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Tether Says Stablecoin Is Only Backed 74% by Cash, Securities

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Re: Tether Says Stablecoin Is Only Backed 74% by Cash, Securities

#51

Post by ceejayoz »

notahacker wrote: post #28
aikah wrote: post #6

Earlier quoted context omitted.

> My bank only needs to keep 10% of its deposits backed by cash, securities. True, but your FIAT is FDIC insured to an extend. Neither Tether nor any of these funny moneys are. Furthermore, I'm pretty sure non accredited banks cannot run fractional reserves legally.

Also, fractional reserves are fully backed by outstanding loans due for repayment, which is not the same as being backed by nothing . A decade ago, we saw how bad it was for the whole ecosystem when more loans than expected turned into nothing... That's not at all similar to Bitfinex only pretending to back Tether.

Also also, banks don't falsely claim "we're not fractional reserve" on their websites for years.

Re: Tether Says Stablecoin Is Only Backed 74% by Cash, Securities

#53

Post by elliekelly »

chatmasta wrote: post #4

My bank only needs to keep 10% of its deposits backed by cash, securities. [0] [0] https://en.wikipedia.org/wiki/Reserve_requirement#United_Sta...

It's not really an issue of sufficient reserves so much as it's an issue of co-mingling corporate and client funds.

Re: Tether Says Stablecoin Is Only Backed 74% by Cash, Securities

#54

Post by bb88 »

perl4ever wrote: post #42
joshe wrote: post #39

Earlier quoted context omitted.

Because if there is a "run on the bank", someone will end up short. Either the first people out will get 100% of their money and last 26% will get zero, or everyone will get 74% of their money. This very fact will actually cause a run on the bank in any sort of crisis. You don't need to actually believe that tether is a complete sham and has no money to decide to withdraw. You just need to worry that 74% of people mi…

"Because if there is a "run on the bank", someone will end up short. Either the first people out will get 100% of their money and last 26% will get zero, or everyone will get 74% of their money." I'm not clear on whether they have discovered fractional reserve banking or whether they are insolvent. There's a big difference. If they are insolvent, I'd tend to assume tethers not trading at a discount just means people…

I think the difference is that in the end a Bank is backed and regulated by the US Government.

Tether is not. So it is solvent or insolvent.

Re: Tether Says Stablecoin Is Only Backed 74% by Cash, Securities

#56

Post by nostrademons »

perl4ever wrote: post #42
joshe wrote: post #39

Earlier quoted context omitted.

Because if there is a "run on the bank", someone will end up short. Either the first people out will get 100% of their money and last 26% will get zero, or everyone will get 74% of their money. This very fact will actually cause a run on the bank in any sort of crisis. You don't need to actually believe that tether is a complete sham and has no money to decide to withdraw. You just need to worry that 74% of people mi…

"Because if there is a "run on the bank", someone will end up short. Either the first people out will get 100% of their money and last 26% will get zero, or everyone will get 74% of their money." I'm not clear on whether they have discovered fractional reserve banking or whether they are insolvent. There's a big difference. If they are insolvent, I'd tend to assume tethers not trading at a discount just means people…

You could look at it as fractional reserve banking where one single borrower accounts for 26% of the assets.

Tether is technically solvent (at least, assuming they aren't lying). However, they made a loan of $700M to Bitfinex. If Bitfinex pays back the loan on schedule and no more than 74% of Tether holders run for the exit, they're fine.

However, that's a lot of counterparty risk, particularly considering it isn't clear whether Bitfinex is solvent, and that the big debtor (Bitfinex) and all the creditors (Tether holders) have correlated behavior. If Bitfinex becomes insolvent and defaults on the loan, Tether becomes insolvent. Bitfinex is more likely to become insolvent if Tether holders start withdrawing their money, which is the same event that would trigger a run on the bank and require that Tether call in its loan to Bitfinex.

It actually looks a lot like the derivatives bomb in the financial industry from 2006-2008. You had some institutions that were insolvent because they made bad trades. You had other institutions that were technically solvent, but were standing next to insolvent ones, and would become insolvent if they had to write off the contracts they had with the insolvent ones. It's possible that all of your books would balance at the end - but do you want to be standing next to the bomb when it goes off?

Re: Tether Says Stablecoin Is Only Backed 74% by Cash, Securities

#57

Post by perl4ever »

bb88 wrote: post #54
perl4ever wrote: post #42

Earlier quoted context omitted.

"Because if there is a "run on the bank", someone will end up short. Either the first people out will get 100% of their money and last 26% will get zero, or everyone will get 74% of their money." I'm not clear on whether they have discovered fractional reserve banking or whether they are insolvent. There's a big difference. If they are insolvent, I'd tend to assume tethers not trading at a discount just means people…

I think the difference is that in the end a Bank is backed and regulated by the US Government. Tether is not. So it is solvent or insolvent.

I don't see why being regulated or not has anything to do with whether you are practicing fractional reserve banking. As I understand it, the concept is just that your assets are not all liquid, but rather some of them are long term loans.

Which is not to say I think unregulated banking is the same as regulated banking.

Re: Tether Says Stablecoin Is Only Backed 74% by Cash, Securities

#58

Post by ShorsHammer »

bb88 wrote: post #54
perl4ever wrote: post #42

Earlier quoted context omitted.

"Because if there is a "run on the bank", someone will end up short. Either the first people out will get 100% of their money and last 26% will get zero, or everyone will get 74% of their money." I'm not clear on whether they have discovered fractional reserve banking or whether they are insolvent. There's a big difference. If they are insolvent, I'd tend to assume tethers not trading at a discount just means people…

I think the difference is that in the end a Bank is backed and regulated by the US Government. Tether is not. So it is solvent or insolvent.

Do you think the US government could cover every single cent if all the depositors wanted their money out now?

Not even physical cash, just a transfer to an overseas account. The money simply isn't there and the scales are enormous. US banks only can pay back 3-10% of cash deposits. The FDIC only has enough to cover a tiny proportion of bank liabilities.

It seems very disingenuous for people in this thread to say "well if everyone cashed out tethers" and then handwave away the alternative of "well if everyone cashed out USD". These scenarios playing out would have Tether actually being able to pay a reasonable percentage of creditors.

Re: Tether Says Stablecoin Is Only Backed 74% by Cash, Securities

#59

Post by tinco »

It's crazy that they messed this up, Tether is basically a money printing machine, all they had to do was be solvent.

Let me start by saying I don't hold Tether nor have I ever, nor do I think it's a good idea.

Tether is a fundamentally a risk free money making concept, it works just like gift certificates. The only thing Tether has to do is buy back Tether at any price lower than they sold it for and they make profit.

And being able to buy Tether at a lower price is a fundamental market property because of knowledge imbalance. They literally can not fail at making money, the only thing they had to do was not lose their liquidity.

They print free money without it even being a scam, even better they are providing a public service, and still they messed it up...

Re: Tether Says Stablecoin Is Only Backed 74% by Cash, Securities

#60

Post by roenxi »

dheera wrote: post #11
jpatokal wrote: post #5

Yet the Tether price of BTC is only 6% below the USD price: http://www.untether.space/

Question -- why does this matter to me? As long as the market agrees to trade it for around 1.00 USD, +/- a few %, which seems to generally be happening, it shouldn't matter to me whether it's backed or not. It's just an abstract notion that the market has agreed to trade at a certain price. (It's not like I would hold onto USDT for a long time anyway -- it's only there to facilitate short-term needs. If I wanted to…

Can you tell me what the difference is between tether and roenxi-coin where I take dollars and give you an "IOU" that is, formally, not going to be redeemed? I can do better than tether. You give me $1, I'll keep 80c that I still won't give back to you later. I'm pretty trustworthy on promises like that.

The only difference I can see is I wouldn't be willing to actually run that scheme because at some point I'd be jailed for running a fraud.

Anyone who deals in tether now has to admit that supply is not limited in any way and the people behind the creation of new supply are crooked. Only an idiot would deal in tether now. If the price trends downwards there is literally no reason for it to ever trend up again. It has the worst value proposition of any scheme involving millions of dollars I've ever seen.

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