TL;DR: if you think Tether is going to collapse and want to profit from the chaos, buy Maker
Intro
This post assumes that the simple reason behind Tethers near-uninterrupted stream of lies about its reserves since its inception is that the ~63,000,000,000 dollar-pegged tokens they've issued are backed by almost nothing and that the recent and dramatic uptick in scrutiny will result in a total and near-instant loss of faith (and value) in USDT. Both of those assumptions might be wrong; there's no shortage of Tether content floating around to help you decide for yourself.
Historically speaking, stablecoins have been the safe-haven that people have fled into during crypto-crashes. They're a way to "cash-out" of crypto without all the regulatory hassle of exiting all the way into fiat. The sudden evaporation of Tether would throw that paradigm into question, and the purpose of this post is to speculate how that might play out and how to profit from the chaos.
Part 1 - The Crypto Crash
The death of Tether would almost certainly trigger a staggering crash across the crypto markets. It represents the largest-by-far inflow of value bidding up prices (especially Bitcoin), and when all that liquidity suddenly vanishes, the */USDT pairs will shoot beyond the moon to Andromeda (until the exchanges can pull them offline), and the */USD pairs will plummet as a wild round of price discovery coupled with panic selling ensues.
Part 2 - The Stablecoin Reckoning
It's important to understand the current state of stablecoins.
The huge majority of stablecoins that exist today are backed by the promises of for-profit corporations. Regardless of anything else, these corporations have an enormous financial incentive to keep as little reserves on-hand as they can get away with (since idle money costs money (the opportunity cost of not making profits by putting that money to work)).
In our hypothetical situation, Tether is gone. That leaves USDC and BUSD as the big players. Let me suggest that in an apocalypse scenario caused by the failure of a stablecoin backed by corporate promises, people might be wary of moving money into stablecoins backed by corporate promises. They might even demand US Dollar redemptions from those corporations on a large scale. Let me also suggest that BUSD would likely be in serious peril.
BUSD is backed by Binance, which also happens to be one of the largest holders of Tether in the world (somewhere between $18-$30B). We don't know how much of that USDT is owned by Binance and how much is owned by their customers (so we don't know who would be eating the losses), but it's perfectly reasonable to ask whether Binance would be in the mood to cover up to $10B in redemptions of BUSD tokens in a scenario where they've just absorbed an 11-figure loss.
USDC is in a better situation and probably has the best chance of survival. But the reality is Coinbase still owes USDC holders ~$24,000,000,000 and will need to cough up a LOT of US Dollars on an already-bad day to cover enough USDC-redemption demands to convince the crypto-markets that USDC is still safe.
But even if Binance and Coinbase are able to produce enough US Dollars to ensure the survival of BUSD and USDC, I have to assume that this event will be a painful lesson learned about the importance of the crypto-creed: "Don't trust. Verify." The fact that we've reached a point where 85% of the reserves backing stablecoin value cannot be verified (but instead require us to trust the promises of a for-profit corporation) tells me quite plainly that people would still rather trust than verify. Maybe hundreds of billions of dollars of losses will bring them around...
Part 3 - A Safe Haven
Unlike all of the larger stablecoins, DAI can be verified at-a-glance to be overcollateralized. It seems to me that would be an extremely attractive safe-haven during chaos caused by the collapse of stablecoins that are guaranteed to be undercollateralized with the only question being HOW undercollateralized they are.
The most common objection I receive when I tell people to use DAI instead of USDT/USDC/BUSD is "but DAI is backed by other cryptos - if they drop in value, DAI will lose its peg". Believe it or not, the possibility of this incredibly common scenario occurred to the creators of DAI and there are systems in place to account for it. The mechanics ensuring DAIs peg are a bit complicated but extremely clever. CoinBureau has a quick yet solid explanation here:
https://youtu.be/wW1IEZeWY4k?t=357
TL;DW: Market forces of any kind pushing DAI off its peg creates an opportunity for someone in the system to make money until DAI returns to its peg.
I'm so impressed by this system that I'm convinced it would even survive the total and immediate collapse of USDC, which represents ~51% of its backing collateral.
I think its reasonable to assume DAI will be in extremely high demand during the Tether fallout since, unlike all of its largest competitors, DAI holders can view the reserves backing the asset at any time. No hoping for an audit or months-late "attestation", no delays or broken promises; all the money is there and can be reviewed by anyone whenever the mood strikes them.
DAI represents the best option for safely cashing-out of crypto without exiting all the way to fiat. It also represents the best option to be the stablecoin-of-choice moving into the future, assuming the cryptoverse has learned its lesson about trusting corporations to not tell lies.
Part 4 - Profit
So if that's the case, how can we make money with that knowledge? Well, the Maker/DAI ecosystem is a bit complicated, but the critical takeaway point for our context here is this:
increased demand for DAI = increased profit for Maker holders
To put it simply, the routine operation of the DAI system generates revenue, and that revenue is used to buy and burn Maker. The greater the demand for DAI, the lower the supply of Maker. All things being equal, a smaller supply means each Maker token will be more valuable.
So if you think the collapse of Tether will increase the demand for DAI, you can make money by holding Maker.
You can watch Maker burning here:
More interesting stats here:
https://blog.makerdao.com/a-guide-to-dai-stats/
Thanks for reading. I'd be glad to hear any holes you can poke in my reasoning. Good luck out there.
Transparency: Maker currently represents 1.5% of my crypto portfolio, and I'm hoping to increase that to 5% soon. NFA/DYOR
