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Comment by roenxi | Hacker News Reader

Quoth Wikipedia [0]:

"Nevertheless, Tether Limited states that owners of tethers have no contractual right, other legal claims, or guarantee that tethers will be redeemed or exchanged for dollars. On 30 April 2019 Tether Limited's lawyer claimed that each tether was backed by only $0.74 in cash and cash equivalents."

It seems that it is unlikely that Tether poses any risks, on the basis that anyone who cares can find out the whole thing is shady with even the flimsiest investigation. A risk that large and obvious can't in itself be systemic, because the system will insulate itself from the risk. Everyone knows.

The systemic part is when people start being able to buy Tethers without realising it. Eg, if the banks start selling them to retirement funds or something.

[0] https://en.wikipedia.org/wiki/Tether_(cryptocurrency)

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This is tautological. You’re essentially arguing that market participants can’t be stupid or wrong or credulous, ever.

In the South Sea Bubble people speculated on the value of a company that basically never even started business in its market and had no hope of a profit. Ponzi’s scheme was mail reply coupons, which could never have worked even in theory. The Mississipi company in France flourished despite the abject failure of the underlying Mississipi company to establish itself or a colony.

People can be very wrong. And indeed in crypto you regularly hear such stupid beliefs as “Tether is only $60 billion and crypto has a market cap or $1 trillion, so it’s just a tiny risk”*

The fact that this is a common belief suggests that you’re wrong. People may correctly think Tether is a fraud but have an extremely incorrect belief about the consequences of Tether being a fraud. Just as people understood people with no incomes couldn’t afford mortgages once teaser rates expired but did not understand how that would richochet through the system.

*The error is that unlike a company, no one would ever buy all the crypto outright, and market cap is a meaningless term. An injection of $1.5 billion from Tesla was enough to send crypto markets skyrocking. What would a subtraction of fiat 40x as large do to markets?

So if it's a scam but everyone knows that it is, you think there is no risk?

Everyone with two braincells knew something didn't check out with housing in the US by 2006.

But nobody cares if they think there's still time to get in and make money.

This is true of most bubbles.

The difference is that lots of people who had no interest in playing that game were unwittingly dragged into it by the CLO/CDO scam. That’s why the risk became systemic—bankers tricked everyone into spinning the wheel.

I think there is a risk if people are buying tethers and they don't realise that is what they are doing.

You have a very good point; systems blow up from hidden or mislabeled risk, not from obvious risk that everyone is well aware of.

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