Stocks aren’t pegged to the dollar, you’re comparing apples and wrenches. Tether is much more like a money market fund than an equity or bond.
If your point is that there isn’t infinite liquidity at the current market price for an equity or bond, you’re correct, but it’s irrelevant since tether is nothing like an equity or bond.
+1 on all of the above, and to add: there isn't infinite liquidity on securities, and that's ok. And that's exactly the problem: Tether is pretending not be be an security, even though it transparently is.
Heck, to generalize on this, this is kind of the ur-problem with crypto generally: a bunch of things pretending to be currencies but are actually securities. The whole subterfuge is intentional, to foist risky assets on people by lying about their nature, and to avoid the (hard fought and hard justified) regulations around said risky assets.
Can you explain why USDT is a security but the US Dollar is not? It seems like the only real difference is that one has a wealthier and more powerful issuer than the other (which, obviously, is enormously significant still)
It is almost a rule of banking that pegs are made to be broken.
If you say that one of something is worth one of the other, you are promising that you have a bottomless supply of the currency on both sides of the peg. This almost never actually happens and whoever is running the peg will inevitably be caught with their pants down. Bankers specifically love breaking pegs and have the means to do so.
If USDT was run by the Federal Reserve nobody would question the system; because then they'd have the capability to issue both the USDT token and the dollars backing it. They would be considered as fungible as dollars in the bank versus dollars in your hand.
For one, currencies are issued and backed by sovereign nations generally, and recognized as legal tender somewhere. USDT is not on either count, as far as I am aware.
It might technically count as a ‘crypto ecosystem currency’ since it is often used to exchange value between different chains/coins/exchanges. But it is very difficult to convert to a recognized currency, so a lot of folks also get unknowingly stuck with it thinking they have dollars. There is a reason USDT is the ticker they pushed for, not TETH or whatever.
> But it is very difficult to convert to a recognized currency, so a lot of folks also get unknowingly stuck with it thinking they have dollars.
When Voyager entered bankruptcy, quite a few people suddenly discovered that the USDC they held on the platform was not the same as USD, did not enjoy the same legal protections USD would have, and that much of it had been loaned out to 3 arrows capital and was not coming back.
The distinction became even more significant when the bankruptcy judge agreed that the bank accounts that were holding actual USD customer deposits were not part of the bankruptcy estate and had to be released back to those customers.
> US Dollar is a currency. USDT is a security backed by things that aren't US Dollars
Meh, plenty of currencies—from the Emirati dirham to the Hong Kong dollar—are pegged [1]. International investors would just shit bricks if any of them dared the lack of transparency Tether pulls on crypto users.
They’re not pegged to assets though and as such can’t lose value. Currencies can only go down vis-a-vis each other. When you buy an HKD you’re not buying a slice of a USD, you’re buying an HKD.
> When you buy an HKD you’re not buying a slice of a USD, you’re buying an HKD
You're also buying a commitment from the Hong Kong Monetary Authority (HKMA) to convert between Hong Kong and U.S. dollars at fixed exchange rates [1]. That promise is backed by the HKMA's reserves [2]. Tether closely resembles a pegged currency, albeit a banana republic's.
Hong Kong's central bank prints their own currency. They defend the value of it by engaging in open market operations. If they fail, you can still pay your taxes in Hong Kong with it.
Tether does not print their own currency. If USDT goes to zero, you have nothing. It's good nowhere.
> Tether does not print their own currency. If USDT goes to zero, you have nothing. It's good nowhere.
Tether prints Tethers. The HKMA prints Hong Kong dollars. They both derive their value from the U.S. dollar. If the HKD goes to zero, one has as much as if Tether goes to zero. (This is tautology.)
The Hong Kong dollar is backed by the Hong Kong government. Tether is backed by no government. Tether is probably lying about its reserves. Hong Kong could just as well convert everyone's HKD to renminbi overnight.
Point is, there isn't something fundamentally currency-like about one versus the other other than state backing.
>They both derive their value from the U.S. dollar.
No, they don't. The HKD is pegged to the US Dollar. They engage in open market operations to buy and sell HKD in order to keep the value of it around 7.8 HKD to a USD. This can be very expensive for them to do sometimes, such as right now. There is nothing fundamental about the HKD that makes it worth 12.8 US cents. Its intrinsic value is derived entirely from the fact that you can pay taxes with it in Hong Kong. It can't go to zero because demand for it will always be higher than 0.
On the other hand, the USDT is ostensibly $1 because you bought it for $1. They claim to be backing it with $1 worth of assets allowing you to sell it back to them for $1. This entire thing is about how nobody actually knows what its backed with. It has no other intrinsic value. If Tether doesn't (or wont) buy it back for $1, it's worth nothing. It does nothing.
> They both derive their value from the U.S. dollar.
No, they don't. You are either genuinely confused or engaging in that tiresome crypto game of "well, if we pretend sovereign states (or even Hong Kong like entities) were the same as a corporation, then logically..." Sure. But they aren't, so it doesn't matter. Wishing this weren't true isn't really interesting.
As said elsewhere, the difference is a currency reserve, the assets of a government, and a military. If tether goes down, there is a a much smaller reserve to push it up.
I agree they are functionally similar, it is just a matter of scale. I can write IOUs pegged to the dollar. The only difference is the confidence others have in me.
> Point is, there isn't something fundamentally currency-like about one versus the other other than state backing.
I'd say that's as fundamental as you can get. One is backed up by guns, the other is backed up by literally nothing.
Isn't that effectively like saying "there's no fundamental difference between my three friends who like to talk about how democracy works and the Hong Kong government"?
The fundamental difference between Tether and HKD (or any other currency) is that Tether is not a legally recognized currency.
That may mean nothing to you, or to various other people who think that laws mean less than code, but it means a hell of a lot to most of the world.
This really is the root of all of this, and why we will really never be able to get through the lineup of sealions that will say "please explain to me..." every time you try.
The reasons something is a currency is because it is backed up by the power of the state. This includes (but is not limited to) the recognition of its status as legal tender within a the realm of a state, the ability to pay taxes in it, and also the very real guns and batons wielded by said state to enforce said authority.
There is no such thing as a currency that is not backed by some state, or at least some entity enjoying the broad authorities of a state. Tether (along with literally every single crypto product out there) does not.
But because primarily crypto was invented to snooker people who find the entire concept of state authority to be objectionable, this fact will never quite land.
yes, the distinctions you make are relevant; my point is exactly that there is NOWHERE NEAR the liquidity in ordinary markets.. I was too quick to object and with insufficient distinction, I stand corrected
