Almost all fiat deposits into Bitfinex create USDT.

Thats an additional fact that the amount is in line with the amounts that would be deposited into any big exchange.

If Coinbase minted USDC whenever someone deposited, you would see the same kind of growth.

The basis of your entire post is assuming impropriety based on pretty normal behavior with the addition of the business quirk of when USDT is created.

The ability for impropriety is a good enough reason to avoid it, and their unilateral willingness to do so without any discussion can reinforce that. But people thought everything you thought since the beginning of Tether in like 2014 or so, but the reality is that it “only went fractional reserve” in 2018. Its kind of like they threw up their hands and said “well people think its a ponzi anyway might as well cover this business debt!” The irony being that the NY AG investigation actually proved that prior to 2018 it functioned exactly as promised, barring their 2017 distress by having nowhere to put their fiat deposits.

But if you assume that it hasnt come crashing down because Bitfinex does what they said, then it still does make sense: crypto prices pump after Tether mints because it is people depositing into the exchange and then buying crypto.

Any way glad USDC and DAI are growing a lot now, which have grown by the same orders of magnitude.

Is 'pretty normal business behavior' pretending two entities (bitfinex and Tether) are arms lengths entities with no relationship to each other to hide the conflict of interest, along with the provably lying about the actual backing of the coin, and using what were supposed to be customer trust funds to bail out what was supposed to be an explicitly stated unrelated business?

If so - be aware those are felonies in many industries and are probably criminal in most jurisdictions (fraud at a minimum). For very good reasons.

Surprisingly, yes. That is fairly normal in financial institutions. It seems nonsensical at a first glance, but:

https://www.investopedia.com/articles/analyst/090501.asp

What you are pointing to is expressly pointing out that 1) it is illegal, 2) it is illegal for a very good reason, 3) if anyone finds out the illegal things going on, it will likely result in catastrophic (or at least very, very expensive) consequences.

The pretending part that Tether and Bitfinex were doing was fundamentally different than the walling happening within financial institutions, where it has to be disjoint staff, disjoint control/leadership, and if someone sneaks through compliance and shares data (wink wink) it is highly likely someone will get fired if compliance finds out.

In the Tether/Bitfinex issue, they shared board members and ownership despite claiming they didn't in public, and were misrepresenting themselves in a very material way as independent.

If you were just adding some information, apologies. If you were advocating that clear evidence someone is brazenly committing a crime is not a justifiable and strong reason to distrust them, or even that it is inappropriate to hypothesize how they could be getting rich while continue to do similar things - then yikes?

If you were saying Situation Normal, All Fucked Up - then extra yikes?

Goldman Sachs (or some random VC firm) say might have some subtle versions of this going on, but if they were doing what Tether is and has been doing right now, they wouldn't be a solvent entity for very long. That Tether is hiding from jurisdictions (for now) in a way that Goldman can't doesn't inspire confidence in their trustworthiness or stability going forward, as they're clearly on the radar now and blood is in the water. Along with a lot of money and some high profile political promotions, potentially.

USDT, USDC and DAI each have their own set of counterparty risks. USDT is regulated somewhere sunny, USDC somewhere that could be hostile if given enough power, and DAI is backed by digital assets such as custodied Ethereum. The sooner there are more solid options in more jurisdictions, and more certainty around USD stablecoin regulation, the better. I will be very glad to see Tethers go away.

I can’t find where Tether is ACTUALLY regulated, but I can find a lot of misinformation about where it is regulated and how, even in their own legal pages. For instance, they claim they are regulated by FinCEN. However, they appear to only be registered with FinCEN for the purpose of reporting crimes and the like (money laundering), which does not (quite explicitly) give them the right to claim FinCEN in any way is regulated or overseeing them in the traditional sense.

If someone runs across Tether (somehow?) explicitly committing money laundering in a jurisdiction that FinCEN controls, yeah they could go after them - but since they don’t have an address near as I can tell, that’s not easy to do, and all they say on the matter is they are ‘incorporated in Hong Kong’ [https://tether.to/contact-us/]

Also, their ‘proof of funds’ is kinda ridiculous from any sort of auditing or compliance perspective and crazy out of date [https://tether.to/wp-content/uploads/2018/06/FSS1JUN18-Accou...]

If you have any more accurate information, please post!

Given the amount of money we’re taking about, the number of investors affected and the extent of the fraud around these entities, I’m surprised we have not yet seen a securities class action suit raised against them... I suppose it’s all good while the ROI goes up. After the seemingly inevitable crash, I suspect a SCA would be on the cards

I think there are 4+ active class action lawsuits, or were before they were combined - https://www.google.com/amp/s/www.coindesk.com/plaintiffs-com...

Goldman absolutely does play games like this on the market making side, but the difference is that the chairmanships of Goldman and the Federal Reserve tend to be a revolving door. They’re a special kind of royalty.

Your linked article keeps calling "The Chinese Wall" an "offensive and racist term." I don't understand that. I always assumed that the term refered to the Great Wall of China, i.e. a large, famous and fortified wall designed to keep groups on opposite sides separated, hence its metaphorical use in business. Is there some other connotation with regards to that term that I'm unaware of?

I am able to perceive things that don’t all reach negative conclusions. That doesn’t mean I like the product or the organization or have any specific opinion on it. That’s how due diligence works.

Yes, this is precisely how investment banks work.

If fiat deposits into Bitfinex create USDT, shouldn't fiat withdrawals from Bitfinex burn USDT?

I'm having trouble to find comprehensive data on USDT burns but https://coinmarketcap.com/headlines/news/tether-just-burned-... seems to suggest that one billion is extraordinary (and those weren't removed from circulation but swapped to another chain), and Tether finds it Twitter-worthy when they burn 100 million: https://twitter.com/Tether_to/status/1225088948243968005

For sure I don't expect Bitfinex fiat withdrawals to match fiat deposits, but 100 million USD withdrawn vs 30 billion deposited seems unordinary?

I agree and have always found this interesting. But it is similar behavior in more transparent stablecoins. Only Gemini’s GUSD has seemed to completely burned to nothing at one point. But USDC and DAI have growth so similar to Tether during bear markets that I cant put the lack of burns squarely on Bitfinex.

Either there is a broader accounting issue with minting and burning methodologies or people/entities really do hold.

During bear markets large market participants are still buying, and a tiny portion of people are providing the price discovery, and this is mirrored in the increasing amounts of crypto that have not moved from addresses in a long time.

Many people hold the stablecoin itself, instead of going back to fiat. So there is growth of all market participants, even during bear markets when other cryptos are falling out of favor.

Thinking out loud, I've paid a lot of graphic designers and marketers in India this year in Tether. They arent familiar with crypto but just notice that their Unocoin app takes it. We’re not doing paypal, and all fiat transfers are domestic with none of fees, time, or scrutiny that an international fiat transfer would have.

The nature of all stablecoins is that if the supply does not match the demand then there are arbitrage opportunities to mint more, which can be initiated by the user. If Tether is worth $1.02 then you can mint a new tether by depositing on Bitfinex and selling that Tether for a 2% premium.

So if all the stablecoins have similar growth patterns, the things going for Tether are simply first mover advantage and greater clout in Asia.

> If Tether is worth $1.02 then you can mint a new tether by depositing on Bitfinex and selling that Tether for a 2% premium.

Sure, but what if Tether is at $0.98 - how do you get dollars back?

If you have a bitfinex account you can redeem the tethers for dollars at a 1:1 rate still and this would burn the tether reducing the supply.

Not all countries like US can get an account there or use fiat so I wouldnt know if the redemption mechanism is currently working or not

Yes it’s a scam and 30 billion dollars deposited in a year is a laughable claim, particularly from a company with a history of lies and fraud. Nobody in the crypto space calls them on it because the fact they get away with it calls into question the entire ecosystem.

> Almost all fiat deposits into Bitfinex create USDT.

As a matter of fact that is NOT true. (speaking as a crypto hedge fund manager, active since 2013, and trading > $1B/month on all major exchanges). It used to be like that in the past (when USD and USDT where one just represented as "USD" on Bitfinex), but this changed a year or two ago. Now, USD wires are being credited as USD and USDT deposits are being credited as USDT. And there is a USDT/USD market on Bitfinex to exchange between the two.

Nice this is how Coinbase functions with USDC too

Likely they all piggyback off of each other’s implementations in the face of evolving regulatory guidance

Why does USDC and USDT need to exist for this? What’s the benefit of not just having USD in your Coinbase/bitfinex acc if they’re meant to be pegged anyway?

Tax arbitrage, iirc. In some jurisdictions like the US, exiting your position into USD is a taxable event for capital gains taxes. I seem to recall stable coins were invented to avoid that. I can't imagine tax authorities allow that loophole though.

> Tax arbitrage, iirc. In some jurisdictions like the US, exiting your position into USD is a taxable event for capital gains taxes. I seem to recall stable coins were invented to avoid that. I can't imagine tax authorities allow that loophole though.

If they did, it looks like it's closed now. At least in the US, converting between two cryptocurrencies is a taxable event:

> There are plenty of questions about whether or not investors can claim a direct crypto conversion (e.g. bitcoin to ethereum) as "like-kind", avoiding taxes on those transactions. The tax laws changed beginning in 2018, and like-kind exchanges are only applicable to real estate transactions.

https://www.coinbase.com/learn/tips-and-tutorials/crypto-and...

I wonder what % of that is getting declared...

In germany, they don't allow that loop hole.

If you made profit and traded against another coin, you pay tax, simple.

If you hold for a year though. You dont pay taxes.

My portfolio is up quit a bit now and its almost a year. Hope it stays almost like that just few more weeks :)

But who knows?

You send USDC/USDT to another exchange, use it to pay for stuff, store it in a hardware wallet, etc. USD can only be transferred back to your bank account.

Because many exchanges are in no way capable of holding a banking relationship with a legitimate bank that transacts in USD.

edit: Perhaps that was overly snarky - the issue is that the US requires legitmate banks to take certain efforts to identify their customers (KYC), and prevent money laundering (AML). Meatspace banks aren't perfect in this regard either, but many crypto exchanges are either unable or unwilling to do this, or are already proven to be engaged in fraud or other financial crimes.

No way interested and running an equivalent business with much less overhead and faster growing customer interest with higher returns, has nothing to do with crime or incompetence or imperfection

Sending USDT is cheaper, faster and easier than sending actual USD.

I don't fully agree with that. - Cheaper: Well most decent banks I have been working with don't charge on USD wires, or they charge something like $20 flat, which happens to be on par or cheaper than the ethereum blockchain fees nowadays - Faster: In my experience (in sending hundreds of wires every month), the actual "sending time" of USD wires via Fed wire or SWIFT is literally minutes, so that's on par with blockchains. Most of the time the funds are just stuck somewhere in the compliance department. The same would hold if you withdraw/deposit USDT/USDC to an exchange. Funds can still get stuck waiting for compliance approval. - Easier: That's debatable. I guess some banking UIs are better than others. And blockchain is not particularly known to be UI/UX friendly either. One definite advantage I could think of is that when you hold USDT/USDC in your wallet, then you have full control over them, but I bet 99% of the USDT/USDC is held on exchange, and exchanges are more and more starting to act like banks (with all the slowness that that entails).

Sure, if you are in the developed world and have access to traditional or online banks, and a relatively stable local currency.

Then there's, like, the other 4+ billion people in the world.

a significant amount of cross-border trade (yes, actual goods transported in meatspace) is conducted in USDT for many years now.

I still am waiting for a source on this, unless the implication is that those meat-space trades are all illegal / ML and therefore not tracked....

What kind of source would you be looking for

Its like cellular service in an underground subway station: people tell you it arrived and use it and nobody thinks about it afterwards. There wont be a source about that whether you believed it or not.

USDT is as frictionless so it just has use.

I mean, all functioning governments track the net value of imports / exports (that's the main job of customs departments).

Most functioning governments also keep a balance of payments (https://www.imf.org/external/np/sta/bop/bop.htm).

If the flow of imports / exports doesn't line up with the net flows of payments, someone would raise a flag.

So yeah, unless it's ML / illegal trades, we could at least figure out a way to track it.

Casinos and CFD buck shops love it. Typically only pay 0.003% vs 0.02-0.08% charged by VISA/MC card processors.

If everything is fine and dandy with them why are they stopping trading in NY? Why is the AG claiming they lied about reserves, the one thing they really-really shouldn't have been? (Insert "you had one job" meme.)

I didn’t write that everything is fine and dandy with them.

The world toolset doesn't function under a “your either with us or against us” mentality, it functions as a gradient.

That gradient is that the NY AG case showed Tether was functioning properly until 2017/2018. If you were around crypto at that point in time, you would know that people would not have believed they had full reserves ever.

Just reread what I wrote. You are deciding to see advocacy for Tether which is not what I wrote at all.

They haven't "functioned properly" because they promised audits, transparency/openness and independence, and none of that happened even back then. They then found out that they can keep up the empty promises and started dipping into the sauce, and now finally one investigation caught up with them.

Your selective omissions imply advocacy - at least this is how it seems to me, and I'm not saying that's bad/good.

Not everything needs a dissertation long disclaimer just so you can decide if you want to listen to me

The accuracy of any statement can be weighed and discussed on its own merits

You make multiple false, assertions in one comment, backtrack those assertions in other comments, and then pretend your position has remained unchanged the whole time.

It comes across as dishonest and makes me, an outsider, wonder how much tether you own.

Thats because they aren't assertions, its called a conversation

It's called lying, first to others and then to yourself.

I am not sure how you interpret the AG report to think it shows they were functioning properly. They haven't shown proof of backing at any point. They have shown they had the money in the account at one point which is nowhere close to showing you have backing. Statement of balance is completely meaningless, especially when it comes from ac transfer done from your sister company like a day before.

All the AG report shows is just more evidence it's one huge scam.

How come you just come here telling that deposits in bitfinex creates USDT

But Paolo himself post that all the usdt minted is 'tron replenish' everytime whale alert tweets about 800,000,000 USDT frwshly minted

So, basically, in your intentions to defend USDT you are even contradicting what its own CEO says...

It's also funny how tesla 1.5b investment and microstrategy few millions buy are to be 'celebrated' as big and huge, yet you are trying to convince us there is people depositing 800m daily into bitfinex?

US equities are choosing to make a big deal out of something benign at fairly small amounts. The corporate debt market is massive with almost all blue chips routinely issuing short term debt that dwarfs anything Microstrategy did, for completely ambiguous purposes and the market does not care as long as its paid back. 100 billion $ worth of US commercial paper was issued just in the last month with no fanfare whatsoever and no disclosure on what the proceeds are for. Microstrategy’s dabbling in the corporate debt markets is only news because the CEO wants it to be.

The volumes from a large crowd that can also include institutional can very easily be large.

A recent example is the Saudi Aramco IPO, particiption in that IPO used Saudi retail investors and Saudi payment rails and resulted in $25bn in purchases. That one country’s internal financial system was able to handle it and there was just that much participation.

Tether doesn't have the transparency we will want. Choose a different product for that reason alone, and there are options now.

But assuming the worst, out of the universe of assumptions, is just as useless as assuming the best. The western world says “all this is improbable so lets assume it is impossible”, the eastern world doesn't seem to care and there are examples where much larger sums of money could show that Tether’s growth is not improbable or impossible.

The point is that $30bn of deposits (whether some of that is counted incorrectly on multiple blockchains) is not noteworthy enough on its own to reinforce your conclusion. Many random brokers have that. If they had a stablecoin that was minted upon deposit, you would see the same thing. And here, institutions also use Bitfinex and $30bn is actually then a reflection of how small the crypto markets are.

I agree with you that GP's post hardly makes any sense but

> ... yet you are trying to convince us there is people depositing 800m daily into bitfinex?

800m daily would have meant 300 bn USDTs created in a year. They create 30 bn in a year, no 300 bn. It's huge but you are one order of magnitude off no?

Their post doesn't describe normal behavior. It describes what would be illegal behavior elsewhere. It may be somewhat legal depending on the underlying reasons due to the quirks of not being regulated but renegading on promises to investors is not normal behavior when it comes to things like audits.

> Almost all fiat deposits into Bitfinex create USDT.

Which is insane. Those are customer funds, that Bitfinex owes to their customers, if they choose to withdraw from their ecosystem.

They aren't a personal piggybank for them to dip into as they please.

This is not at all like fractional reserve banking, where a financial liability (customer deposts) are used to print dollars (in the form of loans), because customer deposits can be called back anytime, while loans cannot.

With Tether, if Bitfinex takes a dollar a customer deposits, and then prints and sells a USDT, and the customer withdraws their deposit, they have to destroy a USDT, in order to maintain the 1:1 peg. There is zero evidence that they are doing this at anywhere near the rate they claim.

Ironically, what they are doing is very similar to a double-spend.

This case stops short of proving exactly what percent they are currently backed at - there is almost certain some level of "legit" deposits (Tether has value in evading capital controls). The weight of evidence is strongly in favor of past financial crime, and the imposed transparency requirements suggest NYAG suspects these issues are ongoing. I dont suspect they will ever provide satisfactory evidence of legitimacy, and the DOJ is almost certainly investigating them by now.

so bitfinex customers deposited 30B US$ since last year? hard to believe.

I think Tether is mostly a fraud, but the market for escaping capital controls (aka money laundering) is almost certainly $30B/year or more.

If this was for money laundering, why such a high balance?

> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

There is an easy way. Swap USDT to USDC on Curve. Deposit USDC on Coinbase. Convert USDC to USD on Coinbase. Withdraw USD.

I'm not saying I disagree with your overall thesis. But this specific point makes it sound like USDT is some sort of roach motel ("you can get in, but you can't get out"). That's not true, it's fairly easy to get back to USD at low cost. The fact that USDT is trading at near parity with USDC on Curve indicates that most of the market doesn't perceive a risk.

> There is an easy way. Swap USDT to USDC on Curve. Deposit USDC on Coinbase. Convert USDC to USD on Coinbase. Withdraw USD.

Then what is your explanation for why it is not possible to directly exchange USDT for USD, there must be a reason that no exchange wants to do that.

> that most of the market doesn't perceive a risk.

That is absolutely no indicator for safety.

> That is absolutely no indicator for safety.

Currently, several billion in value is locked into Defi-based liquidity pools with USDT. If USDT collapses tomorrow, the stakers will lose nearly all of their principal. (Fast traders will quickly swap worthless USDT for all the USDC in the pool, before hardly anyone has time to remove liquidity.)

The largest of these pool, currently pays about 2.6%.[1] Even if all of that return reflects USDT credit risk, that market implies a 1/50 chance of USDT collapsing within the next year. I'm not saying the market is necessary correct. But what I am saying is that very deep, liquid markets are not pricing any significant USDT risk.

If you really disagree, you can even short USDT, by borrowing USDT on Compound at 4.2%. Then use that to buy USDC and supply it on Compound at 4.9%.[2] If USDT collapses, you'll make nearly 100% as you'll only have to buy back now worthless USDC. In fact the market will even pay you take this position, with the only risk being if USDC collapses relative to USDT.

[1]https://www.curve.fi/3pool [2]https://compound.finance/markets

> If you really disagree, you can even short USDT, by borrowing USDT on Compound at 4.2%. Then use that to buy USDC and supply it on Compound at 4.9%.[2] If USDT collapses, you'll make nearly 100% as you'll only have to buy back now worthless USDC. In fact the market will even pay you take this position, with the only risk being if USDC collapses relative to USDT.

This trade involves risk, and not just the direct USDT risk. If it didn't, there's no particular reason multi-billion dollar hedge funds wouldn't buy this down to the yield of an equivalent US treasury or similar.

> If it didn't, there's no particular reason multi-billion dollar

This is true in theory but in practice it seems much more commonly false. Even in vastly more mature and liquid markets, straightforward arbitrages can persist for years and in some cases decades, even after an inefficiency becomes public knowledge

> Then what is your explanation for why it is not possible to directly exchange USDT for USD, there must be a reason that no exchange wants to do that.

https://global.bittrex.com/Market/Index?MarketName=USD-USDT

Do they process withdrawals in a reasonable time?

Dunno about Bittrex but Kraken also has a USD/USDT pair. Withdrawals via wire transfer take around 2 days.

I have not had problems with them, but I'm also not doing any large transactions.

Also note Kraken, withdrawals are as fast as a wire transfer (so a few days): https://www.kraken.com/en-us/prices/usdt-tether-usd-price-ch...

What I'm not sure is how that market connects to Tether's bank accounts increasing or decreasing in holdings. This is all third-party exchanges, presumably with other customers as the counterparty.

That's fairly easy?!?! That's a textbook yak shaving exercise if I heard of one, and seems like it would have to involve multiple parties during the exercise.

Many exchanges have pretended for a long time that USDT is 'the same' as dollars, and there are going to be a lot of folks pissed that it isn't actually the same thing.

>That's fairly easy?!?! That's a textbook yak shaving exercise if I heard of one

This. If Tether truly were just a token backed 1:1 with USD on deposit at a commercial bank, you would not need to make multiple hops across multiple entities to actually convert it to dollars.

Also imagine how "well oiled" this financial transaction's machinery will work during a market contraction.

There was a similar situation the last time the NYC AG tried to shut down Tether and withdrawals from Bitfinex were blocked (June 2019). What happened was that Tether started trading at about $0.93 and USDC/DAI started trading around $1.04, as the supply of other stablecoins wasn't quite adequate to accommodate all the people fleeing Tether. Bitcoin actually ended up being the reserve currency instead: the price of Bitcoin spiked from $5200 -> $8700 over the course of a couple weeks as Tether holders dumped it to buy Bitcoin and move it to other exchanges.

Personally I'm surprised the risk premium wasn't more, but Tether is still around today despite both Bitfinex and Binance blocking withdrawals and the NYC AG initiating fraud charges against them, so ultimately the folks who decided it was nothing were right. Then, at least.

>There is an easy way.

How many fees have you paid through the 3 or 4 steps to get to this "easy" solution? Is that solution available to everyone worldwide? (I'm not familiar with Curve or Coinbase and whether they're US only or something of that nature)

I’m wondering how high volume would need to be for the first step (from USDT to USDC) before something breaks?

Why don’t more people use USDC anyway?

Well, because Tether is happy to look the other way for money launderers, cartels and other bad actors. USDC can't.

>Why don’t more people use USDC anyway?

USDT got there first.

> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

It's perfectly possible to exchange USDT for USD and withdraw USD to your bank account; it does not involve complicated steps nor outrageous fees. Kraken, for example, has a very liquid USDT/USD market, is a well respected exchange, and processes USD withdrawals that arrive within minutes to US bank accounts. I'am speaking as an industry insider and hedge fund manager that trades ~$1B/month on the crypto markets.

How do you get withdrawals arriving within minutes? Mine take about 2 days, I'm on the highest verification level that they list publicly ("Pro").

It may help that we bank at all of the same banks as Kraken, so most transfers are internal transfers. But even to outside banks, normally US wires should be pretty fast (usually within the day). It may also be the case that we literally wire millions every day on a regular basis, so our wires probably don't get held up at any compliance checks.

> It may help that we bank at all of the same banks as Kraken

Sounds like a good idea. Do you happen to know if a list of such banks is public?

As a start, you can check out Signature Bank and Silvergate Bank. They are known for being crypto-friendly banks, and they bank literally every exchange that trades crypto versus USD.

Thank you, I will!

In Europe, one bank is Fidor.

That's a trade, not a withdrawl. You cannot withdraw 1USD for 1USDT.

What will happen to NY AG which investigated Tether for 2 years, went through 2.5 mil pages of documentation, yet missed such an obvious scam that a lot of people, including on this forum, can clearly see?

If Tether implodes, is this proof that NY AG is incompetent or even worse, somehow implicated in this giant scam by covering it up?

In the NY AG settlement PDF it clearly states that they will not indict Tether in the future for the investigated crimes, including not being backed up by assets, which happened before the date of the payment of the fine:

> 56. Within five (5) days of the receipt of the penalty ... and agrees not to bring any claims or causes of action against Bitfinex or Tether ... for matters relating to the conduct set forth in the Findings and the Petition ... arising out of Bitfinex or Tether’s representations concerning the backing of tethers during the time period January 1, 2014 to the effective date of this Settlement Agreement; transfers of a portion of the cash reserves backing tethers to Bitfinex pursuant to the line of credit

Doesn't mean the DOJ or any other State AG can't bring action. NY also doesnt remove themselves from prosecuting over any future action, like being unable to provide the agreed upon transparency reports.

I wouldn't be surprised if they are into the scam and got bought.

The real world isn't a nice place and police show...

>There's no way to transfer USDT into USD

Use Kraken. You can change USDT to USD and withdraw money. I've done both.

This is the confusing part to me. Everything I read online talks about Tether being fraudulent. Shouldn't the price of Tether reflect a discount based on that? If it doesn't, does that mean the market is okay with a Tether being 1 USD even if it is not backed by anything?

At some point yesterday, BTC/USD pair was trading up to 400$ lower than the BTC/USDT, that should be enough to tell you that a lot of people don't really want the USDT anymore and were willing to pay a 400$ premium to get real USD, it will start getting ugly at some point

Not necessarily because Tether the company will use the USD or similar that they have to buy tethers on the market if the price falls below $0.995 or so. The worry is if there are say 30bn tethers out there and they only have $20bn cash and enough people redeem the the price will stay about $1 until the $20bn runs out and then suddenly drop to not much.

It's actually possible that rather than just holding US$ against USDT they have put some into bitcoin instead which would mean they may have plenty of funds unless bitcoin crashes in an unfortunate way.

So the consensus here seems to be that Tether the company is doing some sort of fractional reserve banking? I'm assuming no one on hacker news is holding Tether ...

To the point of actions speaking louder than words, why are there people who trust Tether enough to hold it? If there is no trust there wouldn't everyone redeem and create a bank run?

I've held tethers before now. The 'fractional reserve' thing is unknown. If I were a crook and running the thing I probably would have printed lots of tethers to buy bitcoin in the slump then sell them at a profit to fix the reserves and buy and island. But who knows unless they do an audit which they seem very reluctant to do. The above scenario would be illegal but would not lead to the collapse of tether unless the law got them which is tricky as they are based in various offshore locations.

I've been through this whole tether is a scam which will collapse thing before around late 2017 or Jan 18 and inspite of the crypto downturn they didn't.

A HN story from Nov 2017 https://news.ycombinator.com/item?id=15745441 for example.

I've also been following Tether a while. I even shorted a bit back in 2018 but I'm starting to think maybe they are basically legit apart from maybe not dotting all the Is on the money launder regs. Here's Gregory Pepin "Deputy Chief Executive Officer at Deltec Bank & Trust", Tether's bankers, saying they have the money: https://youtu.be/rQ3nQ8-KY28?t=281

The author of this report from 2018 agrees with your assessment https://www.tetherreport.com/

Not considering your other points - I never had issues converting between USDT and USD. I just did it yesterday in fact.

Did you exchange USDT for USD through the exchange or did you trade USDT for USD, there is a difference.

In the first instance the exchange is on the hook for the USDT and they have to go to Tether to get USD to cover it.

In the second instance the other user you traded with is on the hook for the USDT and they will probably just trade it for USD in the future or another crypto.

Even the 70% backing number is too high. According to the findings of the NYAG:

"Because of Tether’s inability to conduct significant banking activity during this time, it could not itself hold dollars sufficient to back the hundreds of millions of new tethers that had entered the market. Until September 15, 2017, the only U.S. dollars held by Tether ostensibly backing the approximately 442 million tethers in circulation was the approximately $61 million on deposit at the Bank of Montreal."

https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

> There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try.

So what actually happens when people sell Bitcoin? They get USDT on an exchange and then can never get cash out? Is there some convoluted series of trades you can make from USDT -> ??? -> USD or something instead? And people selling Bitcoin have made enough profit to just ignore the overhead of those trades I guess?

OP got that wrong. It's very simple to exchange USDT for USD, you can do it on Kraken and Binance and withdraw to your bank account. No problem at all

Isn't that trading, you're selling USDT to someone who wants to give you USD for it? That's different from telling the operators of Tether itself "Here's some USDT, give me the USD that backs it".

Backed by cash in a bank account doesn't mean that much. As you probably know any bank will take deposits and use them for loans.

Strangely USDT sells at a premium to USDC (audited) for years now.

My guess is it will slowly be replaced by an audited stable token if the market wants that.

In addition to all of this they claim to bank in the Bahamas. Bahamas discloses total banked assets and the amount of Tether issued far outpaces the rate at which the whole nation of the Bahamas' assets have been increasing.

"There's no way to transfer USDT into USD. The few exchanges that say they offer withdraws actually don't if you go and try."

How about Bitfinex? I had some problems with withdrawals there in the past - but now it seems to work.

> Personally I won't touch any crypto with a 10 foot pole

if you dont mind explaining to a relative newbie - how does any of this affect Bitcoin? it clearly has had some effect, but I just dont understand the causal chain.

If the total amount of USDT exceeds their USD cash reserves, who became the beneficiary of the extra USDT?

Bitcoin holders.

Which BTC holders and how? What's the path from onboarding on an exchange website, to eventually getting unbacked USDT? If I put USD onto an exchange, why would the exchange give me more USDT than what I deposited (and if this never happened, then how did the first unbacked USDT come into existence)?

I hold BTC but didn't use USDT in the process, just deposited normal fiat and bought BTC using that.

1. Bitfinex processes a USD deposit and dispenses USDT

2. USDT holder purchases BTC with it

3. Bitfinex purchases crypto (mostly BTC) with the USD, instead of holding it as promised

Thus the original USD of the person buying BTC at the exchange has effectively double the buying pressure on the BTC market because Bitfinex is actively investing all their USD holdings that "back" Tether into the market as well.

Good explanation. Why do they do step (3)? Aren't they just opening themselves up to massive legal liability?

Some believe this is an intentional Ponzi scheme to print some money for the owners of Tether and Bitfinex, others believe they had good intentions at first, but through bad investment or otherwise got underwater, and started "investing" their USDT-backing dollars to claw back up.

Bitfinex originally denied relation to Tether but it's been proven that was a lie.

The worry is, at some point there could be a "run" on Tether, when the curtains are pulled back, where all the USDT-BTC traders who happen to have USDT holdings and they suddenly become worthless because nobody wants to trade USDT-BTC anymore at 1-1.

As long as "public confidence" in USDT continues, the charade will too

Another dumb question: If they've been buying assets like BTC using the USD that they were supposedly keeping as reserves, shouldn't they have made massive amounts of profits since 2018, and be in a position to now return the USD reserves so that it's 1:1, while keeping billions in profits for themselves?

If they haven't exited the BTC position, then selling the BTC to convert back into USD may not be possible without dramatically affecting the price. And if it's still in BTC and they don't bother converting back into USD until the last minute, then a run on USDT may make it impossible for them to convert enough BTC to USD fast enough to redeem USDT.

It's hard to analyze Tether/Bitfinex's risks here because, well, they have been fairly opaque about what their actual financial situation is, so people are relying on their gut instincts to guess what it is.

USDT has a market cap of $35bn, let's say that 30 percent is unbacked and the corresponding USD was used to buy BTC. That's a position of at least $11bn. It's probably worth more than that now, since the price went up after they supposedly bought in, but they only need to liquidate $11bn to return the USD to their reserves to make it 1:1 again.

The market cap for BTC is $1000bn. Wouldn't they easily be able to unload the position over a 1-3 month period without too much price impact? They own 1 percent of the market cap, and in the stock market we often see larget stockholders than this unload their whole position without a catastrophic impact.

You couldn't liquidate that much BTC without tanking the markets... it's a game of chicken if it's true that the USD backing tether is gone.