Comment by lhl | Hacker News Reader

Comment by lhl | Hacker News Reader

What's interesting is that while Coindesk posted to this as "breaking" news, plenty of people (like @bitfinexed) had noticed and dug into this on the 23rd: https://twitter.com/Bitfinexed/status/956053106516688898

(from a closed discussion group on the 24th: "I just spoke with the AICPA, Friedman has no professional responsibility to announce if they were ever auditing Bitfinex/Tether and/or if they withdrew from the engagement, so we will never know if there was even an audit in the first place.")

I've been personally pretty closely tracking the Tether situation, as I think it's basically the largest risk to the cryptocurrency market today. Here's a good even-handed summary that covers both sides and what it might mean: https://steemit.com/cryptocurrency/@cryptoscopia/making-sens...

Regardless of whether Tether is fully backed, it's certainly running fraudulently. The original premise promised not just 1:1 USD backing, but also regular audits, which AFAIK have never happened (first supposedly engaging w/ Ledger Labs, and then with Friedman LLP) and now appear like they will never happen. Of course, as bitfinexed pointed out, it's not like they didn't warn anyone about it in their white paper: https://twitter.com/Bitfinexed/status/957416416294068224

(The white paper of course does lie because it specifies regular audits and also banking partners that were aware of their business model.)

For those tracking the market conditions of an impending Tether collapse, I recommend reading this article (and tracking the author, @BambouClub's twitter feed): https://hackernoon.com/what-will-happen-when-the-shit-hits-t...

I'm just not understanding how a $1.5B scam coin would impact the crypto market dramatically at this point. Coincheck got hacked for $500M today and the markets are green across the board. There are alternative peg currencies to the dollar, including Dai, by Maker, which is backed by Ethereum, and seems like a better model for a stable coin: https://coinmarketcap.com/currencies/dai/

Tether isn’t a traditional “scam coin”. Tether is the currency used on many major exchanges, they don’t use USD they use USDT and if tether have printed 2bn in fraudulent dollars that underly the entire crypto market they could wipe out huge portions of the market when it implodes. The market cap isn’t the amount of money invested, a hundreds of billions market cap can come from a few billion in “real” dollars — and if those dollars don’t exist, well...

@guildenstern's response covers it a bit, but a bit more on why this is so important. While the nominal market cap of the cryptocurrency sector is somewhere between $500-600B these days, this is based on an estimated $10-20B of capital inflow (eg "real" dollars invested). USDT, as a de facto 1:1 USD peg acts much more like this money than another random coin, because trades into USDT are treated as dollar settled. While there are some weaknesses to some of the analysis, the recent Quantifying the Effect of Tether report [2] does a good job pointing out the correlation (if not the causation) in terms of pricing/demand.

You can also note that if you order the charts by 24h trading volume, USDT is #3 (right under BTC and ETH) [1] and if you dig into say the top 3 exchanges [3][4][5] you can see that BTC/USDT and ETH/USDT are basically in the top spots. Ignoring the Korean exchanges (who are their own little universe), you have to get down to GDAX @ #10 to get down to an exchange that doesn't directly touch Tether.

If you pay attention to the markets, you can see USDT clearly driving price movements and as long as everyone treats it as a USD equivalent, USDT drives USD prices. When new USDT is printed (easy money), then people (and potentially market manipulating bots if you are into conspiracy theories) use it to margin into BTC, increasing demand, driving the whole market up. If this is not organic demand (USDT issued due to USD deposits), then we have a huge problem, since this has been going on for months and represents a huge price distortion.

Now Tether isn't solely responsible for driving prices up - there has been a real mania (you can see it with the insane amount of signups going on for retail exchanges), with a lot of real money coming in, but there's some real dirty sausage making going on atm. A writeup that points out a lot of the messy stuff going on: https://medium.com/@Skycoinproject/state-of-the-cryptocurren...

Personally, I believe that most of the Tether is backed by real currency, however it is being driven primarily by large OTC swaps by those evading Chinese (or Korean) and potentially dark market capital controls. I don't know if this actually leaves the market any better off if/when Tether Inc and many exchanges get busted by governmental/international regulators.

These shenanigans btw hasn't gone completely unnoticed in the mainstream news. Nathaniel Popper, who covers the digital currency beat for the NYTimes has done writeups on Bitfinex/Tether [6], as has Bloomberg [7], heck, even Dr Doom is all in on beating the Tether drum now [8] although I don't think anyone is straight up talking about the likelihood of major ML going on...

Re, other stablecoins, while they'd be nice to have in theory, I think one needs to be a bit skeptical: https://prestonbyrne.com/2018/01/11/epicaricacy/

A recent insightful quote I saw was that stablecoins trade volatility risk for blow-up risk.

The most interesting stablecoin announcement I saw was MUFG's plan to release a JPY-pegged coin soon. Now that'd be interesting...

[1] https://coinmarketcap.com/currencies/volume/24-hour/

[2] http://www.tetherreport.com/

[3] https://coinmarketcap.com/exchanges/okex/

[4] https://coinmarketcap.com/exchanges/binance/

[5] https://coinmarketcap.com/exchanges/huobi/

[6] https://www.nytimes.com/2017/11/21/technology/bitcoin-bitfin...

[7] https://www.bloomberg.com/news/articles/2017-12-05/mystery-s...

[8] https://twitter.com/Nouriel

In my opinion, people are using USDT to dodge the price swings that occur in the market. I don't know that USDT represents a fundamental underpinning of the price of Bitcoin, for instance. Coinbase had over a $1 billion in revenue last year, alone, so Coinbase is probably responsible for tens of billions of USD deposits on ETH & BTC markets.

Yeah if USDT crashed it might cause a big hit on the market, but not worse than anything else we've seen. 30-50% drops are fairly common in this market.

In the mean time, I think other stable coins (like Dai) will continue to grow in popularity. I've read Preston Byrne's article, but I've also read Dai's white paper and I think that they have a fine model to build a relatively stable coin, not a perfectly stable one, mind you, but a relatively stable one that trends towards $1. For those wishing to hedge their bets against the swings in the market (the great bulk majority of the USDT market) I think Dai is a great alternative. We'll see as it matures, it's still early days.

Ironically it could push the price up. If everyone rushes out of tether to Bitcoin...well you know what happens

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