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The Tether Conundrum: a look into a suspicious cryptocurrency
- mkirklions 9y agoI've seriously considered making a cryptocurrency backed by something. The problem is when it changes value and fees are taken. The math can get pretty insane when taxes between the crypto organization are taken and users realize their gains. I did some math, looked alright. But I'm worried about the unknowns, unexpected fees that MUST be taken by the users, and mostly taxes.
- jgautsch 9y agoWhy would it change value relative to the underlying asset backing it? Counterparty risk? And what sorts of fees and taxes are you referring to?
- jstanley 9y agoHow could a cryptocurrency be backed by something? If I need to "trust" you that I can get <something> in exchange for my cryptocurrency, then that's not much of a cryptocurrency is it? It may as well be a MySQL database controlled by you, as that's what it amounts to anyway.
- jgautsch 9y agoThe difference between a cryptocurrency backed by something and a MySQL database is that in the former case, underlying value is indeed centralized, but in the latter, both underlying value and the exchange of stake in that value is centralized. Like chips in a casino can be exchanged with the house for cash, but I don't need to tell the house that I'm giving some chips to my friend.
- jstanley 9y agoFair point, but that's then no different to Tether.
- asgioiobuio 9y agoI've been toying with the idea of a computation-backed currency. Any computer can obviously pay another computer in computer time. This means that any node in the system can issue currency backed by computer time. This would require trust, but it would be trust between neighbors rather than trust in one central exchange. The problem is that that's not really a currency. It's zillions of IOUs. I don't know how to make transactions between two nodes that don't trust each other or how to come up with one number for someone's net worth.
- jgautsch 9y agoSome economists would argue that "zillions of IOUs" is basically the precursor to currency/money. Then you just need a consistent unit, and that ability to trade/transact (which is a solved problem). > Graeber proposes that money as a unit of account was invented the moment when the unquantifiable obligation "I owe you one" transformed into the quantifiable notion of "I owe you one unit of something". In this view, money emerged first as credit and only later acquired the functions of a medium of exchange and a store of value. [1] [1] https://en.wikipedia.org/wiki/History_of_money https://en.wikipedia.org/wiki/History_of_money
- femto113 9y agoHow about Tycoin? Back it with little stuffed animals.
- dralley 9y agoBBCoin, the first cryptocurrency backed by Beanie Babies. The value will surely go "to the moon".
- gsich 9y agoWhy backed? Fiat is not backed by anything either.
- yobrien 9y agoBut fiat is generally trusted with a long track record and is backed by the word of the government, a powerful and trustworthy organization to a decent extent.
- bryananderson 9y agoTurns out the full faith and credit of a major government is a hell of a thing of value.
- wmf 9y agoCheck out the five parties model: https://bitcoinmagazine.com/articles/five-parties-model-1393673552/ https://bitcoinmagazine.com/articles/five-parties-model-1393...
- blhack 9y agoThis is the THIRD tether FUD article to make it to the front page today. What's the deal?
- jonknee 9y agoThis is a pretty good primer of what looks to be the most obvious scam in cryptocurrencies (of which there is plenty of competition!). It seems to be the glue holding the market together and has rapidly gained scale. When the scam crumbles it is going to be epic and tons of exchanges are going to go with it. In the meantime (if you like gambling), wait for another big down day and watch for Tether issues. The market will start to climb shortly afterwards. Just make sure you're playing with USD and not USDT!
- chollida1 9y ago4 statements of fact that are not in dispute. 1) Tether is supposed to be backed 1:1 by USD. 2) There are now $1.7 Billion in tehters outstanding 3) They were turned down by all reputable banks they approached. 4) They have printed $450 million of tethers in the past week https://coinmarketcap.com/currencies/tether/historical-data/?start=20170119&end=20180119 https://coinmarketcap.com/currencies/tether/historical-data/... Just ask yourself honestly..... do you really believe that there is a reputable bank anywhere in the world that would allow them to hold $1.7 Billion in an account and additionally make a deposit of $450 million in a single week? Ocams razor says this can't possibly be true.
- brokensegue 9y agothe most charitable explanation I've heard is that tether is backed by $2 billion in value of bitcoin.
- pjc50 9y agoBut this is nonsense on stilts. It's supposed to be tethered to the USD, not bitcoin, and the value between the two flaps about all over the place.
- brokensegue 9y agoyes
- aqme28 9y agoIf that were true, they would print Tether when BTC price climbs, and perhaps get rid of Tether when the BTC price falls. What happened instead was that they printed more Tether (450MM) when the bitcoin price was collapsing.
- brokensegue 9y agowhen they print it doesn't matter really since whenever BTC drops they are suddenly running a fractional reserve. the whole system is unstable if the theory is true.
- deleted 9y ago[deleted]
- ve55 9y agoThere's alternative explanations for a lot of the very strong accusations made against Tether. People always refer to Tether 'printing money out of thin air', but they never consider the prospect that investors are wiring money to exchanges, having Tether printed for their use, and then using that USDT to purchase cryptocurrencies. Bitfinex is huge. Bitfinex also has an OTC counter, which has been known to broker trades in excess of 10-50M USD. USDT is often the medium for which these trades are executed, so it makes sense that a lot of Tether needs to be printed when BTC is crashing, as that's when the larger players decide to buy in the most. There is a lack of transparency, and I wouldn't be surprised if things don't look perfect behind the scenes, but that doesn't mean the entire thing is a billion dollar scam conspiracy that the largest exchanges are all in on. Not all transparency is in the users' advantage in this area either. Do you know why Bitfinex doesn't tell you exactly where their servers and wallets are located? Probably because they hold over a billion USD in BTC in a single address. Keep in mind that the market clearly values Tether at around $1USD, almost always. That's a good sign that the market as a whole does not think Tether is going to suddenly collapse and take the entire ecosystem into it at any point in time. It's important to read criticism like this and consider it, but not believe it blindly. There are a lot of feasible middleground scenarios between "is a complete fraud and scam" and the exact opposite.
- specialp 9y ago> It's important to read criticism like this and consider it, but not believe it blindly. The article made provably true observations about Tether. You have made the most stretchingly feasible counterpoints that have no demonstrable proof or transparency. Who is believing something blindly here?
- snissn 9y agoMaking a counter point and believe blindly in the counter point are two separate things.
- aqme28 9y ago>People always refer to Tether 'printing money out of thin air', but they never consider the prospect that investors are wiring money to exchanges, having Tether printed for their use, and then using that USDT to purchase cryptocurrencies. This isn't an alternative explanation. This is the same explanation. Investors are printing USDT and using it to buy BTC.
- codespunky 9y agoSome relevant info for those of you looking into it. I heard that back in 2016 tether ran out of capital and basically the assets and IP sold to a bunch of folks under some pretty bad circumstances, and most of the core team and early investors got screwed. The buyers seemed pretty shifty.
- wmf 9y agoI don't think more rumors are what we need at this point.
- codespunky 9y agoIt was more than a rumors. I knew two of the people who were involved in the sale of the company. Both disheartened. And let me ask you this.. who buys a sophsticated operation like this and only keeps a single member of the original dev team?
- wmf 9y agoIf you know facts firsthand but refuse to pass them on, that's the definition of a rumor. You're not spreading a rumor, you're actually creating the rumor. Especially since you're posting from a green account.
- codespunky 9y agoBefore you ask, I learned this through one of the engineers who worked on it. He was a good guy and pretty standup. My point was only that the people who started it are no longer the people running it.
- JumpCrisscross 9y ago> He was a good guy and pretty standup Then he should file a complaint with the regulators. Knowingly participating in and profiting from a fraud isn’t something good, or simply law-abiding, people do. Absent such a report, you are posting unsubstantiated rumours.
- unknown_apostle 9y agoI'm very curious to understand this. Who is buying this? What is the real purpose? Who benefits in the end? Why is the daily volume 5 times market cap? I wonder if it would be possible just through statistical or network analysis of all tether transactions on omni layer, without knowing the full narrative of Tether, to get some idea of the game.
- bryananderson 9y ago1) Invent a centralized cryptocurrency which you control the generation of, announce that one of your currency is equal to one US Dollar, and claim to actually have said dollars in a bank. You must stonewall all attempts to verify this claim. 2) Set up an exchange on which customers can buy into crypto with fiat currency, but can only cash out into your invented fake-fiat currency. Do not under any circumstances allow them to cash out into real fiat. Don’t worry, they really want to believe they’re going to be billionaires, so no one will ever question their total inability to realize their paper gains. 3) Wait for a drop in crypto prices, print a bunch of your fake-fiat, and put it in your pocket. 4) Buy a ton of crypto with fake-fiat while the crypto price is low. This infusion of demand will pump the price of crypto. 5) Once you’ve sufficiently pumped the price, sell the crypto you just bought, preferably in exchange for real fiat from the customers on the exchange that you own. 6) Repeat, a lot.
- TaylorGood 9y agoHave not bought Tether, but the traders I chat with buy it before perceived dip then buy back into their tokens at bottom.
- unknown_apostle 9y agoBut why don't they buy regular USD? Ask them next time :-)
- aqme28 9y agoI'm a believer that Tether is incredibly sketchy, but there's one thing I don't quite understand. Can anyone explain why Tether's price never drops significantly below a dollar?
- unknown_apostle 9y agoGood question. I'd say either the vast majority of tethers are held by the people behind Tether, and/or the non-Tether people who hold it are massively stupid. Any non-Tether people holding Tether are running a risk, with literally no long term upside. They say cash is the worst long term investment, well, Tether "cash" is even worse.
- tonyarkles 9y agoNominally I'd think it's because they can, theoretically, be exchanged for $1 USD. Practically that's not possible currently (by the sounds of it), but it's the same reason people don't go around selling $1 USD bills for $0.90 USD.
- aqme28 9y agoBut that hasn't actually been true since April. Are investors ~100% confident that it will be exchangeable again in the future?
- jgautsch 9y agoPerhaps people aren't rational all the time. https://en.wikipedia.org/wiki/Confirmation_bias#Persistence_of_discredited_beliefs https://en.wikipedia.org/wiki/Confirmation_bias#Persistence_...
- granfalloon 9y agoWhy did this get flagged as a dupe? This particular article hasn't been linked yet, and it seems to have more substance and analysis than the other two posts today.
- wmf 9y agoIt's not exactly a dupe but it sure looks like this article just reworded a bunch of Bitfinexed posts. Why not submit the original?
- hedonistbot 9y agoHow about this theory: I can print USDT (by fiat) and buy BTC with it. Now I have a large amount of BTC and propped up price. Then CME starts trading BTC futures against real USD, coincidentally the trading starts at the very top of BTC price. Then I start selling both BTC for dollars AND BTC futures again for dollars (cash settled on expiry). I am making real USD and only started with USDT (supposedly backed by nothing, best case by my BTC wallet). Now that prices are 50% lower and I have tons of USD (or just print more USDT) I can start buying again keeping the price acceptable and ready for another pump before I start selling the next BTC futures contract. Is this possible. Am I missing something?
- Hates_ 9y agoI'm having a really hard time trying to understand how Tether can be used to buy Bitcoin if they are being made of thin air? Does anyone have a link to a good explination of how this works?
- rkeene2 9y agoPeople are willing to trade other people by giving them bitcoins in exchange for tethers. Also, the same for US dollars and tethers.