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Comment by tehlike | Hacker News Reader

The way it works is, i go to exchange a, and tell them hey i have this cryptocurrency and i have enough cash to back it up. People can withdraw money from me using these.

If you do not verify my claims, you think this is a great idea, because now you can transact with usd(t). Formally these exchanges only used cross-coin exchanges.

Now this is not a problem as long as you have _enough_ money to support withdrawals on an ongoing basis. Nobody knows you dont have enough cash to support all issued tokens, because seemingly, everything works nicely. With the recent hype, money keeps flowing. Until a mass withdrawal happens.

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But why do I want tether in the first place? Why bother switching back and forth at all? I don’t see why would I want to hold tether.

Can I buy a can of coke with it directly? What if the coke seller is a bit skeptical of tether and asks for 1.2 tether instead of one usd, just to play safe. Isn t this pressure applied to the exchange rate?

You mean, instead of USD? Because most exchanges cannot and does not support withdrawals - they are virtual.

But every tether "issued" is basically a dollar printed out of thin air if we're to trust Tether that it has the same value isn't it?

> Because most exchanges cannot and does not support withdrawals - they are virtual.

Can you elaborate? I'm not familiar with these exchanges, really curious. You mean exchanges accept cash for coins and don't allow withdrawals? :)

He means they don't support withdrawals of fiat currencies like USD or EUR. Many crypto exchanges only support withdrawal of crypto currencies.

To allow deposit or withdrawal of fiat, exchanges tend to have to comply with international banking regulations, which requires a great deal of paperwork. As a result, only a few exchanges offer this - examples are Coinbase, Bitstamp, Bitfinex, Kraken.

Before Tether existed, you couldn't buy or sell dollars or Euros on a pure crypto exchange. That's a big limitation.

Among other things, Tether allows you to trade in USD on these crypto-only exchanges.

Basically, one problem Tethers solve is allowing exchanges to operate more completely without regulatory oversight. As such, the limitations in their transparency may be acceptable to many users, who know that they're not operating in a regulated market and are willing to accept some risk for doing that.

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