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Tether Says Stablecoin Is Only Backed 74% by Cash, Securities
- eindiran 8y agoHonestly, 74% is a much higher number than I was expecting.
- mikeyouse 8y agoConveniently enough, it works out that they're about $740 million short of their obligations. That's a lot of money.
- xmly 8y agoDitto this. I thought it would be like less than 50%
- elyobo 8y agoIf 74% is what Tether is claiming, then the reality is probably less.
- village-idiot 8y agoThey’re claiming 74% “cash and cash like securities”, which is one hell of a caveat. We know that they’ve “loaned” 900m to Bitfinex, a company run by the same people as Tether. My bet is that some of those “cash like securities” are unrecoverable “loans”.
- Scoundreller 8y agoI was reading through Apple’s 10K, and they define cash like securities as being highly liquid and having a maturity in less than 3 months.
- askafriend 8y agoApple shouldn't have to suffer the horrible fate of being even implied in the same conversation as Tether/Bitfinix as far as reporting standards and corporate trust go.
- gpresot 8y agoCash-like (or cash-equivalent) securities is a common expression in accounting and indicates highly liquid securities that can be liquidated in short term (less than 3 months usually). "These securities have a low-risk, low-return profile and include U.S. government Treasury bills, bank certificates of deposit, bankers' acceptances, corporate commercial paper and other money market instruments" (from Investopedia).
- village-idiot 8y agoI know, I just think they would lie about it. It’s not like they have had any qualms about lying continually.
- e_tm_ 8y agoThis is assuming that the stated 74% number is true. Fool me once...
- saalweachter 8y agoIf it's a fake number, it's an interesting choice. They aren't claiming to be 99% or 90% backed, which would be similarly disbelieved by the same people who disbelieved the 100% claim.
- jeremyjh 8y agoSuppose the real number is 3%. 74% sounds pretty good as a way to soften the blow a bit. It would be best to let the air out over a matter of weeks than minutes.
- saalweachter 8y agoI feel like there could be a lot of real numbers that are much bigger than 3% but still devastatingly low. 10%? 30%? 45%? Also, do they break down the composition of that backing between "cash" and "short-term securities" anywhere, and how many of those "short-term securities" are real assets like T-bills, and how many are unsecured debt that there isn't the money to repay? 74% could be a "real" number ... but it could still be the case that there is only cash to cover 10% of the existing Tethers, and the remaining 64% is loans to companies that can only repay that ten cents on the dollar.
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- empath75 8y agoThey’ve been lying for years and are only admitting they’re not fully backed now because they got caught. Who knows how much they’re really missing.
- smoovb 8y agoGlad it's been brought to light, but does seem to be a problem that is solve-able.
- chatmasta 8y agoMy bank only needs to keep 10% of its deposits backed by cash, securities. [0] [0] https://en.wikipedia.org/wiki/Reserve_requirement#United_States https://en.wikipedia.org/wiki/Reserve_requirement#United_Sta...
- aikah 8y ago> My bank only needs to keep 10% of its deposits backed by cash, securities. True, but your FIAT is FDIC insured to an extend. Neither Tether nor any of these funny moneys are. Furthermore, I'm pretty sure non accredited banks cannot run fractional reserves legally.
- notahacker 8y agoAlso, fractional reserves are fully backed by outstanding loans due for repayment, which is not the same as being backed by nothing. A decade ago, we saw how bad it was for the whole ecosystem when more loans than expected turned into nothing... That's not at all similar to Bitfinex only pretending to back Tether.
- ceejayoz 8y agoAlso also, banks don't falsely claim "we're not fractional reserve" on their websites for years.
- bhouston 8y agoYou are misunderstanding fractional reserve banking. Fractional reserve banking means that the bank only has to keep enough cash on hand to meet their expected reasonable obligations. Banks still need their books to balance. That means that their liabilities can not exceed their assets. A bank can be solvent on paper but if there was a rush to withdraw by their customers, they may not be able to pay cash for all withdrawals because that cash would be tied up in loans. In the Tether case it isn't that they loaned out the money they took in, rather their liabilities exceed their assets. Thus Tether is bankrupt on paper. And if everyone tried to withdraw their assets, they would also not be able to pay everyone back. Thus banks may be illiquid with a balance sheet that ultimately balances (e.g. not bankrupt), but tether is both bankrupt and likely also illiquid because of the 850M loan fiasco. I swear tether is like Wiley Coyote who has run off a cliff but hasn't yet looked down. I question my sanity a little bit because I do not understand why tether isn't completely disreputable at this point, I must be missing something.
- jpatokal 8y agoYet the Tether price of BTC is only 6% below the USD price: http://www.untether.space/ http://www.untether.space/
- toomuchtodo 8y agoThe market can remain irrational...
- a1369209993 8y ago... longer than you can remain solvent.
- duskwuff 8y agoOr, perhaps in this case, longer than Tether can remain solvent.
- dheera 8y agoQuestion -- why does this matter to me? As long as the market agrees to trade it for around 1.00 USD, +/- a few %, which seems to generally be happening, it shouldn't matter to me whether it's backed or not. It's just an abstract notion that the market has agreed to trade at a certain price. (It's not like I would hold onto USDT for a long time anyway -- it's only there to facilitate short-term needs. If I wanted to hold USD I'd just change it for USD and hold that instead.)
- bhouston 8y agoIs the gap between issues tethers and backing USD widening? At what rate? At some point people will not believing USDT is pegged to the dollar and it will be a race to the exit. It is a matter of time I would think.
- dheera 8y agoSure, but nobody would hold onto USDT for a long time anyway. It's not meant to be a long-term investment. As long as it facilitates short-term transactions and people are agreeable to trading it at 1 USD, that black box system fulfills its mission as a product, and doesn't need to fulfill anything else.
- api 8y agoI was expecting something more like 1%.
- DebtDeflation 8y ago"Short term securities". Personal IOUs from the 3 guys who run Bitfinex?
- darawk 8y agoNo. The short term securities would be things like treasuries. The loan to Bitfinex represents the 26% shortfall in the reserves.
- village-idiot 8y agoNormally it would, if the guys behind Tether were trustworthy
- darawk 8y agoIt does whether or not they're trustworthy. You may think the loan will not get repaid...but it's in their interest to repay it. They're making plenty of money at Bitfinex. The idea that they're going to run some elaborate ponzi scheme to steal money, when they're making several hundred thousand dollars per day in fees is kind of silly.
- mikeyouse 8y agoTheir account is over $700 million short right now.. Several hundred thousand per day isn't exactly going to move that dial.
- darawk 8y agoIt's a loan. The way loans work is that you make payments on them over time. $300,000/day generates ~100mm/year in revenue. That's enough to repay the loan in 7 years. However, the loan is actually for $625 million, so a bit shorter than that. But you get the point.
- village-idiot 8y ago
- Havoc 8y agoSurprised Tether is willing to open it's mouth on this subject. Glass houses...stones...
- Animats 8y agoThey have to. They're under investigation by the New York State Attorney General.[1] That sort of thing usually doesn't end well. [1] https://ag.ny.gov/press-release/attorney-general-james-announces-court-order-against-crypto-currency-company-under https://ag.ny.gov/press-release/attorney-general-james-annou...
- driverdan 8y agoThey don't have to. The NYS AG doesn't have standing.
- ndury 8y agoYou'd be surprised how far the power of the NYAG goes... Crypto Capital LTD. is registered in Panama and legally they have no a rather poor political/diplomatic relationship but you never know what goes on behind the scenes. I believe the NYAG wants Crypto Capital LTD, not bitfinex/tether per se.
- miohtama 8y agoBitfinex money was on an account of a small Polish bank. It was confiscated by a US government when they chased Colombian drug cartels earlier in 2018. There was no proper segregation of client funds by their payment processor Crypto Capital Corp. Looks like Tether was collateral damage. Polish source: https://zaufanatrzeciastrona.pl/post/gielda-bitfinex-zgubila-851-mln-usd-a-podwykonawca-wine-zwala-na-polski-rzad/ https://zaufanatrzeciastrona.pl/post/gielda-bitfinex-zgubila... (please use Google translator)
- stcredzero 8y agoWhat would happen if the US Government stepped in and took over Tether? Would it be feasible for a different foreign government to do so?
- BubRoss 8y agoWhat would they take over? Massive liabilities?
- stcredzero 8y agoJust business as usual.
- elliekelly 8y agoThey would almost certainly not have the jurisdiction. They’re a BVI Corp (a jurisdiction that tends to look the other way at corporate fraud) and I believe operate out of Hong Kong. Lately it seems the Chinese government practically encourages companies to commit securities fraud in the US so I can’t imagine they’d be much help either. I suspect the likely outcome (eventually.. and if Bitfinex doesnt fold first) is the US government seizing their domain to prevent them from continuing to commit fraud. Edit: missed a word
- 55555 8y ago> Lately it seems the Chinese government practically encourages companies to commit securities fraud in the US so I can’t imagine they’d be much help either. The China Hustle is a good movie if anyone wants to see how these schemes work.
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- idlewords 8y agoStableishcoin!
- deleted 8y ago[deleted]
- carrja99 8y agoAnd yet it's still 1:1 on coin market cap and everyone is all "what me worry?"
- gridlockd 8y agoIf you don't plan on holding Tether for a longer time, the chances of some catastrophic pricing event (such as full seizure) are slim. That risk is weighed the utility of sending Tethers around. If Tether was somehow backed 100% by an assortment of reputable institutions, it would probably trade at 5% premium to its face value, purely due to its utility.
- tim333 8y agoMore surprisingly the market cap on coinmarketcap is at $2850m, up from $2845m a week or so ago when the news hit. You'd imagine at least some people would be cashing in Tethers for other assets (BTC, USD) and so the number of Tethers out there would drop. It shows daily trading volume of $12,308,023,802 USD yet the market cap doesn't budge significantly. Something seems not to add up. By the way I just tried selling 1000 tether short on Kraken. Dunno if anyone else is trying to trade this thing?
- village-idiot 8y agoTether is basically a one way ratchet to keep money in the crypto system. You can trade Tether for USD on various exchanges but actually selling Tether back to Tether itself, which would reduce the market cap, is restricted heavily. The result is that if you trade Tether to someone else on Kraken for USD or BTC, the Tether market cap remains unchanged, which I suspect was the point.
- tim333 8y agoMaybe though I figure they must be buying back to keep the price above 99c. My hypothesis is they are burning through the cash but not showing it as if they showed the cash going 2bn, 1.5bn... there'd be a bank run of people trying to get out before it was gone.
- tinco 8y agoIt'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 profit. And being able to buy Tether at a lower price is a fundamental market property because of knowledge imbalance. They literally can not fail at making money, the only thing they had to do was not lose their liquidity. They print free money without it even being a scam, even better they are providing a public service, and still they messed it up...
- throwaway76524 8y agoKinda like the federal reserve ...
- stephen_g 8y agoThe Federal Reserve is the monopoly issue of US dollars within a legal and policy framework. Tether does not have that legal mandate to issue money! Perhaps a better comparison would be to banks (as the credit they create is essentially new money), but again, they are subject to restrictions (i.e capital requirements so they can absorb a reasonable level of defaults without ever touching deposits, etc.), operate within a legal framework, and have to stay solvent. So at best you could say Tether is probably an illegal shadow bank that probably isn’t solvent.
- puranjay 8y agoIt's so ingenuous for people to compare crypto to a sovereign government backed currency that has remained stable and solvent for nearly 250 years
- arcticbull 8y agoIt’s time we start treating these folks for what they are: the antivaxxers of finance.
- darawk 8y agoOnce 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 trouble making payments on that loan. Your local bank has a much, much lower reserve ratio than this.
- spookthesunset 8y ago> 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 (assuming they are using SQL.... which given this is crypto is suspect.... I wouldn't be surprised to learn many of these people are using things like mongo to handle their financial transactions) > Your local bank has a much, much lower reserve ratio than this. 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. Also, given that bitcoin's ethos is all about being anti-fed and "no printing money" it is rather funny to hear somebody defend tether being anything less than 100% backed by some "real" asset.
- darawk 8y ago> 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? Coinbase, Kraken, and Bitstamp are all legit exchanges that offer non-tether USD pairs. Binance offers many other stablecoins besides Tether. More than enough trading is conducted in non-tether pairs for the price to be legitimate.
- r32a_ 8y ago"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.
- georgeecollins 8y agoI am sure the "and securities" is rock solid. Just kidding! Suckers.
- gridlockd 8y agoKeep in mind that for the longest time there have been strong doubts about Tether being backed by any significant amount of money whatsoever. Yet the price hovered around 1$. The risk of default for holding a Tether was priced at less than a cent.
- Proven 8y agoOnly? Your loan from a bank is probably backed 15% or less by actual savings. The US dollar itself is backed by nothing of value. 0%.
- village-idiot 8y agoIt’s highly unlikely that those undefined securities will be something easily liquidated to cover costs. This is the company that “loaned” 900m to Bitfinex, a company run by the same personnel as Tether.
- pontifier 8y agoI looked into tethers withdrawal process, and the barriers to withdrawal are high enough that a run on tether is quite unlikely. It really only makes sense if you hold over a million tether, and even then you'd probably be better off selling on a USD exchange and converting for withdrawal there. It's a nice racket they have there.
- carrja99 8y agoI was surprised to see the site let's you create an account now... for the longest time you couldn't and the only way to buy / sell tether was second hand on exchanges for as long as I could remember. That said, either tether.to account creation seemingly functional, I wonder how difficult they have made the process?
- mrb 8y ago"A Tether USD is backed by 74 cents" is a fun quote seen on twitter
- dead_mall 8y agoThis is just good old Tether FUD. I remember the Tether fud that dropped it to the 80cent range, which was pretty much a free 10%+ gain. This recent fud was also another great arb opportunity. Though this time it held a lot stronger, I was expecting it to go much lower than it did. I think the timing was good too cause it happened over the weekend when the other markets were'nt open so the impact was not so bad. I mean, look at that USDT/USD discount on Kraken. Also, let's not forget Bitfinex makes a ton of money already off it's premium btc price. But yeah, checkout the 'City Wok Bitcoin FUD' meme on a search bar, this time it's the Tether FUD format
- keymone 8y agoSo are all of the banks in the world? It’s called fractional reserve. Don’t like to defend tether in these posts, there’s clearly shady shit going on, but it’s been FUD’ed against for years now and yet USDT has kept within few percent of USD. I still don’t buy the argument that bitfinex is printing money to prop up BTC.
- Traster 8y agoRight but I think the obvious point is that if you Google Tether you get "Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets ..." The entire selling point is that they aren't a fractional reserve bank.
- granaldo 8y agoThis is going to sound absurd, why is the cryptocurrency market not reacting negatively? In fact prices are green and well https://www.coingecko.com/en https://www.coingecko.com/en Market is uninformed and do not know better...
- icelancer 8y ago> Market is uninformed and do not know better... The market knows and has known that Tether is a scam and not fully backed. This is not what is causing the price to be what it is. Price arbitrage is one major factor keeping it up, as well as pure old fashion faith. Plenty of currencies operate that way. Including, perhaps, the paper in your wallet right now. This doesn't make it right, or viable, or stable, or anything else. It's just a known phenomenon.
- luckylion 8y agoAnother option is that 74% would be positive compared to what quite a few people believed might come out. "It's 74%, that's great news, we thought it's closer to 25%". Of course, it's hard to trust this news, it might still be 25% or 2.5%.
- gpresot 8y agoThere is some premium on the BTCUSDT pair, compared to BTC/USD pair. You can still, for a relatively small premium buy BTC with your USDT and change them back to fiat USD. And it seems that plenty of traders are ready to accept that premium and accept the risk of holding tether. This effectively solves any liquidity issues that Tether might have. And as other have noticed, 74% coverage is a lot more than many were fearing, particularly compared to other Tether news of the last 12 months. Also, this 74% would imply that if Tether had access to those 850 millions that went missing (leaving out the issue of wether Tether may or may not be responsible for the missing), then the coverage would be full and had been full during the peak of the crypto bull-run in 2017 (which was speculated to be supported by printing tether without any fiat backing).
- xref 8y ago
- SimonPStevens 8y agoEveryone talking about how tether should have profited from either investing the cash, or buying and selling tethers at slightly different rates is missing the point. The original value propitiation of tether was... "A one to one, 100% reserved USD backed cryptocurrency that you can buy/sell any time directly from them" They originally promised a website where you could buy/sell tethers directly for 1 USD. This is different from all the other stable type coins that achieve their pegs using various chain and exchange strategies. Tethers proposition was to maintain it's peg to USD by literally holding the cash and being the primary point of purchase/sale. Not investing it. Not operating fractional reserve. And not buying/selling with a spread. Every profit making strategy goes against their original proposition. The reason this was the proposition was to supposedly make it easier for crypto traders. At the time everyone was having problems cashing out their cryoto. Tether was basically promising that they could fix the USD exchange problem by holding all the cash and not being an exchange. Now they never actually delivered any of that. The website never reliably appeared and now tethers are traded on an exchange like any other crypto coin. And I suspect they did actually make a stack of profit by printing tether and selling them on exchanges. But that makes it a scam because they weren't following their own rules that they laid down at the start.
- luckydata 8y agoWow, an actor of the crypto-verse doing something unethical, almost unheard of.
- askmike 8y ago> Now they never actually delivered any of that. Yes they did, they delivered exactly this for years, ever since US banks shut them down. A whole ecosystem was built on top of this which to this day seems to run smooth (poloniex, bittrex, binance). > And I suspect they did actually make a stack of profit by printing tether and selling them on exchanges. But that makes it a scam because they weren't following their own rules that they laid down at the start. The only thing that has come to light after numerous of subpoenas and investigations is the Crypto Capital mess. Your claim is very much unsubstantiated. Yes, Bitfinex&Tether did some things against their original promises, but clearly to keep the system running. And clearly with the intention to resolve everything once they got their money from CC back (I'm not saying that was ever going to work).
- Grustaf 8y ago“Water is wet”
- smoovb 8y agoThere are licensed and regulated stable coins on the rise ( like USDC, PAX ), that will play by all the rules, have better protections, be audit-able and have the ability to be revoked in cases of crime. In a free market there is also a place for a non-US company to offer a product like Tether. Why this is at all the business of the AG of NY is the real question here. Who benefits from these AG actions?
- pavlov 8y ago> "Why this is at all the business of the AG of NY is the real question here." Because investors based in New York are being swindled by Bitfinex/Tether? From the AG's site: "In November 2018, the Attorney General issued subpoenas to Bitfinex and Tether, which are owned and operated by the same small group of individuals, and claim not to do business in New York. As alleged in court papers filed by the Attorney General’s office, the Bitfinex trading platform allows New Yorkers to purchase and trade virtual currencies, including the so-called “tether” stablecoin, a virtual currency the companies long claimed was “backed 1-to-1” by U.S. dollars held in cash reserve." https://ag.ny.gov/press-release/attorney-general-james-announces-court-order-against-crypto-currency-company-under https://ag.ny.gov/press-release/attorney-general-james-annou... You can't escape financial regulations by claiming that you don't do business in jurisdiction X while simultaneously taking investment money from people in that jurisdiction.
- mrharrison 8y agoWeird so many negative comments, this is astronomically better than what banks have in reserve. https://www.google.com/search?q=how+much+cash+must+a+bank+have+on+hand&oq=how+much+cash+must+&aqs=chrome.0.0j69i57j0.7864j0j7&sourceid=chrome&ie=UTF-8 https://www.google.com/search?q=how+much+cash+must+a+bank+ha...
- village-idiot 8y agoYou're stretching the definition of reserve too far. Banks are fractionally liquid, but they're actually fully backed by non-cash assets, such as mortgages, business loans, and bonds. The reserve requirements and risk levels are tightly regulated and they pay insurance (FDIC) to protect against the risk of sudden withdrawal demands or market downturns. In practice this has been working for a very long time, with runs on banks and FDIC involvement being quite rare. Tether is only 74% backed "by cash and cash-like securities", which means that they are insolvent, with their assets column being worth less than their debits column. This is massively worse than any consumer bank; a bank might not be able to cover all their liabilities at once, but Tether can't meet all their liabilities at all.
- mrharrison 8y agoUh, I think you are the one now stretching. Tether can meet 74% of their liabilities all at once. Where a bank can only meet 3% or 10% of their liabilities all at once. Tether is way more liquid than a bank.
- village-idiot 8y agoLiquid and solvent are different things. Tether is more liquid, if you trust that the 74% are actually in "cash equivalent securities" and not loaned to themselves (again), but they're absolutely insolvent.