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Tether reserves backed by 2.9% cash

ft.com

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Re: Tether reserves backed by 2.9% cash

#21

Post by tkfu »

mathrando wrote: post #11

I expect better from FT. Tether is very similar to prime money market funds, in both structure and portfolio composition. I guess the Fidelity's of the world aren't keen on competition. https://www.nytimes.com/2008/09/20/business/20moneys.html https://www.nytimes.com/2020/03/19/business/coronavirus-mone...

That's a bit of a mischaracterization. The 75% that they're describing as "Cash & Cash Equivalents" might be similar to money market funds in composition, but we can't know whether it is or not because they don't give any details about the commercial paper. They don't even make the claim that it's asset-backed. Because they aren't saying anything about that, and they're not audited, they could very well be making riskier bets.

But more importantly, there's the 25% of their funds that bears absolutely no resemblance to anything a money market fund would do. The quote the FT article publishes from Martin Walker looks pretty reasonable to me:

> It is pretty clear looking at the makeup of the reserves — a tiny proportion of the reserves are cash on account at banks — that Tether is operating like a bank but with none of the normal disclosure.

> They are creating a dollar substitute and basically running a banking and payments business but without the oversight that anyone else doing a similar kind of business would have.

Re: Tether reserves backed by 2.9% cash

#22

Post by lvs »

dehrmann wrote: post #9

The pitch is clearly a lie, but I'm also not too worried about them counting commercial paper and t-bills as "cash."

Well that obviously depends on what the commercial paper is. The treasuries are going to be liquid under most conditions, but who knows with paper.

Re: Tether reserves backed by 2.9% cash

#23

Post by mathrando »

tkfu wrote: post #21
mathrando wrote: post #11

I expect better from FT. Tether is very similar to prime money market funds, in both structure and portfolio composition. I guess the Fidelity's of the world aren't keen on competition. https://www.nytimes.com/2008/09/20/business/20moneys.html https://www.nytimes.com/2020/03/19/business/coronavirus-mone...

That's a bit of a mischaracterization. The 75% that they're describing as "Cash & Cash Equivalents" might be similar to money market funds in composition, but we can't know whether it is or not because they don't give any details about the commercial paper. They don't even make the claim that it's asset-backed. Because they aren't saying anything about that, and they're not audited, they could very well be making ris…

> They are creating a dollar substitute and basically running a banking and payments business but without the oversight that anyone else doing a similar kind of business would have.

You could take that word-for-word from the debate that raged after Treasury bailed out the prime funds in 2008.

Re: Tether reserves backed by 2.9% cash

#25

Post by scoopertrooper »

dehrmann wrote: post #9

The pitch is clearly a lie, but I'm also not too worried about them counting commercial paper and t-bills as "cash."

Commercial paper definitely shouldn't be classed as cash. They can have quite a lot of risk attached to them.

The biggest problem with this whole thing is that Tether is essentially acting as a unregulated and unaudited bank. It has a whole bunch of depositors that have the right to demand their funds within 72 hours, meanwhile many of their assets cannot be converted into cash within that period.

Tether is highly susceptible to a bank run and isn't eligible for federal deposit insurance.

Re: Tether reserves backed by 2.9% cash

#26

Post by chrisco255 »

chrisco255 wrote: post #20

Tether's balance sheet: https://wallet.tether.to/transparency Balance breakdown: https://tether.to/tether-releases-breakdown-of-its-reserves/

Also I didn't know what commercial paper is but it is apparently a very short term loan up to 270 days: https://corporatefinanceinstitute.com/resources/knowledge/cr...

Re: Tether reserves backed by 2.9% cash

#27

Post by pja »

dillondoyle wrote: post #17

This is an opinion piece and the headline & article are clickbait IMHO. From Tether's chart, they literally have 2.9% in cash. So I guess the headline technically checks out. But Tether reported over 75% held in cash equivalents, the same type of liquid assets Apple reports when reporters say Apple is sitting on billions in 'cash' I think maybe more interesting, Tether reports only 1.64% slice of pie has some crypto…

It’s not that long ago that Tether was claiming that all reserves were cash deposits.

Now something like 75% of the reserves are loans to ... well, who knows? My guess is other crypto-companies, but it’s impossible to tell.

(It’s also very weird to lump together “bonds” and “gold” in the same pot - these are completely different asset classes.)

If one were of a cynical turn of mind (and who wouldn’t be, given Tether’s history?) one might suspect that the commercial paper consisted of loans of freshly printed USDT to crypto companies & trading platforms who are using it to trade cryptocurrencies (because you can’t really use USDT for anything else at this scale). One might also suspect similar things about other entries in this breakdown.

Tether is a wildcat bank.

Re: Tether reserves backed by 2.9% cash

#28

Post by grey-area »

adflux wrote: post #24
dehrmann wrote: post #9

The pitch is clearly a lie, but I'm also not too worried about them counting commercial paper and t-bills as "cash."

Also what's the paper and who issued? AAA or dogshit wrapped in catshit?

The giveaway is that they don’t even disclose what this commercial paper is or who the issuers are. Given their history of fraud the most likely explanation is they are shell companies run by the same people and the money doesn’t exist.

Re: Tether reserves backed by 2.9% cash

#29

Post by tkfu »

mathrando wrote: post #23
tkfu wrote: post #21

Earlier quoted context omitted.

That's a bit of a mischaracterization. The 75% that they're describing as "Cash & Cash Equivalents" might be similar to money market funds in composition, but we can't know whether it is or not because they don't give any details about the commercial paper. They don't even make the claim that it's asset-backed. Because they aren't saying anything about that, and they're not audited, they could very well be making ris…

> They are creating a dollar substitute and basically running a banking and payments business but without the oversight that anyone else doing a similar kind of business would have. You could take that word-for-word from the debate that raged after Treasury bailed out the prime funds in 2008.

Money market funds arguably act like a banking business, but are subject to regulation of their marketing material that obliges them to explain that they're not, and they certainly don't operate like a payments business.

Money market deposit accounts are a different story, and are highly regulated (and secured).

That being said, even if your comparison was accurate "hey, look at this similar business that caused harm and chaos during the last financial crisis" isn't exactly a glowing endorsement, is it?

Re: Tether reserves backed by 2.9% cash

#30

Post by phire »

sickmate wrote: post #15

As a comparison, USDC reserves are 100% backed by US dollars held in custody accounts, currently 9.3B. https://www.centre.io/hubfs/pdfs/attestation/grant-thorton_c...

USDC's "custody accounts" aren't cash either:

"US Dollars held in custody accounts are the total balances in accounts held by the Company at federally insured US depository institutions and in approved investments on behalf of the USDC holders at the Report Date."

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