[notjesse]

This makes me think; what if you shorted USDT?

There seems to be almost no scenario where USDT becomes more valuable than the USD, and the worst case is it continues to be worth the same.

But there is a fair probability it becomes worthless, meaning that you gain from it.

While you need to pay premiums in the interim, for something with an indefinite timeframe, that risk seems fairly minor for the potential reward.

[gruez]

>But there is a fair probability it becomes worthless, meaning that you gain from it.

>While you need to pay premiums in the interim, for something with an indefinite timeframe, that risk seems fairly minor for the potential reward.

1. the chance of collapse might be lower than you think. the "tether is going to collapse any day now" sentiment has been around for years now, but collapse has proved elusive.

2. borrowing costs are high. I searched around and it looks like the APY for lending out tether is around 9%. The cost for borrowing tether is certainly higher. If you held a $100 short position for 5 years, and there was a total collapse at the end of year 5, then you'd make $65 (factoring in interest payments). That sounds good, but chances are thether probably has more money in the bank than $0. If it only collapsed to $60 (ie. they went bankrupt but had 60 cents of real money for every dollar issued), then you'd only make $5.

3. there are rumors/conspiracy theories that tether/bitfinex/tether affiliated exchanges force USDT/USD rates up periodically to force liquidation of tether short sellers. If you're caught in one, you'd lose money and be forced to rebuy tethers at an unfavorable price.

[danielvf]

I work with a blockchain project that lends a lot of USDT, USDC, and DAI. The cost at this moment to borrow USDT on the blockchain is 4%-5% for any amount, or 3.75% in bulk while playing defi games. The two biggest to lend it are Compound [0] and AAVE[1].

[0] https://compound.finance/markets/USDT

[1] https://app.aave.com/#/reserve-overview/0xdac17f958d2ee523a2...

[earnesti]

Where can you borrow tethers bulk?

[danielvf]

The two places I just listed will happily let you borrow at least a hundred million USDT.

[lukestevens]

Unfortunately that scenario only works if there’s a ‘fair’ long/short game beneath the fraud, but the fraud is such that that is not the case:

Remember Folks: Don't short Tether, once the exchange leaks your position to their buddies, Bitfinex shareholders will organize to liquidate you by working with their wash trading bots.

https://twitter.com/bitfinexed/status/1419813435618074626

[lamontcg]

If USDT collapses it will take out multiple exchanges with it, and the fact that you have a winning position won't matter if the the people running the exchange it was on have entirely disappeared to sandy beaches somewhere. Counterparty risk during the systemic "banking" collapse will be very high, and completely uninsured.

[bb88]

If you have extracted the cash in dollars somehow before the crash, then it would work, but you have to move your money out of the exchange as fast as you can.

[lamontcg]

The collapse of Tether is likely to be right in the middle of the crash and the exchanges will have suspended withdrawals already, and everyone will be looking for a lifeboat.

You have a database entry showing that you have a large amount of winnings that you can see on your screen.

You are going to have to deal with corrupt human beings on other end, who are outside of your jurisdiction, and are assuming they are just going to wire your bank account money based on that database entry, when you have no leverage over them at all, and when they will be better able to see the writing on the wall than you do.

Even within your jurisdiction, for something like Coinbase, if it becomes completely insolvent then you become an unsecured creditor in the bankruptcy liquidation process.

You'll be stuck yelling into the ether making twitter posts shaming them for not wiring you your winnings. And whatever actual cash you sent them to make those bets will be long gone and you'll lose everything.

Even assuming you could find some form of betting market outside of the crypto exchanges to place bets with other people that Tether would collapse the interest you have to pay should more than offset the eventual winnings. This is similar to how using options for portfolio insurance is a poor idea because by the time you're worried about your portfolio losing value everyone else can see the issue as well and wants a premium to write you that insurance.

And there's no sure bet that Tether/crypto collapses in the near term. I suspect that crypto will likely pop to a new bubble blow-off peak in 2022 and then 2022/2023 there will be another systemic test of crypto that could lead to its failure. But there's many billionaires with a vested interest in seeing the game continue who will do whatever they can to kick the can further down the road. I thought that it would fail in 2018 and was wrong (but the transcripts with bitfinex showed that it was probably on the brink). You could wind up betting Tether collapses for so long that by the time it finally does you've spent more on those bets than you've won back.

[londons_explore]

All exchanges require staff interaction for large withdrawals. You can be sure that in a very volatile market, friends of exchange operators will get priority.

[bb88]

I did some research on this.

Tether has been manipulating the market since 2018 through using wash sales to prop up the price through apparent demand.

Tether has most of its liabilities backed with unsecured commercial paper from China.

China has had issues with their real estate companies being in too much debt and offering too much commercial paper to keep them running day to day.

China also has moved against crypto currencies recently, and regulating the real estate companies to move forward to pay back their debt.

So this strikes me as systemic risk. If USDT goes, so does the Chinese Commercial Paper Market, and vice versa. Who knows what gets taken out at that point. Tesla? Coinbase? Nvidia and AMD for losing sales to mining rigs? I don't know.

[webinvest]

It costs about 9% per year to short it on most exchanges but about 4-5% on many DeFi platforms. Since most fractional banks live off of a 10% reserve ratio, you could very well be keeping Tether alive and prevent it from ever going under by shorting it.

They are profiting from all of the tether FUD nonsense by being able to lend their coins at a higher rate.

[bb88]

> Since most fractional banks live off of a 10% reserve ratio, you could very well be keeping Tether alive and prevent it from ever going under by shorting it.

Some might say that FDIC made the banks super rich -- it wasn't the services that made the banks profitable, as it was the bank had a sudden and large influx of government backed cash to make loans from.

In the US, it's not just reserves it's that 95% of account holders will be FDIC insured. And because the accounts are insured, there's rigorous banking regulations around the bank so FDIC doesn't have to pay out constantly.

So at what point does a run on $USDT happen? When the Chinese commercial paper market goes belly up? When they bitfinex files for bankruptcy or is charged with RICO? Sure there's a lot of FUD but if you read the tea leaves, I think China already sees systemic risk.

[helen___keller]

For a while I had a 5x leveraged tether short (with a USDC long deposit reserve) on a decentralized exchange. I was briefly making money through this on arbitrage but it fluctuates rapidly.