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1/ Welcome to #DeFi and #crypto Saturday
It is a brave new decade of 2020-2030.
While I am watching McAfee eating his wiener on livestream, let's speculate on the potential Tether $USDT apocalypse this year.
It is a brave new decade of 2020-2030.
While I am watching McAfee eating his wiener on livestream, let's speculate on the potential Tether $USDT apocalypse this year.
2/ Tether is not the first stablecoin, but it is the first successful one.
$USDT supposedly has up to $20B reserves.
There have been questions about what is backing these reserves,h as $20B is quite a high amount of cash to have in a bank.
$USDT supposedly has up to $20B reserves.
There have been questions about what is backing these reserves,h as $20B is quite a high amount of cash to have in a bank.
3/ If you have little money in a bank, you have a problem.
If you have a lot of money in a ban, the bank has a problem.
If you have a lot of money in a ban, the bank has a problem.
4/ Nitpick: Before Tether there was an algorithmic stablecoin called Nubits.
https://medium.com/reserve-currency/the-end-of-a-stablecoin-the-case-of-nubits-dd1f0fb427a9
It was based on the idea somebody is guaranteeing the peg, until someone didn't.
https://medium.com/reserve-currency/the-end-of-a-stablecoin-the-case-of-nubits-dd1f0fb427a9
It was based on the idea somebody is guaranteeing the peg, until someone didn't.
5/ While I believe that Tether $USDT is fully backed, we do not know what is backing it.
This is an important distinction.
This is an important distinction.
6/ Tether is likely be backed by Bitcoin options (market neutral position), US treasury or some other institutional papers.
This is my guess, I do not know Bitfinex people in person.
This is my guess, I do not know Bitfinex people in person.
7/ Because we do not know the nature of the asset basked backing up Tether, we cannot price in risk.
Can X market move Y% much to effectively collapte $USDT?
Can X market move Y% much to effectively collapte $USDT?
8/ However being backed or not is likely going to be irrelevant in 2021.
Tether has done shady stuff in the past.
Tether has done shady stuff in the past.
9/ US regulators do not like shady stuff. You do not mess with their precious dollar.
Tether is going to get squeezed either by STABLE Act (unlikely to pass, but similar) or pure prosecution.
Tether is going to get squeezed either by STABLE Act (unlikely to pass, but similar) or pure prosecution.
10/ Whether Tether litigation is going to be purely political (do not mess with out Dollar) or there have been real civil or criminal issues, is to see.
11/ Because $USDT presents significant trading volume, even though the $20B market cap is not that significant, killing Tether would hit crypto trading hard.
It would HURT.
It would HURT.
12/ / Most likely, if Tether goes down, prosecutors would order to halt $USDT transfers and clean wind up.
It can be done.
It can be done.
13/ Tether would need to give real dollars to every bag holder while balances are being frozen.
Everyone would be KYC'ed in the process to redeem $USDT to real dollar.
Everyone would be KYC'ed in the process to redeem $USDT to real dollar.
14/ When this happens, every trader would scramble to get exit from $USDT before the halt. The most liquid asset to exit into is #Bitcoin 
15/ Then traders would withdraw $BTC to an exchange that supports genuine dollars (Coinbase) and exit into a dollar position, selling $BTC
16/ So there could be a temporary pump for $BTC, until people find a place to exit.
17/ How long this pump would take... probably only couple of days.
Because it is a race out of a burning building.
Because it is a race out of a burning building.
18/ After the pump, the market would crash. How much... I do not know
But as long as there are other functioning stablecoins, like $DAI and $USDC, the market would pick up again.
Because nothing has changed in the macroeconomic picture.
But as long as there are other functioning stablecoins, like $DAI and $USDC, the market would pick up again.
Because nothing has changed in the macroeconomic picture.
19/ We just eliminate one token that is less than 10% from the total cryptocurrency market cap, less than $XRP
(Note that when this tweet goes out this data point might be already outdated)
(Note that when this tweet goes out this data point might be already outdated)
20/ So being in dollar early, before shit hits the fan, and then setting up shorts and some lowball buy limits could bring one good fortune.
21/ Also, cleaning up the stablecoin game for other players who are more transparent is better for the ecosystem.
We would understand systematic risk better - what is backing our stablecoins.
We would understand systematic risk better - what is backing our stablecoins.
22/ FIN
Here is some organ solo to cheer you up: https://twitter.com/jacobcollier/status/1345095162524037120
Here is some organ solo to cheer you up: https://twitter.com/jacobcollier/status/1345095162524037120
