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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

#221

Post by village-idiot »

tim333 wrote: post #207
village-idiot wrote: post #206

Earlier quoted context omitted.

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.

I'm not really sure how Tether is maintaining their $1 peg on the open exchanges, it seems to me that they shouldn't be. But explaining why the market cap hasn't gone down is very easy, it's very hard to actually destroy Tether.

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

#222

Post by village-idiot »

mrharrison wrote: post #220

Weird so many negative comments, this is astronomically better than what banks have in reserve. https://www.google.com/search?q=how+much+cash+must+a+bank+ha...

You're stretching the definition of reserve too far.

Banks are fractionally liquid, but they're actually fully backed by non-cash assets, such as mortgages, business loans, and bonds. The reserve requirements and risk levels are tightly regulated and they pay insurance (FDIC) to protect against the risk of sudden withdrawal demands or market downturns. In practice this has been working for a very long time, with runs on banks and FDIC involvement being quite rare.

Tether is only 74% backed "by cash and cash-like securities", which means that they are insolvent, with their assets column being worth less than their debits column. This is massively worse than any consumer bank; a bank might not be able to cover all their liabilities at once, but Tether can't meet all their liabilities at all.

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

#223

Post by village-idiot »

easymodex wrote: post #191
tedunangst wrote: post #121

Earlier quoted context omitted.

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 bank…

You're describing a different process.

People lost their life savings because they purchased assets that went down, or they lost their jobs in the general economic downturn. Nobody lost their life savings because their bank suffered a run and their deposits were lost.

To extend the metaphor, this is the difference in getting wiped out in the 2017-2018 crypto crash, and getting wiped out by Mt. Gox.

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

#224

Post by village-idiot »

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.

A loan is an asset, it just isn't a riskless one. A great example are bonds, typically considered to be assets, which are technically a loan that you have given to a government or company.

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

#225

Post by village-idiot »

b_tterc_p wrote: post #195
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.

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 t…

Well, typically the interest from Bob's loan would be deposited, making the bank's balance go up to a maybe $1.03 or $1.04.

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

#226

Post by arcticbull »

dredmorbius wrote: post #192
arcticbull wrote: post #152

Earlier quoted context omitted.

It’s time we start treating these folks for what they are: the antivaxxers of finance.

Who, exactly?

(Sorry, this ended up in the wrong place and it's too late to edit/delete)

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

#227

Post by darawk »

village-idiot wrote: post #205
darawk wrote: post #169

Earlier quoted context omitted.

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”.

> 7 years wouldn’t exactly be a short term security

Nobody said that it was. They have 74% of the reserves in cash and short term securities. The other 26% is this loan. That is, it is not a short term security.

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

#228

Post by darawk »

village-idiot wrote: post #201
darawk wrote: post #132

Earlier quoted context omitted.

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%.

Then why did they bother to update their webpage when they made this loan? On the date they made this loan they updated their page to say that it was no longer fully backed by cash. If they were in the business of lying, they'd have no reason to have done that - nobody knew about the loan at that time.

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

#229

Post by b_tterc_p »

gridlockd wrote: post #213
b_tterc_p wrote: post #199

Earlier quoted context omitted.

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 entiti…

I never said that Crypto was any good or that fractional reserve was bad. It obviously works for the banks (until it doesn't), it seems to work for Tether as well. I'm just pointing out the parallels, which are far more striking than the differences. People here point out that fractional reserves is backed by loans and securities of (supposedly) equal value, or that it's all regulated and insured, but it wasn't alway…

> but it wasn't always like that,

Insurance and regulation is good for you as a consumer, and yeah that is new.

But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks.

Tether is not a bank. You have no guarantee of being allowed to exchange tether for dollars. It’s just... a weird service that doesn’t make sense. Tether doesn’t “work” because tether doesn’t do anything

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

#230

Post by stcredzero »

Tsubasachan wrote: post #156
stcredzero wrote: post #26

Earlier quoted context omitted.

What would happen if the US Government stepped in and took over Tether? Would it be feasible for a different foreign government to do so?

Every government in the world has dissuaded its citizens to get involved with crypto. If there is a bankrun on ING or WellsFargo the government will act. With Tether you're on your own. Cryptocurrency places you outside the financial system- the system r/bitcoin professed to hate.

Wouldn't the US government taking over Tether give them a toehold to monitor or control Cryptocurrency? They couldn't control all of crypto, but they could possibly control the favored way of getting the value out.
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