[celticninja]

the idea being that you create new tether when someone deposits the same amount of USD and when USD is withdrawn from the loop then so should the same amount of tethers. What I dont see happening is the removal of tethers when the USD flows out of the crypto space. Enough people have taken profits at this stage that surely some of those USD should have been used to pay out early investors in BTC, thus some tethers would need to be destroyed to maintain parity. Bitfinex should not even be keeping tethers where they have paid out the USD as they can easily create more when new USD is deposited. if it is a scam I am impressed by how long they have managed to keep it going.

[rtpg]

You don't need the withdrawal step in the current market

I buy BTC w/ USD Bitfinex prints USDT Bitfinex uses USDT to get BTC

In the end of this operation bitfinex has the USD and everyone else is satisfied. Normally Bitfinex needs to hold onto it to settle USDT claims, but so long as there's a USDT-usable market this might not be necessary

Even if USDT is at 50 cents to the dollar it's still a license to print money

[celticninja]

For every buyer there is a seller, bitfinex are not selling you the BTC. So that seller now wants to trade his USDT for USD to withdraw, whether he does that through bitfinex or another exchange using USDT, the end result should be an outflow of USD and a corresponding drop in the number of USDT.

[seppel]

Exactly, I'm wondering the same. Somebody bought 2.8 billion USDT and it is unclear who and why (to me).

[tripletao]

I think people hold USDT:

1. For convenience, like if they're speculating in BTCUSD and their exchange uses Tether.

2. Deliberately, because they're breaking the law and they'd get caught if they tried to deposit their money in a regulated institution.

I doubt many people in the first category have thought much about the risks, or even know the difference between USD and USDT--if they had, then they'd probably use a different exchange. I'll bet there's a lot of them, though. I could imagine that people in the second category would consider the risk and still want USDT. A portfolio of half each BTC and USDT is probably less risky in some sense than all BTC. Even if the investment in USDT has negative alpha, it might improve your portfolio's Sharpe ratio, if the correlation between the risk that USDT collapses and the price of Bitcoin is small enough.