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Tether Required Recapitalization in May 2022

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Re: Tether Required Recapitalization in May 2022

#71

Post by astoor »

axg11 wrote: post #12

The most important point in this article is that whether Tether is fully collateralized ultimately doesn't matter. As long as there are well-capitalized parties (Bitfinex, other exchanges) that want to prop up Tether, it will be fine. Nobody should be under the illusion that Tether is decentralized or anything other than a bet on Bitfinex.

So Tether has become something like an international reserve cryptocurrency, which gives them an "exorbitant privilege"[0], meaning they can do pretty much whatever they want safe in the knowledge that everyone else will do everything they can to prevent them from failing because everyone else would have too much to lose if they did fail. That has kept it going for a long time, and might (or might not) keep it going for a lot longer, but ultimately a replacement reserve cryptocurrency will come.

[0] https://en.wikipedia.org/wiki/Exorbitant_privilege

Re: Tether Required Recapitalization in May 2022

#72

Post by rvz »

onesafari wrote: post #17

What happens if Tether fails, realistically? There's a lot of doomsaying around it, but after seeing the crypto market shrug off the loss of Terra Luna without contagion or bailout ala GFC crisis, the fear may be overblown. Terra was backed entirely by hot air, whereas Tether is mostly backed. Wouldn't the net loss be similar or even less?

> What happens if Tether fails, realistically?

Well that would not be good for Bitcoin and the entire cryptocurrency market would it?

Re: Tether Required Recapitalization in May 2022

#73

Post by jandrese »

gringoDan wrote: post #15
mathgenius wrote: post #11

It recently occurred to me, with the whole LUNA fiasco, that any "stablecoin" that is 1-1 backed by fiat can come under attack from leveraged traders, and get de-pegged. So it really doesn't matter what backing tether has, although more is obviously better. When the music stops it's anyone's guess what will happen.

Any stablecoin that is NOT backed 1-1 by fiat, correct? I.e., algorithmic stables. If you're 100% collateralized by USD in your bank account, how can it get de-pegged?

Are there any 1-1 fiat stablecoins that aren't just flat out lies? Like every new crypto coin minted requires a matching real dollar to be stashed away. My impression is that nobody does this because it would mean massive waits to buy the crypto coins when the real dollars run low and because the way to make real money is with leverage.

Re: Tether Required Recapitalization in May 2022

#74

Post by gringoDan »

jandrese wrote: post #73
gringoDan wrote: post #15

Earlier quoted context omitted.

Any stablecoin that is NOT backed 1-1 by fiat, correct? I.e., algorithmic stables. If you're 100% collateralized by USD in your bank account, how can it get de-pegged?

Are there any 1-1 fiat stablecoins that aren't just flat out lies? Like every new crypto coin minted requires a matching real dollar to be stashed away. My impression is that nobody does this because it would mean massive waits to buy the crypto coins when the real dollars run low and because the way to make real money is with leverage.

USDC is legit: https://www.centre.io/usdc-transparency

Re: Tether Required Recapitalization in May 2022

#75

Post by wyxuan »

Patrick is overindexing on the investments portion of the report – which is a little under 5% of backing. There are investment deals and crypto, but it's unknown if this represents the entirety of the amount fwiw.

If we take a step back and look at the key takeaway from the audit report is that amount of commercial paper was reduced and amount of T-bills (essentially cash) was increased by 5 bil. Good news if you think solvency is an issue, but of course they're all scoundrels eh?/s

Tether might have done shady things in the past as the article, but the scale to which Tether operates now (10s of bllns), in addition to scrutiny from SDNY, external audit, etc mean that Tether from before is much different from the Tether now, and it has pulled off the made it portion of "fake it till you make it".

Re: Tether Required Recapitalization in May 2022

#77

Post by greiskul »

peyton wrote: post #57
AlexandrB wrote: post #38

Earlier quoted context omitted.

No kidding. Crypto is deeply unpopular with a significant portion of the public - myself included. This is not the same as the early era of smartphones where you either had one or didn't really know much about them (i.e. were neutral). Many people have made up their minds on the utility (or lack thereof) of crypto and want nothing to do with it. Some of the recent incidents of backlash around NFTs in games come to mi…

It’s just money. It’s a commodity. If I can get a better deal on a house if I pay with crypto, I’ll do it—don’t need your approval, really.

If you want to buy my house, you kind of do. Everybody accepts money as payment. Most people don't accept crypto as payment.

Re: Tether Required Recapitalization in May 2022

#78

Post by JackFr »

mh- wrote: post #33
rickreynoldssf wrote: post #27

I think Tether is the ultimate "Fake it till you make it" organization in crypto. Its kind of a joke now but everyone is in on the joke but it will probably end up being the defacto crypto parking place once things get real in crypto (e.g. you can buy a house with it) and the adults come in and shake out the current management.

> once things get real in crypto (e.g. you can buy a house with it) it feels odd to speak about this scenario like it's a foregone conclusion.

Literally never gonna happen

Re: Tether Required Recapitalization in May 2022

#79

Post by vkou »

glerk wrote: post #5

So Tether is doing something akin to fractional reserve banking? From what I understand, this shouldn’t cause a problem unless there is a massive run (everyone trying to convert their USDT into dollars at the same time). Since most of the USDT is owned by big exchanges who need it to provide liquidity and have no interest in crashing the crypto market, I don’t think this is likely to happen.

They claim to be doing FRB, but it looks like what they actually are is insolvent.

A FRB is a bank where deposits exceed liquid liabilities (cash), but do not exceed liquid plus illiquid liabilities (cash + investments).

When deposits exceed liquid and illiquid liabilities you can't operate as an FRB. Because you are insolvent.

But this is all irrelevant, because Tether isn't a bank. Your bank promises that you can withdraw your deposit. Tether does no such thing - it provides withdrawals as a courtesy. If Tether doesn't feel like letting you withdraw, it's not going to let you withdraw.

Re: Tether Required Recapitalization in May 2022

#80

Post by glerk »

winslett wrote: post #10
glerk wrote: post #5

So Tether is doing something akin to fractional reserve banking? From what I understand, this shouldn’t cause a problem unless there is a massive run (everyone trying to convert their USDT into dollars at the same time). Since most of the USDT is owned by big exchanges who need it to provide liquidity and have no interest in crashing the crypto market, I don’t think this is likely to happen.

Cryptocurrency has recreated the wild-cat banking crises of the late-1800s / early-1900s. Go read about the Knickerbocker Trust Company: https://en.wikipedia.org/wiki/Knickerbocker_Trust_Company These events ultimately lead to the creation of the Federal Reserve for banks to participate in a semi-cooperative system that didn't devolve into save-yourself during times of crises. The story here is that "unless there is…

The big crypto exchanges are currently acting as a sort of unofficial federal reserve. None of the big players has an interest in seeing USDT collapse and will step in to bail it out at the first signs of trouble.

I'm not saying that Tether the company is not shady. They should definitely be more transparent about what assets they are holding and their collateralization, but I think the risks of total collapse are largely overblown.

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