Tether reserves backed by 2.9% cash • Hacker News Board

Re: Tether reserves backed by 2.9% cash

#71

Post by Marazan » Fri, May 14, 2021, 9:31 AM UTC

I run ScamStableCrypto.

I create a billion ScamStableCoins and claim they are worth $1 each.

I give a billion ScamStableCoins to ScamCryptoExchange. ScamCryptoExchange is run by me. ScamCryptoExchange writes an IOU for one billion US dollars and gives it ScamStableCrypto (my right hand gives something to my left hand).

I, as ScamStableCrypto, write down in my balance book that I have a billion dollars of Commercial Paper.

I announce that ScamStableCoin is fully backed.

Re: Tether reserves backed by 2.9% cash

#72

Post by meltedcapacitor » Fri, May 14, 2021, 9:37 AM UTC

beefield wrote: post #48

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...

Out of curiosity, in the hypotethical future case where the custody accounts would start to "pay" negative interest, what would happen to USDC? To me, there are only a limited set of options: 1. the peg fails 2. the custody accounts are switched to riskier assets - with or without knowledge of USDC holders. This, of course, has implications to the "stablecoin" status. One could even argue that USDC becomes a de facto…

If they redeem tokens net of negative interest, it may not be pegged at 1.000 (as the cumulative negative interest is then rolled into the price of token) but it would still behave the same as competing forms of "electronic USD deposits", so one could argue the peg is not broken.

Re: Tether reserves backed by 2.9% cash

#73

Post by tarsinge » Fri, May 14, 2021, 9:40 AM UTC

chrisco255 wrote: post #26

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...

I think it's the money exchanges like Binance "owe" them for the free Tether they receive. This is accounting shenanigans because the money is nowhere (i.e. when they mint Tether and send them to an exchange the commercial paper account gets credited mechanically). It's not physical reserves, but reserves in the accounting sense.

Re: Tether reserves backed by 2.9% cash

#74

Post by ackbar03 » Fri, May 14, 2021, 9:47 AM UTC

Marazan wrote: post #71

I run ScamStableCrypto. I create a billion ScamStableCoins and claim they are worth $1 each. I give a billion ScamStableCoins to ScamCryptoExchange. ScamCryptoExchange is run by me. ScamCryptoExchange writes an IOU for one billion US dollars and gives it ScamStableCrypto (my right hand gives something to my left hand). I, as ScamStableCrypto, write down in my balance book that I have a billion dollars of Commercial P…

Sounds like a plan, I'm in!

Re: Tether reserves backed by 2.9% cash

#75

Post by Acrobatic_Road » Fri, May 14, 2021, 9:53 AM UTC

Uh, this chart looks surprisingly good. Does it matter it tether is partially backed by "cash equivalents" such as t-bills? If those aren't good for cash, believe me, tether is the least of your worries.

I'm more interested in the other 25%. Does anyone know what it is?

Re: Tether reserves backed by 2.9% cash

#76

Post by FabHK » Fri, May 14, 2021, 9:58 AM UTC

Marazan wrote: post #70

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."

What if the commercial paper was IOUs from cryto-exchanges that were issued in return for un-backed Tether. The IOU then being treated as backing. What if "crypto-exchanges" just means Bitfinex and no-one else. You notice that they carefully said the secured loans were against non-partner entities. They said nothing of the sort about the commercial paper.

And then when things go downhill and you want to redeem your USDT, they'll hand you a bunch of IOUs from Binance. Good luck redeeming those.

Re: Tether reserves backed by 2.9% cash

#77

Post by makomk » Fri, May 14, 2021, 9:58 AM UTC

ur-whale wrote: post #57

phire wrote: post #30

Earlier quoted context omitted.

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."

Yeah, 100% agree. The notion of counter-party risk is understood by a tiny fraction of the folks who participate in finance.

At this kind of scale, I don't think there's such a thing as plain "cash" free of any counterparty risk - even just holding it in a bank account has risk attached (and most banks probably don't want an account with that much money in it because that would pose risks to them - they have the exact same problems finding somewhere to put it). US treasuries and AAA-rated bonds and commercial paper are about the best you can do.

Re: Tether reserves backed by 2.9% cash

#78

Post by Marazan » Fri, May 14, 2021, 10:01 AM UTC

Acrobatic_Road wrote: post #75

Uh, this chart looks surprisingly good. Does it matter it tether is partially backed by "cash equivalents" such as t-bills? If those aren't good for cash, believe me, tether is the least of your worries. I'm more interested in the other 25%. Does anyone know what it is?

The level of detail they have given for "Commercial Paper" means that it is worthless.

Commercial paper makes up about 50% of Tether's balance book.

Re: Tether reserves backed by 2.9% cash

#79

Post by tonfa » Fri, May 14, 2021, 10:03 AM UTC

Clewza313 wrote: post #65

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."

T-bills are OK, but it's entirely unclear what the "commercial paper" consists of. Amy Castor notes that if Tether gives USDT for free to large customers like Binance etc, that loan would be a form of commercial paper. https://amycastor.com/2021/05/13/tethers-first-breakdown-of-... And quite a few exchanges are offering crazy interest rates (up to 10%) for USDT deposits, which strongly implies they're getting some fo…

> And quite a few exchanges are offering crazy interest rates (up to 10%) for USDT deposits, which strongly implies they're getting some for free

I'd think the 10% is due to the high risk of default. (Someone else receives it, but usually only gives a crypto collateral, there's a fairly high chance of default since if the lender gets wiped there's a high chance the collateral won't be sufficient and it might snowball from there as all the lending platform try to liquidate at the same time)

It's comparable to investing in junk bonds (but since it's call "savings/interests" most users won't realize the default risk.

Re: Tether reserves backed by 2.9% cash

#80

Post by Acrobatic_Road » Fri, May 14, 2021, 10:04 AM UTC

Marazan wrote: post #78

Acrobatic_Road wrote: post #75

Uh, this chart looks surprisingly good. Does it matter it tether is partially backed by "cash equivalents" such as t-bills? If those aren't good for cash, believe me, tether is the least of your worries. I'm more interested in the other 25%. Does anyone know what it is?

The level of detail they have given for "Commercial Paper" means that it is worthless. Commercial paper makes up about 50% of Tether's balance book.

Is it? Commercial paper is short term (<9mo), and tether is a long term project. So, unless the composition of tether's backing has changed substantially in the last few years (and I remember them stating years ago that it was mostly these "cash equivalents"), then I'm not really worried because it sounds like their borrowers* have been paying them back.