[eightysixfour]

> When they mint 1 Tether they sell it on an exchange for $1. They don't need anyone to upfront lock up $1 and then also sell it for $1...

According to the argument against Tether, your first principal here is wrong. In this argument, Tether mints a USDT and trades with someone who has bitcoin or other crypto and wants a stablecoin. What the trader believes they are getting is a coin which is 1:1 backed by USD. In this situation, it is not.

Tether gets bitcoin. Tether can then print more USDT which they trade for bitcoin at a higher price. They would then have an infinite money cheat for buying crypto assets (as long as people believe a USDT = $1) which enables them to drive the price of crypto upward.

Tether claims that the pattern is "Someone gives us USD, we give them Tether, they trade for whatever they want", this was provably false at some points in time.

[hmcdona1]

I think that does help clarify, but I'd say it also aligns with the point I was trying to make in some important ways. They are trading one USDT for $1 of value. If they keep that capitol invested in BTC and do hold only 1:1 in collatoral...no shit, that's is pretty damn reckless BUT they are making the promise that they have the capitol to back it. Given the exponential rise in BTC again this last year I'd be inclined to agree with them for now.

Claims that this process inflates the process of BTC seem far to exaggerated. It's reallocating value that was already there. Firstly, someone has to sell the BTC in order to buy the Tether with it so that argument is somewhat of a moot point. And if they are selling the BTC for USD or other fiat it's actually increasing the sell pressure of BTC against said fiat. It might open the opportunity for trades/swaps which could drive the price either direction faster...but it doesn't make value out of thin air.

I'm not saying Tether is not responsible for poorly investing or protecting the collateral that backs their coin. I'm just saying I can't compute the claims that this is some sort of manipulation scheme. The concept is exactly the same as decentralized stable coins like DAI except the backer is a centralized entity and not a contract. Does me minting DAI magically pump the value of ETH because that is the coin I put up as collateral? No that's a ridiculous claim. I can however feel comfortable holding DAI knowing that the contract will enforce the value of the token no matter the price of the ETH backing it.

[eightysixfour]

> but it doesn't make value out of thin air

You are right, but it can drive the price. Imagine you have an infinite supply of USDT and are deeply in debt, people currently believe the USDT are backed by $1. You are incentivized to create USDT, trade for Bitcoin/crypto and then, since you are also an exchange, create fake trading volume with yourself to drive the price up (it costs you nothing, just some fake $0 USDT!), which drives people to get in with real money.

Do you not see how the incentives here are for Bitfinex and Tether to behave terribly?

I think it is worth noting that I am pro-cryptocurrency and want alternatives to government backed fiat to exist, but to do that the whole industry needs to operate on solid, transparent foundations. People choosing to trust companies that have lied to them repeatedly is an enabling behavior that will result in more scammers and, eventually, regulators.