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

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

#241

Post by b_tterc_p » Wed, May 01, 2019, 9:26 PM UTC

gridlockd wrote: post #235

b_tterc_p wrote: post #219

Earlier quoted context omitted.

It doesn’t matter which bank the loan is deposited into. That doesn’t affect what’s happening here. I’m saying one bank because it’s easier to understand. If you really want to be pedantic, sure, maybe bank 1 has $1 + interest and bank 2 has $0.90. That’s also possible But it’s important to get that money is not blindly created. It’s done because value is created at a faster rate than physical dollars. You can view b…

> It’s done because value is created at a faster rate than physical dollars. [citation desperately needed] I think you're just letting your imagination run wild on how things work and why that makes sense. > You yourself can create “new money” by making a loan yourself. No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can ci…

> I think you're just letting your imagination run wild on how things work and why that makes sense.

If value were not being created fast enough, then people wouldn’t be able to payoff the loans. The loans are made either to enable value creation (business loans) or to fund a purchase and the loan taker agrees to funnel their value creation (salary) back into it.

> No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can circulate and that can itself be the basis for new money creation.

Obviously I meant to someone else. Though perhaps this one is too hand wavey to be useful

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

#242

Post by scottlocklin » Wed, May 01, 2019, 10:49 PM UTC

InclinedPlane wrote: post #137

scottlocklin wrote: post #133

Earlier quoted context omitted.

>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.

"Some reason." Could be, and now I'm just spitballing here, but it could be the use of government backed currencies, the heavy degree of government oversight and regulation, and the federally insured deposits.

You should really, really look at how a bank actually works. You're in for a big surprise!

Barring that you should look at Lawler's article on tether: https://kevinlawler.com/stablecoins

He offers forward contracts if you think he's wrong. He's good for it.

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

#243

Post by gridlockd » Wed, May 01, 2019, 11:47 PM UTC

b_tterc_p wrote: post #239

gridlockd wrote: post #233

Earlier quoted context omitted.

> But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks. Greater or equal face value , not actual value. Tether is basically making the same claim. > Tether is not a bank. I never said that Tether was a bank. > You have no guarantee of being allowed to exchange tether for dollars. To be pedantic, no such guarantee exists for bank deposits either. > It’s just... a weir…

From my perspective you’re just justifying tether’s failure to keep its promises by saying it’s not as bad as banks, but also saying it’s not a bank when it’s pointed out how it utterly fails as a bank replacement; when it’s then pointed out that tether doesn’t serve any real purpose and is just a temporary store of value before it eventually collapses, you go back to the fractional reserve comparison. It also feels…

I'm not justifying anything, I'm making an observation. I don't hold any Tethers nor do I have any intention to do so. I'm absolutely not saying Tether is "not as bad as a bank".

However, as far as a cryptocurrency goes, Tether obviously works even when it's only backed by fractional reserves. Remember, most cryptocurrencies are backed by nothing.

> It only lost 30% of my money so far!

If I held any Tether, I could exchange them right now for dollars almost one to one. That's been true for most of the time of Tether's existence. The peg worked even when it wasn't clear whether Tether had any money whatsoever.

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

#244

Post by gridlockd » Thu, May 02, 2019, 12:12 AM UTC

arcticbull wrote: post #237

gridlockd wrote: post #233

Earlier quoted context omitted.

> But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks. Greater or equal face value , not actual value. Tether is basically making the same claim. > Tether is not a bank. I never said that Tether was a bank. > You have no guarantee of being allowed to exchange tether for dollars. To be pedantic, no such guarantee exists for bank deposits either. > It’s just... a weir…

The guarantee you can withdraw funds from a bank account does exist, it’s the FDIC. Tethers terms of service specifically state you’re buying funbucks / chuck-e-cheese tokens and they have no redemption value. A unit of value in your bank account represents a claim you have against the assets held in the bank backed by the weight of the US government. A Tether is worth whatever you can get the next guy to buy your ba…

> The guarantee you can withdraw funds from a bank account does exist, it’s the FDIC.

Like I said, I'm being pedantic. The FDIC doesn't give you a guarantee that you can withdraw any money from a bank account. It offers you insurance on the amount - up to 250,000$ - in the event of bank failure.

> Tethers terms of service specifically state you’re buying funbucks / chuck-e-cheese tokens and they have no redemption value. A unit of value in your bank account represents a claim you have against the assets held in the bank backed by the weight of the US government.

While I think the characterization of Tether as "Chuck-E-Cheese tokens" is fair, a claim beyond 250,000$ against a bankrupt bank may well be worth 0$, despite the (considerable!) "weight of the US government". In that event, I would probably prefer to have the Chuck-E-Cheese tokens instead.

> A Tether is worth whatever you can get the next guy to buy your bags for representing no obligations on anyone.

While there may be no legal obligation for Tether to exchange its tokens for actual dollars, there still is a reputational obligation to do so, if we're assuming that Tether is intended to run as a legitimate business (which is admittedly a big assumption). In that sense it's somewhat comparable to PayPal.

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

#245

Post by perl4ever » Thu, May 02, 2019, 1:08 AM UTC

gridlockd wrote: post #235

b_tterc_p wrote: post #219

Earlier quoted context omitted.

It doesn’t matter which bank the loan is deposited into. That doesn’t affect what’s happening here. I’m saying one bank because it’s easier to understand. If you really want to be pedantic, sure, maybe bank 1 has $1 + interest and bank 2 has $0.90. That’s also possible But it’s important to get that money is not blindly created. It’s done because value is created at a faster rate than physical dollars. You can view b…

> It’s done because value is created at a faster rate than physical dollars. [citation desperately needed] I think you're just letting your imagination run wild on how things work and why that makes sense. > You yourself can create “new money” by making a loan yourself. No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money than can ci…

"No I can't. If I make a loan to myself, there is no new money to circulate. If a bank makes a loan on fractional reserves it is new money"

If that was true, that every loan by a bank was multiplying assets by 10, because they're required to hold 10% in reserves, then we would instantly have runaway unimaginably huge inflation and everything would collapse. So even if you don't understand why it's not true, common sense should make you pause and look for that understanding.

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

#246

Post by perl4ever » Thu, May 02, 2019, 1:15 AM UTC

xref wrote: post #158

gpresot wrote: post #154

Earlier quoted context omitted.

There is some premium on the BTCUSDT pair, compared to BTC/USD pair. You can still, for a relatively small premium buy BTC with your USDT and change them back to fiat USD. And it seems that plenty of traders are ready to accept that premium and accept the risk of holding tether. This effectively solves any liquidity issues that Tether might have. And as other have noticed, 74% coverage is a lot more than many were fe…

Remember it’s simply Bitfinex saying they have 74% reserves, just like they used to say they had 100% reserves. There has still never been an audit. Nobody has seen their books. They don’t recognize the jurisdiction of the NY AG. Bitfinex is the only one who can give a number, and a company in that position usually places themselves in the most generous light, and they still only claimed 74%.

According to other comments I've seen, they don't redeem tethers for dollars in the first place, so the amount of reserves they have doesn't matter, does it? Liquidity is beside the point if they don't even offer redemption.

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

#247

Post by b_tterc_p » Thu, May 02, 2019, 1:41 AM UTC

gridlockd wrote: post #243

b_tterc_p wrote: post #239

Earlier quoted context omitted.

From my perspective you’re just justifying tether’s failure to keep its promises by saying it’s not as bad as banks, but also saying it’s not a bank when it’s pointed out how it utterly fails as a bank replacement; when it’s then pointed out that tether doesn’t serve any real purpose and is just a temporary store of value before it eventually collapses, you go back to the fractional reserve comparison. It also feels…

I'm not justifying anything, I'm making an observation. I don't hold any Tethers nor do I have any intention to do so. I'm absolutely not saying Tether is "not as bad as a bank". However, as far as a cryptocurrency goes, Tether obviously works even when it's only backed by fractional reserves. Remember, most cryptocurrencies are backed by nothing . > It only lost 30% of my money so far! If I held any Tether, I could…

Ponzi schemes also hold value- for a while. Right now, we’re in the while. The peg has worked. It seems unlikely to me that it will continue to work. I suppose that’s the last I’ll say on the matter.

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

#248

Post by r32a_ » Thu, May 02, 2019, 3:36 AM UTC

r32a_ wrote: post #116

spookthesunset wrote: post #90

Earlier quoted context omitted.

> while the market price is re-converging to parity Given the "market price" of most crypto is based in USDT not USD it kinda makes you wonder how legit any of the "market price" figures really are? Plus given there is absolutely no auditing for any of the exchanges in the market, for all you know "market price" could be determined by nothing more that scripts that just SQL INSERT fake transactions in their database…

"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.

You paid for it via a bailout

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

#249

Post by arcticbull » Thu, May 02, 2019, 6:08 AM UTC

gridlockd wrote: post #244

arcticbull wrote: post #237

Earlier quoted context omitted.

The guarantee you can withdraw funds from a bank account does exist, it’s the FDIC. Tethers terms of service specifically state you’re buying funbucks / chuck-e-cheese tokens and they have no redemption value. A unit of value in your bank account represents a claim you have against the assets held in the bank backed by the weight of the US government. A Tether is worth whatever you can get the next guy to buy your ba…

> The guarantee you can withdraw funds from a bank account does exist, it’s the FDIC. Like I said, I'm being pedantic. The FDIC doesn't give you a guarantee that you can withdraw any money from a bank account. It offers you insurance on the amount - up to 250,000$ - in the event of bank failure . > Tethers terms of service specifically state you’re buying funbucks / chuck-e-cheese tokens and they have no redemption v…

Haha I think we’re on the same page.

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

#250

Post by easymodex » Thu, May 02, 2019, 6:34 AM UTC

village-idiot wrote: post #223

easymodex wrote: post #191

Earlier quoted context omitted.

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.

Im not describing a different process, they had their money in a savings account on a bank that went under, they have been liquidating it's assets since the 2008 crisis to repay people and it's still not done.