6th August 2023 > > Meme coins and USDT.

tl;dr

More meme coin nonsense. USDT is a critical part of the infrastructure for crypto markets.

Market Snap

Market Wrap

Back into a narrow trading range for the last three days makes BTC one of the most stable assets since mid-March:

Curious Cryptos’ Commentary – Meme coin trading

Seriously, this is now getting ridiculous.

After the BALD fiasco last week, a coin that is named after Coinbase’s founder and CEO Brian Armstrong’s cat (yes, you read that right, I am not making this up) launched on Friday and has seen many multiples of millions of dollars being traded.

The connection is somewhat nebulous – TOSHI has been created on the new Coinbase Layer 2.

A brief search for this coin is enough to find this warning:

“Smart contract of the following asset can be modified by the contract creator (for example: disable selling, change fees, mint new tokens, or transfer tokens).”

Are you kidding me?

Remember SQUID? All that hype, then buyers found that selling was disabled …

Transfer tokens? Ah, the old double spend problem. Or is it a triple spend? Quadruple spend?

What is it with some people that they do not do even the most basic research. I despair sometimes at the naivety and unwarranted trust on display. My lifetime membership fee to the Really Sceptical Society of Proper Sceptics has been very well spent.

Curious Cryptos’ Commentary – Talking of cats

NFKs (non-fungible Kennys) are getting closer by the day.

Curious Cryptos’ Commentary – USDT (Tether)

The largest stablecoin by far is USDT with a market cap of $84bn more than three times its nearest rival, USDC.

First half results were impressive with profits over $1bn allowing Tether to report excess reserves of $3.3bn. This is the measure of the assets it holds over and above the liabilities if all holders of USDT wished to exchange back to USD. The bigger the excess reserves, the more confidence investors will have in the soundness of USDT. If those excess reserves were negative, holders would likely want to cash out, a situation analogous to a bank run.

But it’s not just the size of the excess reserves that matter. The quality of the entirety of the reserves is also important, alongside the level of disclosure about those reserves. Tether has long been criticised by the CCC for its approach to both issues though undoubtedly matters have improved on this front:

No more of those high risk, high correlation loans to opaque Chinese firms operating in the crypto space. Phew!

Nearly $74bn of US Treasury debt puts Tether just behind the Netherlands in the ranking of the biggest holders of treasuries.

But - $1.7bn of BTC is sitting on the balance sheet making Tether the 11th largest holder of BTC. Tether is committed to increasing that holding on an ongoing basis by investing 15% of profits in a deliberate attempt to shift away from US government debt.

This makes no sense at all.

It brings in correlation risk where there should be none. @KyleOdomMartian commented on X:

“Should've used actual dollars to back your fake dollar. You can't even redeem 10% of your BTC reserves without completely cratering and destroying the market. That is a fact.”

Much greater transparency is warranted, and this is an area ripe for well-targeted regulation. A detailed breakdown of every single treasury and every single bond/loan is easy to provide and is the bare minimum that should be required. That $5.5bn of secured loans “comprises loans over-collateralized by liquid assets subject to margin call and liquidation mechanism.” Great. Then show us the details so we can draw our own conclusions.

I have no qualms about there being a big ongoing buyer of BTC if there is no risk of a calamitous forced liquidation. A run on USDT would be disastrous for crypto markets. USDT is simply too big to fail and look where that got us in TradFi.