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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

#191

Post by easymodex »

tedunangst wrote: post #121
r32a_ wrote: post #116

Earlier quoted context omitted.

"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?

I don't know the right number but I do know of at least 2 acquaintances who lost all their families life savings. The legal process to get the money back is actually still ongoing but during that time we changed our national currency to euros and those life savings are worth about 10% of what they were back then.

Thing is, with crypto you invest (usually) what you can afford to lose and you accept the risk. With banks most people think it's safe and risk-free so then the impact of losing it all is so much harder, it ruins lives.

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

#193

Post by easymodex »

granaldo wrote: post #145

This is going to sound absurd, why is the cryptocurrency market not reacting negatively? In fact prices are green and well https://www.coingecko.com/en Market is uninformed and do not know better...

IMO, if USDT actually turns out to be a scam, prices will go up for bitcoin. People will rush to buy back in since money sitting in USDT is money that is waiting for a good entry. If USDT becomes worthless everyone will buy back into actual cryptocurrencies.

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

#194

Post by ndury »

driverdan wrote: post #62
Animats wrote: post #31

Earlier quoted context omitted.

They have to. They're under investigation by the New York State Attorney General.[1] That sort of thing usually doesn't end well. [1] https://ag.ny.gov/press-release/attorney-general-james-annou...

They don't have to. The NYS AG doesn't have standing.

You'd be surprised how far the power of the NYAG goes... Crypto Capital LTD. is registered in Panama and legally they have no a rather poor political/diplomatic relationship but you never know what goes on behind the scenes.

I believe the NYAG wants Crypto Capital LTD, not bitfinex/tether per se.

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

#195

Post by b_tterc_p »

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.

I’m not sure why this one is getting downvoted. It’s not wrong. Technically bob would probably spend it somewhere and the recipient of bob’s spending would put it in the bank. But the outcome is pretty much the same. I just threw out some bits that didn’t affect the state much.

But for illustrative purposes it’s probably best to assume that the 90 cents is eventually put into the same bank, so people can follow why the bank is allowed to do this.

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

#196

Post by onefuncman »

arcticbull wrote: post #149
village-idiot wrote: post #108

Earlier quoted context omitted.

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.

Actually, their electricity usage makes this everyone's problem, just like antivaxxers.

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

#197

Post by b_tterc_p »

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…

> 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.

This is wrong. The bank will have $1.90 + interest. You have to pay back your entire loan. Yes, bob might default, but averaged out, the risk calculations set the interest rate high enough to cover that profitably. The fractional reserve part of the banking system is a temporary choice that happens continuously. But if stopped, the bank would eventually have all of its cash because it has all of its reserves covered in debt.

> 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".

The difference is tether has no title to the missing 30%, and probably even more of it if we are going to be honest. The likelihood of repayment and the fullness of reserves are two separate concept. And banks win on both counts.

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

#198

Post by b_tterc_p »

qaq wrote: post #95
gridlockd wrote: post #92

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. 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 spe…

This is not true. You can spend up to a dollar, because you’re spending from your bank account and everyone trusts that you’re allowed to take up to a dollar. Dollars a fungible, so you’ll be taking someone else’s dollar, but that’s ok, because not everyone needs their dollar at once.

Bob can spend 90 cents because he has 90 cents, though he is obligated to pay it back later.

The bank can loan out (in this example) 81 cents of the 90 cent deposit from bob.

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

#199

Post by b_tterc_p »

arcticbull wrote: post #149
village-idiot wrote: post #108

Earlier quoted context omitted.

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.

This is what I was thinking but I didn’t have a way to phrase it. Many people are convinced that fractional reserve banking is terrible without understanding the basics of how it work, writing it off as too complicated for people to comprehend and therefore bad... but their solution is a system which is orders of magnitude more complicated and, in all likelihood, will still result in fractional reserve banking entities popping up. Tether isn’t a fractional reserve bank. It’s far worse. It’s just taking your money and showing that that they “only” spent some of it. But people in this thread are comparing it __favorably__ to traditional banks.

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

#200

Post by bhouston »

keymone wrote: post #144
bhouston wrote: post #7

Earlier quoted context omitted.

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.

The idea is fractional reserve banking is that the loans are at least good enough in aggregate in normal course to cover its liabilities. Of course there are black swan events (https://www.investopedia.com/terms/b/blackswan.asp) that are so far out of expected that banks fail anyways, or the banks are incompetent and make things like sub-prime mortgages (https://en.wikipedia.org/wiki/Subprime_mortgage_crisis) that tend to fail all at a once.
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