Zeke Faux's account of the crypto industry, Number Go Up, is a great book. But there's an odd thing about it: The genesis of Faux's interest in crypto is Tether, a so-called "stablecoin" that's always equal to exactly $1 and is backed 1:1 by currency and safe securities. Faux wants to learn more about Tether—for example, is it really backed 1:1 by dollars?—but is unable to do so. By the end of the book he's as much in the dark as ever. He's unable to interview anyone at Tether. No audits are available. Its finances are hazy. And its executives stay mostly out of sight.
And yet, Tether is the foundation of the entire crypto market. When people trade crypto, they mostly buy Tether and then trade the Tether for whatever coins they want. Since 2019, the amount of Tether in circulation has increased from roughly zero to nearly $90 billion:
I'm not sure why this popped into my brain today, but I was always a bit mystified that Faux, who spent a great deal of time investigating crypto, was literally unable to find out anything about Tether. Nor is Tether regulated, since it's a non-US corporation. It's basically a bank with $90 billion in assets but no need to tell the world if it really has the reserves to back up that $90 billion if it were subject to a run.
Anyway, that's it. I don't have anything to add to the immense abyss of non-information about the most important cryptocurrency in the world. It's just very strange, that's all.
Except it's not really a bank, else there would be some regulations--unless people just fly to undisclosed locations with bags of cash.
The only way Tether could make money is to take a slice of each transaction, but then they'd be left with bits of Bitcoin or Etherium or...whatever. Only when/if someone was trying to buy into (and not mine) "coins" could they unload some of their stash.
Presumably, they invest the money that they get from the sale of stablecoins. If they have invested the money in U.S. Treasury bills, they are currently earning around $4 billion per year in interest. If they've invested in something riskier, they could be making significantly more, or they could be losing money like crazy.
I wouldn't make that presumption. Seems very possible, if not likely, that tether is just one more massive con and they simply stole the money.
Oh c'mon, Kevin. We all know the answer here: this crypto, and everybody in crypto has turned out to be either knaves or fools. Everybody. There hasn't been a single crypto "thing" that has turned out to be honest. Not. A. One.
Tether is gonna turn out to have been bent all along.
It sounds like its being used the same way suitcases full of hundred dollar bills are used, as a stash for cash when banking and other assets are unavailable or not liquid enough. That's the obvious "killer app" for bitcoin, but most bitcoins fluctuate in value. Tether makes claims about its stable value and has a bit of a record for stability, just like the typical cash mutual fund at a big brokerage house. Of course, it has a shorter record, but I'm sure its customers have hedged their bets.
P.S. Given the userbase, I can understand why the folks operating Tether would like to be anonymous.
Molly White’s newsletter has a recent item on rocks that weren’t turned over in the SBF trial. One of those rocks was Tether. Turns out to have been the source of a lot of the loose cash that was flying around.
Ok, with Tether being "underneath" Terra/Luna, the obvious answer is that there's a parallel stable bitcoin called "Release" that (magically) makes up for losses in Tether and vice-versa. Oh, wait. SBF showed that didn't work so well, didn't he. Okay, I got nothing...
Tether is the Silk Road of crypto...
I loved Number Go Up, I really did, but a big part of me feels like it was published a year or two to early. Faux and his editors really should, for example, have waited for a conclusion to SBF, who occupies a lot of the book, before going to press.
"And yet, Tether is the foundation of the entire crypto market. When people trade crypto, they mostly buy Tether and then trade the Tether for whatever coins they want."
This is literally not how "the entire crypto market" works. It's how Tether works, and how Terra/Luna work(ed) (I guess) and anything else that happened to use Tether.
When someone buys Bitcoin, they aren't first buying Tether and then buying Bitcoin with that Tether token. They're buying Bitcoin directly (typically).
Sounds alot like Plaid, the password phishing service that investment banks use to confirm your credentials by logging into your account for you.
All the banks use it, but it's literally using a method they tell you to never do.
> All the banks use it, but it's literally using a method they tell you to never do.
That describes nearly everything a bank does.
I also have no idea how Plaid looks like Tether to you. One is (a hilariously insecure) integration provider, the other is a shitcoin provider.
...what?
When you use Plaid, you're not signing in to Plaid. You're telling Plaid you give it permission to do certain things and then it has you sign in through your bank's website, NOT Plaid, which then grants access to Plaid. Plaid never receives your login information.
The whole existence of Tether and its immense growth, along with that of the several other stable coins, betray the self deception at the core of the cryptocurrency religion. "Fiat currency is doomed!" they proclaim, and yet pegging a cryptocurrency to the world's most prominent fiat currency proves itself to be a winning strategy.
Imagine an intermediary for traders. Some bet short: some bet long. Some want this: some want that. Many bets are against each other and so zero out. How much of actual product is needed to meet the net demand? A hell of a lot less than the individual positions being taken.
Now, imagine Tether. No-one goes there except to get tulip bulbs (sorry, cryptocurrency varieties).
Some want this. Some want that. Can positions be treated as cancelling each other out?
Are they?
If there's more value in than is needed to cover the net positions...what stops it being taken out?
How would you know?
Tether is basically an unregulated bank with 90 billion in liabilities, not assets. It's assets, such as they may be, are the dollar holdings that are supposed to back the liabilities.
Preferring Tether to dollars makes absolutely no sense.
"When people trade crypto, they mostly buy Tether and then trade the Tether for whatever coins they want"
Why? Why don't they just buy it directly?
Kevin's wrong here. People don't buy Tether to buy other crypto. Usually they just buy other crypto directly.
It seems that the purchasers of this "stablecoin" are Untethered. Jes' sayin'
The wildest thing about Tether is that they basically survived a multi-billion dollar bankrun. Faux writes about how he thought they were going to fail around the same time as Celsius, but they pulled it together and didn't run out of money.
They're a black box, but they seem to have some powerful backers who can keep them from collapsing in a way that other crypto marketplaces didn't.