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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    1. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      Tether is a centralized currency. The backing assets are held solely by one company. So it should carry the risk of insolvency of that company.

      5 replies 9 retweets 54 likes
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    2. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      It's fascinating that the risk premium that the market demands of tether is a flat $0. I can think of only two reasons for this, but happy to hear more from others.

      5 replies 10 retweets 44 likes
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    3. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      (1) The markets have decided that the company is genuinely risk-free. Not only is there no fraud in tethers right now, but they believe that the risk of fraud going forward is also 0.

      5 replies 5 retweets 34 likes
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    4. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      We can debate, as has been suggested, whether tether is a "fractional reserve," or an out and out fraudulent operation. I'm not making that point here. Let's assume that tethers are above-board perfect right now. That's not enough for a $0 premium.

      3 replies 6 retweets 23 likes
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    5. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      To carry a true $0 risk premium, it has to be the case that tethers have to be operationally secure from all future failures. No CEO/CFO can abscond with keys, no bugs in underlying platform, no hacks, and of course, there is $1 USD backing every tether, and it can be redeemed.

      3 replies 5 retweets 34 likes
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    6. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      If Tether Inc is indeed this kind of an operation, then they are truly unique. A cryptoasset operation with no risk. A complex operation, run by humans, dependent on so much, with zero possibility of failure. Tell us your secret sauce.

      4 replies 8 retweets 57 likes
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    7. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      An alternative explanation: (2) People are more realistic and understand that tether is imperfect. But they treat $1 USDT as being $1 USD because everyone else does so. That is, this is market psychology at work.

      10 replies 9 retweets 54 likes
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    8. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      So people pay $1 for 1 USDT because that's what they see everyone else doing and that's what has always been done.

      3 replies 4 retweets 35 likes
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    9. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      This is fine, but it's a precarious equilibrium. It can collapse the moment there is a change in perception.

      1 reply 4 retweets 33 likes
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    10. Emin Gün Sirer‏Verified account @el33th4xor 19 Nov 2017
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      I don't know of any other way of explaining the $0 risk premium and curious to hear others' opinions.

      13 replies 2 retweets 23 likes
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      Patrick McKenzie‏ @patio11 19 Nov 2017
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      Replying to @el33th4xor

      The third is that tether bundles two goods: a) a token of dubious utility and b) access to the capability to buy something which is otherwise impossible to buy at the price/quantity available on a tether-accepting exchange.

      6:09 PM - 19 Nov 2017
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      • Emin Gün Sirer
      1 reply 0 retweets 1 like
        1. New conversation
        2. Patrick McKenzie‏ @patio11 19 Nov 2017
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          Replying to @patio11 @el33th4xor

          Can you imagine paying $1.20 for a tether? Yes, easily -- you just need a 16.7% discount on the prevailing price of Bitcoin to do so.

          1 reply 0 retweets 0 likes
        3. Patrick McKenzie‏ @patio11 19 Nov 2017
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          Replying to @patio11 @el33th4xor

          Tether's price is a toll to access to a particular tether-accepting exchange. Tether has intrinsic sources of risk, too, but if access to that exchange were no longer valuable that would *also* suffice to poof tether really quickly.

          0 replies 0 retweets 0 likes
        4. End of conversation

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