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Tether says its cryptocurrency is worth $2B–but its audit failed

arstechnica.com

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Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#91

Post by dragonwriter »

Ajedi32 wrote: post #88
bradleyjg wrote: post #80

Earlier quoted context omitted.

In that model the bank is selling you a coin for USD. It takes your $100 and issues you 100 coins. That $100 is no longer yours--you have the coins instead, though the bank promises that it will buy them back at a $1 per coin. On their books they have a liability of $100 (the repurchase obligation) and they have $100 in cash. You're right that it doesn't affect their reserves, but it also doesn't act as a multiplier.…

Right. How is that any different from when you deposit $100 in the bank and the bank promises to give you your $100 back when you ask for it? That doesn't reduce their reserves; it _increases_ them. Only difference with using coins this way is that rather than the $100 being tied to you as an individual, it'd instead be tied to the coin itself. (So whoever possesses $100 worth of the bank's coin can get that same amo…

Right. Basically a redeemable pegged coin is equivalent to a no-discount (zero-yield) bearer deposit note.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#92

Post by Nursie »

qwerty456127 wrote: post #84

Every currency is only worth what people believe it is, nothing else, it doesn't really matter what did it actually cost to make it. Even if that's true, trying to convince people it's not backed the way it was meant to is nearly as questionable ethically as issuing unbaked coins probably was. If people keep believing nobody will get hurt, if people stop believing the results can be catastrophic. Of course this is a…

People have already been hurt - if it's not backed, bitfinex have helped themselves to two billion dollars worth of crytocurrency though fraud.

Other people have paid more for crytocurrency than they might have had to because this fraud would have pushed up prices.

You're begging us to let criminal activity carry on.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#93

Post by conanbatt »

Sangermaine wrote: post #70
conanbatt wrote: post #57

Earlier quoted context omitted.

The difference between mtGox and this is that bitfinex is seemingly infinitely solvent. Some estimates are like 20-30 million revenue per day. Its the top running exchange. I doubt they would expose themselves to a bankrupcy event having such a cash cow. I believe they did market manipulation, and that they are committing fraud with tether, but I'm not convinced tether is not solvent.

>Its the top running exchange. So was mtGox.

mtGOX was insolvent because they lost all their assets, thats not the case for bitfinex as far as we know. That is independent from tether itself, it can happen to all exchanges.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#94

Post by Ajedi32 »

dragonwriter wrote: post #91
Ajedi32 wrote: post #88

Earlier quoted context omitted.

Right. How is that any different from when you deposit $100 in the bank and the bank promises to give you your $100 back when you ask for it? That doesn't reduce their reserves; it _increases_ them. Only difference with using coins this way is that rather than the $100 being tied to you as an individual, it'd instead be tied to the coin itself. (So whoever possesses $100 worth of the bank's coin can get that same amo…

Right. Basically a redeemable pegged coin is equivalent to a no-discount (zero-yield) bearer deposit note.

Thanks for the search keyword. Seems like bearer deposit notes are indeed legal. (Though it seems like they're not insured.) So it seems like this concept could work after all?

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#95

Post by conanbatt »

AJ007 wrote: post #67
conanbatt wrote: post #57

Earlier quoted context omitted.

The difference between mtGox and this is that bitfinex is seemingly infinitely solvent. Some estimates are like 20-30 million revenue per day. Its the top running exchange. I doubt they would expose themselves to a bankrupcy event having such a cash cow. I believe they did market manipulation, and that they are committing fraud with tether, but I'm not convinced tether is not solvent.

What if they covered up other breaches?

There is no reaason to believe that happened afaik.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#96

Post by Ajedi32 »

JumpCrisscross wrote: post #65
Ajedi32 wrote: post #49

Earlier quoted context omitted.

Could an actual bank perhaps decide to issue cryptocurrency to its customers at a $1/coin exchange rate? Wouldn't be full reserve, given that it's a bank, but the deposits would be FDIC-insured, right?

> Could an actual bank perhaps decide to issue cryptocurrency to its customers at a $1/coin exchange rate? Banks have to know their customers (KYC) [1]. This requirement is multifarious; banks have KYC obligations to the justice system, the U.S. Treasury, systemic financial regulators ( e.g. the Fed), specific financial regulators ( e.g. FINRA, the FDIC), et cetera . In the olden days, a discerning gentleman might re…

So does this mean Bearer Deposit Notes[1] are illegal?

[1]: https://www.tdsecurities.com/tds/pdfs/Manulife_Bank.pdf

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#97

Post by bby »

conanbatt wrote: post #57
apo wrote: post #36

There are similarities to Mt. Gox. One of the most important is the near-complete lack of user panic, despite ample warnings, right up to the collapse. I remember vividly seeing Mt. Gox users warned to leave. They didn't. Somehow, they discounted or ignored every warning. Then they became angry when their money was stolen. Then they claimed Mt. Gox was responsible for their loss. History seems to be repeating itself…

The difference between mtGox and this is that bitfinex is seemingly infinitely solvent. Some estimates are like 20-30 million revenue per day. Its the top running exchange. I doubt they would expose themselves to a bankrupcy event having such a cash cow. I believe they did market manipulation, and that they are committing fraud with tether, but I'm not convinced tether is not solvent.

Who is to say there isn't wash trading going on and that their volumes are fake? Wash trading by insiders who don't pay fees.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#98

Post by LargeWu »

whataretensors wrote: post #87
LargeWu wrote: post #73

Earlier quoted context omitted.

There's a major difference between fractional reserve banking and printing money. The former is a well-understood and well-regulated practice that actually drives economic activity. The latter is likely what Bitfinex is doing with Tether, is 100% counter to their stated practices, and serves only to artificially drive up the price of other assets.

> The former is a well-understood and well-regulated practice that actually drives economic activity There's a lot of money in convincing people this is true but I have my doubts.

Care to enumerate your doubts? It's a pretty well established concept in economics.

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#99

Post by JumpCrisscross »

Ajedi32 wrote: post #96
JumpCrisscross wrote: post #65

Earlier quoted context omitted.

> Could an actual bank perhaps decide to issue cryptocurrency to its customers at a $1/coin exchange rate? Banks have to know their customers (KYC) [1]. This requirement is multifarious; banks have KYC obligations to the justice system, the U.S. Treasury, systemic financial regulators ( e.g. the Fed), specific financial regulators ( e.g. FINRA, the FDIC), et cetera . In the olden days, a discerning gentleman might re…

So does this mean Bearer Deposit Notes[1] are illegal? [1]: https://www.tdsecurities.com/tds/pdfs/Manulife_Bank.pdf

Bearer bonds [1] are intriguing, mechanically and historically. You will note, under the Restrictions section of your Manulife memorandum [2], that its sale outside Canada or to Americans is prohibited. This is because the issuance of such instruments was practically banned in the United States in 1982 [3].

Bearer instruments are, while prevalent, in decline [4]. It is an active area of global financial regulation [5] where even institutions like the Bank of England have to work to get their notes issued and treated properly.

TL; DR A reputable offshore bank might be able to issue a bearer token redeemable for one British pound or Canadian dollar provided they go to great extents to ensure they don't end up in the hands of Americans or anyone in the United States. It would be an uphill battle, however, which in turn necessitates a heavy issuance premium.

[1] https://en.wikipedia.org/wiki/Bearer_bond

[2] https://www.tdsecurities.com/tds/pdfs/Manulife_Bank.pdf

[3] https://www.investopedia.com/articles/bonds/08/bearer-bond.a...

[4] https://ftalphaville.ft.com/2016/04/04/2158236/so-you-though...

[5] http://www.fatf-gafi.org/media/fatf/documents/reports/ML%20a...

Re: Tether says its cryptocurrency is worth $2B–but its audit failed

#100

Post by spookthesunset »

LargeWu wrote: post #75
Maert wrote: post #25

Earlier quoted context omitted.

To be fair, isn't FED a private, non-federal company? :)

It's quasi-governmental, in that it is chartered and overseen by the federal government, but largely executes policy without the influence of the executive or legislative branches.

> but largely executes policy without the influence of the executive or legislative branches.

Which, to be clear, is a good thing otherwise politics would start to win over sound economic policy...

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