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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

#201

Post by village-idiot »

darawk wrote: post #132
village-idiot wrote: post #114

Earlier quoted context omitted.

Normally it would, if the guys behind Tether were trustworthy

It does whether or not they're trustworthy. You may think the loan will not get repaid...but it's in their interest to repay it. They're making plenty of money at Bitfinex. The idea that they're going to run some elaborate ponzi scheme to steal money, when they're making several hundred thousand dollars per day in fees is kind of silly.

I don’t know how else to say this: I think Tether might lie about what composes that 74%.

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

#202

Post by village-idiot »

gpresot wrote: post #186
village-idiot wrote: post #109

Earlier quoted context omitted.

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).

I know, I just think they would lie about it. It’s not like they have had any qualms about lying continually.

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

#203

Post by jameskegel »

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.

Your shrill comment is emblematic of the problem it laments.

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

#204

Post by village-idiot »

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…

The reason why those other exchanges had a USD problem was because they didn’t want to do enough KYC/AML to gain access to legitimate banking. Providing an entrance and exit ramp for exchanges that are enabling money laundering probably put them in legal risk from day 1.

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

#205

Post by village-idiot »

darawk wrote: post #169
mikeyouse wrote: post #155

Earlier quoted context omitted.

Their account is over $700 million short right now.. Several hundred thousand per day isn't exactly going to move that dial.

It's a loan. The way loans work is that you make payments on them over time. $300,000/day generates ~100mm/year in revenue. That's enough to repay the loan in 7 years. However, the loan is actually for $625 million, so a bit shorter than that. But you get the point.

7 years wouldn’t exactly be a short term security, and a bespoke loan from one guy to himself isn’t something easily sold enough to be called “cash like”.

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

#206

Post by village-idiot »

tim333 wrote: post #189
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…

Tether is basically a one way ratchet to keep money in the crypto system. You can trade Tether for USD on various exchanges but actually selling Tether back to Tether itself, which would reduce the market cap, is restricted heavily. The result is that if you trade Tether to someone else on Kraken for USD or BTC, the Tether market cap remains unchanged, which I suspect was the point.

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

#207

Post by tim333 »

village-idiot wrote: post #206
tim333 wrote: post #189

Earlier quoted context omitted.

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…

Tether is basically a one way ratchet to keep money in the crypto system. You can trade Tether for USD on various exchanges but actually selling Tether back to Tether itself, which would reduce the market cap, is restricted heavily. The result is that if you trade Tether to someone else on Kraken for USD or BTC, the Tether market cap remains unchanged, which I suspect was the point.

Maybe though I figure they must be buying back to keep the price above 99c. My hypothesis is they are burning through the cash but not showing it as if they showed the cash going 2bn, 1.5bn... there'd be a bank run of people trying to get out before it was gone.

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

#208

Post by gridlockd »

b_tterc_p wrote: post #197
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…

> 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 tempor…

> This is wrong. The bank will have $1.90 + interest.

Dude, check your damn math! The bank owes me a dollar. At the time of the loan, it has 10 cents and Bob has 90 cents plus an obligation to pay it back with interest. At the end of the loan, the bank has the 90 cents back plus some amount of interest nowhere near enough to make the total add up to $1.90 (unless Bob takes up a ridiculously high APR and term just to loan a dollar).

> But if stopped, the bank would eventually have all of its cash because it has all of its reserves covered in debt.

This ignores that Bob has deposited his money at another bank which has used it as a reserve to make even more loans. The system can't stop, it would collapse.

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

#209

Post by SimonPStevens »

askmike wrote: post #190
SimonPStevens wrote: post #183

Earlier quoted context omitted.

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…

(BTW, not me doing the downvoting)

I don't think that only allowing the purchase of tether to retail really meets their original plan.

The whole point was meant to be that anyone could take their coins and go to tether and get exactly 1 USD for each one. It was designed to solve the problems people were having cashing out from exchanges. The idea was that you sold your bitcoin on poleniex or wherever for USDT the then took that to the tether website and got your USD. Safe in the knowledge that your USDT would be exchanged exactly 1-1, with no bid/offer spread or moving price. The reason this was needed was because most exchanges were really struggling to get their banks to allow the USD processing.

In reality, you could never really do that. And now exchanges have been able to get the USD payments working, so the USDTUSD exchange market has picked up the slack and now serves the purpose that the tether website never realised. Although it's now not quite 1-1, there is a market and a spread and prices move.

As others have mentioned, the likely reason they never have is that they would hit exactly the same challenge all the exchanges did with their bank and the KYC rules.

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

#210

Post by gridlockd »

qaq wrote: post #177
thinkmassive wrote: post #119

Earlier quoted context omitted.

The Fed is not the only bank who can loan funds at a fractional reserve. You might want to read a bit more about how banking works.

Fractional reserve does not create money it just specifies what % of money a bank can loan out.

https://en.wikipedia.org/wiki/Money_supply
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