[rippercushions]

There's something deeply ironic about a flight to safety in the form of Tether, which has famously been described as being "quilted out of red flags".

But if you can't redeem it and it's not backed by anything remotely approaching normal assets, I guess you can't have a bank run on it either... until the music stops and the insiders propping it up run out of chairs.

[pclmulqdq]

There's something to be said for everyone knowing the risks of doing business with you, and behaving consistently (consistently badly) so that those risks don't change. That's the regime of Tether. Nobody will even be mad when the rug gets pulled.

The federal reserve could stand to learn a thing or two, honestly.

[espadrine]

What could the Federal Reserve learn?

The structure of risk is similar for both Tether and Circle, AFAICT. While USD risk is heavily distributed across many regulated banks and there are measures in place to mitigate bankruptcy, USDC/T is fairly centralized and the fall of a single bank can put the entire currency at risk, cause sudden and extreme inflation (as is the case now), and potentially stop being accepted by even more merchants.

USD risk exists, but seems lower than USDC/T risk, and the same is true for its volatility. All in all, I am not surprised that there are more merchants that accept USD than USDC/T, and the change in methodology that would make the latter competitive would likely require taking a page from the Federal Reserve, not vice-versa.

[pclmulqdq]

Perhaps they could learn that doing consecutive 50-75 bps rate hikes for an entire year will bring with it a lot of adverse effects in a world where they are expected to hike 25 bps at a time?

Nobody pricing interest rate risk would have priced what happened last year correctly - it would have been considered a one-in-a-million event, not a routine response to high inflation.

[mitthrowaway2]

I think what really drove actors like SVB to indulge in speculative yield-chasing was central banks driving rates to zero, saying they'd be near zero for a long time, and as inflation ticked up that they weren't even "thinking about thinking about raising interest rates", and then continuing to hold them at zero while calling inflation transitory as it reached multidecadal highs.

This trained everyone to speculate that the Fed was ignoring inflation on purpose and they should allocate accordingly.

So many people unbuckled their seatbelts as the driver sped through several red lights while saying he wasn't even planning to touch the brakes. When he did eventually slam the brakes a moment later, the passengers flew through the windshield. The driver deserves blame, but blame him for speeding, not for slowing down -- the latter is the only responsible thing he did.

[Analemma_]

This is just not true. I saw many people predicting that after leaving interest rates low for so long and breezily treating inflation as transitory, that the Fed would have to frantically overcorrect with rapid hikes to keep their credibility. And if I saw that multiple times in public places, big institutions with experienced people probably knew it even better, which is probably why SVB is hosed while CDSs at JPMorgan/GS/etc. have barely budged- they knew what they were doing.

[dantheman]

I'd say they should learn that super low interest rates are nonsense.

[pclmulqdq]

The point is that consistent bad behavior is probably better than inconsistent good behavior. That makes you predictable.

[HWR_14]

I don't know anyone who expected sub 50 bps raises each quarter for a while now.

[pclmulqdq]

SVB bought those assets 2 years ago, prior to the yield curve inversion or any of the current macro conditions. Also, the last rate hike was 25 bps, and early in 2022 people were expecting a slowdown to 0-point hikes by now. Prognosticating about this stuff to price long-term fixed-income vehicles is tricky.

[jefftk]

> Nobody will even be mad when the rug gets pulled.

Happy to bet on that ;)

[bananapub]

> Nobody will even be mad when the rug gets pulled.

this is one of the silliest comments I've ever seen on HN.

[bombolo]

USD is backed up by USA army. If a country refuses to accept USD they will have a democracy problem and get attacked.

[tarunupaday]

India is a developing country. Are you somehow under the impression that the US army will attack a coffee shop in New Delhi if they stop taking US dollars?

Even in those parts of Mexico and Caribbean countries where the economy is heavily dependent on US tourism - and the US dollar will be accepted at retail shops; the price difference between paying in dollars and paying in local currency is going to be against the US dollar, and for any significant transaction, you will be better off paying in the local currency.

More to the point, it is true that a considerable part of international trade is conducted in USD. It is also true that the USA tries very hard to keep it like that (more so through economic sanctions than the military might), but it's hyperbole to state that any country that does not accept USD will get attacked.

For example, India and China buy a non-trivial part of their oil in roubles and have not been attacked - so far.

[acomar]

no but expect the US to start invading weaker countries that depeg from the dollar. the US is, at present, the world's reserve currency. that status is what creates the petrodollar. as countries move towards Russia or China, that hegemony is threatened.

[me_again]

What countries peg to the dollar that you think are in danger of being invaded?

[bombolo]

Lybia.

https://news.ycombinator.com/item?id=35107971

[acomar]

a lot of the African nations moving closer to China come to mind

[bombolo]

I said "a country"… are you under the impression that "a coffee shop" is "a country"?

How could you mistake a coffee shop for a country?

Seems like you want to misread me on purpose?

[capableweb]

Many "countries" don't do business in USD, they do business in their own currency. Why haven't those countries already been invaded if what you're saying is true?

[bombolo]

Can they buy oil with their own currency? No, they have to use their currency to buy USD and then buy oil.

If they get a deal with an oil selling country that says otherwise, USA sends in the army (usually to the seller, not the buyer).

[xref]

Unlucky for the UK coffee shop that wouldn’t take my USD this morning I guess? Not quite sure what you’re trying to say, if a country doesn’t want to accept usd…they don’t have to

[davidwritesbugs]

His point is that fiat currencies are issued by, and backed by, the state and the that trust is, ultimately, based on its enforcement capacity - the police/courts/US army rather than convertibility with gold or other hard asserts.

[theGnuMe]

I think it’s about peace and trust more than anything. It’s not about war and aggression.

[newjersey]

Peace and trust are backed in part by an implicit ability to wage/counter war and aggression.

[baremetal]

I think he means that the US military has a habit of invading countries who sell oil in currencies other than the US$.

_Libya_

2008 https://www.cfr.org/blog/libya-shunning-dollar (Libya Shunning the Dollar?)

2011 Invaded

_Iraq_

2000 https://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut... (U.N. to let Iraq sell oil for euros, not dollars)

2003 invaded

[tarsinge]

_Syria_

2006 https://www.aljazeera.com/news/2006/2/14/syria-picks-euros-o...

No direct invasion but proxy war (lessons learned).

[bombolo]

Thanks… at least someone here understands that "a country" and "some guy with a tiny shop" aren't exactly the same thing!

[andrepd]

We're talking about international trade, not an espresso at the corner shop.

[justeleblanc]

Even so. Not every merchant accepts USD.

[wil421]

Except a $100 bill is likely accepted. I’ve been to developing countries that will accept local currency, dollars, and euros. I doubt they would accept any pounds, tethers, or other fake electronic currency.

[fabian2k]

You won't get anywhere with a $100 bill in many developed countries, outside of some very tourist-y areas maybe. At least not in regular shops, of course you can exchange it at a bank. But if you try to order a coffee with US dollars, you won't get one.

[HPsquared]

In an increasing number of businesses the UK even if you try and pay in pounds (i.e. cash), they won't accept it. Contactless only!

[roflyear]

Doubt. Everyone knows what USD is.

[wil421]

If I’m visiting a country it’s usually as a tourist. Even on my business trips I spent half the time being a tourist.

[Symbiote]

Pounds have reasonable acceptance in Africa, the Middle East and parts of Asia -- many of those countries either used to be part of the British Empire or a neighbour, so there's trade, emigration, etc. Probably the Caribbean too, though I haven't been there.

In most cases e.g. a French tourist would be fine taking euros, but a British tourist can take pounds and not pay to convert to dollars or euros first.

[machinima40]

Really? Pls back this up with a citation or example. Name one country in those places or outside of Britain for that matter where british pounds are accepted as currency - today and not 1950

[dageshi]

Entirely depends on country and business in the country.

I've seen Americans try to pay for taxi's in Thailand with USD, the drivers aren't interested, it's a hassle more than anything. In cambodia on the other hand, yes, they'll take it.

Depends entirely on how stable the local currency is, if it's reasonably stable and well managed then probably they won't be interested.

[drexlspivey]

This is hilarious. Do you really think you can pay with USD in any random country?

[justinclift]

At least in Australia and the UK, if someone seriously tries paying with US currency they'll be laughed at right out of the shop.

Or at least nicely told to go and exchange it for real money (local currency) somewhere, then come back and try again. :)

[baremetal]

I am under the impression that pretty much anywhere in the developing world USD will spend. Maybe not in the west, but places that have a weak currency like africa, the middle east, and south america.

Here are a few cherry picked examples

https://www.reuters.com/world/americas/half-payments-caracas...

https://www.tripadvisor.com/ShowTopic-g293974-i368-k4798488-...

https://www.voanews.com/a/lebanon-leans-on-us-dollar-to-cope...

[wil421]

Nope I said developing world like Central and South America. Lots of tourists places will accept Euros and dollars as long as the bills are not damaged.

Mexico, Costa Rica, Panama, Nicaragua, Belize, and Colombia are places where I’ve done this personally and lots of Europeans were doing the same.

Friends and family in Costa Rica even advised that local currency wasn’t necessary and suggested bringing crisp bills from my bank.

[usrusr]

Talking pragmatics, what are the chances any random coffee shop in the USA would take your money if all you got were $100 bills?

[gus_massa]

At least in big cities in Argentina, you can pay with dollars in many places. Some shops like big supermarkets even have a sign that shows their exchange rate. (Note that the official exchange rate is AR$200, but the unofficial one is AR$400. You may get a bad exchange rate in some shops.) For buying clothes it may be more difficult because you must negotiate the exchange rate, and they may only accept only US$100 bills, and only if they look nice and is the new model that has a big face. It may be more difficult to pay the electricity bill in dollars.

(In small towns it may be more difficult, but not impossible, specially if you are nice.)

[Ekaros]

As a tourist maybe. But try to do it at any place mostly frequented locals in Europe and you will get nowhere. But funny thing. Same does not only apply to USD, but Euros as well. And EU doesn't even have army. And still on my last trip the taxis took the money.

[bombolo]

In most tourists locations yes (at a price, of course). But this is not at all what I was talking about.

[CydeWeys]

This is a really bad misunderstanding of how governmental monopoly on violence affects the acceptance of its currency.

The USD has value because you need to pay your taxes in USD, and if you don't pay your taxes, the government will take away your freedom. It has nothing to do with people in other countries transacting in that country's local currency.

[globalreset]

That's also a myth that doesn't make sense.

If it was about taxes people would just hold something else and converted some temporarily to pay their taxes leaving government with currency nobody wants.

It's all about people's trust and willingness to store savings and make loans in a given current.

[nequo]

> would just hold something else and converted some temporarily to pay their taxes

Wouldn’t this expose those people to exchange rate risk that they could completely avoid by holding USD instead?

[CydeWeys]

> If it was about taxes people would just hold something else

Not following this at all. You having to pay tax in USD means you're going to prefer holding USD and being paid in USD as well. Anything else would be strictly inferior, as now you have to worry about doing conversions all the time.

Note that it's mandatory for taxes to be withheld with each paycheck, and those withheld taxes must be paid in, you guessed it, USD, so you must be paid in USD as well.

[globalreset]

> You having to pay tax in USD means you're going to prefer holding USD and being paid in USD as well.

Huge part of the world have to pay taxes in their local currencies and yet prefers storing savings in USD.

> Anything else would be strictly inferior, as now you have to worry about doing conversions all the time.

You weight it against other pros and cons. Even US billionairs do not store their savings in USD cash, and don't seem to mind "conversions all the time".

[bombolo]

See what happens to countries that decide to sell their oil in € instead of $…

[PinguTS]

So, when will the USA military invade Norway?

I assume per your definition of "country" Norway should be a country as well.

Norway is a major party in selling oil and gas, but doing it so in NOK. Norway is not even part of NATO. At least until now.

So when do you expect an attack by the USA military?

[MandieD]

Slight correction: Norway has been part of NATO pretty much since its inception after WWII, but never joined the EU. Same for Iceland.

Its neighbors Sweden and Finland are EU members whose citizens have recently come to widespread agreement that NATO membership is desirable.

[slaw]

Norway uses US dollar for oil trade.

https://www.investopedia.com/terms/p/petrodollars.asp

[PinguTS]

Petrodollar is just a term. It does not mean that the contracts are in US Dollar. The measurement is in NOK.

"In Consideration of the assignment described under Article 2.1 above, Buyer shall pay to Seller a post tax amount of NOK [zz] ([zz]), ref. Article 5."

https://offshorenorge.no/globalassets/dokumenter/naringspoli...

Also the measurement is NOK: https://www.norskpetroleum.no/en/production-and-exports/expo...

[slaw]

> Norwegian Oil and Gas Recommended Model Agreement for sale and purchase ..

NOK is recommended. That document doesn't say what currency is used for actual transfers.

[bombolo]

> Norway is not even part of NATO.

Odd… because the head of NATO is Norwegian.

Your entire comment is completely misinformed.

[capableweb]

Isn't it the same for USDC? USDC is not a traditional cryptocurrency, its issued by a US organization, so I guess this organization would in the same way be protected by USA army, and indirectly USDC as well?

[andrepd]

Nobody has quite explained to me how that is different from deposits at a bank (modulo government guarantees).

[scott00]

Lack of redeemability, lack of transparency, and a history of fraud.

Banks contractually guarantee the right to redeem deposits for cash. Redemption of tether for USD seems to be subject to the discretion of its operators.

Banks are fairly transparent about their assets to the public, and completely trasparent to their auditors and regulators. Tether is an unaudited, unregulated black box.

IMO, tether is no longer a fraud, but it definitely was for a while when they were claiming 100% cash reserves but actually running with fractional reserves. Banks don't lie about their reserves.

[gus_massa]

There is also government regulation, like how they must prove that they are solvent and how much they must have in liquid assets to stop bank runs.

[lordfrito]

Bitcoin fixes this.

Few understand.

[raverbashing]

Tether is pretty much being propped up by thoughts and prayers at this point

[dannyw]

Tether has successfully maintained its peg for nearly 10 years now, despite being an enemy of the US government. That is actually an incredible achievement.

[simmerup]

It helps that you can only turn it into real money in 100k chunks.

[drexlspivey]

You can turn it into real money in any amount by selling it on the market. Market makers will handle the “100k chunks” problem for you.

[simmerup]

Exactly. It’s a neat way to prevent a run, especially if the market makers are acting in cahoots.

[merlinoa]

Tether is better run than any other stable coin. Yes, it could go to zero for many different reasons, but the main reason it gets so much flak (compared to other stables) is because it is less compliant with US regulators than USDC and the other major stable coins. Being less complaint with US regulators is also the reason it is used more than any other stable (highest volume by a wide margin); because people without US bank accounts can actually use it. Tether is a very helpful resource to a lot of people that otherwise would not have access to USD.

[timmytokyo]

If by "better run" you mean Tether is better at surviving despite being a massive fraud [0][1], then I agree with you.

[0] https://www.wsj.com/articles/crypto-companies-behind-tether-...

[1] https://archive.ph/rJifh

[CharlesW]

> Tether is better run than any other stable coin.

Only in the PR sense. A rug pull is inevitable.

On the bright side, when it crashes it'll take what's left of crypto with it.

[merlinoa]

Agree that tether will inevitably go to zero, but I don't think it will be Bitfinix pulling out the rug. Tether is more useful for more people than any other stable for the time being. IMO it will be the last stable standing unless the US regulators go after them hard before going after others, which is very possible.

[acomar]

if you think tether is well run, I have a bridge to sell you

[merlinoa]

Better run than other stables. I have some USDC to sell you. Do you have any tether?

[acomar]

I mean if you set the bar beneath the floor, yeah, sure. but my bar is "not a scam" so hell no. why the hell would I touch tether or any other stable coin following six whole years of reporting on how much of a scam stable coins are? am I supposed to trust their reserve "audits", which amount to a "trust us bro" letter sent to the auditor? are you aware that these verifications of reserves were done by depositing the requisite amount of money into a bank account that was set up for the auditors to have access, with no indication of where the money came from or whether it even belongs to tether? are you aware of their incestuous relationship with bitfinex, a fact that should raise a hell of a lot of questions, especially after the collapse of Alameda and FTX?

you can't sell me USDC because I'm not buying. "X scam is more of a scam than Y scam" is not a sales pitch for Y. it's a statement that should lead you to reconsider why you have any money with any of these people. or, you know, you can be another notch on the belt of the grifters, scammers, and vultures that dominate crypto. I guess the second is a more exciting way to live.