Imagine going to a flower auction to buy some tulips …
There are two rows of traders.
In one row traders buy and sell their tulips and pay and receive euros for them. In the other row traders buy and sell their tulips with tokens that belong to Royal Flora Holland.
80% of the traders are in the token row, 20% in the euro row.
You want to sell one of your flowers. The traders in the euro row want to give you 1 euro for your flower.
But the traders in the token row want to give you 10 tokens for your flower! In what row will you sell your flower?
Royal Flora Holland promises that when you are done trading and you are leaving their market place they will give you one euro for each of their tokens. But unknown to you, Royal Flora Holland is using their own tokens to buy their own flowers to increase the price of their flowers.
There are always traders on the floor willing to trade tokens and euros with each other for a 1 on 1 price.
Everybody knows that since Royal Flora Holland will always give you 1 euro for 1 token, that's the price!
There is no point in selling 1 euro for 2 tokens or 2 euros for 1 tokens because Royal Flora Holland their promise can be trusted (so far).
The price per flower in both rows is now 5 tokens/euro per flower.
Without the token row the price would be 1 euro per flower and without the euro row the price would be 10 tokens per flower.
This is the story of Bitfinex their Tether token.
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