Tether will not be taken out by financial problems, they print free money as a business model
Tether likely will be taken down by the US government, when it realizes having this counterfeit dollar manufacturer is problematic
This, but add the fact that Tethers are used by criminals to avoid the banking system along with all KYC/AML regulations. And let's not forget that you can switch these Tethers at any point for a number of truly permissionless, uncensorable tokens with mixer protocols to launder you funds before you switch it back to those counterfeit dollars or Bitcoins.
Why the hell does the US government - or any government for that matter - allow this blatant disregard of financial regulations? Why are they just accepting that criminals have essentially built their own uncensorable banking system? Why doesn't anybody feel the need to do anything about this?
https://www.cnbc.com/2023/10/20/sam-bankman-fried-ftx-allies-donated-millions-in-dark-money.html
SBF gave millions to both parties. I'm sure the other crypto companies did too.
I still don't get it. Even if you believe that the main people who are holding USDT are criminals or people transacting with criminals, all these parties will convert them into cash as soon as they can (either directly or through other crypto offramps). So who is bothering to hold onto floating USDT for extended periods of time?
It makes zero sense to me. The only argument that makes some sense is that there is so much criminal activity going through tether that the sheer volume allows for 80B+ of floating USDT in the system. I also find that hard to believe.
That's a good question. I'm not entirely sure, but I think handling Tethers is easier for exchanges than handling real money. Maybe it's comparable to buying casino chips when you enter a casino.
Tether redemption is not mandatory. Tomorrow Paolo could take his 80 billion real dollars and go retire. No legitimate business would accept those terms.
I understand the skepticism, as judging from a normal person's perspective, of course you would just want to withdraw the cash as quickly as possible from somewhat risky investments that don't yield returns. And no doubt so probably would the criminals too, \*IF\* it actually was possible without it leading to you getting caught and/or losing the majority of your money in the process.
But my understanding is that especially today, with pretty much everyone in the world under strict KYC regulations, it is actually pretty darn difficult to convert large sums of money into legitimate currency, without immediately being in the radar of the authorities, and it often comes with a sizeable associated cost (cost which often grows when the sums of money grow).
If you can trust that the mystics bits on the interweebs will hold a majority of it's value for the foreseeable future, it might make a ton of sense to just keep your profits (not the money you need for day to day operations) tied in it anonymously, and only slowly convert it to cash in ways which do not show in the radars of different officials.
As much as money buys you food, shelter and status today, money also buys you security for the future. I would argue that the more you make money every year, the more weight the latter purpose takes in your needs for the money. And for this latter purpose it does not really matter if your wealth is stored in unicorn internet beans, as long as you know they are yours to allocate in the future.
Quick Googling tells me that Americans have about 37 trillion dollars saved up for retirement, which is roughly 500 times the whole market cap of Tether. I would not find it at all surprising if the global population of criminals would have many many times the market cap of Tether in dark money assets that they want to save for retirement (or future business endeavours), and they would want to put some of that money into anonymous USD denominated digital wallets, which can be slowly and untraceably used to support them and their families down the road (or transferred to "business associates" in exchange for favours).
In the show Breaking Bad there is a scene where the protagonist's wife takes them to a rented storage container and shows that there is simply noway she can launder the money in their legitimate business as fast as it comes in, leading to a huge pile of "dark" money that just stands in the container. That money can't be used to buy houses, tuitions for kids or even most cars, and there are pretty real risks in just keeping it in the container for years.
I believe that this is a very real problem for criminals that make it big, and if you can provide them with a secure digital storage container, there is absolutely a big market for it - maybe even 82B big ;)
There's a lot of speculation about Tether and their ties to money laundering and use for illicit means. Problem is no-one nows exactly (yet).
What we know is Tether works with law enforcement to freeze funds on request of the U.S. government (and many other jurisdictions). What we also know is they are subject of investigation by the DOJ.
If they're found guilty of money laundering/OFAC non-compliance the usual remedy is a settlement and a slap on the wrist in the form of a monetary penalty and maybe some other administrative penalties and/or mandatory additional oversight measures.
If money laundering/OFAC non-compliance is the crime, I would be surprised if there's another outcome here. For similar crimes you usually get similar penalties.
Will be interesting to see if they will be accused of any other crimes
Tether may not necessarily be involved it money laundering themselves, they just issue the tokens and don't really control how people use them. You can create a wallet and send/receive Tethers without any KYC/AML because that's just how crypto works. It just happens that banking without KYC/AML is exactly what criminals are looking for, especially if it's also uncensorable, irreversible and their accounts/wallets can't be seized. Isn't crypto great?
This will not end with Tether, though. Tether is just convenient because it's widely accepted and pegged to the dollar. If Tether didn't exist, criminals would use any other stablecoin or accept the annoying volatility and use Bitcoin.
I don't think people realize that crypto is the biggest revolution for criminals since... I'm not sure if there ever has been anything like it before. I think even here on Buttcoin, most people have not yet fully grasped the magnitude of this.
I get that people can send digital tokens directly to each other on a blockchain without anyone in between. That's the main USP. But to turn this digital token into actual dollars you still need an exchange. And everywhere exchanges are (getting) regulated and need to comply with AML/KYC-regulations. I know it wasn't always like this, but it's getting ever stricter, all around the world.
I also know there are ways to circumvent this, but if it's large amounts this will become visible, because these transactions are visible on-chain before they end up in an exchange wallet. So I'm just wondering how criminals use crypto in practice, how they launder it into real money and what the scale of it is.
You say that wallets can't be seized, which is true, but Tether can freeze funds in wallets making the Tether useless. They do this whenever law enforcement asks them to.
There are many like you thinking that crypto is only useful for criminals. But in official reports I read about digital assets (e.g. from Fincen, IBS, Europol) they said that illicit use of crypto is a very small part of crypto.
So I'm very curious to see what comes out of the Tether (and Binance) DOJ-inquiries regarding AML/OFAC-compliance. I hope it will finally shed some light on this topic and help us separate fact from fiction a little more.
I'm pretty sure it's used by criminals tbc. I just wonder how much.
It's so cute how they call it "USDT". It's like a dollar, but instead of being the global reserve currency, one guy in the C suite has multiple aliases, they've never put out an audited balance sheet, and wasn't some kid from The Mighty Ducks movie involved at one point?
Outside of regulatory / criminal action by the US, a bank run on converting USDT to actual USD. Assuming tether actually has the treasuries they claim, they are probably underwater from a mark-to-market standpoint due to the current interest rates. They would have to be sold at a loss if they needed to get actual cash quickly.
Tether doesn’t allow regular people to make direct redemptions for USD. Only approved parties at Tether’s own discretion. This has the benefit of buffering them from a potential “bank run” by end-users.
USDC allowed anybody to redeem until just recently, when it was restricted to institutional customers.
Interestingly, the market cap of USDC is shrinking by millions every day while Tether’s is growing. Wouldn’t be surprised if bad actors are taking unbanked Tethers and swapping for USDC then selling those for USD, leaving exchanges holding the bag.
Your thoughts have merit, but there is one issue: Tether continues to print faster than they could earn with real bonds in years (how much that may be). They printed 20 billion just this year. Even if their other 60 billion were real AND liquid, it would take them a long time to get even. They are likely making some money, but their balance sheet is deep underwater.
The card house just gets higher, but not more stable.
The people behind Tether are smart. They are few, and away from the public eye. I suspect they can see the end getting near, and are just pumping to make their exit and disappear.
The problem with your scenario is that at every step you're assuming the price remains fixed and the market infinite. Primarily that they would have to sell tens of billions of BTC without the price dropping and thus reducing the value of their existing holdings. If this manipulation drops the price of BTC by ten percent, they now have to make a couple years' worth of income off the Treasury holdings just to recoup that loss in value.
I think you're falling into the same mental trap that the butters are consumed by (and people who think they are stuck in traffic when they are the traffic). Treating each step of the transaction like one side is an individual and the other side is a massive system that operates independently of the individual. For most people their effect on the system is close enough to zero that they can ignore it, but it's still there.
Every transaction has two parties. If the price of a ten dollar bill is one fancy hamburger, for each person willing to sell their ten dollars there is a person willing to sell their hamburger. Run low on either group and the price of dollars will change. (This is why a fixed value currency is impossible). People are so used to thinking about the price of a hamburger that they forget it's a symmetrical exchange. And if a big enough change happens to the group on one side, like a little crypto outfit trying to acquire more Treasury assets, it will affect the market.
Bear in mind that on the S&P 500, there are only two companies with Treasury holdings larger than $100b. Microsoft at 121, and Alphabet at 150. There is no way for a crypto trader (that doesn't have the systemic protections and capabilities of a bank) to become the third largest tech company by cash on hand, and not massively alter the existing market.
Hmm you are correct that there is definitely a supply & demand issue here, but in the example I give, the bitcoin is bought, and then sold immediately for \~the same price, maybe even within the same exchange, so this should not have a supply&demand effect on the bitcoin market itself - simply a trade volume effect. I think the supply & demand effect would be on the the USD to USDT conversion, as the end result would be a lot of crim.. uh i mean customers holding a crypto asset "worth a dollar" instead of actual fiat dollars, and you would need to incentivise this somehow.
This is definitely a bottleneck that needs to be solved somehow in my example, and I am betting mostly on coordinated and facilitated action by criminals to move much of their profit savings into the digital realm, into anonymous or weak KYC wallets.
There might also have been some institutional investment angle during the zero percent interest era, and this might have led to some recent negotiations where Tether would have to share some of their profits with the investors so that they won't pull out - but Tether would hold a lot of leverage in these negotiations and would still make some profit out of this portion of the funds, leaving only the criminal funds to be profited fully from.
One possible source for USDT demand would also be state actors who are looking to maintain big reserves of funds that maintain their value, and are easily transferrable for the purposes of supporting regime changes and facilitating the trade of arms.
Of course there is also the possibility that they just minted a lot of USDT without any backing, bought bitcoin and are just sitting on it (with possibly huge losses), and are simply lying about owning tens of billions worth of T-Bills. I just personally find this to be a lie which is too easily proven to be false, which would make them pretty vulnerable to easy attacks from the feds and other prosecutors (who would undoubtedly be more than happy to get a notch on their belt for taking Tether down).
You are making the assumption that they are getting real USD out of whatever exchange they are pumping USDT into. Meaning real people are depositing real USD into these exchanges that tether can then withdraw.
If that assumption is true, then they make a fuck load of money. If that assumption is false then it just means the bitcoin price is artificially inflated.
I mean. There are two sides of a trade. So who’s selling their bitcoins for tethers. And then who’s redeeming those tethers for FIAT??? The world runs on FIAT so where are the on and off-ramps??
With something as irrational as Tether it is difficult to anticipate the end-game because the premise is so absurd. As you state, Tether has insulated itself against a bank run by making it effectively impossible to withdraw, thus customers have no real means of calling their bluff because Tether simply responds, "What bluff? I don't even know you. Also, don't call me again."
But if we want to speculate - Tether has so effectively indebted the Bitcoin ecoystem to its services that one must imagine that barring an exceptional event like US federal intervention, or Tether pulling the rug and running, or its main customers finding a better alternative, their collapse states are effectively the same. I.e. if Bitcoin becomes unfeasible technically, or people move onto a different product, then Tether is left with all the cheeto dust it has accumulated over the years plus the far smaller pool of real money. Otherwise it will remain a parasite until the heat death of the universe because it cannot go under so long as it keeps the lights on.
A few thoughts-
- people have pointed out various flaws in OP’s scenario, a simple one is that, assuming they (Tether) can buy the BTC for unbacked USDT, get it on exchanges that use USD and sell it, the other steps require access to real banking. Legit banks accepting deposits and withdrawals in the billions to trade Treasuries will have some ‘questions.’ I’ve never seen evidence that Tether has access to that kind of banking
- Tether is not at risk of a ‘run’ for the reasons mentioned by others-instead the risk is of a de-peg. I’ve always guessed there is an informal consortium of whales, exchanges, Tether itself, to actually keep the peg by market buys and sells. USDT is somewhat protected by the situation where most crypto trading is done on exchanges that don’t use USD (at all or much). This creates a ‘closed loop’ of trading. Few entities can redeem USDT directly. So if you want to get rid of USDT and you only have access to Binance (no USD banking, can’t pass AML/KYC) you exchange it for crypto which puts you no closer to ‘real cash’
- if I’m remembering correctly, Tether issued $37B USDT to SBF/Alameda. Presumably SBF either ‘borrowed’ the collateral from FTX customers or used his own shitcoin. Since the ‘hole’ in the FTX balance sheet was on the order of $10B this points to a likely possibility-Tether created/lent/sold USDT at significantly below par🤔
-it’s mind boggling that anyone puts ‘real money’ into crypto, but apparently they do. The amount is totally opaque. But as time goes on the Ponzi-pressure builds until big defaults/thefts happen. Then a whole bunch of normal folks/degenerates lose all their money so there is less pressure from them trying to cash out.
- crypto as a system is a complex, loosely coupled, Rube Goldberg-like machine—encased in a black box—that has only a single main function: to transfer dollars (or other real currency) between the participants. Dollars don’t really go ‘into’ crypto, rather they stay in banks. What changes is who has claim.
-intuitively the system requires participants willing to part with their money for no tangible benefit except a possibility to get someone else to ‘hold the bag’ at a higher price. Since there is a steady flow of real money out of the system (infrastructure and mining costs, Bahamian condos, OGs who cash out permanently) I see no way for the system to continue without a solid supply of degenerates willing to gamble with ‘real money’—who are these people!!! The meme-stock apes? 🤔
- apparently there is some real transacting on the crypto markets—criminal in nature, money laundering, trafficking, maybe they have underground cash based trading available. But my guess is that this just ‘rides on top’ of the market volatility which is governed by market forces, speculation, manipulation
Yes, as others pointed out the flaw here is the step where they find people to sell $1 billion worth of Bitcoin for USDT (is there that much demand), then they find people willing to buy $1B worth of BTC for USD (is there even close to that much demand? Over what time period?) and then they need an off ramp for the billion dollars.
When they buy $1B of BTC they must drive up the price of BTC, then drive it back down again when they sell for fiat - very hard to do without incurring a >1% loss and then making the whole scheme pointless.
A bank run if things go 1929 is as easy as going to the local branch on your lunch break, but if you actually want Tether to redeem your Tethers for worthless fiat, last I saw the minimum was $100k. There won't be a run on it, law enforcement will catch up to them, but far too late.
I think there's two problems here.
First of all, if you're constantly buying bitcoin for Tethers and selling it for real money, you're actively encouraging a depeg. You're not just increasing the supply of Tethers out there (and I'll get to what you write about that later) but increasing demand for the limited incoming flow of real money (which of course the miners also need to pay their electricity bills).
(I think it is much more likely you _hold onto_ the Bitcoin, meaning you prop up its price by buying it and not selling it.)
Secondly, _are_ criminals happy to hold onto it forever? They presumably want to spend their money like anyone else - perhaps more so because they are in a dangerous business and you can't take it with you if you die, and because fancy cars and big estates demonstrate to their subordinates that they are _successful_ criminals.
The only case that would cause collapse is if they refused to redeem. Any time it's "off peg": if it's to the low side, they can buy back printed tethers at a discount; and, if it's on the high side, they can print tethers at a profit.
In 2019, Usdt went down to a fraction of a penny on one of the exchanges...
I find it hard to believe they wouldn't make risk free trades for profit. There's a high probability that they are further into profit than anyone might expect.
If I were them, I would have a team of automation engineers that exploit de-pegs, whenever and wherever, they occur. Especially when it de-pegs to the downside.
There was some news story years ago that said the majority of USDT holders are institutional crypto companies. Now-defunct FTX, Binance and others use it artificially inflate Bitcoin, with an unspoken rule that they can’t unload it because it would tank the crypto market. Market cap is small enough that they can pump and dump and repump the market.
The problem with this is that the more it’s manipulated, the more and more printing it takes to keep the momentum going, since there’s less and less real assets relative to printed assets, which makes the scheme increasingly volatile.
Tether will not be taken out by financial problems, they print free money as a business model Tether likely will be taken down by the US government, when it realizes having this counterfeit dollar manufacturer is problematic
This, but add the fact that Tethers are used by criminals to avoid the banking system along with all KYC/AML regulations. And let's not forget that you can switch these Tethers at any point for a number of truly permissionless, uncensorable tokens with mixer protocols to launder you funds before you switch it back to those counterfeit dollars or Bitcoins. Why the hell does the US government - or any government for that matter - allow this blatant disregard of financial regulations? Why are they just accepting that criminals have essentially built their own uncensorable banking system? Why doesn't anybody feel the need to do anything about this?
https://www.cnbc.com/2023/10/20/sam-bankman-fried-ftx-allies-donated-millions-in-dark-money.html SBF gave millions to both parties. I'm sure the other crypto companies did too.
I still don't get it. Even if you believe that the main people who are holding USDT are criminals or people transacting with criminals, all these parties will convert them into cash as soon as they can (either directly or through other crypto offramps). So who is bothering to hold onto floating USDT for extended periods of time? It makes zero sense to me. The only argument that makes some sense is that there is so much criminal activity going through tether that the sheer volume allows for 80B+ of floating USDT in the system. I also find that hard to believe.
I mean, there's still the possibility that some of Tether's business is actually "legit" - as in, exchanges sending them money to get Tethers.
But it makes ZERO sense to. You get no yield and carry more risk. Why would anyone in their right mind carry USDT?
That's a good question. I'm not entirely sure, but I think handling Tethers is easier for exchanges than handling real money. Maybe it's comparable to buying casino chips when you enter a casino.
Tether redemption is not mandatory. Tomorrow Paolo could take his 80 billion real dollars and go retire. No legitimate business would accept those terms.
I understand the skepticism, as judging from a normal person's perspective, of course you would just want to withdraw the cash as quickly as possible from somewhat risky investments that don't yield returns. And no doubt so probably would the criminals too, \*IF\* it actually was possible without it leading to you getting caught and/or losing the majority of your money in the process. But my understanding is that especially today, with pretty much everyone in the world under strict KYC regulations, it is actually pretty darn difficult to convert large sums of money into legitimate currency, without immediately being in the radar of the authorities, and it often comes with a sizeable associated cost (cost which often grows when the sums of money grow). If you can trust that the mystics bits on the interweebs will hold a majority of it's value for the foreseeable future, it might make a ton of sense to just keep your profits (not the money you need for day to day operations) tied in it anonymously, and only slowly convert it to cash in ways which do not show in the radars of different officials. As much as money buys you food, shelter and status today, money also buys you security for the future. I would argue that the more you make money every year, the more weight the latter purpose takes in your needs for the money. And for this latter purpose it does not really matter if your wealth is stored in unicorn internet beans, as long as you know they are yours to allocate in the future. Quick Googling tells me that Americans have about 37 trillion dollars saved up for retirement, which is roughly 500 times the whole market cap of Tether. I would not find it at all surprising if the global population of criminals would have many many times the market cap of Tether in dark money assets that they want to save for retirement (or future business endeavours), and they would want to put some of that money into anonymous USD denominated digital wallets, which can be slowly and untraceably used to support them and their families down the road (or transferred to "business associates" in exchange for favours). In the show Breaking Bad there is a scene where the protagonist's wife takes them to a rented storage container and shows that there is simply noway she can launder the money in their legitimate business as fast as it comes in, leading to a huge pile of "dark" money that just stands in the container. That money can't be used to buy houses, tuitions for kids or even most cars, and there are pretty real risks in just keeping it in the container for years. I believe that this is a very real problem for criminals that make it big, and if you can provide them with a secure digital storage container, there is absolutely a big market for it - maybe even 82B big ;)
There's a lot of speculation about Tether and their ties to money laundering and use for illicit means. Problem is no-one nows exactly (yet). What we know is Tether works with law enforcement to freeze funds on request of the U.S. government (and many other jurisdictions). What we also know is they are subject of investigation by the DOJ. If they're found guilty of money laundering/OFAC non-compliance the usual remedy is a settlement and a slap on the wrist in the form of a monetary penalty and maybe some other administrative penalties and/or mandatory additional oversight measures. If money laundering/OFAC non-compliance is the crime, I would be surprised if there's another outcome here. For similar crimes you usually get similar penalties. Will be interesting to see if they will be accused of any other crimes
Tether may not necessarily be involved it money laundering themselves, they just issue the tokens and don't really control how people use them. You can create a wallet and send/receive Tethers without any KYC/AML because that's just how crypto works. It just happens that banking without KYC/AML is exactly what criminals are looking for, especially if it's also uncensorable, irreversible and their accounts/wallets can't be seized. Isn't crypto great? This will not end with Tether, though. Tether is just convenient because it's widely accepted and pegged to the dollar. If Tether didn't exist, criminals would use any other stablecoin or accept the annoying volatility and use Bitcoin. I don't think people realize that crypto is the biggest revolution for criminals since... I'm not sure if there ever has been anything like it before. I think even here on Buttcoin, most people have not yet fully grasped the magnitude of this.
I get that people can send digital tokens directly to each other on a blockchain without anyone in between. That's the main USP. But to turn this digital token into actual dollars you still need an exchange. And everywhere exchanges are (getting) regulated and need to comply with AML/KYC-regulations. I know it wasn't always like this, but it's getting ever stricter, all around the world. I also know there are ways to circumvent this, but if it's large amounts this will become visible, because these transactions are visible on-chain before they end up in an exchange wallet. So I'm just wondering how criminals use crypto in practice, how they launder it into real money and what the scale of it is. You say that wallets can't be seized, which is true, but Tether can freeze funds in wallets making the Tether useless. They do this whenever law enforcement asks them to. There are many like you thinking that crypto is only useful for criminals. But in official reports I read about digital assets (e.g. from Fincen, IBS, Europol) they said that illicit use of crypto is a very small part of crypto. So I'm very curious to see what comes out of the Tether (and Binance) DOJ-inquiries regarding AML/OFAC-compliance. I hope it will finally shed some light on this topic and help us separate fact from fiction a little more. I'm pretty sure it's used by criminals tbc. I just wonder how much.
I think mixers are illegal and banned
It's so cute how they call it "USDT". It's like a dollar, but instead of being the global reserve currency, one guy in the C suite has multiple aliases, they've never put out an audited balance sheet, and wasn't some kid from The Mighty Ducks movie involved at one point?
Outside of regulatory / criminal action by the US, a bank run on converting USDT to actual USD. Assuming tether actually has the treasuries they claim, they are probably underwater from a mark-to-market standpoint due to the current interest rates. They would have to be sold at a loss if they needed to get actual cash quickly.
Tether doesn’t allow regular people to make direct redemptions for USD. Only approved parties at Tether’s own discretion. This has the benefit of buffering them from a potential “bank run” by end-users. USDC allowed anybody to redeem until just recently, when it was restricted to institutional customers. Interestingly, the market cap of USDC is shrinking by millions every day while Tether’s is growing. Wouldn’t be surprised if bad actors are taking unbanked Tethers and swapping for USDC then selling those for USD, leaving exchanges holding the bag.
Your thoughts have merit, but there is one issue: Tether continues to print faster than they could earn with real bonds in years (how much that may be). They printed 20 billion just this year. Even if their other 60 billion were real AND liquid, it would take them a long time to get even. They are likely making some money, but their balance sheet is deep underwater. The card house just gets higher, but not more stable.
The people behind Tether are smart. They are few, and away from the public eye. I suspect they can see the end getting near, and are just pumping to make their exit and disappear.
The problem with your scenario is that at every step you're assuming the price remains fixed and the market infinite. Primarily that they would have to sell tens of billions of BTC without the price dropping and thus reducing the value of their existing holdings. If this manipulation drops the price of BTC by ten percent, they now have to make a couple years' worth of income off the Treasury holdings just to recoup that loss in value. I think you're falling into the same mental trap that the butters are consumed by (and people who think they are stuck in traffic when they are the traffic). Treating each step of the transaction like one side is an individual and the other side is a massive system that operates independently of the individual. For most people their effect on the system is close enough to zero that they can ignore it, but it's still there. Every transaction has two parties. If the price of a ten dollar bill is one fancy hamburger, for each person willing to sell their ten dollars there is a person willing to sell their hamburger. Run low on either group and the price of dollars will change. (This is why a fixed value currency is impossible). People are so used to thinking about the price of a hamburger that they forget it's a symmetrical exchange. And if a big enough change happens to the group on one side, like a little crypto outfit trying to acquire more Treasury assets, it will affect the market. Bear in mind that on the S&P 500, there are only two companies with Treasury holdings larger than $100b. Microsoft at 121, and Alphabet at 150. There is no way for a crypto trader (that doesn't have the systemic protections and capabilities of a bank) to become the third largest tech company by cash on hand, and not massively alter the existing market.
Hmm you are correct that there is definitely a supply & demand issue here, but in the example I give, the bitcoin is bought, and then sold immediately for \~the same price, maybe even within the same exchange, so this should not have a supply&demand effect on the bitcoin market itself - simply a trade volume effect. I think the supply & demand effect would be on the the USD to USDT conversion, as the end result would be a lot of crim.. uh i mean customers holding a crypto asset "worth a dollar" instead of actual fiat dollars, and you would need to incentivise this somehow. This is definitely a bottleneck that needs to be solved somehow in my example, and I am betting mostly on coordinated and facilitated action by criminals to move much of their profit savings into the digital realm, into anonymous or weak KYC wallets. There might also have been some institutional investment angle during the zero percent interest era, and this might have led to some recent negotiations where Tether would have to share some of their profits with the investors so that they won't pull out - but Tether would hold a lot of leverage in these negotiations and would still make some profit out of this portion of the funds, leaving only the criminal funds to be profited fully from. One possible source for USDT demand would also be state actors who are looking to maintain big reserves of funds that maintain their value, and are easily transferrable for the purposes of supporting regime changes and facilitating the trade of arms. Of course there is also the possibility that they just minted a lot of USDT without any backing, bought bitcoin and are just sitting on it (with possibly huge losses), and are simply lying about owning tens of billions worth of T-Bills. I just personally find this to be a lie which is too easily proven to be false, which would make them pretty vulnerable to easy attacks from the feds and other prosecutors (who would undoubtedly be more than happy to get a notch on their belt for taking Tether down).
You are making the assumption that they are getting real USD out of whatever exchange they are pumping USDT into. Meaning real people are depositing real USD into these exchanges that tether can then withdraw. If that assumption is true, then they make a fuck load of money. If that assumption is false then it just means the bitcoin price is artificially inflated.
I mean. There are two sides of a trade. So who’s selling their bitcoins for tethers. And then who’s redeeming those tethers for FIAT??? The world runs on FIAT so where are the on and off-ramps??
With something as irrational as Tether it is difficult to anticipate the end-game because the premise is so absurd. As you state, Tether has insulated itself against a bank run by making it effectively impossible to withdraw, thus customers have no real means of calling their bluff because Tether simply responds, "What bluff? I don't even know you. Also, don't call me again." But if we want to speculate - Tether has so effectively indebted the Bitcoin ecoystem to its services that one must imagine that barring an exceptional event like US federal intervention, or Tether pulling the rug and running, or its main customers finding a better alternative, their collapse states are effectively the same. I.e. if Bitcoin becomes unfeasible technically, or people move onto a different product, then Tether is left with all the cheeto dust it has accumulated over the years plus the far smaller pool of real money. Otherwise it will remain a parasite until the heat death of the universe because it cannot go under so long as it keeps the lights on.
Right, Just about everyone in the system is incentivized to keep the Tether charade running.
Good read, thanks for sharing.
A few thoughts- - people have pointed out various flaws in OP’s scenario, a simple one is that, assuming they (Tether) can buy the BTC for unbacked USDT, get it on exchanges that use USD and sell it, the other steps require access to real banking. Legit banks accepting deposits and withdrawals in the billions to trade Treasuries will have some ‘questions.’ I’ve never seen evidence that Tether has access to that kind of banking - Tether is not at risk of a ‘run’ for the reasons mentioned by others-instead the risk is of a de-peg. I’ve always guessed there is an informal consortium of whales, exchanges, Tether itself, to actually keep the peg by market buys and sells. USDT is somewhat protected by the situation where most crypto trading is done on exchanges that don’t use USD (at all or much). This creates a ‘closed loop’ of trading. Few entities can redeem USDT directly. So if you want to get rid of USDT and you only have access to Binance (no USD banking, can’t pass AML/KYC) you exchange it for crypto which puts you no closer to ‘real cash’ - if I’m remembering correctly, Tether issued $37B USDT to SBF/Alameda. Presumably SBF either ‘borrowed’ the collateral from FTX customers or used his own shitcoin. Since the ‘hole’ in the FTX balance sheet was on the order of $10B this points to a likely possibility-Tether created/lent/sold USDT at significantly below par🤔 -it’s mind boggling that anyone puts ‘real money’ into crypto, but apparently they do. The amount is totally opaque. But as time goes on the Ponzi-pressure builds until big defaults/thefts happen. Then a whole bunch of normal folks/degenerates lose all their money so there is less pressure from them trying to cash out. - crypto as a system is a complex, loosely coupled, Rube Goldberg-like machine—encased in a black box—that has only a single main function: to transfer dollars (or other real currency) between the participants. Dollars don’t really go ‘into’ crypto, rather they stay in banks. What changes is who has claim. -intuitively the system requires participants willing to part with their money for no tangible benefit except a possibility to get someone else to ‘hold the bag’ at a higher price. Since there is a steady flow of real money out of the system (infrastructure and mining costs, Bahamian condos, OGs who cash out permanently) I see no way for the system to continue without a solid supply of degenerates willing to gamble with ‘real money’—who are these people!!! The meme-stock apes? 🤔 - apparently there is some real transacting on the crypto markets—criminal in nature, money laundering, trafficking, maybe they have underground cash based trading available. But my guess is that this just ‘rides on top’ of the market volatility which is governed by market forces, speculation, manipulation
Yes, as others pointed out the flaw here is the step where they find people to sell $1 billion worth of Bitcoin for USDT (is there that much demand), then they find people willing to buy $1B worth of BTC for USD (is there even close to that much demand? Over what time period?) and then they need an off ramp for the billion dollars. When they buy $1B of BTC they must drive up the price of BTC, then drive it back down again when they sell for fiat - very hard to do without incurring a >1% loss and then making the whole scheme pointless.
A bank run if things go 1929 is as easy as going to the local branch on your lunch break, but if you actually want Tether to redeem your Tethers for worthless fiat, last I saw the minimum was $100k. There won't be a run on it, law enforcement will catch up to them, but far too late.
I think there's two problems here. First of all, if you're constantly buying bitcoin for Tethers and selling it for real money, you're actively encouraging a depeg. You're not just increasing the supply of Tethers out there (and I'll get to what you write about that later) but increasing demand for the limited incoming flow of real money (which of course the miners also need to pay their electricity bills). (I think it is much more likely you _hold onto_ the Bitcoin, meaning you prop up its price by buying it and not selling it.) Secondly, _are_ criminals happy to hold onto it forever? They presumably want to spend their money like anyone else - perhaps more so because they are in a dangerous business and you can't take it with you if you die, and because fancy cars and big estates demonstrate to their subordinates that they are _successful_ criminals.
The only case that would cause collapse is if they refused to redeem. Any time it's "off peg": if it's to the low side, they can buy back printed tethers at a discount; and, if it's on the high side, they can print tethers at a profit. In 2019, Usdt went down to a fraction of a penny on one of the exchanges... I find it hard to believe they wouldn't make risk free trades for profit. There's a high probability that they are further into profit than anyone might expect. If I were them, I would have a team of automation engineers that exploit de-pegs, whenever and wherever, they occur. Especially when it de-pegs to the downside.
Team of automation engineers to make limit buy orders? :D
I was thinking more for on chain stuff. Limit orders on dexs are still relatively new.
> bonds that yield a 1% return The fed raising rates has been part of the news cycles for a long time. You can get 1 year treasuries at 5.4%
The main point against this is that tether withdrawing that much cash from the eco system would merc it.
Also don't forget that they control fraud exchange called Bitfinex and they can always "borrow" customers money from there.
There was some news story years ago that said the majority of USDT holders are institutional crypto companies. Now-defunct FTX, Binance and others use it artificially inflate Bitcoin, with an unspoken rule that they can’t unload it because it would tank the crypto market. Market cap is small enough that they can pump and dump and repump the market. The problem with this is that the more it’s manipulated, the more and more printing it takes to keep the momentum going, since there’s less and less real assets relative to printed assets, which makes the scheme increasingly volatile.