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

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

#181

Post by mianos » Wed, May 01, 2019, 9:17 AM UTC

55555 wrote: post #87

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.

Citation, the equivalent of the AOG over there proudly said they have taken it and will return the money to the state after fees and bribes: https://www.rmf24.pl/fakty/polska/news-lodzkie-w-malym-banku...

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

#182

Post by qaq » Wed, May 01, 2019, 9:22 AM UTC

Zarath wrote: post #134

qaq wrote: post #95

Earlier quoted context omitted.

"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 spe…

That isn't true. You might want to take a look at this: https://en.wikipedia.org/wiki/Money_creation#Fractional_rese...

You might want to take a look at types of calculations that theory is applied to. It's used to model macro economic effects which has very little to do with what people imagine this means.

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

#183

Post by SimonPStevens » Wed, May 01, 2019, 9:24 AM UTC

askmike wrote: post #168

SimonPStevens wrote: post #160

Everyone talking about how tether should have profited from either investing the cash, or buying and selling tethers at slightly different rates is missing the point. The original value propitiation of tether was... "A one to one, 100% reserved USD backed cryptocurrency that you can buy/sell any time directly from them" They originally promised a website where you could buy/sell tethers directly for 1 USD. This is di…

> Now they never actually delivered any of that. Yes they did, they delivered exactly this for years, ever since US banks shut them down. A whole ecosystem was built on top of this which to this day seems to run smooth (poloniex, bittrex, binance). > And I suspect they did actually make a stack of profit by printing tether and selling them on exchanges. But that makes it a scam because they weren't following their ow…

No, they didn't. Their original proposition was that you could buy and sell tether from them at exactly 1 USD.

What happened was that website for doing that was only ever available for very short periods and instead tether was traded on exchanges. Poloniex/bitfinex etc are exchanges, not the promised single source of tether. Exchange trading with a market set price and a bid/offer spread is not the same as a direct purchase website from the creator. It means the price moves. The original promise was for a fixed price set buy the sole supplier.

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

#184

Post by tinco » Wed, May 01, 2019, 9:31 AM UTC

jerguismi wrote: post #173

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…

> It's crazy that they messed this up, Tether is basically a money printing machine, all they had to do was be solvent. > Tether is a fundamentally a risk free money making concept To me it sounds like you don't really understand the risks of tethers business. It is light-years away from being risk free, because you are on the mercy of the banks where you store the fiat. The banks can freeze your money any time, as t…

Well ok, maybe I should have said "theoretically risk free", I meant more in the economic sense. You are right of course, I guess in practice there's no 100% safe way to store billions worth of assets anywhere.

Though.. I can imagine there's a lot safer options than some small polish bank.

Maybe they could become a bank themselves to contain some of the external risks.

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

#185

Post by tinco » Wed, May 01, 2019, 9:37 AM UTC

notahacker wrote: post #175

hjk05 wrote: post #142

Earlier quoted context omitted.

> 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 tet…

> 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. If USDT is credibly backed by dollars this spread is tiny, not least because other holders of Tether can play the same game. And if USDT is backed by dollars held in cash in customer accounts as originally…

Holders of Tether can play the same game, but they don't have the same advantage. Because of the knowledge imbalance, Tether has zero risk in this game. Any other player has the risk that they might lose money on a trade for whatever reason.

I agree the spread might be tiny though. Though if Tether puts itself in a bad light every now and again it could force the spread a bit wider.

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

#186

Post by gpresot » Wed, May 01, 2019, 9:47 AM UTC

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”.

Cash-like (or cash-equivalent) securities is a common expression in accounting and indicates highly liquid securities that can be liquidated in short term (less than 3 months usually). "These securities have a low-risk, low-return profile and include U.S. government Treasury bills, bank certificates of deposit, bankers' acceptances, corporate commercial paper and other money market instruments" (from Investopedia).

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

#187

Post by jerguismi » Wed, May 01, 2019, 10:06 AM UTC

tinco wrote: post #184

jerguismi wrote: post #173

Earlier quoted context omitted.

> It's crazy that they messed this up, Tether is basically a money printing machine, all they had to do was be solvent. > Tether is a fundamentally a risk free money making concept To me it sounds like you don't really understand the risks of tethers business. It is light-years away from being risk free, because you are on the mercy of the banks where you store the fiat. The banks can freeze your money any time, as t…

Well ok, maybe I should have said "theoretically risk free", I meant more in the economic sense. You are right of course, I guess in practice there's no 100% safe way to store billions worth of assets anywhere. Though.. I can imagine there's a lot safer options than some small polish bank. Maybe they could become a bank themselves to contain some of the external risks.

To become a bank you need an account at the central bank. Getting a banking license is difficult. And even after you get it, central bank can freeze your assets any time.

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

#188

Post by [deleted] » Wed, May 01, 2019, 10:09 AM UTC

dheera wrote: post #11

jpatokal wrote: post #5

Yet the Tether price of BTC is only 6% below the USD price: http://www.untether.space/

Question -- why does this matter to me? As long as the market agrees to trade it for around 1.00 USD, +/- a few %, which seems to generally be happening, it shouldn't matter to me whether it's backed or not. It's just an abstract notion that the market has agreed to trade at a certain price. (It's not like I would hold onto USDT for a long time anyway -- it's only there to facilitate short-term needs. If I wanted to…

[deleted]

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

#189

Post by tim333 » Wed, May 01, 2019, 10:32 AM UTC

carrja99 wrote: post #55

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

More surprisingly the market cap on coinmarketcap is at $2850m, up from $2845m a week or so ago when the news hit. You'd imagine at least some people would be cashing in Tethers for other assets (BTC, USD) and so the number of Tethers out there would drop. It shows daily trading volume of $12,308,023,802 USD yet the market cap doesn't budge significantly. Something seems not to add up.

By the way I just tried selling 1000 tether short on Kraken. Dunno if anyone else is trying to trade this thing?

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

#190

Post by askmike » Wed, May 01, 2019, 10:53 AM UTC

SimonPStevens wrote: post #183

askmike wrote: post #168

Earlier quoted context omitted.

> Now they never actually delivered any of that. Yes they did, they delivered exactly this for years, ever since US banks shut them down. A whole ecosystem was built on top of this which to this day seems to run smooth (poloniex, bittrex, binance). > And I suspect they did actually make a stack of profit by printing tether and selling them on exchanges. But that makes it a scam because they weren't following their ow…

No, they didn't. Their original proposition was that you could buy and sell tether from them at exactly 1 USD. What happened was that website for doing that was only ever available for very short periods and instead tether was traded on exchanges. Poloniex/bitfinex etc are exchanges, not the promised single source of tether. Exchange trading with a market set price and a bid/offer spread is not the same as a direct p…

> Their original proposition was that you could buy and sell tether from them at exactly 1 USD.

That depends on who "you" is, as far as I know this was possible for retail until a few years back. But I wouldn't say it was "promised" at all (or are you referring to the whietpaper?). It's still possible for trading firms right this very moment. Active OTC markets for tether right now as well.

Note that even though it's possible for some to redeem a Tethers 1:1, that doesn't mean the price is always exactly worth 1 USD. Just like how USD stored in Coinbase is not worth exactly the same as USD stored in Bitstamp. Of course you can transfer them between each other, but that takes days - after which certain price spreads caused by temporary offer/demand discrepancies have ceased to exist.

Also, thanks for the downvote!