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How We Can Tell That Tether Is Just “Credit For CryptoCurrencies”

August 7, 2018

How We Can Tell That Tether Is Just “Credit For CryptoCurrencies”

One of the greatest things about proof-of-value is the secrets it sweeps up from under the rug. When you start stirring the data on market prices, let’s just say there are a few spicy sauces that crop up in the stew.

A little background, first: proof-of-value is a synthetic Blockchain mining protocol that identifies value among utility tokens and seeks to extract that value and harness it for the holder of a proxy token we call a digital note that re-exchanges after a period of time for an equivalent or greater amount of value that purchased it. Get all that? If not, don’t worry.

Suffice it to say that when dealing with value, we must address the issue head on when coming to combining multiple assets. A Futereum smart contract takes a unit of your ETH and in return gives you 114 FUTR; then, after 1 million notes are issued, it gives you 89 FUTR per ETH; then 55 FUTR per ETH; and so on, down to 2 FUTR per ETH before all the FUTR swaps back for all the ETH in the smart contract. If ETH has pumped up in price, there is nothing to worry about; likewise if you played early on you are pretty happy with the 800% increase in ETH that you have now gotten in return.

These Futereum contracts mine into another POV contract we created called Monkey (MNY) which tracks Bicoin’s last decade’s price history (literally) and then at the end does the same thing for the FUTR and FUTX (a faster version of FUTR) notes. It is our aim however not only to have ETH on the synthetic protocol, but also a variety of the most popular ERC20 tokens. The issue is of course, that many of the tokens have completely different values per unit as does ETH, which would in effect make mining MNY smart contract with these new Futereum token contracts significantly cheaper, debasing our flagship currency.

In order to work around that, when talking with an active member of our community this morning he suggested, “why don’t you adjust the price dynamically with ETH’s price,” after I had said we were looking at some sort of way to compare ETH and any ERC20 token. In the end, it was a simple equation that did the trick: we simply took the price per unit and divided it by the number of units in circulating supply as per each token’s CMC entry. After that, we put the ETH result over the ERC20 token’s result and multiplied the premium multiple we got (or discount multiple in a couple of cases) by the market price of that ERC20 token. The idea was that this sort of neutralised the true value of the token being compared back to the network protocol’s primary currency which is ETH (and, by extension, the original source of value on our synthetic Blockchain).

The results were nothing short of astounding. For a start, 5 of the results fell within an average 35% range of each other, including with ETH. What this shows you principally is the extent of unit inflation implied in the ETH price; ultimately, it is spread too thin most of the time, clearly, propping up and running the network for the tokens that it hosts.

That said, nothing could have been more surprising than the entry for Tether, which fell far outside the boundaries for safe investing. Currently, FUTR costs about $3.48 / FUTR. For the 4 other tokens that the market priced almost identically to ETH in terms of price per unit / total circulating supply, the same customised digital note MNY mining contracts would on balance cost $4.66 per FUTR. Given the massive growth premium and credibilty of projects such as OMG and LSK, that’s probably a fair bet. There is a slight risk premium over ETH, naturally, but the tokens will go up so much in value over the same period of time as will ETH (that’s the intuition anyhow). For BNB, the market assumes the world’s largest cryptocurrency exchange’s token is a safer bet than even Ethereum right now (that may be due to ETH holding up too much value all by itself).

For USDT, the market effectively assumes that Tether is about 24 times overvalued. This means that USDT is effectively worth about 5 cents per USDT in real terms, according to the market. Simply put, the market cannot understand why there has been such a humongous issuance of USDT and is questioning the logic of there being so many USDT tokens in supply. If the cash really was there, the market seems to be suggesting, then it wouldn’t matter one way or another – USDT would need to be supported by $24 of Fiat USD to every Tether anyway, and a dollar is nowhere near enough. Naturally, we are thereby forced to arrive at only one conclusion: for some time now, Tether’s creators have been printing their own money to pump the market, running a digital currency Ponzi scheme whereby they ultimately recirculate the gains back into their pockets after pump-priming this weird sort of broad cash into the monetary supply.

This illustration of the risk premium ascribed to Tether by FUTR smart contract is startling. The market says that for a Tether-based FUTR to have equivalent minimum base value inside the MNY smart contract alongside the ETH ones, a buyer ought to be paying $83.67 per FUTR. As it happens, FUTR does rise to as much as $200 eventually, so this may be a utility of digital notes: that they can cushion what appears to be alrighty oncoming credit crunch. For effectively what the market is saying is the same thing certain analysts who were sharper than the others on Wall Street were saying by 2006 about the US housing market: this money is not money, it is just credit upon credit upon credit, pure and simple, with no real utility and no real function apart from making some very rich people much richer.

It came to tear the walls on Wall Street down to shreds sooner rather than later. Given Blockchain is such a nascent innovation, and this sort of scandal – a run on the Tether, that is – would likely set the whole industry back years, perhaps it is time to think about precautions now, before it is too late?

Digital notes, anyone?

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