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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

#101

Post by wmf »

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?

People would only interact with the Tether treasury when there's a net increase or decrease in outstanding Tethers. Otherwise people would just trade with each other.

Note that it does not work this way currently since normal people cannot buy/sell directly with the Tether treasury at all.

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

#102

Post by dzdt »

bb88 wrote: post #46
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.

Only if you ask for permission from Tether, first. If you have power to seize the bank accounts, however... https://www.investopedia.com/terms/t/tether-usdt.asp "On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded. We are and have been actively working to exercise our rights and remedies and get those funds released. Sadly, the New York…

"We have been informed that" is lawyerspeak that has as an implication of "we don't actually believe the following and it almost certainly isn't true, but what we were told is..."

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

#103

Post by lupire »

vegannet wrote: post #98
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…

$100M in deposits is $5M/yr in returns on float, just as your bank and insurance companies do with your deposits and premiums. It's technically not risk-free (FDIC notwithstanding) but that doesn't stop anyone.

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

#104

Post by vegannet »

lupire wrote: post #103
vegannet wrote: post #98

Earlier quoted context omitted.

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…

$100M in deposits is $5M/yr in returns on float, just as your bank and insurance companies do with your deposits and premiums. It's technically not risk-free (FDIC notwithstanding) but that doesn't stop anyone.

I’m not clear how that applies to Tether:

“[...] each tetherUSD in circulation represents one US dollar held in our reserves (i.e. a one­to­one ratio) which means the system is fully reserved when the sum of all tethers in existence (at any point in time) is exactly equal to the balance of USD held in our reserve.”

Where does the 5% come from?

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

#106

Post by georgyo »

vegannet wrote: post #98
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…

You can invest the money, the same as banks do. It's why they don't charge you to store money with them, especially if your balance is high.

You only need and should keep enough liquid cash needed to handle day to day withdrawals. Everything else is fair game up invest.

See: https://en.m.wikipedia.org/wiki/Fractional-reserve_banking

https://en.m.wikipedia.org/wiki/Bank_run

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

#107

Post by stephen_g »

throwaway76524 wrote: post #74
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…

Kinda like the federal reserve ...

The Federal Reserve is the monopoly issue of US dollars within a legal and policy framework. Tether does not have that legal mandate to issue money!

Perhaps a better comparison would be to banks (as the credit they create is essentially new money), but again, they are subject to restrictions (i.e capital requirements so they can absorb a reasonable level of defaults without ever touching deposits, etc.), operate within a legal framework, and have to stay solvent.

So at best you could say Tether is probably an illegal shadow bank that probably isn’t solvent.

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

#108

Post by village-idiot »

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’…

I think you messed that up a bit.

You give the bank $1. The bank then goes ahead and loans $0.90 to Bob, who then uses it to invest in a business or a home. That $1 still exists, just most of its backed by the debt that Bob has to the bank. I don’t believe bob would take that $0.9 that the bank loaned him and put it back into the same bank.

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

#109

Post by village-idiot »

elyobo wrote: post #18
eindiran wrote: post #2

Honestly, 74% is a much higher number than I was expecting.

If 74% is what Tether is claiming, then the reality is probably less.

They’re claiming 74% “cash and cash like securities”, which is one hell of a caveat. We know that they’ve “loaned” 900m to Bitfinex, a company run by the same people as Tether. My bet is that some of those “cash like securities” are unrecoverable “loans”.

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

#110

Post by sk5t »

vegannet wrote: post #104
lupire wrote: post #103

Earlier quoted context omitted.

$100M in deposits is $5M/yr in returns on float, just as your bank and insurance companies do with your deposits and premiums. It's technically not risk-free (FDIC notwithstanding) but that doesn't stop anyone.

I’m not clear how that applies to Tether: “[...] each tetherUSD in circulation represents one US dollar held in our reserves (i.e. a one­to­one ratio) which means the system is fully reserved when the sum of all tethers in existence (at any point in time) is exactly equal to the balance of USD held in our reserve.” Where does the 5% come from?

I, too, am interested to learn more about this totally risk-free 5%.
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