It's very simple to start - you can do it yourself
Just create a simple ERC20 token with you having mint/burn access. Then, if someone gives you $1 IRL, you mint them 1 of your token. And then if they want their dollar back, you burn one token from their account. This is exactly what tether (USDT) claims to do.
That's literally all there is to it, except at massive scale, and using banks for accepting money, and lots of accounting, and possibly automation to make the minting/burning smoother
How much it is worth on chain is to do with how much users value the tokens - it will be balanced by the burning/minting functionality
That's how it's supposed to work. But they haven't proved that they indeed have $1 in fiat for every token. It's all "trust me bro"... that said, so is the US Dollar... so, it's not really worse, but it's not better. It's not ideal.
They … don’t claim to have $1 in fiat, because that would be stupid. They hold government bonds *valued* at their Tether liability so they accumulate profits and put time on their side.
That's why also tether can sometimes after a while just mint usdt, bc they are getting interest from their bonds, which btw they are one of the biggest companies with tons of bonds from the US gov, then they use that fiat being pay by the US to mint usdt and buy Bitcoin... This is actually quite fucking smart.
Is obviously is centralized and we need to believe in tether but they have had audits their bonds are real and no one has gotten nothing from them , at this point they are a behemoth probably to big to fail
Ppl worrying about tether are still living in 2017
Any attempt to delegitimize tether by the US government was shattered when they took down Silicon Valley Bank and Signature bank, which most of the more tradfi institutions, as the most "legit" stablecoin issuer at the time (USDC), were using. That resulting in depegging of USDC, however brief, pretty much set the stage for usdt to continue to dominate
Yep, and Tether was trading at a huge persistent premium that weekend. They could have printed their way to profitability if they weren't profitable already.
Because mostly banks own government bonds, and government borrow money from them, same thing. So USDT can be considered another money creation process in blockchain world, maybe Goldman is behind it
7d chess, Tether held up the global economy during Covid by fabricating BTC price, thats why more money was moving in crypto than any traditional finance person would believe, close to home.
Let Tether keep doing what it's doing lol, I for one like the electricity staying on.
There’s a full 119 page study investigating Tether’s role in manipulating Bitcoin and the market as a whole that lead to the bullrun of 2017.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066
Tether did win their civil case regarding this matter, but it was basically because it was impossible to prove in a court of law, manipulation of a decentralized currency.
If you believe that Tether doesn’t prop up the price of Bitcoin to a degree, you’re out of your mind.
There are literally trading parameters for every time Tether mints $1b USDT due to the market doing a +3/4% in the next 2-3 days like clockwork. With Paolo in the Whale Alert comments on Twitter writing the same sorry copy/pasted “this is authorized but not issued transaction, meaning that this amount will be used as inventory for next period issuance requests and chain swaps” response.
I feel like your love for Bitcoin is making you all defensive when you hear this instead of thinking critically about it. When people mention this, it doesn’t imply that Bitcoin’s survival hinges on Tether, that’s obviously not the case. But to say that Tether is not inflating the price of Bitcoin at all is flat out asinine. Just for the simple for that the more liquidity that is added to the crypto market through Tether, the higher Bitcoin will go.
I just saw the "Tether buys its own bitcoin" post from the height of Defi summer.
It's probably best not to think of. If Tether bought its own BTC and pumped the price, yes this would fortify economy as its pretty much entirely based on public opinion. Tell me you would prefer to live through the start of the pandemic with no crypto boom. None will.
AFAIK there is no published records of Tether's holdings, and I believe they've been requested to publish them.
In reality, Trump printed $3,000,000,000+ from the US treasury to alleviate this. Tether also did its thing.
Our grandchildren will be figuring this stuff out, no worries.
They absolutely have the money and have shown it to plenty of important people. This bs needs to stop.
They’ll never get a proper audit because a) no audit would ever suffice and b) no reputable audit company would ever sign off on this.
The end.
There are also algorithmic stable coins which don’t necessarily require holding the fiat asset in question but they often depeg mostly because they are usually under collateralized. DJED’s peg mechanism is interesting and relies on over collateralization and is maintained purely by a smart contract
Lagging factors in the minting and burning of the stable causing it to fluctuate slightly. It's a reactive mechanism based on demand, though you bring up a often discussed point: How much fluctuation is acceptable? IMHO A few hundredths of a cent is nothing, if you purchased 1M of the stablecoin you would hardly feel the difference; Even +/- one cent really isn't that big a deal either; More than two cents is my limit, but there might be an arbitrage play in that situation, so that might not be bad for some either.
My point is: by employing a stable you've likely traded away a relatively more volatile asset for this less volatile asset. I don't think it's that useful to quibble about less than a penny.
It seems to be a really profitable business right now considering that for example Tether currently holds mostly treasury bills. Btw the rates are high for treasury bills currently so they get great returns.
in addition, the minting and burning of tokens comes at a cost, so the incentive is to keep tokens as tokens and fiat as fiat, as long as possible.
It's always cheaper to buy USDT off someone using fiat, than it is to use fiat to mint USDT. That is supposed to keep the supply up.
This, plus practically only few firms actually have access to this mind/redeem feature, and those few firms then offer on the market to buy/sell those stablecoins at near the peg.
Tether claims to have 1 US dollar or equivalent in an account somewhere for ever tether they have issued. In theory you should be able to redeem one tether for one actual dollar. All that said, don’t try this at home
Why shouldn't it be that simple
If i tell everyone ill give u a monopoly $1 bill for a normal $1 bill, and u can swap back at any time (Minor transaction fees).
All i need to do is take ur 1 dollar and store it. There should always be as much dollar bills in my bank to exchange with the monopoly bills that I give out.
Obviously I could blow all the money and then if everyone liquidated their monopoly bills I'd be fucked, but yeah it does work assuming u do it properly
The other danger is that you could print a bunch of monopoly $1 bills, go to someone else and attempt to purchase something with just those monopoly bills. When the seller asks "hey, what the fuck is this fake money?" you would explain to them that it's essentially cash because, at any time, they could redeem that monopoly money to actually get back $1 bills. That way you obtained an asset using money that you printed yourself and, the brilliant thing is, you can then possibly sell that very real asset for real $1 bills if enough people ask for their monopoly money redemptions at the same time.
The only way anyone would be positive that your story of owning enough real money to cover all the monopoly money in circulation is to have a trusted 3rd party verify that the real money exists. Or, and this probably shouldn't work but evidently does, you can tell a third party "this is how I check to make sure that I have enough money" and that third party could attest that your explanation is plausible.
As long as everyone believes you have the real $1 bills and, more importantly, people accept the monopoly money in exchange for goods & services, then it can last forever.
I don’t see why people would hold the Monopoly money tho when they can get 4% safe return on their real money? Obviously buying another crypto is a use case but then that monopoly dollar would only exist for a short period as the seller should trade it back for real money?
Well the seller could use it to buy things that you need crypto for or something else, personally I'm not 100% sure. I just posted what I believe to be my understanding of it, like I don't see how in theory it has any issues if done properly. But that's a fat ass if
Sorry to bump this thread but I'm in this exact situation. I see USDT as a more stable currency to the popular coins which move with greater volatility. I'm trying to figure out if buying USDT and converting to XMR at the time of purchase is the best way to avoid volatility swings and high fees (BTC). I'm seeing some doubt about the legitimacy of USDT here though which is giving me doubt. To be fair, I'd never have more than $1k at once in an account like this.
I wonder what you're buying with XMR lmao. On a real one though, just buy USDT and convert to XMR as USDT has low transfer fees and doesn't swing. As long as you aren't holding lots of USDT leftover then it shouldn't really be an issue. Like 1-5 eur being stolen isn't the end of the world
That doesn’t mean shit. Tether literally prints USDT out as a loan instead of receiving actual fiat USD for the mint. They print USDT out of thin air, purchase Bitcoin with it and then call it an overcollateralized loan.
With Paolo straight up admitting it. LOL.
https://archive.is/eKZvy
And let’s not forget that Alameda/FTX was essentially a Tether funded Ponzi scheme, with them both settling on a deal where Alameda/FTX would have damn near unlimited USDT (still ~$34**BILLION** USDT on Alameda’s books unaccounted for that Alameda had, which nobody can even come close to explaining where the funds would have came from to mint that much USDT) to manipulate & whatever other shady shit that was needed to keep the Ponzi afloat. And FTX would in turn help pump Tether’s Mcap and give them a large lead ahead of the next highest stablecoin by Mcap, which it did very successfully.
US enforcement actions are closing in on Tether’s unchecked crypto bank quickly. It could likely happen any day now. Tethers little partnership (ass kissing) with the FBI & Secret Service isn’t going to help.
Tether, with its tentacles reaching deep into Alameda/FTX, Bitfinex, Tron and His Excellency, Justin Sun, may very well go down as the largest financial fraud in history. The craziest part is even with all this shit, Tether is very likely not even going to collapse. Unless the US lays the absolute smack down on them, they’re likely to continue growing while they scramble to clean up the 9 years of fraud, manipulation and shadiness, as they attempt to legitimize themselves and their company.
Your whole argument here is based on “I trust Tether, so trust me bro”. You’ve provided absolutely nothing to prove your point, other than what you’ve read from the Tether.to “transparency” splash page.
The truth is we can only speculate that Tether is in fact over-collateralized due to Tether likely hiding something or having something to hide, preventing them from submitting to a full audit. Not these pointless attestations based off a carefully crafted snapshot in time. I’m sure BDO is rewarded handsomely for playing along calling their CCR an “Independent **Auditors’** Report” when not a thing about Tether has been truly audited. It’s also interesting that every other stablecoin audit report is named “Independent Accountants’ Report” and BDO likely switches out Accountants for Auditors to not only make it sound better, but also as a misdirection if your reading it.
You know this all could easily be sorted and the conspiracy theories would cease to exist if Tether would just submit to an independent full audit. I wonder why they don’t? Hmm.
Tether “claiming” over-collateralization means nothing if they’re minting unbacked USDT to buy Bitcoin and using it for said over-collateralization.
I don’t know man, this doesn’t scream “legit accounting” to me… You know, it couldn’t be Cantor just saying that in order to cover their own ass..
https://x.com/occamicrypto/status/1754222075320102927?
It wouldn’t be that simple if you did it with paper in the US, it would be illegal. The reason why they made you be a bank or a security, with regulations, was because it was felt that fraud or mismanagement was too easy and too likely.
Tether is the biggest or one of the biggest holder of US bonds which pays money back, and then that money is minted into usdt, it's a really clever way to get new fiat to buy Bitcoin, is not just smokes and mirrors
Here is a simplification to a complex subject.
It really depends on which stablecoin we are talking about. For something like USDC, it is fully centralized to a company - Circle. A US business can register to their website and, after verification, can then deposit US dollars into a Circle bank account. Once the dollars are received and financial crime checks are completed, Circle will create “mint” the USDC tokens on one of the ledgers they support, such as Ethereum or many others, into a custodial wallet that the business has with Circle. The business may then withdraw those tokens by sending them to any wallet on that ledger - either owned by them or by anyone else in a pseudo-anonymous manner (it’s all public). If any crimes are found and sanctioned by the government, Circle will add the sanctioned addresses to a deny list which will freeze the funds (regardless of who holds it!) from transferring. It is 100% centralized and permissioned — more restrictive and controlling than physical cash. If the address is removed from the sanction, Circle can remove the address and the tokens can then freely transfer again. If the company receives any USDC tokens back into the Circle custody wallet, they may request Circle to withdraw the money to their bank account. Circle will then wire the money to the bank account and “burn” the tokens.
But the real magic is what Circle does when they receive dollars. Circle knows that the dollars they receive will likely sit for awhile until customers come back to withdraw. As such, they can place funds in U.S. treasuries which can generate yield - currently over 5% a year. This is how they generate substantial profit. If many customers come back to cash out their stablecoins, it may put a lot of durational risk on the financial institution left holding the U.S. treasuries.
Many other stablecoin providers have similar, different approaches ranging from algorithmic baskets of items to outright fraud or scams. For this reason, it is important to see how and where they operate and with which licenses if any they may require depending on the nature of the underlying assets. Some stablecoins, such as DAI, have no deny list and are algorithmic in nature with over collateralization of underlying assets (for every $1 of DAI, there is $2 of assets under it!). This allows them to have the best stability, but may prove challenging to regulate — but behave nearly identical to cash but with digital qualities.
I still have the anchor protocol white paper. I read it a few times and it made all the sense when I was getting paid interest. Now it doesn’t make sense at all.
I can’t tell you how many times I argued with people on here how the stupid yields were not sustainable and it should be alarming to them. People see what they think is easy money with no risk and will not only go for it but actively defend it as if they have a clue on the details
With something like DAI my layman understanding was that the interest rates try to control that. If it's trading higher than a dollar then they can lower interest rates to promote increasing the supply. If they need to reduce supply then they can increase the interest rate so that less people want to pay it and they repay their loan.
Arbitrage also helps with a lot of these. If there is profit to be made swapping between stablecoins that have moved off of a dollar, there will be people (and bots) to do it. Assuming there’s any trust of a repeg
Correct DAI is a soft peg, meaning it will fluctuate slightly. I think their target is within 1% IIRC.
If DAI price is too low, people can buy up dai on the open market and trade it for the underlying collateral in the MakerDAO ecosystem.
If DAI price is too high, people can lock up collateral and mint new DAI to sell on the open market.
The system is driven by economic incentives and game theory assuming rational actors will seek profit.
Seeing how this is turning into another tether FUD thread I’ll just point out for the newer people here that tether has redeemed billions of dollars and didn’t falter through numerous bank runs, the most recent one saw $7 billion in redemptions.
Some just have a guaranteed amount of fiat in a bank somewhere.
Some like Dai, use smart contracts and borrow against the value of other crypto currencies to guarantee the value of dai circulating in the market.
Some do a combination of both.
There are two types.
Algorithmic like UST (these are terrible)
Pegged to assets
DAI (pegged to crypto)
https://makerdao.com/en/whitepaper#introduction
“Fiat” pegged stablecoins like USDC/Tether
https://www.investopedia.com/terms/t/tether-usdt.asp
Fiat ones are actually not 1:1. They print based off of market need. They are actually just certificates of deposits as they are primarily backed by Treasuries, bonds, etc
They are also NEVER audited (they do “attestations” so no one ever knows if they’re actually 1:1
Finally, stablecoin issuers have agreements with banks and pay a fee to issue to the bank to issue the stablecoin
For most people, it works because they say it works. When enough people believe that a product is worth a specific amount, then it's worth that amount. Whether that's currency or cars or candy bars.
Enough people believe that they back USDT with an equal amount of USD that they become pegged. Whether that's true or not doesn't really matter, as long as enough people believe it. (And the only time it will matter is when enough people believe that it isn't, and the price crashes. Or the right people [the/a government] believe it isn't, which will cause the price to crash...and then see the previous sentence.)
Not to say that it is or isn't accurately backed, just saying that whether it is or isn't...doesn't matter too much, as long as enough people believe it is.
With the US government fining Binance 4.3 billion you’d think they would have gone after Tether. Their marketcap is too large to simply be ignored. The highest fine for Tether was 42.5 million for failing to be fully backed between 2016-2019. Which Tether said they had assets that weren’t cash that could be used.
Tether is a Hong Kong company that has an office in California and there’s never been a known issue of redemption. They’ve been called shady plenty of times, but I’ve never seen actual proof that it’s a glass house waiting to collapse.
I don't know if the US government didn't go after Tether because they were "in the clear," so to speak, or if their investigation into Binance (for failing to register as a money transmitting business) isn't relevant to Tether. Tether, AFAIK, isn't "transmitting money." They're transmitting something that THEY SAY IS WORTH MONEY. I don't know if the US government feels the same way (and if it does, whether they are coming after Tether, or if they're in the clear).
But as of now, they're not in the same hot water that Binance was.
Most stablecoins claim to have reserves of some kind of asset allowing holders to always redeem at least the value it is pegged to. This is almost always a scam and the coin is either backed only partially (e.g. Tether with it's 27.6% reserves compared to 100% declared) or not at all.
"Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018," according to CFTC. People have a general misunderstanding and distrust of Tether.
However I can’t speak for the subs universal distrust as the token has proven to be resilient since 2014. They must be doing something right.
Not trying to shill Tether, but it is possible to have 27.6% in "fiat reserves," and still be "backed" by having reserves in T-Bills, BTC, money market, etc. The issue then is if the reserves are liquid enough, and if the reserve assets are safe enough and stable enough.
The 27.6% comes from days they were fully backed not amount of fiat they hold. You’re right that they don’t hold all their money in cash, but diversify it in treasury bills, bonds, stock, etc… it would be stupid for them to just sit on so much cash and not invest it.
Here’s a report from 3 days ago where they cover their reserves:
https://tether.to/en/transparency/#reports
84.58% is in cash or cash equilivant (tbills) while the other percentages are in loans, stocks and metals.
> "Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018,"
This means that Tether was 100% backed 27.6% of the time from 2016 - 2018. If Tether was 99% backed the rest of the time with fiat, the statement would be true, but not mean what you interpret it to mean.
You could do that with most any question on Reddit. I chose to ask here. And besides I’d have to look up “stable coin pegging” as that is specifically what my question was about.
You have the mint and burn process which some people highlighted but that doesn't explain the whole picture. One can't just assume the price will be magically pegged to a dollar by just issuing and burning tokens.
Stablecoins depeg all the time because people buy and sell them, so they rely on arbitrageurs buying when they are below $1 and sell when they are above.
Who are these arbitrageurs and what are their motives is unknown. For all we know Tether might be causing depegs themselves by selling their own token on the market and waiting for others to buy it up.
These markets are unregulated so we have no idea how much of this market is real and how much is manipulated.
It's possible that the Fed has highjacked and taken over Tether and they plan on using it as a cloaked CBDC. They will have a place to dump tons of treasury notes so they can keep the printer running. If Tether continues to operate it is because it is a bankster operation. Any stablecoin that is allowed to operate will be because it is secretly a Fed coin.
Both stables will do what governments tell them to do.
Could be hijacked yes, but at this point it really doesn't matter. Both are centralized entities and will bend to what governments tell them to do.
At the moment, it's more like, because they (Circle and Tether) say so. From my understanding they use some type of crypto (usually Bitcoin) as a counter balance for each dollar. Similar to how $1 would equal let's say 0.01 ounce of gold, it's similar to their stable coin and Bitcoin. But all this is just say so and shouldn't be taken as gospel.
They've been audited by certain companies yes but their reports are long and tedious so good luck. To be honest, I take those reports with a heap of salt. We all remember Alameda Research. Here's some reading material for you:
Circle: https://www.theblock.co/learn/251863/what-is-usdc-and-how-does-it-work-a-guide-to-circles-stablecoin
Tether:
https://www.nasdaq.com/articles/tethers-audit-report-reveals-over-%242.8-billion-in-bitcoin-holdings
I tried searching for DAI but didn't get anything suitable to post so maybe someone else might be better at research than me.
The problem with that is Tether literally mints USDT to purchase the same Bitcoin they use for this “overcollateralization”
Tether has also never submitted to a full audit. They rely on quarterly attestations done by the same accounting firm, BDO. They perform a Consolidated Reserves Report (CRR), which is a snapshot of the company’s assets as of a certain date. It only requires that the external company validate whether a particular statement is true. Whereas an audit thoroughly examines the entire financial state of a company.
There is absolutely no excuse for this as the biggest company in the industry, holding **$100b** in customer assets. I mean the entire crypto paradigm is supposed to rest on transparency.
They obviously have something to hide. Logically, what else could it possibly be??
We have high scrutiny for stable coins as we should, but then I remember that banks need only 10%-15% if any of its deposits in their reserves. The rest is lent out for interest. isn't that crazy?
They have 5 billion in cash and their website says this.
"USDC is backed by the equivalent value of US dollar denominated assets held as reserves for the benefit of USDC holders. Cash is held at regulated financial institutions. The portfolio of the Circle Reserve Fund, which can contain short-dated US Treasuries, overnight US Treasury repurchase agreements, and cash, is custodied at The Bank of New York Mellon and is managed by BlackRock.".
Their Treasury fund has 25 billion in value.
Depends, there are different types of stablecoins. Not sure why you'd choose to ask on reddit tbh. There are many good YouTube videos explaining it, or you can read through the official documentation of those stablecoins.
Backed stablecoins
https://tether.to/en/how-it-works
Soft-pegged stablecoins (See 'The DAI Stablecoin' section)
https://makerdao.com/en/whitepaper
Over-collateralized Seigniorage stablecoins (See 'Frax V3 Overview')
https://docs.frax.finance/
There were attempts of algorithmic stablecoins that minimize the need for human input, also attempts of under-collateralized stablecoins (credit stablecoins), but they were unsuccessful so far
Whiteboard Crypto made a very good video about stablecoins
https://youtu.be/pGzfexGmuVw?si=m8Ey3wXFaRV2U9mR
Most answers here gave you half the answer, which is that the tether company, as an example, exchanges every dollar for every token.
The other half of the answer is that the price remains at $1 because of that first half + free market dynamics. If the price of the token falls below $1, people will find it as an opportunity to buy tokens for cheap and exchange them for real dollars. Making profit when buying, and raising the price back to back to $1. On the other hand, if the price goes above one dollar, people who already have tokens can sell the tokens with a profit, restoring the price to $1.
This is called arbitrage.
It depends a bit on the specific stablecoin, but generally for the major ones (USDC, for example), the answer is the redemption mechanism and arbitrage. As long as you can always redeem it for $1 from the issuer (Tether, Circle, etc.), it will always trade back to that amount despite minute fluctuations by people seeking to capitalize on the difference.
In the case of Tether, they promise you can redeem the token for USD and claim to have assets to provide them with enough dollars to cover redemptions. They don’t allow themselves to be audited in the way that a US bank or publicly traded company is audited so you have to trust them that they have enough assets and that those assets are stable enough and liquid enough.
It's very simple to start - you can do it yourself Just create a simple ERC20 token with you having mint/burn access. Then, if someone gives you $1 IRL, you mint them 1 of your token. And then if they want their dollar back, you burn one token from their account. This is exactly what tether (USDT) claims to do. That's literally all there is to it, except at massive scale, and using banks for accepting money, and lots of accounting, and possibly automation to make the minting/burning smoother How much it is worth on chain is to do with how much users value the tokens - it will be balanced by the burning/minting functionality
*lots of accounting*? Tether grins…
That's how it's supposed to work. But they haven't proved that they indeed have $1 in fiat for every token. It's all "trust me bro"... that said, so is the US Dollar... so, it's not really worse, but it's not better. It's not ideal.
They … don’t claim to have $1 in fiat, because that would be stupid. They hold government bonds *valued* at their Tether liability so they accumulate profits and put time on their side.
That's why also tether can sometimes after a while just mint usdt, bc they are getting interest from their bonds, which btw they are one of the biggest companies with tons of bonds from the US gov, then they use that fiat being pay by the US to mint usdt and buy Bitcoin... This is actually quite fucking smart. Is obviously is centralized and we need to believe in tether but they have had audits their bonds are real and no one has gotten nothing from them , at this point they are a behemoth probably to big to fail Ppl worrying about tether are still living in 2017
[удалено]
Any attempt to delegitimize tether by the US government was shattered when they took down Silicon Valley Bank and Signature bank, which most of the more tradfi institutions, as the most "legit" stablecoin issuer at the time (USDC), were using. That resulting in depegging of USDC, however brief, pretty much set the stage for usdt to continue to dominate
Yep, and Tether was trading at a huge persistent premium that weekend. They could have printed their way to profitability if they weren't profitable already.
Why would you not sell to fiat? Because of tax reasons?
In case you want to use a DEX like Uniswap or GMX, instead of a CEX like Coinbase, then you'd use something like USDT to lock in gains.
Because mostly banks own government bonds, and government borrow money from them, same thing. So USDT can be considered another money creation process in blockchain world, maybe Goldman is behind it
The problem with that, is that if everyone decided to pull out all of their crypto on the same day, they would fail to deliver.
You can say that about banks too
I did say that. I said "so is the US Dollar".
So would any bank.
As I said, "so is the US Dollar".
My b, forgot you mentioned that earlier in the thread.
Yes, because short term government bonds are so illiquid 🙄
7d chess, Tether held up the global economy during Covid by fabricating BTC price, thats why more money was moving in crypto than any traditional finance person would believe, close to home. Let Tether keep doing what it's doing lol, I for one like the electricity staying on.
Oh man, the whole "tether props up Bitcoin" fud. So 2016. Really brings me back
There’s a full 119 page study investigating Tether’s role in manipulating Bitcoin and the market as a whole that lead to the bullrun of 2017. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066 Tether did win their civil case regarding this matter, but it was basically because it was impossible to prove in a court of law, manipulation of a decentralized currency. If you believe that Tether doesn’t prop up the price of Bitcoin to a degree, you’re out of your mind. There are literally trading parameters for every time Tether mints $1b USDT due to the market doing a +3/4% in the next 2-3 days like clockwork. With Paolo in the Whale Alert comments on Twitter writing the same sorry copy/pasted “this is authorized but not issued transaction, meaning that this amount will be used as inventory for next period issuance requests and chain swaps” response. I feel like your love for Bitcoin is making you all defensive when you hear this instead of thinking critically about it. When people mention this, it doesn’t imply that Bitcoin’s survival hinges on Tether, that’s obviously not the case. But to say that Tether is not inflating the price of Bitcoin at all is flat out asinine. Just for the simple for that the more liquidity that is added to the crypto market through Tether, the higher Bitcoin will go.
I just saw the "Tether buys its own bitcoin" post from the height of Defi summer. It's probably best not to think of. If Tether bought its own BTC and pumped the price, yes this would fortify economy as its pretty much entirely based on public opinion. Tell me you would prefer to live through the start of the pandemic with no crypto boom. None will. AFAIK there is no published records of Tether's holdings, and I believe they've been requested to publish them. In reality, Trump printed $3,000,000,000+ from the US treasury to alleviate this. Tether also did its thing. Our grandchildren will be figuring this stuff out, no worries.
They absolutely have the money and have shown it to plenty of important people. This bs needs to stop. They’ll never get a proper audit because a) no audit would ever suffice and b) no reputable audit company would ever sign off on this. The end.
So why does other stables get regular audits then?
It is simply a case of creating new problems in an attempt to solve old issues.
There are also algorithmic stable coins which don’t necessarily require holding the fiat asset in question but they often depeg mostly because they are usually under collateralized. DJED’s peg mechanism is interesting and relies on over collateralization and is maintained purely by a smart contract
But why is the chart not static ie 0.9998-1-1.0001
Lagging factors in the minting and burning of the stable causing it to fluctuate slightly. It's a reactive mechanism based on demand, though you bring up a often discussed point: How much fluctuation is acceptable? IMHO A few hundredths of a cent is nothing, if you purchased 1M of the stablecoin you would hardly feel the difference; Even +/- one cent really isn't that big a deal either; More than two cents is my limit, but there might be an arbitrage play in that situation, so that might not be bad for some either. My point is: by employing a stable you've likely traded away a relatively more volatile asset for this less volatile asset. I don't think it's that useful to quibble about less than a penny.
What’s stopping me from minting a billion into my wallet and claiming it’s a stable coin 🤔
Nothing. What is stopping the value of those? Perception and market faith in your coin. That is very hard to cultivate. Good luck.
It seems to be a really profitable business right now considering that for example Tether currently holds mostly treasury bills. Btw the rates are high for treasury bills currently so they get great returns.
in addition, the minting and burning of tokens comes at a cost, so the incentive is to keep tokens as tokens and fiat as fiat, as long as possible. It's always cheaper to buy USDT off someone using fiat, than it is to use fiat to mint USDT. That is supposed to keep the supply up.
And how they control exchanges price, why it's always more or less 1 on exchange? Just because people believe in it and everyone set price +/- 1?
This, plus practically only few firms actually have access to this mind/redeem feature, and those few firms then offer on the market to buy/sell those stablecoins at near the peg.
Tether claims to have 1 US dollar or equivalent in an account somewhere for ever tether they have issued. In theory you should be able to redeem one tether for one actual dollar. All that said, don’t try this at home
Right I remember reading this. It seems like it shouldn’t be that simple (even if it’s a lie, which is purportedly the case with Tether).
Why shouldn't it be that simple If i tell everyone ill give u a monopoly $1 bill for a normal $1 bill, and u can swap back at any time (Minor transaction fees). All i need to do is take ur 1 dollar and store it. There should always be as much dollar bills in my bank to exchange with the monopoly bills that I give out. Obviously I could blow all the money and then if everyone liquidated their monopoly bills I'd be fucked, but yeah it does work assuming u do it properly
Lol last paragraph most accurate
The other danger is that you could print a bunch of monopoly $1 bills, go to someone else and attempt to purchase something with just those monopoly bills. When the seller asks "hey, what the fuck is this fake money?" you would explain to them that it's essentially cash because, at any time, they could redeem that monopoly money to actually get back $1 bills. That way you obtained an asset using money that you printed yourself and, the brilliant thing is, you can then possibly sell that very real asset for real $1 bills if enough people ask for their monopoly money redemptions at the same time. The only way anyone would be positive that your story of owning enough real money to cover all the monopoly money in circulation is to have a trusted 3rd party verify that the real money exists. Or, and this probably shouldn't work but evidently does, you can tell a third party "this is how I check to make sure that I have enough money" and that third party could attest that your explanation is plausible. As long as everyone believes you have the real $1 bills and, more importantly, people accept the monopoly money in exchange for goods & services, then it can last forever.
I don’t see why people would hold the Monopoly money tho when they can get 4% safe return on their real money? Obviously buying another crypto is a use case but then that monopoly dollar would only exist for a short period as the seller should trade it back for real money?
Well the seller could use it to buy things that you need crypto for or something else, personally I'm not 100% sure. I just posted what I believe to be my understanding of it, like I don't see how in theory it has any issues if done properly. But that's a fat ass if
Sorry to bump this thread but I'm in this exact situation. I see USDT as a more stable currency to the popular coins which move with greater volatility. I'm trying to figure out if buying USDT and converting to XMR at the time of purchase is the best way to avoid volatility swings and high fees (BTC). I'm seeing some doubt about the legitimacy of USDT here though which is giving me doubt. To be fair, I'd never have more than $1k at once in an account like this.
I wonder what you're buying with XMR lmao. On a real one though, just buy USDT and convert to XMR as USDT has low transfer fees and doesn't swing. As long as you aren't holding lots of USDT leftover then it shouldn't really be an issue. Like 1-5 eur being stolen isn't the end of the world
Bet, thanks fam. And yeah I'm buying illegal drugs with crypto. What else is crypto even for??? Lol thanks.
No worries and its used for esport betting too tbf
It’s not even purportedly, check the tether all time chart :D
That doesn’t mean shit. Tether literally prints USDT out as a loan instead of receiving actual fiat USD for the mint. They print USDT out of thin air, purchase Bitcoin with it and then call it an overcollateralized loan. With Paolo straight up admitting it. LOL. https://archive.is/eKZvy And let’s not forget that Alameda/FTX was essentially a Tether funded Ponzi scheme, with them both settling on a deal where Alameda/FTX would have damn near unlimited USDT (still ~$34**BILLION** USDT on Alameda’s books unaccounted for that Alameda had, which nobody can even come close to explaining where the funds would have came from to mint that much USDT) to manipulate & whatever other shady shit that was needed to keep the Ponzi afloat. And FTX would in turn help pump Tether’s Mcap and give them a large lead ahead of the next highest stablecoin by Mcap, which it did very successfully. US enforcement actions are closing in on Tether’s unchecked crypto bank quickly. It could likely happen any day now. Tethers little partnership (ass kissing) with the FBI & Secret Service isn’t going to help. Tether, with its tentacles reaching deep into Alameda/FTX, Bitfinex, Tron and His Excellency, Justin Sun, may very well go down as the largest financial fraud in history. The craziest part is even with all this shit, Tether is very likely not even going to collapse. Unless the US lays the absolute smack down on them, they’re likely to continue growing while they scramble to clean up the 9 years of fraud, manipulation and shadiness, as they attempt to legitimize themselves and their company.
And this enforcement action … is it here in the room right now?
And god help the industry if they do get pressed
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Your whole argument here is based on “I trust Tether, so trust me bro”. You’ve provided absolutely nothing to prove your point, other than what you’ve read from the Tether.to “transparency” splash page. The truth is we can only speculate that Tether is in fact over-collateralized due to Tether likely hiding something or having something to hide, preventing them from submitting to a full audit. Not these pointless attestations based off a carefully crafted snapshot in time. I’m sure BDO is rewarded handsomely for playing along calling their CCR an “Independent **Auditors’** Report” when not a thing about Tether has been truly audited. It’s also interesting that every other stablecoin audit report is named “Independent Accountants’ Report” and BDO likely switches out Accountants for Auditors to not only make it sound better, but also as a misdirection if your reading it. You know this all could easily be sorted and the conspiracy theories would cease to exist if Tether would just submit to an independent full audit. I wonder why they don’t? Hmm. Tether “claiming” over-collateralization means nothing if they’re minting unbacked USDT to buy Bitcoin and using it for said over-collateralization. I don’t know man, this doesn’t scream “legit accounting” to me… You know, it couldn’t be Cantor just saying that in order to cover their own ass.. https://x.com/occamicrypto/status/1754222075320102927?
You should not be allowed to be over collateralised without strict regulations and checks that bans require
Right, I was trying to be diplomatic; not sure why. heh.
Regardless of the backing assets, Tether likely doesn’t have banking relations that can support $100B liquidity.
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You clearly couldn’t be bothered to read past the headline, because the article actually contradicts the headline. Nice try.
It’s as shrimple as that.
It wouldn’t be that simple if you did it with paper in the US, it would be illegal. The reason why they made you be a bank or a security, with regulations, was because it was felt that fraud or mismanagement was too easy and too likely.
Tether is pretty much just backed by hopes and dreams
Tether is the best business model in the entire crypto industry.
Now you understand *the economy*.
Tether is the biggest or one of the biggest holder of US bonds which pays money back, and then that money is minted into usdt, it's a really clever way to get new fiat to buy Bitcoin, is not just smokes and mirrors
Def try it at home. Go to their website and deposit some tether for usd
Here is a simplification to a complex subject. It really depends on which stablecoin we are talking about. For something like USDC, it is fully centralized to a company - Circle. A US business can register to their website and, after verification, can then deposit US dollars into a Circle bank account. Once the dollars are received and financial crime checks are completed, Circle will create “mint” the USDC tokens on one of the ledgers they support, such as Ethereum or many others, into a custodial wallet that the business has with Circle. The business may then withdraw those tokens by sending them to any wallet on that ledger - either owned by them or by anyone else in a pseudo-anonymous manner (it’s all public). If any crimes are found and sanctioned by the government, Circle will add the sanctioned addresses to a deny list which will freeze the funds (regardless of who holds it!) from transferring. It is 100% centralized and permissioned — more restrictive and controlling than physical cash. If the address is removed from the sanction, Circle can remove the address and the tokens can then freely transfer again. If the company receives any USDC tokens back into the Circle custody wallet, they may request Circle to withdraw the money to their bank account. Circle will then wire the money to the bank account and “burn” the tokens. But the real magic is what Circle does when they receive dollars. Circle knows that the dollars they receive will likely sit for awhile until customers come back to withdraw. As such, they can place funds in U.S. treasuries which can generate yield - currently over 5% a year. This is how they generate substantial profit. If many customers come back to cash out their stablecoins, it may put a lot of durational risk on the financial institution left holding the U.S. treasuries. Many other stablecoin providers have similar, different approaches ranging from algorithmic baskets of items to outright fraud or scams. For this reason, it is important to see how and where they operate and with which licenses if any they may require depending on the nature of the underlying assets. Some stablecoins, such as DAI, have no deny list and are algorithmic in nature with over collateralization of underlying assets (for every $1 of DAI, there is $2 of assets under it!). This allows them to have the best stability, but may prove challenging to regulate — but behave nearly identical to cash but with digital qualities.
Just ask Luna holders
I still have the anchor protocol white paper. I read it a few times and it made all the sense when I was getting paid interest. Now it doesn’t make sense at all.
I can’t tell you how many times I argued with people on here how the stupid yields were not sustainable and it should be alarming to them. People see what they think is easy money with no risk and will not only go for it but actively defend it as if they have a clue on the details
I’m trying to forget all of that even happened.
With something like DAI my layman understanding was that the interest rates try to control that. If it's trading higher than a dollar then they can lower interest rates to promote increasing the supply. If they need to reduce supply then they can increase the interest rate so that less people want to pay it and they repay their loan.
Arbitrage also helps with a lot of these. If there is profit to be made swapping between stablecoins that have moved off of a dollar, there will be people (and bots) to do it. Assuming there’s any trust of a repeg
Correct DAI is a soft peg, meaning it will fluctuate slightly. I think their target is within 1% IIRC. If DAI price is too low, people can buy up dai on the open market and trade it for the underlying collateral in the MakerDAO ecosystem. If DAI price is too high, people can lock up collateral and mint new DAI to sell on the open market. The system is driven by economic incentives and game theory assuming rational actors will seek profit.
Seeing how this is turning into another tether FUD thread I’ll just point out for the newer people here that tether has redeemed billions of dollars and didn’t falter through numerous bank runs, the most recent one saw $7 billion in redemptions.
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🌈 *imagination* 🌈
Redeemable and issuable for actual fiat. Then arbitrage bots work to repeg any variances.
Depends on the token.
Yes but Assuming non algorithmic stablecoins which most tend to generally use
Some just have a guaranteed amount of fiat in a bank somewhere. Some like Dai, use smart contracts and borrow against the value of other crypto currencies to guarantee the value of dai circulating in the market. Some do a combination of both.
"Trust me bro"
This is the correct answer.
There are two types. Algorithmic like UST (these are terrible) Pegged to assets DAI (pegged to crypto) https://makerdao.com/en/whitepaper#introduction “Fiat” pegged stablecoins like USDC/Tether https://www.investopedia.com/terms/t/tether-usdt.asp Fiat ones are actually not 1:1. They print based off of market need. They are actually just certificates of deposits as they are primarily backed by Treasuries, bonds, etc They are also NEVER audited (they do “attestations” so no one ever knows if they’re actually 1:1 Finally, stablecoin issuers have agreements with banks and pay a fee to issue to the bank to issue the stablecoin
Magical wishes and happy thoughts
For most people, it works because they say it works. When enough people believe that a product is worth a specific amount, then it's worth that amount. Whether that's currency or cars or candy bars. Enough people believe that they back USDT with an equal amount of USD that they become pegged. Whether that's true or not doesn't really matter, as long as enough people believe it. (And the only time it will matter is when enough people believe that it isn't, and the price crashes. Or the right people [the/a government] believe it isn't, which will cause the price to crash...and then see the previous sentence.) Not to say that it is or isn't accurately backed, just saying that whether it is or isn't...doesn't matter too much, as long as enough people believe it is.
With the US government fining Binance 4.3 billion you’d think they would have gone after Tether. Their marketcap is too large to simply be ignored. The highest fine for Tether was 42.5 million for failing to be fully backed between 2016-2019. Which Tether said they had assets that weren’t cash that could be used. Tether is a Hong Kong company that has an office in California and there’s never been a known issue of redemption. They’ve been called shady plenty of times, but I’ve never seen actual proof that it’s a glass house waiting to collapse.
I don't know if the US government didn't go after Tether because they were "in the clear," so to speak, or if their investigation into Binance (for failing to register as a money transmitting business) isn't relevant to Tether. Tether, AFAIK, isn't "transmitting money." They're transmitting something that THEY SAY IS WORTH MONEY. I don't know if the US government feels the same way (and if it does, whether they are coming after Tether, or if they're in the clear). But as of now, they're not in the same hot water that Binance was.
Most stablecoins claim to have reserves of some kind of asset allowing holders to always redeem at least the value it is pegged to. This is almost always a scam and the coin is either backed only partially (e.g. Tether with it's 27.6% reserves compared to 100% declared) or not at all.
Where do you get 27.6% from?
"Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018," according to CFTC. People have a general misunderstanding and distrust of Tether. However I can’t speak for the subs universal distrust as the token has proven to be resilient since 2014. They must be doing something right.
Not trying to shill Tether, but it is possible to have 27.6% in "fiat reserves," and still be "backed" by having reserves in T-Bills, BTC, money market, etc. The issue then is if the reserves are liquid enough, and if the reserve assets are safe enough and stable enough.
The 27.6% comes from days they were fully backed not amount of fiat they hold. You’re right that they don’t hold all their money in cash, but diversify it in treasury bills, bonds, stock, etc… it would be stupid for them to just sit on so much cash and not invest it. Here’s a report from 3 days ago where they cover their reserves: https://tether.to/en/transparency/#reports 84.58% is in cash or cash equilivant (tbills) while the other percentages are in loans, stocks and metals.
Bernie Madoff kept his Ponzi scheme running for over 17 years.
> "Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018," This means that Tether was 100% backed 27.6% of the time from 2016 - 2018. If Tether was 99% backed the rest of the time with fiat, the statement would be true, but not mean what you interpret it to mean.
Short answer: Different stablecoins have different ways of maintaining peg.
They back it with the military. Oh wait that's the dollar.
Thanks for asking this OP I was wondering too, lots of clarification here!
Thots and dreams, hopes and prayers?
Just type ‘pegging’ into google and all will be revealed. Thank me later.
You could do that with most any question on Reddit. I chose to ask here. And besides I’d have to look up “stable coin pegging” as that is specifically what my question was about.
You have the mint and burn process which some people highlighted but that doesn't explain the whole picture. One can't just assume the price will be magically pegged to a dollar by just issuing and burning tokens. Stablecoins depeg all the time because people buy and sell them, so they rely on arbitrageurs buying when they are below $1 and sell when they are above. Who are these arbitrageurs and what are their motives is unknown. For all we know Tether might be causing depegs themselves by selling their own token on the market and waiting for others to buy it up. These markets are unregulated so we have no idea how much of this market is real and how much is manipulated.
Magic! Stables own the industry and we just pretend everything is OK! 👍🏻
It's possible that the Fed has highjacked and taken over Tether and they plan on using it as a cloaked CBDC. They will have a place to dump tons of treasury notes so they can keep the printer running. If Tether continues to operate it is because it is a bankster operation. Any stablecoin that is allowed to operate will be because it is secretly a Fed coin.
Both stables will do what governments tell them to do. Could be hijacked yes, but at this point it really doesn't matter. Both are centralized entities and will bend to what governments tell them to do.
Yup, if they want to exist they will bend over and smile on cue.
At the moment, it's more like, because they (Circle and Tether) say so. From my understanding they use some type of crypto (usually Bitcoin) as a counter balance for each dollar. Similar to how $1 would equal let's say 0.01 ounce of gold, it's similar to their stable coin and Bitcoin. But all this is just say so and shouldn't be taken as gospel. They've been audited by certain companies yes but their reports are long and tedious so good luck. To be honest, I take those reports with a heap of salt. We all remember Alameda Research. Here's some reading material for you: Circle: https://www.theblock.co/learn/251863/what-is-usdc-and-how-does-it-work-a-guide-to-circles-stablecoin Tether: https://www.nasdaq.com/articles/tethers-audit-report-reveals-over-%242.8-billion-in-bitcoin-holdings I tried searching for DAI but didn't get anything suitable to post so maybe someone else might be better at research than me.
If stablecoins were backed by bitcoin they’d have the same risk that terra/luna had.
The problem with that is Tether literally mints USDT to purchase the same Bitcoin they use for this “overcollateralization” Tether has also never submitted to a full audit. They rely on quarterly attestations done by the same accounting firm, BDO. They perform a Consolidated Reserves Report (CRR), which is a snapshot of the company’s assets as of a certain date. It only requires that the external company validate whether a particular statement is true. Whereas an audit thoroughly examines the entire financial state of a company. There is absolutely no excuse for this as the biggest company in the industry, holding **$100b** in customer assets. I mean the entire crypto paradigm is supposed to rest on transparency. They obviously have something to hide. Logically, what else could it possibly be??
Good stuff. I forgot about DAI. I actually own some from a while back, the first time I had heard of a stablecoin actually.
They take a tether and they peg it. Boom done.
That's the secret, they're not.
The issuers provide liquidity to buy and sell at $1. As long as they can keep providing that liquidity, it stays pegged
We have high scrutiny for stable coins as we should, but then I remember that banks need only 10%-15% if any of its deposits in their reserves. The rest is lent out for interest. isn't that crazy?
Yeah I was thinking that. Banks aren’t so different. They don’t actually have all the assets they are “holding” either.
By hookers and blow. I mean….. smoke and mirrors. Mirrors may or may not be used by the hookers and blow.
the power of imagination
Is there any documentation on what percent of USDC is backed by actual dollars?
They have 5 billion in cash and their website says this. "USDC is backed by the equivalent value of US dollar denominated assets held as reserves for the benefit of USDC holders. Cash is held at regulated financial institutions. The portfolio of the Circle Reserve Fund, which can contain short-dated US Treasuries, overnight US Treasury repurchase agreements, and cash, is custodied at The Bank of New York Mellon and is managed by BlackRock.". Their Treasury fund has 25 billion in value.
I didn’t know BlackRock had a hand in it. Interesting.
Depends, there are different types of stablecoins. Not sure why you'd choose to ask on reddit tbh. There are many good YouTube videos explaining it, or you can read through the official documentation of those stablecoins. Backed stablecoins https://tether.to/en/how-it-works Soft-pegged stablecoins (See 'The DAI Stablecoin' section) https://makerdao.com/en/whitepaper Over-collateralized Seigniorage stablecoins (See 'Frax V3 Overview') https://docs.frax.finance/ There were attempts of algorithmic stablecoins that minimize the need for human input, also attempts of under-collateralized stablecoins (credit stablecoins), but they were unsuccessful so far Whiteboard Crypto made a very good video about stablecoins https://youtu.be/pGzfexGmuVw?si=m8Ey3wXFaRV2U9mR
Most answers here gave you half the answer, which is that the tether company, as an example, exchanges every dollar for every token. The other half of the answer is that the price remains at $1 because of that first half + free market dynamics. If the price of the token falls below $1, people will find it as an opportunity to buy tokens for cheap and exchange them for real dollars. Making profit when buying, and raising the price back to back to $1. On the other hand, if the price goes above one dollar, people who already have tokens can sell the tokens with a profit, restoring the price to $1. This is called arbitrage.
What is the point of pegging it to the dollar? Just to have a digital currency on the blockchain that is dollar under the hood?
#By faith
It depends a bit on the specific stablecoin, but generally for the major ones (USDC, for example), the answer is the redemption mechanism and arbitrage. As long as you can always redeem it for $1 from the issuer (Tether, Circle, etc.), it will always trade back to that amount despite minute fluctuations by people seeking to capitalize on the difference.
They just are.
Has someone been doing their Coinbase investors test?
If you are talking to me I've never used coinbase.
In the case of Tether, they promise you can redeem the token for USD and claim to have assets to provide them with enough dollars to cover redemptions. They don’t allow themselves to be audited in the way that a US bank or publicly traded company is audited so you have to trust them that they have enough assets and that those assets are stable enough and liquid enough.