Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

bloomberg.com

Post reply on HN
Print view View original

91–100 of 260 posts

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

#91

Post by darawk »

spookthesunset wrote: post #90
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…

> 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?

Coinbase, Kraken, and Bitstamp are all legit exchanges that offer non-tether USD pairs. Binance offers many other stablecoins besides Tether. More than enough trading is conducted in non-tether pairs for the price to be legitimate.

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

#92

Post by gridlockd »

b_tterc_p wrote: post #82
gridlockd wrote: post #76

Earlier quoted context omitted.

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’…

> 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.

There are now 1.90$ credited to both me and Bob, where before there was only 1$ credited to me. The 90 extra cents are now part of the money supply. They appeared out of thin air.

Perhaps it's unfair to say the bank "invented" the money, but it did create it.

> 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.

If Bob eventually pays back and the bank doesn't make any further loans, the bank will have 1$ (my dollar) and a couple of cents of interest.

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

If I give Tether a dollar Tether has another dollar. I get a Tether token which I can exchange on the open market for whatever the market price is. It supposedly is possible (though inconvenient) to get Tether itself to exchange their tokens for actual dollars (of which they hold only 70%) but (just like a bank) Tether relies on that not happening "at scale".

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

#93

Post by gridlockd »

wmf wrote: post #81
gridlockd wrote: post #76

Earlier quoted context omitted.

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.

Why would anybody buy Tethers for $1.00 from Tether if someone else is selling them for $0.99?

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

#95

Post by qaq »

gridlockd wrote: post #92
b_tterc_p wrote: post #82

Earlier quoted context omitted.

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’…

> 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. There are now 1.90$ credited to both me and Bob, where before there was only 1$ credited to me. The 90 extra cents are now part of the money supply. They appeared out of thin air. Perhaps it's unfair to say the bank "invented" the money, but it did create it. > They’re owed 90 cents from Bo…

"There are now 1.90$ credited to both me and Bob, where before there was only 1$ credited to me. The 90 extra cents are now part of the money supply. They appeared out of thin air." I think you are confusing money supply and record keeping. The only spendable money is what bank actually has so if you and Bob where the only customers of that bank and bank loaned 90c of your 1 dollar to Bob the only money you could spend would be 10c. The only bank that creates money out of thin air is FED.

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

#96

Post by qaq »

gridlockd wrote: post #93
wmf wrote: post #81

Earlier quoted context omitted.

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.

Why would anybody buy Tethers for $1.00 from Tether if someone else is selling them for $0.99?

well why do you buy currency and pay a commission?

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

#98

Post by vegannet »

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 Tether worked as it was advertised there would be no profit opportunity. The purported reason Tether exists is to help the crypto markets deal with the liquidity problems because of how difficult Fiat banking is, essentially Tethers value proposition was “we (by some miracle) have reliable banking, we can buy and sell 1 Tether for 1 USD at any time regardless of other crypto currencies value”. In reality Tether is a shit-show because it doesn’t provide reliable banking (even before considering the fact that it isn’t even solvent) and that’s why the value of Tether offers any arbitrage opportunities.

If we were in a fantasy land where Tether wasn’t fraudulent then the price variance of Tether on exchanges would be so minuscule that there would be no arbitrage opportunity for anyone to take advantage of. Your hypothetical profit opportunity only exists because Tether is (ultimately) fraudulent.

Remember that Tether was pitched as a 1:1 USD backed cryptocurrency that could be exchanged 1:1 at any time (in both directions). The mess that it is now (only liquid on exchanges at a variable rate) is not what Tether was marketed as.

Tether (as promised) is the equivalent of you accepting $100 USD from your friend and giving them $100 of Monopoly money and promising them that at any time they can trade their monopoly dollars for your real dollars... and you won’t ever use the USD for anything, it’ll be locked away untouchable by you. How do you profit from that? You can’t lend it, you can’t invest it, you can’t use it as collateral, it has to be unencumbered at all times and you have to incur the costs of managing it.

Read the original whitepaper and try and identify a profit opportunity. This is all before considering that Tether is a fundamentally flawed concept: if Tether could operate a reliable banking relationship, so could others, and Tether would be pointless.

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

#99

Post by comex »

b_tterc_p wrote: post #61
comex wrote: post #36

Earlier quoted context omitted.

That’s not correct; Tether does nominally allow redeeming for USD, although only in bulk, and the service has opened and closed over time and generally been a mess AFAIK.

Fine. Sometimes they do, but legally are not obligated to do so. So it’s a moot point. They’re protected from runs because they don’t have to cash out. Their current terms of service state: > Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether res…

Not sure whether it's moot. Even though they're not legally required to provide cash, Tether's accomplishment of establishing and then maintaining a $1 market value is presumably assisted at least to some extent by their offer to provide it. To what extent precisely remains to be seen. The longstanding doubts about Tether's reserves didn't impair its market value; the more recent revelations may not either, but that's not certain yet (in particular, if the market is being manipulated, the muted short-term response may not last).

But yes, they are protected from runs.

Edit: Also, that text wasn't always there; in 2015 they claimed Tether was "redeemable for cash at any time" [1] and didn't have any similar disclaimer in their terms, as far as I can tell [2]. In addition, even with the disclaimer, if someone sued Tether for breach of contract (because they breached their promise to hold 1:1 reserves), fraud (because at certain points they made false claims that they did hold them), etc., they might be able to recover some USD in the form of restitution.

[1] https://web.archive.org/web/20150320090830/https://tether.to...

[2] https://web.archive.org/web/20150921163244/https://tether.to...

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

#100

Post by shkkmo »

gruez wrote: post #45
cperciva wrote: post #40

Earlier quoted context omitted.

Ironically, tether is pretty much immune from bank runs... because it's impossible to withdraw money at all.

>because it's impossible to withdraw money at all. I heard this meme being repeated since forever and it never made sense to me. As I understand it, you could exchange USDT for real USD at any participating exchange. Not being able to convert USDT would mean not being able to withdraw from any of those exchanges, but there's no widespread reports of this. Also, you could convert USDT to USD at Kraken, and they defini…

> As I understand it, you could exchange USDT for real USD at any participating exchange. Not being able to convert USDT would mean not being able to withdraw from any of those exchanges

That's selling Tether, not withdrawing Tether from the pool.

The point is, since it was already effectively impossible to withdraw any Tethers from the pool, does it really matter that the fund that backs those tethers can only support withdrawing 74% of the available USDT?

Currencies doesn't have to be backed to have value. Ours used to be backed by gold, but then we figured out that doesn't necessarily matter as long as people have to use it and the supply of it matches demand consistently enough.

So the interesting question is, will they be able to keep the price pegged to USD by selling and buying USDT in sufficient quantities to keep the price stable.

This is rather the point this comment is making: https://news.ycombinator.com/item?id=19793326

Post reply on HN