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But tether isn’t claiming to be a bank account. A bank account is an unsecured loan, tether claimed to be taking secured loans. With a bank, you are lending ca

by blake1 7y ago

But tether isn’t claiming to be a bank account. A bank account is an unsecured loan, tether claimed to be taking secured loans. With a bank, you are lending cash to them when you make a deposit. You are taking a risk that the bank’s credit won’t be good, and you will lose your money, so you should require interest to compensate for that. Deposit insurance changes this only a little. But it’s not like there are zero assets backing the accounts: there are still enough to cover expected liquidity needs. The credit risk mentioned early is that his expectation will fall short of reality. But owning tether wasn’t supposed to invoke any credit risk at all. It was a secured loan: if you bought a tether, you had sole claim on a dollar in a bank account. By the way, banks buy and sell secured loans all the time. Mortgages are a particularly common example in retail banking. Although usually, secured lending is used to convert a low liquidity asset, like a house, into a liquid one, like cash. Tether makes no sense economically because it converts one liquid asset into another.

jfk13 7y ago
Doesn't it convert a liquid asset into a much less liquid one, given that tether is far less widely accepted than USD? If I have a million dollars in greenbacks, I can use them for almost any transaction I like. If I have a million tethers, I'm not sure I can do much with them except exchange them for other similarly-illiquid "tokens" via a few variously-reputable exchanges.
- blake1 7y ago
  You are right. Tethers are not liquid in any real sense, and should actually pay a pretty hefty interest.
perl4ever 7y ago
"With a bank, you are lending cash to them when you make a deposit. You are taking a risk that the bank’s credit won’t be good, and you will lose your money, so you should require interest to compensate for that." Hmm...I did not think I was taking that risk. As far as I knew, up to I think $250K, the money I have in a bank (actually a credit union) is backed by the full faith and credit of the United States, whatever that is worth today. Are you a banker?
- mruts 7y ago
  What you’re talking about is FDIC insured accounts. But those only apply to savings and checking accounts (and only up to 250k like you said). Brokerage accounts where I think most Americans keep the vast bulk of their money are not insured.
  - perl4ever 7y ago
    The vast majority of Americans do not have a brokerage account at all, and if you need a reference, it's easy to find. According to a document[1] I found on the DOL website, in 2013, 17 million of 123 million households had a brokerage account. This number is also in decline, I read in other sources. I also don't understand what brokerage accounts have to do with retail banks. [1]https://www.dol.gov/sites/default/files/ebsa/researchers/analysis/retirement/brokerage-accounts-in-the-us.pdf https://www.dol.gov/sites/default/files/ebsa/researchers/ana...
    - mruts 7y ago
      Well, why would you keep any money over 1k in a savings/checking account? Savings accounts nowadays don’t serve any purpose (you definately shouldn’t be saving money in them) besides being FDIC insured. Checking accounts should only hold temporary money in order to finance short-term liquidity constraints (paying off credit cards, etc). All extra money should be put in a brokerage account: risk-free treasuries, money markets, equities, etc. But maybe average people don’t have any extra money at all? Or maybe they use savings accounts? I don’t know, but either is sad and irrational.
      - perl4ever 7y ago
        Savings accounts seem pretty useless, only because the interest rates are currently ridiculously low. My credit union currently pays 0.3%. But here's an interesting question: since the Fed pays banks 2.4% interest on excess reserves, why can't someone start a "bank" that simply takes depositors' cash and passes through the interest from the Fed from reserving it all? The answer, I believe, is that while people have been/are trying, the Fed doesn't want that - the interest is supposed to subsidize conventional banks and not be given away to the general public.

by blake1 7y ago

jfk13 7y ago

Doesn't it convert a liquid asset into a much less liquid one, given that tether is far less widely accepted than USD? If I have a million dollars in greenbacks, I can use them for almost any transaction I like. If I have a million tethers, I'm not sure I can do much with them except exchange them for other similarly-illiquid "tokens" via a few variously-reputable exchanges.

blake1 7y ago
You are right. Tethers are not liquid in any real sense, and should actually pay a pretty hefty interest.

perl4ever 7y ago

"With a bank, you are lending cash to them when you make a deposit. You are taking a risk that the bank’s credit won’t be good, and you will lose your money, so you should require interest to compensate for that." Hmm...I did not think I was taking that risk. As far as I knew, up to I think $250K, the money I have in a bank (actually a credit union) is backed by the full faith and credit of the United States, whatever that is worth today. Are you a banker?

mruts 7y ago
What you’re talking about is FDIC insured accounts. But those only apply to savings and checking accounts (and only up to 250k like you said). Brokerage accounts where I think most Americans keep the vast bulk of their money are not insured.
- perl4ever 7y ago
  The vast majority of Americans do not have a brokerage account at all, and if you need a reference, it's easy to find. According to a document[1] I found on the DOL website, in 2013, 17 million of 123 million households had a brokerage account. This number is also in decline, I read in other sources. I also don't understand what brokerage accounts have to do with retail banks. [1]https://www.dol.gov/sites/default/files/ebsa/researchers/analysis/retirement/brokerage-accounts-in-the-us.pdf https://www.dol.gov/sites/default/files/ebsa/researchers/ana...
  - mruts 7y ago
    Well, why would you keep any money over 1k in a savings/checking account? Savings accounts nowadays don’t serve any purpose (you definately shouldn’t be saving money in them) besides being FDIC insured. Checking accounts should only hold temporary money in order to finance short-term liquidity constraints (paying off credit cards, etc). All extra money should be put in a brokerage account: risk-free treasuries, money markets, equities, etc. But maybe average people don’t have any extra money at all? Or maybe they use savings accounts? I don’t know, but either is sad and irrational.
    - perl4ever 7y ago
      Savings accounts seem pretty useless, only because the interest rates are currently ridiculously low. My credit union currently pays 0.3%. But here's an interesting question: since the Fed pays banks 2.4% interest on excess reserves, why can't someone start a "bank" that simply takes depositors' cash and passes through the interest from the Fed from reserving it all? The answer, I believe, is that while people have been/are trying, the Fed doesn't want that - the interest is supposed to subsidize conventional banks and not be given away to the general public.