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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

#141

Post by FreeRadical »

Scoundreller wrote: post #128
foobarbazetc wrote: post #120

Earlier quoted context omitted.

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).

They would need access to a broker to invest in treasuries and pass KYC/AML. Which treasury broker would onboard them if they struggled to get a bank?

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

#142

Post by hjk05 »

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…

> If Tether worked as it was advertised there would be no profit opportunity

Of cause there would. Even if the tokens are backed 1:1 by dollars it still has an exchange rate. So tether could issue at above 1 rates and buy at below 1 rates. That provides a very simple profit making scheme.

For users, they would often like to “cash out to tether” quickly, which means they’d undercut the exchange rate thus providing tether with a profit in exchange for swift processing.

> 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.

I’m reminded of the joke where two wallstreet stock brokers are walking down the street, one says to the other “look a 50$ bill on the ground!” The other without looking down replies: “that’s impossible, if there was a 50$ bill on the ground someone would have picked it up.”

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

#143

Post by keymone »

So are all of the banks in the world? It’s called fractional reserve.

Don’t like to defend tether in these posts, there’s clearly shady shit going on, but it’s been FUD’ed against for years now and yet USDT has kept within few percent of USD. I still don’t buy the argument that bitfinex is printing money to prop up BTC.

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

#144

Post by keymone »

bhouston wrote: post #7
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...

You are misunderstanding fractional reserve banking. Fractional reserve banking means that the bank only has to keep enough cash on hand to meet their expected reasonable obligations. Banks still need their books to balance. That means that their liabilities can not exceed their assets. A bank can be solvent on paper but if there was a rush to withdraw by their customers, they may not be able to pay cash for all with…

> they may not be able to pay cash for all withdrawals because that cash would be tied up in loans

How is that “assets”? Loan can be defaulted on and where bank has $X in the books it’s actually $0.

The non-bankrupt case for tether looks like this: people realize tether isn’t worth $1, but they still need to get rid of it and so they sell for $.74c, that’s the risk they took buying tether in the first place.

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

#146

Post by arcticbull »

georgyo wrote: post #129
ctrl_freak wrote: post #122

Earlier quoted context omitted.

> 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-…

It’s also a thousand million dollars. That’s between 500 and 1000 mortgages in SF or NY. Any direct lender would love that opportunity; they’ll charge 4-5% on a 30-yr fixed and give you half.

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

#147

Post by arcticbull »

scottlocklin wrote: post #133
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…

>Tether is a fundamentally a risk free money making concept, it works just like gift certificates. T No, it actually works like fractional reserve banking, which for some reason, nobody has a problem with.

No bank pretends to be fully backed and simultaneously not FDIC insured when in reality 1/2 their assets (before they fired up their printer) are locked up in various jurisdictions because they were laundering money for the cartels. Even HSBC was only laundering a tiny, teensy smidge ($881M total out of $871B in assets, 0.09%) and that was the worst scandal in recent memory.

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

#148

Post by dragonwriter »

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…

> 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.

Large banks deal with deposits in total orders of magnitude greater than that (the top banks have over $1 trillion each in deposits.) $1bn in a single demand deposit account is stupid for the depositor, but it doesn't move the needle on a major banks total of deposit accounts, and they can deal with it just fine.

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

#149

Post by arcticbull »

village-idiot wrote: post #108
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’…

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.

It’s so frustrating that the crypto folks are basically the antivaxxers of finance. They refuse to understand how it works and yet are sure they’ve got a better plan because the status quo is a scam. At least unlike antivaxxers it’s only their own welfare at risk.

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

#150

Post by londons_explore »

Thorrez wrote: post #117
vegannet wrote: post #104

Earlier quoted context omitted.

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?

5% isn't possible, but you can make over 2% on treasury bills currently. The risk of the US government defaulting on loans can be essentially ignored.

Except in the crypto industry, where US bonds are likely to be seized, and therefore probably have an average payout rate below parity.
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