As I've been saying a lot lately on Twitter, Alameda is quite comfortable with the Tether team, and we do a lot of large creations! I talked about that in more length in this thread:
What does "large" mean, though? Well, it depends! And it doesn't just depends on any absolute metrics, or on market conditions, or whatever -- it also depends on our own ability to think through the question of "how much should we create" and "how much is like, too much, c'mon."
Soon after we got set up to do creations, we did some initial studies to determine how much we could sell above $1 + X + Y + Z, where X was creation cost, Y was "execution cost," and Z was "cost of tying up capital." We also charge for our time and add some edge somewhere.
X: this fee has varied over time a bit, but ultimately is pretty easy to understand and stays pretty constant almost all the time. FWIW, X != 0 is why the USDT premium can persist, since there's technically no way for people to just transact with USDT for $1 infinitely.
Y: this is where size starts to matter! The legs of this trade are: sell something (probably BTC) into USD, create USDT with USD, use the USD to generate something (probably BTC), and end up back where you started. And if the trade's still good, cycle! (We often do this).
The more size you're doing, the more impact each of these legs can have (selling more spot BTC into USD, buying more spot BTC with USDT) -- and that increases the cost of execution, Y. We've run studies to determine this cost Y for various sizes.
Z: size also matters here, actually! At any point we have some amount of capital floating around, free to do "the best trades" or just to chill if we think the best trade is "wait for something amazing to pop up and have capital ready for it."
Starting the USDT cycle requires a capital investment -- sending to create, and then that capital is being used in the various legs for some period. The first $1 we lock is less costly than the 50000000th since, if size > our free capital, we need to unwind positions, e.g.
And we've run studies about this, too -- but mostly this is a human call, since the value of spare capital varies so much with market conditions (when things are volatile, keeping spare $ around to do awesome trades with is better, for instance, than when it's slow).
So! This gets us to a point where we understand how much a given size will cost us (in fees, execution, opportunity cost). We compare to the premium we expect to sell the USDT at, and if it's good we do it! And we do the size S maximizing S * average profit.
Originally, though, we were getting this *quite* wrong -- we were being too conservative in estimating average premium, and we were over-estimating capital cost because we thought it would take longer to cycle. So we were under-creating by a lot.
Having gotten a ton of experience actually cycling, though, gave us WAY better data about premium impact and execution cost -- and better intuition about timing and opportunity cost (having the $ in USDT also isn't, like, worth 0 in a big move, which we were getting wrong).
We're better at this now -- and we're maximizing our bets a lot more efficiently when the premium and market conditions line up the best.

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More from @AlamedaTrabucco

14 Jan
Ah, election trading. I think trading the election in November was some of the most fun I've ever had in my life ... for the first day. Maaaybe the second.

Kinda wasn't expecting it to last 3 months.

But, always a silver lining: people were bidding TRUMPFEB high. WAY higher than we ever thought was reasonable -- we couldn't find a single informed source who honestly believed the probability of Trump remaining in office was higher than 1% or so. And LOOK at this chart!
We quickly decided we believed our fair way more than the market and that there were no real selection effects here -- it all became a question of maximizing the amount of $ we could make from selling into the bids.
Read 11 tweets
14 Jan
BTC took forever to break through $20k -- I talked about the day when it finally happened here:
Right after it broke through, I noted in the thread that our big intuition was that it would RIP up even more. And then rip, and rip, and rip -- which it did! We were confident because of what we knew about liquidation behavior near recent optima ...
... and this was a GLOBAL optimum, so we knew there'd likely be tons of liquidations once it broke through $20k. So, once that happened? We literally got as long as we could, given the liquidity, and without fucking up our execution too badly.
Read 9 tweets
14 Jan
During this period, when XRP was plagued by rumors about the SEC's investigation into Ripple, we realized pretty early on that XRP's price was *really* reactive to headlines -- in a fairly surprising way.
The big news obviously had big impact -- it fell a TON when that first happened. As a bit of a side note, how to size bets on that first crash? In this case, we of course were confident it was ~bad~ -- how bad?
We decided a few things:
- probably, *we* were not the people with the best handle of like, the legal landscape, to the point where we didn't think we had a "fundamental understanding" of how bad this was
- probably, it didn't matter a ton, because liquidations
Read 9 tweets
14 Jan
Amidst OKEx's withdrawal suspension -- there was a big level one concern -- Alameda does trade on OKEx, and we had some funds locked there. Was there anything to do?
Eh, not really. There were OTC markets like, 25% down from spot that various people were bidding for OKEx funds -- but once we accounted for actual risk (seemed small, the chances it was actually seized seemed *really( small given what we knew) and opportunity cost, seemed bad.
Seemed *really* bad, actually -- we thought anyone selling into those bids was WAY overpaying for insurance. (A big part was that OKEx trading remained great, BTW -- that made the opportunity cost quite small).
Read 7 tweets
14 Jan
Bigger is Bigger (when Betting is Better)

A thread about getting it in good.

(And a title about mocking @SBF_Alameda's little puns)
Getting it in good is a poker term referring to the idea that, when your odds are best (strictly speaking, EV of winnings, not odds per se), you wanna bet more. For many players, the ability to recognize spots where this matters is the difference between playing + and -EV poker.
Example: with top pair vs. a flush draw on the turn (and say you're confident about this, and you opponent knows that, etc. etc.): if they miss the river you're getting $0 more, if they hit you lose. So you want to get your opponent's chips in the middle on the turn!
Read 23 tweets
11 Jan
BTW, to connect some dots here -- a lot of the people seeking access to a coin like USDT *aren't* doing so via creation. They're often doing so via just sorta buying it in the markets -- and they're buying a LOT, and REALLY aggressively.
The premium with which USDT trades to $1 is pretty volatile as a result -- as I type this, the average BTC/USDT market (as compared to BTC/USD) is trading about 15bp lower, implying USDT = $1.0015 or so. And that's all from people AGGRESSIVELY selling BTC vs. USDT to get USDT.
And note, *these* are the best markets to use to determine where USDT is trading -- the combo of BTC/USDT and BTC/USD markets, e.g., are WAY more liquid than any exchange's USDT/USD market, so the prices from these (even though it's a two-leg trade) matter way more.
Read 11 tweets

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