Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

bloomberg.com

Post reply on HN
Print view View original

111–120 of 260 posts

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

#111

Post by vegannet »

georgyo wrote: post #106
vegannet wrote: post #98

Earlier quoted context omitted.

If Tether worked as it was advertised there would be no profit opportunity. The purported reason Tether exists is to help the crypto markets deal with the liquidity problems because of how difficult Fiat banking is, essentially Tethers value proposition was “we (by some miracle) have reliable banking, we can buy and sell 1 Tether for 1 USD at any time regardless of other crypto currencies value”. In reality Tether is…

You can invest the money, the same as banks do. It's why they don't charge you to store money with them, especially if your balance is high. You only need and should keep enough liquid cash needed to handle day to day withdrawals. Everything else is fair game up invest. See: https://en.m.wikipedia.org/wiki/Fractional-reserve_banking https://en.m.wikipedia.org/wiki/Bank_run

I’m talking about the specific promises made by Tether. The question is not about whether or not fractional reserve banking exists, the question is how can Tether engage in fractional reserve banking (or any profit making activity) without being fraudulent when they explicitly claimed to hold 100% of their USD in cash reserves at all times?

“[...] each tetherUSD in circulation represents one US dollar held in our reserves (i.e. a one­to­one ratio) which means the system is fully reserved when the sum of all tethers in existence (at any point in time) is exactly equal to the balance of USD held in our reserve.”

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

#112

Post by solotronics »

georgyo wrote: post #106
vegannet wrote: post #98

Earlier quoted context omitted.

If Tether worked as it was advertised there would be no profit opportunity. The purported reason Tether exists is to help the crypto markets deal with the liquidity problems because of how difficult Fiat banking is, essentially Tethers value proposition was “we (by some miracle) have reliable banking, we can buy and sell 1 Tether for 1 USD at any time regardless of other crypto currencies value”. In reality Tether is…

You can invest the money, the same as banks do. It's why they don't charge you to store money with them, especially if your balance is high. You only need and should keep enough liquid cash needed to handle day to day withdrawals. Everything else is fair game up invest. See: https://en.m.wikipedia.org/wiki/Fractional-reserve_banking https://en.m.wikipedia.org/wiki/Bank_run

Its multiple billions of USD they had. The most shrewd investments would yield tens of millions per year.

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

#113

Post by village-idiot »

perl4ever wrote: post #42
joshe wrote: post #39

Earlier quoted context omitted.

Because if there is a "run on the bank", someone will end up short. Either the first people out will get 100% of their money and last 26% will get zero, or everyone will get 74% of their money. This very fact will actually cause a run on the bank in any sort of crisis. You don't need to actually believe that tether is a complete sham and has no money to decide to withdraw. You just need to worry that 74% of people mi…

"Because if there is a "run on the bank", someone will end up short. Either the first people out will get 100% of their money and last 26% will get zero, or everyone will get 74% of their money." I'm not clear on whether they have discovered fractional reserve banking or whether they are insolvent. There's a big difference. If they are insolvent, I'd tend to assume tethers not trading at a discount just means people…

A fractional reserve bank is only fractionally liquid, the rest is invested in a variety of interest bearing loans. Obviously there’s always a risk of many loans not being repaid or sudden rushes for withdrawal, hence all the regulation and the FDIC.

Tether is admitting that they only have enough cash and securities to cover 74% of the outstanding tether balance. This isn’t fractional reserve, this is just straight up insolvency. If your bank only has enough cash and mortgages to cover 74% of their deposits, then it’s time for the FDIC to step in.

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

#114

Post by village-idiot »

darawk wrote: post #66
DebtDeflation wrote: post #17

"Short term securities". Personal IOUs from the 3 guys who run Bitfinex?

No. The short term securities would be things like treasuries. The loan to Bitfinex represents the 26% shortfall in the reserves.

Normally it would, if the guys behind Tether were trustworthy

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

#115

Post by georgyo »

vegannet wrote: post #111
georgyo wrote: post #106

Earlier quoted context omitted.

You can invest the money, the same as banks do. It's why they don't charge you to store money with them, especially if your balance is high. You only need and should keep enough liquid cash needed to handle day to day withdrawals. Everything else is fair game up invest. See: https://en.m.wikipedia.org/wiki/Fractional-reserve_banking https://en.m.wikipedia.org/wiki/Bank_run

I’m talking about the specific promises made by Tether. The question is not about whether or not fractional reserve banking exists, the question is how can Tether engage in fractional reserve banking (or any profit making activity) without being fraudulent when they explicitly claimed to hold 100% of their USD in cash reserves at all times? “[...] each tetherUSD in circulation represents one US dollar held in our res…

For the record, I think all this crypto currency stuff is plain dumb, and that tether is likely a fraud.

That said they don't state anything about what their reserve is. Wealthfront has a 2.3% savings account for us normal people. If I created a stable coin like tether is and had a billion dollars of investment; I could make 23 million dollars a year and tell people that I have a 1:1 backing without lying.

If I went to a bank with a billion dollars I could likely negotiate an even higher rate for such a savings account.

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

#116

Post by r32a_ »

spookthesunset wrote: post #90
darawk wrote: post #65

Once again, people here are ranting about Tether, while the market price is re-converging to parity. I wonder who's right, the people yelling in the comments section, or the people with skin in the game? What's been established here is that Tether is 74% collateralized by cash and short term securities. The other 26% is in the form of a loan to Bitfinex. Bitfinex is a cash-generation machine, and should not have any…

> 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.

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

#117

Post by Thorrez »

vegannet wrote: post #104
lupire wrote: post #103

Earlier quoted context omitted.

$100M in deposits is $5M/yr in returns on float, just as your bank and insurance companies do with your deposits and premiums. It's technically not risk-free (FDIC notwithstanding) but that doesn't stop anyone.

I’m not clear how that applies to Tether: “[...] each tetherUSD in circulation represents one US dollar held in our reserves (i.e. a one­to­one ratio) which means the system is fully reserved when the sum of all tethers in existence (at any point in time) is exactly equal to the balance of USD held in our reserve.” Where does the 5% come from?

5% isn't possible, but you can make over 2% on treasury bills currently. The risk of the US government defaulting on loans can be essentially ignored.

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

#118

Post by thinkmassive »

55555 wrote: post #86
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…

If they printed 2 billion tethers and bought them all back at 99 cents each (which is realistic, because tether typically floats at basically a dollar), that would only be $20,000,000. If they get 5% per annum on the float from just keeping the cash in the bank, that's $100,000,000. So I'm not sure what's best to do in typical circumstances. There have been ~two historical exceptions. From April 20 - May 20, 2017, th…

2,000,000,000 * 0.99 = 20,000,000 ...wat?

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

#119

Post by thinkmassive »

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…

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.

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

#120

Post by foobarbazetc »

lupire wrote: post #103
vegannet wrote: post #98

Earlier quoted context omitted.

If Tether worked as it was advertised there would be no profit opportunity. The purported reason Tether exists is to help the crypto markets deal with the liquidity problems because of how difficult Fiat banking is, essentially Tethers value proposition was “we (by some miracle) have reliable banking, we can buy and sell 1 Tether for 1 USD at any time regardless of other crypto currencies value”. In reality Tether is…

$100M in deposits is $5M/yr in returns on float, just as your bank and insurance companies do with your deposits and premiums. It's technically not risk-free (FDIC notwithstanding) but that doesn't stop anyone.

Who’s making 5% risk free?

Can you point me in their direction?

Post reply on HN