[drexlspivey]

I mean if you are so sure about that the trade is pretty simple. You can trade USDT perpetual futures currently at 0.9989.

You are probably going to respond with the "markets can stay irrational longer than you can stay solvent" meme but I don't see any downside to this trade other than the opportunity cost of investing your dollars somewhere else. There is no scenario where USDT goes to $10 and you lose your money.

[chowells]

You can't just short something you know is worthless. Maintaining the position has costs, but that's not even the problem. If the asset collapses to zero like you believe it should, that usually comes with a halt on trading it. That means you can't actually buy the assets you need to close your position and profit. You can actually be left on the hook for interest on a loan that can never be exited.

Making money as a result of knowing something is fundamentally worthless is actually quite difficult.

[dereg]

That's not how perpetual futures work. Perps settle in cash, not the underlying. You pay interest in the form of funding, which is paid every x hours. The primary risk of using perps is if the insurance fund gets wiped out due to slippage.

I too encourage bearish folks to short Tether. Otherwise, there's simply nothing else to back their claim other than their uninvested belief.

[kortilla]

And when tether is frozen on the reference for the future settlement?

[dereg]

Ah – a perpetual swap (perp) doesn't actually settle like a futures contract does. It is purely a synthetic instrument that tracks the price of the underlying instrument (Tether, in this case). The contract technically does not settle (hence the "perpetual") and is priced constantly. There is no moment at which an exchange determines a settlement price because no Tether is held for the sake of delivery.

You may be wondering how the price of the perp tracks the price of the asset if there is no underlying asset to moor the price to? It's done through what's called a funding rate. Basically, there are two prices relevant to a perp contract: the price of the perpetual contract on the exchange and the price of a reference index that is meant to accurately represent the price of the asset on a fiat exchange.

The price of the perp should follow the index price, but there are often deviations. That's where the funding rate kicks in. To moor the price of the perp to the price of the underlying asset, traders pay/receive a funding rate (think of it like an interest rate) every x number of hours (x is determined by the exchange).

If the contract price is higher than the index price, that indicates there is excess demand for the contract on the exchange and, thus, traders who are long the contract have to pay a funding rate to those that are short the contract. That is because the system is trying to incentivize traders to sell (short) the perp in order to move the price down, in line with the reference index. The further the perp price deviates from the index, the higher the funding rate. If the price of the perp is below the index price, the funding rate flips negative. That means that those who are short the contract have to pay a funding rate to those that are long, thereby creating incentive for people to buy the perp and raise the price.

[kortilla]

My question is what is that reference index? Tether is so large that the reference can’t be any of the big established crypto exchanges because they might be incentivized to “halt trading” to let the market “stabilize” rather than actually let it breakdown.

[dereg]

FTX lists their reference pairs [here](https://help.ftx.com/hc/en-us/articles/360027668812-Index-Ca...).

  > FTX USD
  > FTXUS USD
  > Binance USDC
  > Binance TUSD
  > Kraken USD
  > Bittrex USD

If there was a run on tether and exchanges shut down trading, I cannot imagine that making the situation any better. Traders would just move off exchange to some place where there's actual liquidity. Moreover, traders would never use that exchange again. Halting would do nothing like it does in traditional markets. In crypto, price discovery cannot be stopped.

In regards to those pairs being used as reference prices, there's no chance they freeze prices just to stabilize the derivatives. Open interest on tether is only $328m on $73b Tether outstanding

[TuringNYC]

Thanks for this comment.

Sorry for my naive response.

Which product exactly are you speaking about? Could you link to the product and/or exchange where "USDT perpetual futures" are traded? I can see BTCUSDT futures (but then, you're taking another risk on BTC itsself sinking), is there a way to short-USDT-long-fiatUSD?

[fjkdlsjflkds]

1) Have some collateral (BTC, ETH, USDC, something you somewhat trust);

2) Use collateral to borrow 1M USDT from AAVE/Compound/whatever;

3) Trade 1M USDT for ~1M of some USD-stablecoin you trust (USDC?);

4) Wait for USDT to crash;

5) Buy 1M cheap USDT from decentralized exchanges (using the USDC you kept aside), which will cost you less than 1M USD;

6) Pay back loan (keeping the difference as profit) and get back your collateral.

[drexlspivey]

This one on FTX for example https://ftx.com/trade/USDT-PERP

[ceejayoz]

> I don't see any downside to this trade other than the opportunity cost of investing your dollars somewhere else.

Shorting comes with interest fees for the borrowed asset. If Tether holds off a collapse for a few years, that can get substantial.

[drexlspivey]

I am talking about futures not shorting, no borrowing fee if you don’t do it on margin.

[ceejayoz]

Then you're talking about a setup where a) the counterparty can fail a margin call and b) the exchange it's happening on can get hacked or go bankrupt.

No fucking thank you.

[dereg]

1. I'm not sure what you mean by this. The closest thing to a margin call is an auto-deleveraging. Markets can get messy during periods of mass liquidations but the risk is knowable, and it's in the size of the insurance fund.

2. Counterparty risk exists in every traded market, not just crypto.

It's clear that you and most of the critics here don't even know the basics of market structure, which should cast doubt on your claims. I don't know any other field in which you can provably not know anything about a topic and yet be taken so seriously than in crypto, with both bears _and_ bulls.

[ceejayoz]

> Markets can get messy during periods of mass liquidations but the risk is knowable, and it's in the size of the insurance fund.

The risk of a Tether collapse is knowable?

> Counterparty risk exists in every traded market, not just crypto.

Sure, and I’d avoid any of them whose daily operations are based heavily on a known fraudulent actor, too.

[quickthrower2]

> There is no scenario where USDT goes to $10 and you lose your money.

It is possible (even if unlikely) because cryptocurrencies backed by absolutely nothing have value - and arbitrary value at that.

To make it happen Tether could announce they are unpegging and will spend 1Bn to buy back tether at any market price on exchanges. The gambling masses join in. Suddenly Tether is another mooncoin.

[dereg]

This couldn't be further from the truth. Market makers would be glad to sell Tether at a premium. Bitfinex only has enough money so as to retire all Tether coins and buy not a cent more. That said, if you're truly bearish on Tether, then you should believe that Finex doesn't have enough money to retire all Tether coins.

[quickthrowman]

> I mean if you are so sure about that the trade is pretty simple. You can trade USDT perpetual futures currently at 0.9989.

On an unregulated exchange where the operator: can see your stops, knows your margin/liquidation price, and can manipulate the price/order book to liquidate you and take your money? I think I’ll pass.

[dereg]

If you're worried about stop/liquidation hunting, you can establish a 1x position that involves zero leverage and zero chance of getting ADL'd out of a position.