Perhaps a controversial view, but why does this matter?
I was having this debate with a friend a few weeks back.
Tether was the first crypto coin pegged to a fiat currency, but now there are so many more: USDC, BUSD, TrueUSD, DAI, GUSD...and that's just a fraction of the ones pegged to $USD.
The entire market's _daily volume_ is 5+ times the entire Tether cap. Plus you have Automated Market Makers (Uniswap & co.) where you can trade directly between crypto pairs and even Binance/Crypto.com debit cards which ensure a closed circulation loop for stablecoins within the exchanges.
If it turns out that Tether is printing USDT without backing anymore how would this impact the crypto market?
I expect another USD stablecoin would just take its place and life would go on.
Crypto trading/hodling is just too irresistible at this point. The last _3 months_ saw $1Tn of new money poured into crypto from all sides.
I would be curious to know what does HN genuinely think about this USDT controversy, if possible without the shilling and emotion?
Did you follow the archegos capital implosion? That's what happens on a smaller scale than tether. What you'll get is a price drop, a pretty significant one, because it will happen suddenly.
There is no foundation for the current prices of cryptocurrency, so if people get the impression that its propped up by frauds it runs the risk of dropping precipitously.
Also, I think you underestimate the follow-on effects of 20% of a market's daily trading volume pulled out of a market all at once.
I've only followed Archegos from afar, but I see your point.
Basically it all boils down to people's trust in Tether, which if lost could cause a ripple effect and massive dump of USDT.
I think there are just too many unknowns to predict the market-wide impact, but Archegos is a good case study (in a way so is Ripple/XRP who went through a somewhat similar dump for different reasons a few weeks ago).
1. People holding USDT realize they are holding nothing. The potential losses could scare crypto holders and create a bank run to sell for FIAT.
2. The demand for BTC that drives up the price is inflated. Bitfinex does not actually have anything valuable to be exchanging for BTC. This would certainly cause the current bubble to pop.
In the end every holder wants to know when the next pop is going to happen, no?
It's interesting to think about how in the short term at least, people would sell USDT for anything, particularly BTC, ETH and other stable coins like USDT or DAI in this scenario, so I would expect a price spike in BTC if there was some critical event where USDT collapsed.
I guess it would reflect a false value of real liquidity in the whole crypto market so would have to depress BTC price for a time after the dust settles.
Dollars simply because it is an increase in demand. Of course, the relative dollar increase would be less than the USDT denominated increase. If USDT is pennies on the dollar, but these fractional dollars are bidding for BTC, BTC will go up in dollars.
Most people don't hold a lot of tether at any given time. If you bought any tether, you probably did so with the expectation that you will sell it for some other currency, either crypto or fiat, very soon.
This isn't true because with DeFi yields averaging in double digits, many people are holding all forms of stable coins to accrue this massive yield. Some people are entering the stable coin market with fiat simply to get this yield and have no interest in buying Bitcoin with it.
It is also irrelevant to frame the situation from what "most people" do when the question is what are the people holding all the minted tether doing with it? It does not disappear; if it is not cashed in for fiat then it is still being held by someone.
It is no secret that in a crypto asset bull market, people are "shorting" fiat to leverage long rising crypto assets. Additionally, just by virtue of overall liquidity entering the space longing assets there is demand for speculation and transaction volume, thus demand for fiat, across the space.
Various protocols on ETH are providing decentralized trading (Automated Market Makers), as well as other financial primitives like lending and borrowing.
So... yields accrue to those who supply fiat liquidity to borrowers (who yes, are speculating on crypto assets; "shorting" dollars). They also accrue to suppliers of liquidity to AMM's in the form of transaction fees to the various protocols. So, "monetary velocity" is high in DeFi and crypto now, so yields go to those enabling it.
When bear market comes, it is almost certain the double digit fiat yields will decline. But will they still be higher than pitiful bank and sovereign bond yields? Maybe. Also at that point perhaps lending crypto assets to those "shorting" ETH/BTC and longing fiat will mean decent yields on that side of the trade.
Ultimately these decentralized DeFi protocols are cutting vast layers of middle men where traditional banks and monopoly players take huge cuts of the overall economic value and velocity[1]. Instead of NASDAQ or Goldman Sachs or whoever to take a tiny cut of transaction fees from financial transactions, you do by supplying liquidity to decentralized finance platforms. So there is room for some decent yield to be sustainable. We'll see.
Who? The greater fool. Why? For the hopes of being able to sell to an even bigger fool eventually.
Crypto currencies do no business, and will never pay dividends, do stock buybacks, deliver interest, or perform any other function of actually generating yield.
You realize someone holds all of the Tether outstanding at all timed, correct? It doesn’t just vanish.
Further, there are many sites paying 12+% interest for people willing to deposit their Tether. This serves as an incentive for people to keep money in Tether rather than BTC/ETH or fiat.
I assume they are conflating the $1T increase of the total crypto market cap with how much new money has been poured in, however, that's just wrong - you need much less than $1T to increase the market cap by that much.
Sorry, for some reason I can't edit my own comment, so adding a new one. The $1Tn figure is Market Cap; I was looking at these charts but indeed they show market cap not capital influx:
If you, personally, do not care what the exchange rate between Bitcoin and USD is, then maybe you need not be concerned over whether a Tether bubble is going cause that rate to crash. I guess, however, that a large majority of those holding Bitcoin care a good deal about that rate, and if so, then a crash in that rate will have a significant effect on how Bitcoin is viewed and used. The question for you to ask yourself, then, is whether those changes will adversely affect whatever it is about Bitcoin that you value.
How? If a USDT-denominated exchange holds a certain amount of USDT and a certain amount of other cryptocurrencies, a change in the dollar value of USDT won't make them unable to make customers whole.
I was having this debate with a friend a few weeks back.
Tether was the first crypto coin pegged to a fiat currency, but now there are so many more: USDC, BUSD, TrueUSD, DAI, GUSD...and that's just a fraction of the ones pegged to $USD.
The entire market's _daily volume_ is 5+ times the entire Tether cap. Plus you have Automated Market Makers (Uniswap & co.) where you can trade directly between crypto pairs and even Binance/Crypto.com debit cards which ensure a closed circulation loop for stablecoins within the exchanges.
If it turns out that Tether is printing USDT without backing anymore how would this impact the crypto market? I expect another USD stablecoin would just take its place and life would go on.
Crypto trading/hodling is just too irresistible at this point. The last _3 months_ saw $1Tn of new money poured into crypto from all sides.
I would be curious to know what does HN genuinely think about this USDT controversy, if possible without the shilling and emotion?