes looking for available reserves.
And this assumes reserve requirements even exist, which they have not in several countries for decades:
Reserve requirement are irrelevant to loan creation. Per the Fed itself:
> Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected.
The idea of MMT is that money creation is mainly caused by commercial banks willing to lend (due to market considerations), not by central banks issuing reserves.
Even some central banks openly take this point of view, these days:
Good point – the ideas of MMT go further than that (and become more controversial as they do), but there is quite some overlap.
I also don't think that there is consensus across central banks about how money creation actually works, which is pretty fascinating, considering that they all do more or less the same thing (at least the ones that aren't pegging their currency to another one), but apparently under completely different models...
There probably isn't a broad consensus among central banks on the whole ecosystem of money creation (nor among the economists in any particular central bank), but the things mentioned in that BoE article are really just trivial economic facts everyone agrees on. Banks create money by lending, has been that way since the ancients.
It's not a natural tendency for human beings, it's a literal requirement for a system that cannot operate with some form of trust.
When that trust is violated, there needs to be a meaningful way to resolve disputes. Legal tender (as in government issued) has literally thousands of years of experience with this problem, and it's no mistake that the entity with a monopoly on violence (government) is expected to resolve this kind of dispute - because resolving it may very well require violence.
The problem of course is that you're at the mercy of the arbiter resolving the disputes, but moving to crypto doesn't remove the need for an arbiter, it just removed absolutely all the legal safeguards and requirements for that arbiter. Turns out most of the "Source of trust" in crypto are scammers.
It turns out fiat is useful, and there'll always be a fiat layer on top no matter what theoretical underpinning it has, be that gold, collateralised debt, bitcoin or unobtainium.
Yeah once you had millionaires buying superbowl ads selling crypto pump-n-dump schemes, it was pretty clear the hype was at its peak. I'm also curious to see what lies on the other side of the crash.
My guess is another hype cycle. Crypto tech has no value beyond finding a bigger sucker to hold the bag.
Called it in 2013. It was inevitable. There are reasons those mechanisms are there, from greed to impatience to convenience (to protection, if we get into regulation).
And it was super obvious that if only a few rare truly exceptional dreamy philosophers, among the horde that pushed beautiful magic internet money back then had any knowledge of this at all,
Leverage, tranching and other derivatives are how you dial up risk for a potentially higher reward. Neither have anything intrinsically to do with whether you're using fiat currency or cryptocurrency.
It was always naive to think that finance wouldnt just absord crypto as yet another asset class.
a friend found this thread last night, which is basically a continuation of the analysis you put on your blog a few months ago about tether's crypto assets having made them insolvent, but looking at the way their foreign exchange problem has also made them insolvent: https://twitter.com/Cryptadamist/status/1536119735053697024
you might have seen it already, seeing as you're tagged, but thought it was worth mentioning
In the absence of an explicit regulatory framework, legality can probably only be determined after negative outcomes, unfortunately.
It also seems like without catastrophic retail investment losses, politically there isn‘t much to gain with implementing such a regulation, and potentially much to lose. Reacting too late to prevent harm seems to be the logical outcome.
Not true. Fiat currencies are backed by the consumer of last resort: governments. Everyone has to pay taxes using the official currency of the country. For instance, US$ is backed by approximately 25% of the GDP which the government collects every year in taxes.
well, if people decided to trust them even without the audit, then what's to say that it should be illegal? Investments have always been caveat emptor.
Investments were this way in the 1800s and early 1900s.
A lot of protections have been put into place since then. There's a reason we prosecute Ponzi schemes, offer FDIC and SIPC insurance, stress test banks, etc.
I agree with you that Tether is very risky, but I think your revaluation of the "digital coins" class. In its attestations, Tether claims to value digital coins as "cost less impairment," so effectively at the minimum value the coin has reached since its purchase.
With that methodology, it is erroneous to apply "down 60% from market highs" to estimate the current value.
That said, we can speculate endlessly about Tether's ultimate solvency because we don't have a detailed enough balance sheet. I think it's clear, however, that despite acting like a bank Tether's capital could not possibly meet Basel 2-like risk weighting standards. Even with completely above-board operation, Tether would be reasonably likely to collapse if we experienced a repeat of the 2008 financial crisis.
You're absolutely right regarding from market highs.
To do this correct you'd need purchases and sales versus assets.
All that said, it's why I put a rough estimate of 30% (instead of 60%) and hadn't included any losses in broader commercial paper (which has dropped). So the overall estimate is defensible.
Also agree on Basel 2-like risk. The primary issue with Tether is the marketing around stability and the transparency. If it was treated like any other "money market" with better NAV reporting, position reporting and rules around withdrawals then we'd mitigate some of the risks.
That's not necessarily true based on your link. Given Tether is invested in interest bearing instruments, the pool of capital should be move than the total outstanding Tether value. So even losing some by MTM at lower prices, they have a safety buffer...
This isn't a normal asset, the value of which can fluctuate over time without harm, once tether dips below $0.999 on the open market it becomes profitable to buy on the open market and redeem them directly from Tether. Given that Tether's reserves clearly do not match the totality of all Tethers issued, that means that right now it is profitable to force Tether to burn through their currency reserves, bringing it closer to collapse.
Possibly a more accurate title would be Right now it is profitable to help put Tether out of business.
"Tether Limited as of 2017 stated that owners of tethers have no contractual right, other legal claims, or guarantee that tethers will or can be redeemed or exchanged for dollars" https://en.wikipedia.org/wiki/Tether_(cryptocurrency)
Their transparency page also states they have 1:1 asset backings which is a lie so oh well.
This page is irrelevant. They are not obligated to redeem your tokens. They're not liabilities. They may pretend they are, but they're not, and if the money stops flowing, they can leave with all the remaining money in the bank laughing at their idiot customers.
I’m not saying that page is accurate, just that it reflects their treatment of outstanding tether as a liability, so buying it back for below par is profit in their books.
I think we agree on all the rest; I also believe that it’s a scam.
> reflects their treatment of outstanding tether as a liability,
It reflects their desire to have is seem that way. Given Tether's well established history of lieing to try to seem more stable, this provides zero evidence for their real attitude.
That's the real question that all the bros and shills try to hide. It isn't about when Tether's price can't be kept stable, but about when Tether decides they can't make more money off the market so takes their marbles and goes home.
It is possible that Tether wouod decide to keep holding the peg, all the way until they run out of reserve assets, but it seems highly likely that there is a tipping point well before that where Tether decides to keep their remaining assets and let the peg die.
If a stablecoin allows redemptions, and it isn't completely backed, everyone trying to redeem at once can lead to a bank run and spiral as no one wants to be the last holder. The hope, of course, is that it is completely backed. It's also quite hard / expensive to redeem Tether, I've heard.
For arb, I think the trade here is: can I buy USDT and redeem fast enough that I make a low-risk spread, or am I further exposing my funds to risk over that redemption period? Versus selling USDT for USDC, for example, which I can do immediately if I trust USDC. I imagine the latter is what's happening on-chain.
EDIT: Clarified my lazy language around low-risk arb versus peg speculation.
> I think you've got it backwards. The arb would be people buying it at $0.97 and hoping it repegs to $1, not redeeming
That's not an arb, that's just buying low and selling high at a later date. The arb is buying something for $0.97 but then getting $1 back, minus fees. The more people doing that the closer the peg stays to $1 through supply/demand. That's the whole basis of how a peg is maintained, arbitrage players provide huge amounts of liquidity and make small margins for doing so.
The arbitrageurs buy USDT at a discount and redeem it, pocketing the difference. This creates a buying pressure, that tends to bring the price back up to $1. Buying USDT and hoping that it repegs is not arbitrage.
If tether fails to redeem USDT arbitrage will stop and nothing will prevent USDT from falling more.
USDT is shady. USDT is not depegging. USDT FUD is a classic bear market move. Whales make a killing swapping USD for USDT and pocketing 5% for zero risk.
It feels like we'll just keep repeating the same story of tether depegging, without anyone actually looking at the redeem process and what would it truly mean for USDT to depeg.
What you're seeing is USDT-USD slip on an exchange that provides that trading pair. As it is with any other traded asset, if all of a sudden you get this huge demand for USD trading, to the point that the liquidity dries up, of course this will push the price up. Take that graph and zoom out, perhaps looking at 5 year scale. This slip actually happens once or twice a year, depending on the FUD that's on the market. Market is in extreme fear with cataclysmic level events occurring (Celsius and Terra events are close to what happened to banking in 2008 or worse) weekly. Obviously every news will cause increased sell pressure on USDT and eventually arbitration between entities will not occur fast enough.
Now let's look at what happened during the last "depegging". Price dropped to .90 cents per dollar and after a while it returned to 1 USD. Look at the circulating supply of tether - in the aftermath of Terra people actually cut 20% of all supply of USDT and converted it into alternative stable coins BUSD (by Paxos/Binance) and USDC (by Coinbase/Circle) being the primary benificiaries of the flows.
Now let's look at the "depegging" claims. Tether would need to not honor the promise of USD payout when you send them USDT. BitFinex is the exchange thats behind tether and you can redeem tether for USD. During the height of the last "depegging", you could always send your USDT there and get USD back at ~1:1 ratio (https://trading.bitfinex.com/t/UST:USD?type=exchange).
While we can talk about the USDT reserves and we can talk about shady/enron level practices and the court trials, we can also say that after 5 years of they have yet to break USDT. They've cut 20% of their circulation without breaking a sweat. USDT will not crash until there is a bigger functioning alternative. All the key players will ensure that; it's game over for crypto otherwise.
Larger drops have had clear news about Tether to blame for the drop. From what I can tell, this one is more natural and caused by turmoil in crypto markets themselves. That's what makes this interesting to me.
This is an extremely disingenuous argument on so many levels.
1) Banks don't run their own currencies.
2) Banks don't claim to have a dollar on hand for every dollar in account balances at all times.
3) Banks are FDIC insured. Even if the bank collapses, you will get your money back.
Crypto bros, it's time to stop defending Tether. It will collapse and you will look just as foolish as the people who backed Luna and Safemoon and all the other scams.
If the value of assets of a bank drops under certain limits [1], regulators can and will take action. To be clear, every single bank that is currently alive (and regulated by relevant western authorities) has assets way more than what the deposits are worth. They may not be liquid assets, but they are there.
[1] you may want to search for terms like "regulatory capital" or "capital adequacy"
And banks segregate assets. If the bank entity goes under the customer deposits shouldn’t be at risk and vice versa. Tether, on the other hand, is a whole big mess of co-mingled corporate and customer cash.
That's inaccurate. The entire idea of a bank is to connect supply of and demand for money across heterogenous creditors and debtors, which includes retail depositors and commercial lenders. There isn't a "secure savings account department" and a "risky commercial loans department"; it's all on the same balance sheet.
What does protect retail depositors (to a certain limit) are schemes like FDIC. Any retail deposits not covered by that, and any commercial deposits, will receive a haircut when the bank goes under. In the EU and UK, this has happened at least twice in the last few years.
When I say “segregate assets” I mean the bank’s assets from the customers’ assets. Tether comingles Tether Corp assets with Tether customer assets. That’s a big no-no. If tether goes under its much more difficult to discern which dollar is a Tether dollar vs a customer’s dollar.
Edit: Re-reading your comment I understand the confusion. I’m assuming Tether, if it were a bank, would function and be regulated like the Trust Department of a bank.
There really is no such separation between "the bank's assets" and "the customers' assets".
A bank has liabilities (customer deposits, financial contacts with other banks etc) and assets (loans, cash in a vault, their central bank balance, real estate of their office locations, office furniture etc). These are absolutely all on the same balance sheet, and the difference between the two is the bank's equity. Take a look at the Fed's balance sheet, for example: It explicitly lists the land that its branches are located on, and owned by it, as an asset [1].
What's regulated is, among other things, the required equity in relation to total assets/liabilities (capital adequacy requirements) and a high enough ratio of liquid reserves to total liabilities to handle various stress scenarios (liquidity requirements).
Importantly, and this cannot be stressed enough in this context, Tether is not a regulated bank.
No, fiduciary assets are segregated. See, 12 USC 92a(c) and corresponding implementing regulation 12 CFR §9.13(b).
The Fed is not a good example of how banks typically operate or how banking regulations are typically implemented because the Fed is not a typical bank.
Regular bank deposits are not fiduciary assets though, no? If they were, what would be the point of FDIC?
Securities are a different story – in that case, a bank or brokerage really only acts as a custodian for the accountholder, not adding them to their balance sheet.
Past data pretty much never predict sudden big jumps in value of financial products. Those are fat tailed and one may need literally trillions of data points to infer their probability distribution.
Apparently there are transaction fees that can allow it to stay there instead of $1, also the fact that tether doesn't give you the right to redeem for $1, but i still see it as a ticking bomb.
I don't know where coinmarketcap get their quotes, but looking at bitfinex and other major exchanges, USDT stays firmly above 1 USD at all times, except a few minutes today when it dipped to 0.9996.
When it comes to valuation human psychology will beat mathematical verification every time. Anyone who has paid attention to the human history of money and finance should know this.
Is this a big deviation from the peg? No. But is it the first such deviation? No. Did it recover previously? Yes.
But the only thing that matters is how deep the reserves are to maintain the peg. That's it. Can that survive the turning tide of confidence in it when it eventually happens? We'll see. But my money is that psychology will win the day.
If your financial position depends on the stability of this or any algorithmic stablecoin (or probably any stablecoin) I would strongly advise you to correct that. Depending on a peg is, as Warren Buffett once put it, like picking up pennies in front of a bulldozer. Low reward and low reward but the downside is very, very large.
I'm surprised depegging isn't a more sudden event.
If I owned some stablecoin and I saw the peg slipping, I would trade everything away from the slipping side, in turn making the slip even worse in a positive feedback loop.
I'd probably write logic to do that for me automatically too...
And if just a few people did that, you'd expect the peg to hit some threshold point and then slip almost instantly to near zero...
Yet. The reason this 0.3% drop is news is that, as we last saw with Luna/TerraUSD, depegging is very fast when it happens, and a lot of people have been forecasting a Tether depeg and consequent crypto carnage for a long time.
However, TerraUSD was algorithmic, making it extra fast to collapse, while Tether's backing is much more obscure and its owners have more levers to pull to try to pop it up.
> And if just a few people did that, you'd expect the peg to hit some threshold point and then slip almost instantly to near zero...
Which isn't what has happened here.
I imagine offering 30% interest on deposits[0] helped?
I am not sure I would consider a 0.09% decrease a "depeg", specially considering that Tether oscillates quite a bit, and even "recovered" from a bigger decrease of 2%. I would wait a bit to see if it's just an oscillation or a true depeg.
Overall things are shaky this morning. VIX up, euro markets getting pummeled, NASDAQ, S&P and DOW futures plummeting and crypto across the board down by as much as 18% in past 24 hours. Setting up for a rough day.
With what looks like a global stock market crash in the works this morning, it’s going to be tough to maintain that peg with a run on crypto withdrawals. Bit of a perfect storm unfortunately.
Look at CoinMarketCap for aggregate volumes. Seems it’s dropped 0.07% in the last 24 hrs. Not great for a stable coin but hardly a Terra /
Luna collapse.
All of crypto is collapsing, because people have finally caught on that they're all scams and schemes. There's nothing of any value there and never was. When that happens, it's impossible to get the "to the moon" (bigger fool scams) BS rolling.
Thank goodness. Every time I hear about another one falling apart, it's a joy.
I have sympathy for people who got involved, just like those who got involved in an MLM. But there is a limit to that.
Right now, when you can buy a tether at $0.997 and (in theory) sell it back to tether at $1, there's not much scope for profits after costs. So there's not going to be a lot of money pushing the price back up. IOW it's kind of 'expected' that a stablecoin might drift tiny amounts away from its theoretical peg. It's just not worth it. (n.b. even Tether themselves charge a 0.1% fee to redeem their coins)
If/when tether drops below (say) $0.99, and there's no influx of money trying to support it, that's when USDT is in trouble.