Author here; I agree this is a valid objection and that one should be very cautious when extrapolating cause-effect relationships. Systems like these also often have multiple embedded feedback loops in them, which can make it impossible to identify a single cause once the flywheel gets going.

It's when you combine the USDT/BTC correlation with the available evidence for Tether's unbacked issuance that the problem becomes clearer, in my view. When issuance is unbacked, it can be decoupled from real demand — and that's a degree of freedom that allows Tethers to be injected arbitrarily into the system. Coinbase's stablecoin is backed by audited reserves, so USDC is constrained by demand — making it more plausible that USDT is the causal factor rather than USDC.

  one should be very cautious when extrapolating cause-effect relationships

Interesting statement after publishing this article with that title.

Which is why they backed their claim with lots of data.

Check the volume for USDC/USDT. It has been increasing the last couple of weeks.

So one could argue that people are trading largely unbacked USDT for backed and audited USDC. Which increases the demand for USDC and the USDC minting.

No, it doesn’t. In fact it’s exactly what you’d expect if Tether is fraudulent. Stablecoins are a great way to transact in dollars that you otherwise wouldn’t be able to, for instance the proceeds of illegal activity. The author notes the exact mechanism: print USDT, buy BTC on sham exchanges, send BTC to Coinbase, sell for USDC.

You would expect them to increase in lock step if this is happening. If it were legitimate flows, you would actually expect USDC to far outpace USDT given the much greater ease of conversion and trust in the sponsors.

> print USDT, buy BTC on sham exchanges, send BTC to Coinbase, sell for USDC.

The steps you described don't result in new USDC being minted. That happens only when people send dollars to Coinbase and change them to USDC.

> If it were legitimate flows, you would actually expect USDC to far outpace USDT given the much greater ease of conversion and trust in the sponsors.

No, USDT has been around for a lot longer and lots of very liquid trading pairs are based on it. So if you need to buy lots of crypto currency you might need tethers so you can buy on an exchange with a liquid trading pair (BTC/USDT on Binance being the most liquid trading pair).

I think it does. People send USD to Coinbase to buy Bitcoin. Coinbase maintains the stable value of USDC by creating new USDC and selling it to people for BTC. The cash to back USDC comes from people depositing USD to buy BTC.

You can think of it virtually as three balanced flows:

USD -> USDC -> BTC (Retail BTC Investors)

BTC -> USDC (Tether refugees)

USDC -> USD (Coinbase)

> Coinbase maintains the stable value of USDC by creating new USDC and selling it to people for BTC.

If tou want USDC you can simply change your dollars on coinbase. No need for them to use their own funds to maintain a stable price - there's no usdc/usd market on coinbase.

I should have added an implicit step: sell for USD, convert to USDC. It’s a lot easier to launder and move illicit USDC funds than it is USD.

Coinbase unlikely to do an exit scam?

You mean IPO? https://finance.yahoo.com/news/coinbase-ipo-will-be-controve...