Tether Discussion featuring Bennett Tomlin and George Noble
grant-williams.com
grant-williams.com
Right before the housing crash, most the in-industry folks were fully aware it was unsustainable, but they felt it would continue long term. Same goes for tether, majority of those involved in crypto know what they are doing, and the pump-up effect it's had to crypto.
Not at all.
While those at the executive level have some awareness, the rank and file that I interact with at crypto companies barely understand the tech, and have no knowledge at all of the environment. It's flabbergasting.
* Anything about Tether, other than "it's the largest stablecoin."
* That the primary users of their product in China are engaged in capital flight, rather than entrepreneurial speculation.
* That the people yelling 'To the moon' on Twitter and Discord are excited about making easy money, not about developing projects on their platform. And that the swag and meme competitions they were running were doing little to nothing to advance them with the audience their product actually needed to court.
1. A lot of newly 'minted' Tether's are being used to buy Bitcoin (so prop it up, the Bitcoin price rises).
2. Possibly as a next step, these now more valuable bitcoins are than sold for real money, and the owners of bitfinex/tether pocket this real earned money as profit.
3. It should be noted that although the total amount of tether is still rising, the total amount of all "stable coins" is rising a lot faster, so basically, outpacing the growth of tether: the market seems to be on to them, and puts more trust in other stable coins. Personally, I like Maker's DAO decentralised SAI stable coin a lot. But preferences vary.
4. Why is there any demand at all for any stable coin? Can't a person just send/receive real dollars/euros? Answer: No .
There are a lot of unbanked people in the world, more than we in our western minds would dare to guess, I think.
Look at El Salvador: in 6 weeks since officially adopting Bitcoin as a currency (next to the US dollar, not replacing it mind you) the number of people that now have "wallet" software running on their phone is already lager then the number of people who over the past 20 years were able to open a bank account.
I think it's DAI now.
A few things.
First off, a "wallet" is really a bank account, albeit one at a shadow bank (i.e., unregulated bank). In the case of the Chivo wallet, I think I read somewhere that it's actually storing the USD not as USD but as Tethers. I don't have independent verification of that off-hand, though.
Secondly, the numbers of users are being quoted by Bukele, without independent verification. I have some skepticism of the veracity. Although I will note that the Google Play Store indicates "1,000,000+" downloads. Opening a Chivo wallet came with a $30 giveaway, which gives a motivation to open one up just to claim a pretty sizeable prize--and also a motivation for scammers to do it for you, hoping you won't notice.
Thirdly, there's evidence that it's being little used. More recently, they "negotiated" with the largest gas stations to give a 20¢/gal discount--suggesting that use without promotional offerings is poor. And 93% of businesses report not having anyone attempt to use it.
Overall, this suggests that the adoption of Bitcoin hasn't been a wildly positive success.
Nobody uses Bitcoin, only 1 small country
The people claiming instant success in El Salvador are getting fooled by misleading numbers, but it’s at least plausible that this heavy promotion will eventually pay off there.
I'll bet you haven't travelled in the developing world either.
I have.
I met tons of unbanked people, nearly all because they don't have any money. And the ones that do aren't going to invest it in "some app on their phone".
> the number of people that now have "wallet" software running on their phone
And what is the median balance on those wallets?
My personal suspicion is that when a trivially distressed asset is valued at or above par by smart people that those people expect a bailout/recapitalization.
(Sidebar: USD is special among “fiat” currencies at the moment because its backed by the world’s largest military. Having guys with guns show up if you refuse to treat something as valuable is a pretty compelling argument to treat that thing as valuable.)
But the implied threat towards anyone who say, started dumping US sovereign debt, or transacting petroleum in EUR, or whatever is very real. Countries have been liberated for less.
https://www.cnbc.com/2020/11/02/china-drops-us-treasurys-imp...
Russia has started transacting petroleum in EUR. They haven't been "liberated" yet.
https://www.reuters.com/article/us-rosneft-contracts-euro-id...
Petroleum transaction only make up a small fraction of worldwide dollar use. It doesn't really matter.
https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...
I do think it’s interesting to note that both of the examples you used are the only two countries that the US military wouldn’t like to try its hand against. And there is a broader point there: my original point becomes less relevant the further that global US hegemony slips.
There were rumors that Iraq under Saddam Hussein was looking to start pricing their oil exports in something other than dollars...
> Traders appear to embrace yuan oil futures contracts, pricing them similarly to the Brent and WTI benchmarks, says analyst
> According to Bloomberg Intelligence, the volume of crude oil contracts traded on the Shanghai International Energy Exchange (INE) accounted for 10.5 per cent of the global volume at the start of June compared to 6.2 per cent in the second quarter of 2018.
https://www.scmp.com/business/china-business/article/3088802...
EU also wants to start trading oil in Euros:
https://pemedianetwork.com/petroleum-economist/articles/corp...
The best you could say about that theory is that it's confusing cause and effect. Other nations which have been hostile to and sanctioned by the US for some time also shifted from dollars to Euros.
But most importantly, there's Saudi Arabia. Saudi Arabia has no military except the US military, and Saudi Arabia prices oil in dollars. It isn't conceivable that they could price oil in another currency and still receive protection from the US (i.e., continue to exist).
The US kind of "has" to continue this arrangement because if the world stops trading oil in dollars, the demand for dollars plummets and the dollar crashes because there are just too many dollars out there. The Fed can't "suck in" all that excess money without causing a severe recession/depression.
https://foreignpolicy.com/2009/10/07/debunking-the-dumping-t...
That said, I'm not 100% convinced. If we stop trading oil in dollars, doesn't that reduce the need for countries to keep dollars in reserve? It could be the beginning of a slippery slope.
What is useful is having quadrillions of dollars of other payment obligations denominated in dollars, from the IRS to mortgage debt to IMF loans to international financial markets to people paying cash rent in Ecuador, and a central bank that can raise interest rates if it believes the demand for dollars is falling.
Sterling is still valuable, despite the fact it stopped being the main global reserve currency decades ago and the UK doesn't have any real ability to invade people to change that.
Source? Specifically, a source that can pinpoint a statement by a Libyan official in the immediate run-up to the intervention in Libya (i.e., late 2010 or early 2011) indicating a desire to switch to selling oil in euros.
The closest I've ever seen to such a source is that one of the cables released in the Wikileaks leak reported that a source close to Sarkozy outlined a few reasons why he wanted to intervene of Libya, one of which was a desire to replace the CFA franc (effectively backed by France) with a gold-based Libyan dinar.
And apparently it was enough for the Secretary of State's people to see, too.
Now it's important to note the context of the source. The diplomatic cables are--effectively--gossip reports. In general, they're not indications that anyone actually believes them, nor indications that their reports are causes for action. A report that a French president is concerned about threats to French suzerainty in its former African colonies is exactly the sort of thing that I'd go "right, I believe that... and I don't care." There is yet, to my knowledge, any evidence that this actually influenced US foreign policy in any manner whatsoever, let alone supports the petrodollar-supremacy narrative.
Why the US and the West targeted an anti-Western, terrorism exporting dictatorial regime with a history of trying to acquire WMD whose overt ideology was a blend of totalitarian socialism and a unique version/descendant of Islam during a period where it was unusually active in targeting anti-Western, Islamic regimes especially those with a history of trying to acquire WMDs under the aegis of a war on terror?
Dunno. Must be rumors that they planning to move away from the CFA Franc somehow raising worries that they’d stop selling oil for dollars.
More to the point, many nations sell oil for non-USD. It's quite common. Further, the oil trade is a small fraction of international USD movement. The idea that the "petrodollar" is a major factor in international politics is... unlikely to be true.
Name the largest, why obfuscate?
I was under the impression that the Saudis literally didn't have a military, because the ruling family was afraid of coups.
This laughably wrong.
You should read the other comments before you add your own.
> The dollar has value primarily because taxes inside the US are denominated in dollars.
The amount of USD reserves outside US is huge. Entities that hold these reserves have no interest in paying taxes to US government.
Perhaps this is the reason?
The download link differs from the link that the embedded player is using for the file.
Try downloading the file that the embedded player uses instead. Here's a link to said file: https://www.grant-williams.com/podcast-player/33211/the-gran...
Thanks, that embed link worked properly.
Even if they started as a scam and were a few billions out of parity, 2021 gave them a lot of additional runway, allowing them to recompose their reative parity to the USD.
For instance, they could be 80% backed at the start of the year, and after 2021 cash inflows so far they could have gone up to 93% backed by simply doing nothing.
They could also be <50% backed at the start of the year and <50% backed now...
No one really knows.
I dont mean the power behind it and stuff.
But crypto basically left the gold standard itself a long time ago!
Cryptos often have limited supply but have no floor on demand. For USD to go to zero, the United States as we know it would have to collapse. Most cryptos could go to zero with no real world change aside from people finding a different asset to speculate on.
Also, what real world usage do you actually see for "decentralized database transactions"?
Beyond massive speculation and pictures of apes?
Honestly, most centralized databases are used for silly things you would disagree with also, and the ones that aren't are often used for financial services that you are going to claim are somehow not ok when decentralized but totally fine when centralized :/.
FWIW, I've been using it as a fully distributed replacement for the Tor directory servers (which are run by 9 people as a form of charity, with no plan when I have talked to them for how to deal with people coming by with crowbars to threaten them) and then people pay for their bandwidth (allowing for both fair allocation of resources and well as incentivization of supply), which of course fundamentally requires a programmable decentralized currency (which is itself just a program running on the programmable decentralized database).
That service is worth zero dollars to me and 99.9% of the world.
Also, the cryptocurrency doesn't sell this service, and doesn't make any money.
How long will that last? Miami and El Salvador are already proving you wrong.
> For USD to go to zero, the United States as we know it would have to collapse
Not if your government and country switches to crypto before the fiat collapse.
No, they don't prove him wrong. You need to argue against the best possible version of your opponent's position. Otherwise it's just, as they say, words in the wind.
There are 6500 cryptocurrencies today. Anyone would wanted to create a new one, could in an instant.
Indeed. The us currently has in its coffers a $29T hole [1]
You’re looking only at the liabilities without checking what assets those liabilities are backed by, and what kind of new revenue those liabilities created. Debt isn’t burned money, it’s invested money at work in the economy. Out creating new revenue to service said debt.
Also, the value of a dollar isn’t driven by the federal balance sheet but rather demand for those dollars. When dollars enter the world, via fractional reserve borrowing, the new dollars are issued against new debt. The obligation to repay the dollar to the lender is what creates demand for dollars and gives them value.
And right now, the picture isn't exactly rosy, certainly not something I'd invest in.
I'm no fan of Tether (as a matter of fact, I'm pretty certain it'll blow up in fairly short order. I am actually looking for a well constructed way to short it)
I was simply point out how ridiculous the comparison is.
From the pessimistic point of view that could be said about anything. But people around the world have little to no better options when it comes to the question “okay I finally have some credit, where do I put it into?”. It’s not rosy, but it is the least stinking pile of shit the world has.
I find it so amazing for a group of people who despise the USD how much energy they will spend defending a company whose entire business model is USD.
In defense of Tether, maxis always try to deflect with this stuff, as if a couple of people minting ERC20 tokens is comparable in any way to the US Govt.
But the US Govt gets to print dollars. That’s how that works, for better or worse. Tether does not get to print dollars (which is what they are doing by claiming they are “fully backed”).
First 1USDT should equal the value of 1USD, so any drop in value of the USD would also be a drop in USDT purchasing power.
Second, 1USDT backed by less than 1USD in value is obviously worth less than 1USD no matter what happens to the USD.
Third, the charter of the fed, created by congress, is to maintain a low fixed rate of inflation and maximal employment (along the Philips curve). They adjust the supply to meet this objective. Tethers goal is to pump the bags of early crypto entrants to simulate - and stimulate - liquidity to the benefit of the few.
That's obviously not how it works. For instance, US banks have capital requirements of ~8%, but the dollars they issue aren't worth $0.08, they're worth a full dollar (as long as no bank run happens). The same mechanics hold for Tether, whether they're regulated or not.
In fact, USDTs are often worth more than a real dollar because the demand for them trumps their risk discount.
This is of course absolutely not how things work. The risk isn’t with the dollar holders in the banking scenario because a dollar isn’t backed - it doesn’t need to be backed. This is the essence of fiat currency.
The risk is with depositors (creditors), and as you say they do not value their deposits at 8 cents on the dollar just because that’s what capital reserve ratios are. We have tons of regulation and insurance and centuries of mistakes that have led to the current system. But your argument conflates one core thing: assets vs liabilities. The dollars that banks lend are real dollars, and the people who receive those dollars don’t care what the bank’s financial health is. That’s because the dollars they receive in a loan are liabilities, whereas when people receive Tether, it’s an asset. Let’s explore…
People don’t deposit dollars in banks, and receive a certificate of deposit and use that in lieu of dollars. This is what is happening with Tether. Tether doesn’t take USD deposits and turn around and issue USD loans, it takes USD deposits and issues USDT certificates of deposit, which the market trades at par with USD.
This difference is crucial though. Banks are fundamentally limited in the number of loans they can make versus the amount of deposits they hold. So they might be overlevered, but borrowers don’t worry about the dollars they receive being fake. And if the bank collapses, who cares, I’m a debtor, not a creditor. Reserve ratios matter to creditors, and don’t impact the legitimacy of any loans of they’ve made.
Tether on the other hand takes deposits and issues certificates of deposit that they call USDT and claim are redeemable for one USD. These then trade on the open market as fungible USD. The problem is that this makes USDT holders creditors, whereas in the bank example USD holders are debtors. So this means as a creditor the solvency of the issuing institution is of paramount importance. If Tether implodes, USDT are worthless, just like if a bank implodes, its certificates of deposit might be worthless (ignoring insurance). But in the bank scenario, the dollars that it loaned out aren’t worth any less.
Just a small point of clarification - I think - that helps to make your point a little clearer.
If the bank collapses - it's likely precisely because those loaned dollars ARE worth less. Commonly in bank collapses - those that borrowed from the bank can't repay for whatever reason. Creditors to the bank then get spooked and demand 'redemption' of their deposits.. etc
The difference is that whether or not a borrower from the bank still has that wealth is mostly independent of the actions of the bank (making other risky loans that lead to collapse etc). The value of the borrowed dollars depends entirely on the borrower. Whereas with tether - you might have locked it down in a hardware wallet encased in cast iron steel under your bed - doing nothing risky with it at all - but it could still go to zero in value. Tether's value depends on the actions of the issuer entirely.
Similarly - the owners of tether can't, through their risky use of tether endanger the prospects of the issuer; while borrowers can, through their risky use of loans, endanger the prospects of the banks.
> If the bank collapses - it's likely precisely because those loaned dollars ARE worth less.
I get what you mean, but it's not quite the same. The loan, as in the receivable, is worthless and thus might prompt/contribute to a bank run/collapse. But the only reason defaults are an issue (like in this scenario) is precisely because the loaned dollars do have value, and the bank (and its depositors/creditors) want them back.
It's all just assets and liabilities.
But I understand what you mean, the issue is that central bank rates and facilities combined with reserve ratios are the primary determinants of money creation (well, and GDP growth). So the transmission mechanism winds up being private banks, but it's still at the behest of the US Government.