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

121–130 of 260 posts

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

#121

Post by tedunangst »

r32a_ wrote: post #116
spookthesunset wrote: post #90

Earlier quoted context omitted.

> 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…

"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." 2008.... those "heavy regulations" and "audits" meant nothing.

How many deposit accounts evaporated in 2008?

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

#122

Post by ctrl_freak »

georgyo wrote: post #115
vegannet wrote: post #111

Earlier quoted context omitted.

I’m talking about the specific promises made by Tether. The question is not about whether or not fractional reserve banking exists, the question is how can Tether engage in fractional reserve banking (or any profit making activity) without being fraudulent when they explicitly claimed to hold 100% of their USD in cash reserves at all times? “[...] each tetherUSD in circulation represents one US dollar held in our res…

For the record, I think all this crypto currency stuff is plain dumb, and that tether is likely a fraud. That said they don't state anything about what their reserve is. Wealthfront has a 2.3% savings account for us normal people. If I created a stable coin like tether is and had a billion dollars of investment; I could make 23 million dollars a year and tell people that I have a 1:1 backing without lying. If I went…

> If I went to a bank with a billion dollars I could likely negotiate an even higher rate for such a savings account.

I don't think that's how it works. As others have mentioned, FDIC insurance only covers 250k per depositor per bank. Typically when entities have that amount of cash (think Apple, Google, etc.), they put them into US government bonds, which are effectively equivalent to deposit accounts.

Edit: this is an interesting point, though. Ignoring the insurance issue, what would a bank do if you asked to open a deposit account with a billion dollars (paying, say 2%/year)? My uninformed layman's speculation would be that they would reject you because they wouldn't know what to do with that much money: they have to somehow lend out enough of it to at least break even on the 20 million/year that they're paying you for interest, but at the same time they have to be able to give you back your 1 billion at any time you ask for it.

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

#123

Post by zaroth »

thinkmassive wrote: post #118
55555 wrote: post #86

Earlier quoted context omitted.

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, th…

2,000,000,000 * 0.99 = 20,000,000 ...wat?

2,000,000,000 * 0.01 = 20,000,000 in net profit

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

#124

Post by jcranmer »

dzdt wrote: post #102
bb88 wrote: post #46

Earlier quoted context omitted.

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..."

And "seized and safeguarded" itself sounds suspiciously like a polite way of saying "our accounts are frozen on suspicion of financial regulations (and/or money laundering), and we hope to be able to successfully defend ourselves in court."

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

#125

Post by pontifier »

I looked into tethers withdrawal process, and the barriers to withdrawal are high enough that a run on tether is quite unlikely.

It really only makes sense if you hold over a million tether, and even then you'd probably be better off selling on a USD exchange and converting for withdrawal there.

It's a nice racket they have there.

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

#126

Post by puranjay »

stephen_g wrote: post #107
throwaway76524 wrote: post #74

Earlier quoted context omitted.

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 with…

It's so ingenuous for people to compare crypto to a sovereign government backed currency that has remained stable and solvent for nearly 250 years

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

#128

Post by Scoundreller »

foobarbazetc wrote: post #120
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.

Who’s making 5% risk free? Can you point me in their direction?

You take some risk while externalizing the risk of insolvency to your customers.

It’s what every insurance company and bank does.

Or if you don’t want to do that, put it in treasuries or something and take your 1,2,3% of whatever it may be.

Tether could have replicated either strategy, but seems to not have.

They could also have profited from those that lost their keys (it happens).

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

#129

Post by georgyo »

ctrl_freak wrote: post #122
georgyo wrote: post #115

Earlier quoted context omitted.

For the record, I think all this crypto currency stuff is plain dumb, and that tether is likely a fraud. That said they don't state anything about what their reserve is. Wealthfront has a 2.3% savings account for us normal people. If I created a stable coin like tether is and had a billion dollars of investment; I could make 23 million dollars a year and tell people that I have a 1:1 backing without lying. If I went…

> If I went to a bank with a billion dollars I could likely negotiate an even higher rate for such a savings account. I don't think that's how it works. As others have mentioned, FDIC insurance only covers 250k per depositor per bank. Typically when entities have that amount of cash (think Apple, Google, etc.), they put them into US government bonds, which are effectively equivalent to deposit accounts. Edit: this is…

I think they would totally take it, with all sorts of special terms. Also, they don't need to have a requirement to say they will get you all that cash immediately to keep the tether promise.

Lastly, putting that money in bonds, index funds, and other such things scales well. The wealthfront example I used took on a billion in deposits in a short timeframe: https://www.cnbc.com/2019/04/23/wealthfronts-new-high-yield-...

To your first point, if you have another entity do that type of investments for you and present it as a bank account with a variable interest rate; then you can claim you have a 1:1 cash backing truthfully, even if the reality is different. If you just stored the money in a normal bank, the reality would stay the same.

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

#130

Post by Scoundreller »

village-idiot wrote: post #109
elyobo wrote: post #18

Earlier quoted context omitted.

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”.

I was reading through Apple’s 10K, and they define cash like securities as being highly liquid and having a maturity in less than 3 months.
Post reply on HN