It seems to me like holding billions in USDT is very risky, so no self-interested actor should do so, yet we find billions of dollars in USDT out there. Who holds them and why?

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As someone who runs a market making bot, tether is crucial because so many pairs are denominated in tether.

I'm a small player, so it's easy and not very expensive to borrow the tether if you don't trust it (which I don't), but if you are making making on a large scale is probably too expensive to borrow.

The other possibility that occurs to me is that if you need tether to succeed because you are invested in its success, you might hold large amounts to control the float.

Note that there are only 4 accounts that have more than a billion tether:

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Disclaimer: I'm a crypto layman, this is me just trying to practice some reasoning in this and thus posted as a comment.

USDT is only risky compared to USD. Not to other coins. I'd guess that you could easily trade, e.g., BTC for USDT if you predicted falling BTC prices.

I don't think Tether is less risky than Bitcoin. Tether is less risky than algorithmic stablecoins, such as the (recently deceased) Luna, or Iron, because its reserves are held in non-crypto securities, and thus it's somewhat shielded from crypto downturns and market fluctuations. However, I think it's still vulnerable to a combination of a generalized economic downturn which affects the value of the reserve securities, combined with a crypto market fluctuation that leads to a liquidity crisis, which then turns into a solvency crisis as it becomes apparent that the value of the underlying reserves no longer matches the value of the outstanding Tether. Tether could avoid this by holding all its reserves in "cash-equivalent" securities, such as money-market funds or just US dollars, but the fact that they've been extremely vague about reporting details of their reserves makes me think this isn't the case.

I can very easily see USDT going to zero. I have a harder time visualizing Bitcoin itself going to zero.

(I don't have strong confidence, what follows is my impression based on what I read)

It's my impression that a good portion of Tether's reserves is loans to various companies in the crypto space. Those loans in turn are essentially the reason why Tether is the central stablecoin in a bunch of exchanges.

I would expect that the way Tether speculates with the reserve money is similar to how Alameda speculated with the customer funds. 

USDT is not the only stablecoin that's pegged to the dollar. If someone doesn't want to expose themselves to BTC's price fluctuations, I would expect them to want to hold different stablecoins than USDT.

USDT doesn't seem to be tied in volatility to bitcoin at all, and it's not part of an investment vehicle, only for transactions - it's not making any claims (or history) of appreciation or returns.  It publishes its reserve allocation at .   It's certainly less safe that US treasuries (and presumably that funds their profit margins, which I presume are smaller than any other coin).  But more convenient as transactional assistance (actual money) than most banks, for at least some things.

For your question, it seems less risky to hold USDT than almost any other crypto vehicle.  But it also seems less rewarding, if held directly.  The question remains "WHY is anyone holding significant amounts of USDT for very long"?  My answer is "USDT itself is pretty safe, but there are a lot of exchanges offering interest on USDT on their platform".  Those platforms are mostly at best risk-hiding gambles, and at worst pure scams.

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