[jcburnham]

> The argument presented is very reasonable and requires a rebuttal.

> The other comments on this thread are worthless and just shilling crypto.

Let me try to present a rebuttal which hopefully you will not dismiss as a "shill" for crypto.

To begin, Tether is obviously ridiculous and most people, even in crypto acknowledge this. However, Tether is not precisely an unregulated "central" bank, but rather a semi-regulated private bank. I say semi-regulated, because they do have some oversight (https://www.cnbc.com/2021/02/23/tether-bitfinex-reach-settle...). It also has many competitors such as USDC, Binance USD, DAI, which are comparable in size: https://coinmarketcap.com/view/stablecoin/. USDT is less than half of the stablecoin market by capitalization, but it is over 80% of the daily transaction volume of the stablecoin market.

If we dig a little deeper though, you can see that the daily transaction volume of Tether often exceeds its market cap: https://nomics.com/assets/usdt-tether/history. This suggests that most owners of Tether are only holding it for a short period of time, which make sense given that on centralized exchanges like Binance it many, if not most, markets are denominated in USDT as one half of a trading pair.

So why, if Tether is generally understood by the market to be backed by nothing, and run by dubious individuals, is it still worth something? It's not because people are stupid, but because of a combination of 1. the enormous international demand for cryptocurrency assets, 2. the lack of sufficient "backed" digital dollars to efficiently lubricate the quantity of transactions people want to make and 3. Gresham's Law (https://en.wikipedia.org/wiki/Gresham's_law), which says given two kinds of commodity money, people will spend the less valuable one, and save the more valuable one.

It's honestly a fascinating example of a money forming out of the matrix of exchanges in a barter economy, and yes, it's a dubious product that will likely break its peg and crash to nothing at some point. But because the total market cap is relatively small, there's not really any significant contagion or "bank run" risk here (BTC lost more than Tether's entire market cap today and mostly people just shrug and say "that's crypto").

The question I want you and all people who say "crypto is a fraud, ponzi scheme, has no value" to ask yourself is "If I'm right, why is there such demand to buy crypto?". Some crypto-critics argue it is because people are stupid and greedy, but to me that's a lazy and elitist answer. My interpretation is that crypto demand is driven by the same forces that cause people to buy condo's in New York City, London, Vancouver, etc. which then sit empty. It's mostly, right now, a combination of inflation and capital flight.

But there is also a growing sector of the crypto-economy which is capable of doing things which are not feasible in traditional finance (e.g. crowd-funding like Gitcoin, anonymous payments like ZCash, or decentralized money like MakerDAO). I don't think current crypto-asset valuations are justified by that sector, but I am hopeful that in the coming years those use cases will grow and will create extraordinary value for the world.

[jshen]

> The question I want you and all people who say "crypto is a fraud, ponzi scheme, has no value" to ask yourself is "If I'm right, why is there such demand to buy crypto?".

There are a few reasons, but the main one is the same reason there was demand for beanie babies.

[jcburnham]

Yeah, and like I said, that's a lazy answer, because it raises the question "Why, actually, was there demand for beanie babies?" It was actually a really complex and fascinating phenomenon (I recommend https://www.amazon.com/Great-Beanie-Baby-Bubble-Delusion/dp/...) from the early days of the Internet and e-commerce. Likewise with the Tulip Mania and the South Sea Bubble (which people often compare crypto to); they're a lot more complicated than "people are greedy/stupid speculators", and are in fact important moments in the development of modern finance and the joint-stock corporation.

[jshen]

It really isn’t more complicated. People were told beanie babies were investments that would make them money. They were fed stories about people who made a lot of money from beanie babies. They got fomo and bought in, then it inevitably dropped.

Crypto is only more complicated because it also has other groups, like anarchists/libertarians that see crypto as subversive to government, taxes, and regulation. They buy in out of a mistaken philosophical view that it furthers their political ends.

[jcburnham]

> They were fed stories > They got fomo and bought in.

But the key factor is that they were they fed stories via a new information medium: The Internet. And the Internet is also where beanie babies could be bought (via ty.com) and resold (via Ebay). An argument could be made that Ebay might not even exist today without the beanie babies phenomenon which gave it early traction.

[jshen]

If you’re suggesting that we need garbage that exploits people to have things like eBay … well, let’s just say I don’t agree.

[jcburnham]

I'm suggesting that a large part of the phenomenon you're describing as "garbage that exploits people" is caused by the asymmetry of information found in new market technologies, and that as those technologies mature, those asymmetries dissipate. And that many market technologies we today recognize as good and wholesome started had that kind of bubble phenomenon when they first appeared.

[Vervious]

The main question that requires answering, I think, is why we let Tether and Bitfinex print a bunch of Tether and buy a bunch of Bitcoin during low volume periods. The Bloomberg report et al and the SEC both suggest that this is happening, constituting clear price manipulation.

Is that not by definition fraud? It's like the US federal reserve printing a bunch of stimulus. At least our central banks are nominally appointed by elected officials, on the basis of a social contract.

[jcburnham]

Tether and Bitfinex are certainly highly dubious and I would not at all be surprised if what they've done rises to the level of fraud. So far they have remained mostly out of the courts, but there's a wonderful quote by @patio11:

> Bitfinex and its principals have not yet been indicted by the U.S. Attorney for the Southern District of New York, but crucially, not in the same sense that you have not been indicted by the U.S. Attorney for the Southern District of New York.

https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/

I definitely am not in any way pro-Tether, and I think the industry/the world would be better off without them. However, I do not think this implies a. that Tether serves no function, b. that their collapse will bring down wider markets or c. that this meaningfully reflects on the ethics of cryptocurrency as a whole.

As far as central banks go, I would love to see the adoption of a central bank digital currency at the Fed, ideally with accounts open to the general public. This would combat the plague of regressive fees at commercial banks, allow future economic stimulus to go directly to spenders, and perhaps even allow people to transfer money over the weekend.