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.
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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.
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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.
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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.
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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.
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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.
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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.
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This is fine, but it's a precarious equilibrium. It can collapse the moment there is a change in perception.
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I don't know of any other way of explaining the $0 risk premium and curious to hear others' opinions.
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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.
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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.
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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.
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