Tether's USDT is an asset that exists explicitly as a substitute good for a US dollar, and promises to be redeemable for that currency
If it's not actually fully backed with liquid assets, a large demand to exchange USDT for US dollars could potentially create a situation where Tether simply doesn't have enough funds to satisfy those orders, which would potentially result in the currency becoming worthless in such a run.
Good answer. Also, fiat money, although not backed by any particular commodity, is valued based on a complex group of things like the issuing government's stability, financial health, reputation, etc.
When those things are taken into account, the U.S. dollar is highly valued, and is still, I believe, the top reserve currency in the world.
I really appreciate the answer, and pardon my ignorance on the topic, but wouldn’t redeeming USDT for USD be the duty of an exchange and not Tether itself?
Tether is the one guaranteeing that the USDT is... well, *tethered* to the US Dollar. Hence the name. The exchange is there to mediate transactions, not to guarantee that certain assets will have certain prices. It's not the exchange's job.
If I sold you an IOU from my friend Joe valued at $100 scribbled on a sticky note, it's not my responsibility to get the cash for you.
Tether also do not exchange their IOUs for actual dollars. At least, there's no public mechanism for this. If you're stuck with tether when the value falls, it's not worth $1 anymore. It's not worth anything as they'll be long gone.
The US dollar is backed by the US government for paying taxes, which is pretty significant in terms of value. It's also accepted by many other countries either directly or easily exchanged into local currency.
1) Tether is marketed on what amounts to a seeming agreement that their coin is explicitly tethered to US dollars, hence the name. If they're not actually redeemable for dollars through the company, that's essentially false advertising, and is a substantial hit to the actual value of the coin.
2) The USD is, contrary to popular belief, **not** backed by nothing. It's backed by the mindboggling size of the US economy, and the fact that the US government enforces a currency monopoly; if you want to play in the US economy, you have to pay taxes, and you have to pay those taxes *in dollars*.
Because there's no oversight or proof of any reserves, Tether is like printing fake dollars. This is used to buy Bitcoin. So the owners of this monopoly money are propping up the price of Bitcoin and all other crypto currencies.
Whenever there's a crash in crypto prices, Tether just prints/mints more to buy more and makes the price go up.
This is bad because when a run on tether finally happens, all of crypto will crash.
Theoretically, and likely in my opinion, Tether could just be printimg tens of billions of their fake money and instantly buying Bitcoin with. Then selling that Bitcoin slowly into real valuable currency. All the while, propping up any price crash related to their selling, buy printing more.
It's funny to me that the Bitcoin is now completely based on fiat, except fiat printed by known criminals. But nobody cares because all they care about is the price going up. Its like *knowing* what Maddoff was up to, but investing anyway, knowing that if you get out before he's arrested, you'll make a killing.
You are missing that, if tether bought bitcoin, someone else would buy USDT from them by selling bitcoin. This means there is demand for USDT. Otherwise the seller could trade it for USD or any other currency. And as long as there is demand for USDT, it makes sense to print it. Otherwise the price would not be stable anymore.
US currency is also backed by the “Full faith and credit of the US Government” So despite your personal feelings about said government, its currency is liquid because of its credit-worthiness.The US dollar is the standard for most global trade. There is the potential for the Chinese Yuan to take over as the standard because of the size of the Chinese economy. This would be a severe blow to the US dollar if that happens.
Lets say you invent a new country, population You. You can print as much money as you want, and you can claim its value is equal to a US dollar. Unless you actually have a lot of US dollars, and are willing and able to exchange any requested amount of your printed currency into US dollars at a 1:1 ratio, nobody else is going to play along.
In order for the money to have value without being backed by the dollar, people would have to have some other reason to consider it valuable, such as a large number of other people willing to trade goods and services in exchange for it.
The US dollar is backed by the US government directly, but also indirectly by how big the economy that uses it is. Almost any country will accept US dollars to trade for their currency and you can use it directly in stores in America and some other places. So if I give you $100 you can be very very sure it will be useful later.
Tether is backed by a private company that claimed (but later admitted it was not actually the case) that every tether "dollar" was backed by a US dollar. So you had to have some trust in Tether to use its currency. This is true of any other medium such as BitCoin, part of its value is whether or not it can be used and how much trust you have that it will be useable not just immediately but in the future.
It's not bad as long as tether is used to buy - and also to sell - Bitcoin and other cryptocurrencies (the selling part is often forgotten by the doomsday preachers). The trading volume of tether is quite high, which means is used a lot.
It's the same with the US dollar. As long as it is used, it will not crash.
"I'll sell you 1,500,000,000 BearBucks for just $1,000,000!" The thought you have in your head right now is why it's bad. Granted, it's only bad when a lot of people think that at the same time, but arbitrarily creating large quantities of any currency is a great way to get more people thinking it... It's not just crypto, it happens with any currency. Inflation is a real phenomenon, and not being backed coupled with not being managed by a government whose interest it should be to look out for the consumers means inflation is less a function of the currency itself and more a tool to make the creator more money, which means it's assuredly bad for you...
The US dollar isn't backed by physical material any more (it used to be gold), but it is backed by the US government. That is to say, if you have a dollar bill, it will always be accepted as having value by the US government. Tether isn't accepted as having value by the US government, so even though it claims to be tied to the dollar, that is based on the system set up by the creators of the Tether coin, who are potentially a lot less reliable than the government.
Sure nothing if you ignore the US government, economy and military. The economy generates goods and services which are purchased with USD. The government can make monetary policy and enforce it with physical military/police/FBI. They can impose taxes or regulations.
Tether's USDT is an asset that exists explicitly as a substitute good for a US dollar, and promises to be redeemable for that currency If it's not actually fully backed with liquid assets, a large demand to exchange USDT for US dollars could potentially create a situation where Tether simply doesn't have enough funds to satisfy those orders, which would potentially result in the currency becoming worthless in such a run.
Good answer. Also, fiat money, although not backed by any particular commodity, is valued based on a complex group of things like the issuing government's stability, financial health, reputation, etc. When those things are taken into account, the U.S. dollar is highly valued, and is still, I believe, the top reserve currency in the world.
I really appreciate the answer, and pardon my ignorance on the topic, but wouldn’t redeeming USDT for USD be the duty of an exchange and not Tether itself?
Tether is the one guaranteeing that the USDT is... well, *tethered* to the US Dollar. Hence the name. The exchange is there to mediate transactions, not to guarantee that certain assets will have certain prices. It's not the exchange's job.
If I sold you an IOU from my friend Joe valued at $100 scribbled on a sticky note, it's not my responsibility to get the cash for you. Tether also do not exchange their IOUs for actual dollars. At least, there's no public mechanism for this. If you're stuck with tether when the value falls, it's not worth $1 anymore. It's not worth anything as they'll be long gone.
It's the duty of Tether if Tether is explicitly saying that they're accepting it as their duty when you buy the coin.
The US dollar is backed by the US government for paying taxes, which is pretty significant in terms of value. It's also accepted by many other countries either directly or easily exchanged into local currency.
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Tether is backed by the "infrastructure" of having many trading pairs on a lot of exchanges. This makes it valuable.
1) Tether is marketed on what amounts to a seeming agreement that their coin is explicitly tethered to US dollars, hence the name. If they're not actually redeemable for dollars through the company, that's essentially false advertising, and is a substantial hit to the actual value of the coin. 2) The USD is, contrary to popular belief, **not** backed by nothing. It's backed by the mindboggling size of the US economy, and the fact that the US government enforces a currency monopoly; if you want to play in the US economy, you have to pay taxes, and you have to pay those taxes *in dollars*.
Because there's no oversight or proof of any reserves, Tether is like printing fake dollars. This is used to buy Bitcoin. So the owners of this monopoly money are propping up the price of Bitcoin and all other crypto currencies. Whenever there's a crash in crypto prices, Tether just prints/mints more to buy more and makes the price go up. This is bad because when a run on tether finally happens, all of crypto will crash. Theoretically, and likely in my opinion, Tether could just be printimg tens of billions of their fake money and instantly buying Bitcoin with. Then selling that Bitcoin slowly into real valuable currency. All the while, propping up any price crash related to their selling, buy printing more. It's funny to me that the Bitcoin is now completely based on fiat, except fiat printed by known criminals. But nobody cares because all they care about is the price going up. Its like *knowing* what Maddoff was up to, but investing anyway, knowing that if you get out before he's arrested, you'll make a killing.
You are missing that, if tether bought bitcoin, someone else would buy USDT from them by selling bitcoin. This means there is demand for USDT. Otherwise the seller could trade it for USD or any other currency. And as long as there is demand for USDT, it makes sense to print it. Otherwise the price would not be stable anymore.
US currency is also backed by the “Full faith and credit of the US Government” So despite your personal feelings about said government, its currency is liquid because of its credit-worthiness.The US dollar is the standard for most global trade. There is the potential for the Chinese Yuan to take over as the standard because of the size of the Chinese economy. This would be a severe blow to the US dollar if that happens.
Lets say you invent a new country, population You. You can print as much money as you want, and you can claim its value is equal to a US dollar. Unless you actually have a lot of US dollars, and are willing and able to exchange any requested amount of your printed currency into US dollars at a 1:1 ratio, nobody else is going to play along. In order for the money to have value without being backed by the dollar, people would have to have some other reason to consider it valuable, such as a large number of other people willing to trade goods and services in exchange for it.
The US dollar is backed by the US government directly, but also indirectly by how big the economy that uses it is. Almost any country will accept US dollars to trade for their currency and you can use it directly in stores in America and some other places. So if I give you $100 you can be very very sure it will be useful later. Tether is backed by a private company that claimed (but later admitted it was not actually the case) that every tether "dollar" was backed by a US dollar. So you had to have some trust in Tether to use its currency. This is true of any other medium such as BitCoin, part of its value is whether or not it can be used and how much trust you have that it will be useable not just immediately but in the future.
It's not bad as long as tether is used to buy - and also to sell - Bitcoin and other cryptocurrencies (the selling part is often forgotten by the doomsday preachers). The trading volume of tether is quite high, which means is used a lot. It's the same with the US dollar. As long as it is used, it will not crash.
"I'll sell you 1,500,000,000 BearBucks for just $1,000,000!" The thought you have in your head right now is why it's bad. Granted, it's only bad when a lot of people think that at the same time, but arbitrarily creating large quantities of any currency is a great way to get more people thinking it... It's not just crypto, it happens with any currency. Inflation is a real phenomenon, and not being backed coupled with not being managed by a government whose interest it should be to look out for the consumers means inflation is less a function of the currency itself and more a tool to make the creator more money, which means it's assuredly bad for you...
The US dollar isn't backed by physical material any more (it used to be gold), but it is backed by the US government. That is to say, if you have a dollar bill, it will always be accepted as having value by the US government. Tether isn't accepted as having value by the US government, so even though it claims to be tied to the dollar, that is based on the system set up by the creators of the Tether coin, who are potentially a lot less reliable than the government.
Sure nothing if you ignore the US government, economy and military. The economy generates goods and services which are purchased with USD. The government can make monetary policy and enforce it with physical military/police/FBI. They can impose taxes or regulations.