Tether Says Stablecoin Is Only Backed 74% by Cash, Securities • Hacker News Board

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

#81

Post by wmf » Wed, May 01, 2019, 1:07 AM UTC

gridlockd wrote: post #76

tinco wrote: post #59

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 profi…

Are you aware that an actual bank - the kind of bank that the entire world economy relies on to function - would on average hold maybe only 10-20% of the money in their clients accounts? How do banks do it? They invent money out of thin air . If Tether was a bank, its 73% reserve rate would be considered spectacularly high. The crypto world is basically re-inventing fractional reserve banking now. > The only thing Te…

If they sold Tethers for $1.00 but bought them for $0.99 that would effectively amount to a 1% fee that would maybe give them some profit.

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

#82

Post by b_tterc_p » Wed, May 01, 2019, 1:09 AM UTC

gridlockd wrote: post #76

tinco wrote: post #59

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 profi…

Are you aware that an actual bank - the kind of bank that the entire world economy relies on to function - would on average hold maybe only 10-20% of the money in their clients accounts? How do banks do it? They invent money out of thin air . If Tether was a bank, its 73% reserve rate would be considered spectacularly high. The crypto world is basically re-inventing fractional reserve banking now. > The only thing Te…

You give the bank a dollar. The bank loans 90 cents of it to Bob who puts it in the bank too. The bank didn’t invent 90 cents. They’re owed 90 cents from Bob, and they will collect interest on the loan to profit. If no loans are made, the bank will eventually have more than $1.90 in reserves. There is risk here because you and bob might want your money at the same time, or Bob might default, but generally this doesn’t happen at scale.

Now consider Tethers case. You give Tether a dollar. ???. Tether has $0.70 and you’re not even allowed to get it back.

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

#83

Post by gridlockd » Wed, May 01, 2019, 1:11 AM UTC

georgeecollins wrote: post #77

I am sure the "and securities" is rock solid. Just kidding! Suckers.

Keep in mind that for the longest time there have been strong doubts about Tether being backed by any significant amount of money whatsoever. Yet the price hovered around 1$. The risk of default for holding a Tether was priced at less than a cent.

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

#84

Post by 55555 » Wed, May 01, 2019, 1:15 AM UTC

elliekelly wrote: post #32

stcredzero wrote: post #26

Earlier quoted context omitted.

What would happen if the US Government stepped in and took over Tether? Would it be feasible for a different foreign government to do so?

They would almost certainly not have the jurisdiction. They’re a BVI Corp (a jurisdiction that tends to look the other way at corporate fraud) and I believe operate out of Hong Kong. Lately it seems the Chinese government practically encourages companies to commit securities fraud in the US so I can’t imagine they’d be much help either. I suspect the likely outcome (eventually.. and if Bitfinex doesnt fold first) is…

> Lately it seems the Chinese government practically encourages companies to commit securities fraud in the US so I can’t imagine they’d be much help either.

The China Hustle is a good movie if anyone wants to see how these schemes work.

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

#85

Post by gridlockd » Wed, May 01, 2019, 1:18 AM UTC

carrja99 wrote: post #55

And yet it's still 1:1 on coin market cap and everyone is all "what me worry?"

If you don't plan on holding Tether for a longer time, the chances of some catastrophic pricing event (such as full seizure) are slim.

That risk is weighed the utility of sending Tethers around. If Tether was somehow backed 100% by an assortment of reputable institutions, it would probably trade at 5% premium to its face value, purely due to its utility.

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

#86

Post by 55555 » Wed, May 01, 2019, 1:23 AM UTC

tinco wrote: post #59

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 profi…

If they printed 2 billion tethers and bought them all back at 99 cents each (which is realistic, because tether typically floats at basically a dollar), that would only be $20,000,000. If they get 5% per annum on the float from just keeping the cash in the bank, that's $100,000,000. So I'm not sure what's best to do in typical circumstances.

There have been ~two historical exceptions. From April 20 - May 20, 2017, they could have absolutely cleaned up by buying their own tethers back. Hundreds of millions of dollars of tethers were traded at an average price of 95 cents or so.

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

#87

Post by 55555 » Wed, May 01, 2019, 1:25 AM UTC

miohtama wrote: post #23

Bitfinex money was on an account of a small Polish bank. It was confiscated by a US government when they chased Colombian drug cartels earlier in 2018. There was no proper segregation of client funds by their payment processor Crypto Capital Corp. Looks like Tether was collateral damage. Polish source: https://zaufanatrzeciastrona.pl/post/gielda-bitfinex-zgubila... (please use Google translator)

That source does not reliably support the claim "Bitfinex money was on an account of a small Polish bank. It was confiscated by a US government when they chased Colombian drug cartels earlier in 2018."

That's just some dude's crypto blog. There is no citation or first or second-hand info.

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

#88

Post by dragonwriter » Wed, May 01, 2019, 1:34 AM UTC

ShorsHammer wrote: post #58

bb88 wrote: post #54

Earlier quoted context omitted.

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 "we…

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

Yes, because the US government can literally fiat dollars into existence.

OTOH, the big point of guaranteeing deposits is that a credible party doing that prevents bank runs, which are caused by fear of bank collapse that will destroy access to deposit balances.

> The FDIC only has enough to cover a tiny proportion of bank liabilities.

The FDIC’s funds are just the zero-effort first-love of payment; FDIC insurance is guarantees by the government, not just the gives held by the FDIC.

> 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".

Tether isn't backed by an entity which can simply will USD into existence; FDIC or NCUSIF insured bank or credit union balances are.

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

#89

Post by saalweachter » Wed, May 01, 2019, 1:36 AM UTC

jeremyjh wrote: post #72

saalweachter wrote: post #48

Earlier quoted context omitted.

If it's a fake number, it's an interesting choice. They aren't claiming to be 99% or 90% backed, which would be similarly disbelieved by the same people who disbelieved the 100% claim.

Suppose the real number is 3%. 74% sounds pretty good as a way to soften the blow a bit. It would be best to let the air out over a matter of weeks than minutes.

I feel like there could be a lot of real numbers that are much bigger than 3% but still devastatingly low. 10%? 30%? 45%?

Also, do they break down the composition of that backing between "cash" and "short-term securities" anywhere, and how many of those "short-term securities" are real assets like T-bills, and how many are unsecured debt that there isn't the money to repay?

74% could be a "real" number ... but it could still be the case that there is only cash to cover 10% of the existing Tethers, and the remaining 64% is loans to companies that can only repay that ten cents on the dollar.

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

#90

Post by spookthesunset » Wed, May 01, 2019, 1:46 AM UTC

darawk wrote: post #65

Once again, people here are ranting about Tether, while the market price is re-converging to parity. I wonder who's right, the people yelling in the comments section, or the people with skin in the game? What's been established here is that Tether is 74% collateralized by cash and short term securities. The other 26% is in the form of a loan to Bitfinex. Bitfinex is a cash-generation machine, and should not have any…

> while the market price is re-converging to parity

Given the "market price" of most crypto is based in USDT not USD it kinda makes you wonder how legit any of the "market price" figures really are? Plus given there is absolutely no auditing for any of the exchanges in the market, for all you know "market price" could be determined by nothing more that scripts that just SQL INSERT fake transactions in their database (assuming they are using SQL.... which given this is crypto is suspect.... I wouldn't be surprised to learn many of these people are using things like mongo to handle their financial transactions)

> Your local bank has a much, much lower reserve ratio than this.

My local bank is also audited and heavily regulated. I sleep every night without ever worrying that my bank is suddenly going to lose all my money.

Also, given that bitcoin's ethos is all about being anti-fed and "no printing money" it is rather funny to hear somebody defend tether being anything less than 100% backed by some "real" asset.