11 ms·

It'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 Tethe

by tinco 8y ago

It'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 ago
Kinda like the federal reserve ...
- stephen_g 8y ago
  The 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 ago
    It'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 ago
  It’s time we start treating these folks for what they are: the antivaxxers of finance.
  - dredmorbius 8y ago
    Who, exactly?
    - arcticbull 8y ago
      (Sorry, this ended up in the wrong place and it's too late to edit/delete)
gridlockd 8y ago
Are you aware that an actual bank - the kind of bank that the entire world economy relies on to function - would on average hold maybe only 10-20% of the money in their clients accounts? How do banks do it? They invent money out of thin air. If Tether was a bank, its 73% reserve rate would be considered spectacularly high. The crypto world is basically re-inventing fractional reserve banking now. > The only thing Tether has to do is buy back Tether at any price lower than they sold it for and they make profit. How would Tether be able to sell Tether at a higher price than market price but then simultaneously buy Tether at a lower price than market price? Tether would have to wait for its price to drop and then rise again, just like any other trader. Curiously, Tether could spread FUD about Tether and then refute it.
- georgeecollins 8y ago
  If Tether were an actual bank, in the US it would be regulated and insured.
- wmf 8y ago
  If they sold Tethers for $1.00 but bought them for $0.99 that would effectively amount to a 1% fee that would maybe give them some profit.
  - gridlockd 8y ago
    Why would anybody buy Tethers for $1.00 from Tether if someone else is selling them for $0.99?
    - qaq 8y ago
      well why do you buy currency and pay a commission?
      - gridlockd 8y ago
        There is no commission in the example, or alternatively any commission is priced into the numbers given. Unless Tether can buy Tethers cheaper than anyone else (through some unspecified mechanism) then they can't profit from arbitrage any more than anyone else. Of course Tether can charge a fee to mint new Tethers, or to exchange Tethers for actual dollars. That's exactly what they do.
wmf 8y ago
Clearly the "free" profit Tether could make from float is smaller than the legal compliance risks they're taking. It's not the solvency they messed up; it's the money laundering.
55555 8y ago
If they printed 2 billion tethers and bought them all back at 99 cents each (which is realistic, because tether typically floats at basically a dollar), that would only be $20,000,000. If they get 5% per annum on the float from just keeping the cash in the bank, that's $100,000,000. So I'm not sure what's best to do in typical circumstances. There have been ~two historical exceptions. From April 20 - May 20, 2017, they could have absolutely cleaned up by buying their own tethers back. Hundreds of millions of dollars of tethers were traded at an average price of 95 cents or so.
- thinkmassive 8y ago
  2,000,000,000 * 0.99 = 20,000,000 ...wat?
  - zaroth 8y ago
    2,000,000,000 * 0.01 = 20,000,000 in net profit
vegannet 8y ago
If Tether worked as it was advertised there would be no profit opportunity. The purported reason Tether exists is to help the crypto markets deal with the liquidity problems because of how difficult Fiat banking is, essentially Tethers value proposition was “we (by some miracle) have reliable banking, we can buy and sell 1 Tether for 1 USD at any time regardless of other crypto currencies value”. In reality Tether is a shit-show because it doesn’t provide reliable banking (even before considering the fact that it isn’t even solvent) and that’s why the value of Tether offers any arbitrage opportunities. If we were in a fantasy land where Tether wasn’t fraudulent then the price variance of Tether on exchanges would be so minuscule that there would be no arbitrage opportunity for anyone to take advantage of. Your hypothetical profit opportunity only exists because Tether is (ultimately) fraudulent. Remember that Tether was pitched as a 1:1 USD backed cryptocurrency that could be exchanged 1:1 at any time (in both directions). The mess that it is now (only liquid on exchanges at a variable rate) is not what Tether was marketed as. Tether (as promised) is the equivalent of you accepting $100 USD from your friend and giving them $100 of Monopoly money and promising them that at any time they can trade their monopoly dollars for your real dollars... and you won’t ever use the USD for anything, it’ll be locked away untouchable by you. How do you profit from that? You can’t lend it, you can’t invest it, you can’t use it as collateral, it has to be unencumbered at all times and you have to incur the costs of managing it. Read the original whitepaper and try and identify a profit opportunity. This is all before considering that Tether is a fundamentally flawed concept: if Tether could operate a reliable banking relationship, so could others, and Tether would be pointless.
- lupire 8y ago
  $100M in deposits is $5M/yr in returns on float, just as your bank and insurance companies do with your deposits and premiums. It's technically not risk-free (FDIC notwithstanding) but that doesn't stop anyone.
  - vegannet 8y ago
    I’m not clear how that applies to Tether: “[...] each tetherUSD in circulation represents one US dollar held in our reserves (i.e. a onetoone ratio) which means the system is fully reserved when the sum of all tethers in existence (at any point in time) is exactly equal to the balance of USD held in our reserve.” Where does the 5% come from?
scottlocklin 8y ago
>Tether is a fundamentally a risk free money making concept, it works just like gift certificates. T No, it actually works like fractional reserve banking, which for some reason, nobody has a problem with.
- InclinedPlane 8y ago
  "Some reason." Could be, and now I'm just spitballing here, but it could be the use of government backed currencies, the heavy degree of government oversight and regulation, and the federally insured deposits.
  - scottlocklin 8y ago
    You should really, really look at how a bank actually works. You're in for a big surprise! Barring that you should look at Lawler's article on tether: https://kevinlawler.com/stablecoins https://kevinlawler.com/stablecoins He offers forward contracts if you think he's wrong. He's good for it.
- arcticbull 8y ago
  No bank pretends to be fully backed and simultaneously not FDIC insured when in reality 1/2 their assets (before they fired up their printer) are locked up in various jurisdictions because they were laundering money for the cartels. Even HSBC was only laundering a tiny, teensy smidge ($881M total out of $871B in assets, 0.09%) and that was the worst scandal in recent memory.
jerguismi 8y ago
> It's crazy that they messed this up, Tether is basically a money printing machine, all they had to do was be solvent. > Tether is a fundamentally a risk free money making concept To me it sounds like you don't really understand the risks of tethers business. It is light-years away from being risk free, because you are on the mercy of the banks where you store the fiat. The banks can freeze your money any time, as they now did (AFAIK). If you are operating a business with unclear regulation at this level, you can't really rely on banks like normal businesses can. The banks will cause problems with pretty high probability.
- tinco 8y ago
  Well ok, maybe I should have said "theoretically risk free", I meant more in the economic sense. You are right of course, I guess in practice there's no 100% safe way to store billions worth of assets anywhere. Though.. I can imagine there's a lot safer options than some small polish bank. Maybe they could become a bank themselves to contain some of the external risks.
  - jerguismi 8y ago
    To become a bank you need an account at the central bank. Getting a banking license is difficult. And even after you get it, central bank can freeze your assets any time.

by tinco 8y ago

throwaway76524 8y ago

Kinda like the federal reserve ...

stephen_g 8y ago
The 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 ago
  It'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 ago
It’s time we start treating these folks for what they are: the antivaxxers of finance.
- dredmorbius 8y ago
  Who, exactly?
  - arcticbull 8y ago
    (Sorry, this ended up in the wrong place and it's too late to edit/delete)

gridlockd 8y ago

Are you aware that an actual bank - the kind of bank that the entire world economy relies on to function - would on average hold maybe only 10-20% of the money in their clients accounts? How do banks do it? They invent money out of thin air. If Tether was a bank, its 73% reserve rate would be considered spectacularly high. The crypto world is basically re-inventing fractional reserve banking now. > The only thing Tether has to do is buy back Tether at any price lower than they sold it for and they make profit. How would Tether be able to sell Tether at a higher price than market price but then simultaneously buy Tether at a lower price than market price? Tether would have to wait for its price to drop and then rise again, just like any other trader. Curiously, Tether could spread FUD about Tether and then refute it.

georgeecollins 8y ago
If Tether were an actual bank, in the US it would be regulated and insured.
wmf 8y ago
If they sold Tethers for $1.00 but bought them for $0.99 that would effectively amount to a 1% fee that would maybe give them some profit.
- gridlockd 8y ago
  Why would anybody buy Tethers for $1.00 from Tether if someone else is selling them for $0.99?
  - qaq 8y ago
    well why do you buy currency and pay a commission?
    - gridlockd 8y ago
      There is no commission in the example, or alternatively any commission is priced into the numbers given. Unless Tether can buy Tethers cheaper than anyone else (through some unspecified mechanism) then they can't profit from arbitrage any more than anyone else. Of course Tether can charge a fee to mint new Tethers, or to exchange Tethers for actual dollars. That's exactly what they do.

wmf 8y ago

Clearly the "free" profit Tether could make from float is smaller than the legal compliance risks they're taking. It's not the solvency they messed up; it's the money laundering.

55555 8y ago

If they printed 2 billion tethers and bought them all back at 99 cents each (which is realistic, because tether typically floats at basically a dollar), that would only be $20,000,000. If they get 5% per annum on the float from just keeping the cash in the bank, that's $100,000,000. So I'm not sure what's best to do in typical circumstances. There have been ~two historical exceptions. From April 20 - May 20, 2017, they could have absolutely cleaned up by buying their own tethers back. Hundreds of millions of dollars of tethers were traded at an average price of 95 cents or so.

thinkmassive 8y ago
2,000,000,000 * 0.99 = 20,000,000 ...wat?
- zaroth 8y ago
  2,000,000,000 * 0.01 = 20,000,000 in net profit

vegannet 8y ago

If Tether worked as it was advertised there would be no profit opportunity. The purported reason Tether exists is to help the crypto markets deal with the liquidity problems because of how difficult Fiat banking is, essentially Tethers value proposition was “we (by some miracle) have reliable banking, we can buy and sell 1 Tether for 1 USD at any time regardless of other crypto currencies value”. In reality Tether is a shit-show because it doesn’t provide reliable banking (even before considering the fact that it isn’t even solvent) and that’s why the value of Tether offers any arbitrage opportunities. If we were in a fantasy land where Tether wasn’t fraudulent then the price variance of Tether on exchanges would be so minuscule that there would be no arbitrage opportunity for anyone to take advantage of. Your hypothetical profit opportunity only exists because Tether is (ultimately) fraudulent. Remember that Tether was pitched as a 1:1 USD backed cryptocurrency that could be exchanged 1:1 at any time (in both directions). The mess that it is now (only liquid on exchanges at a variable rate) is not what Tether was marketed as. Tether (as promised) is the equivalent of you accepting $100 USD from your friend and giving them $100 of Monopoly money and promising them that at any time they can trade their monopoly dollars for your real dollars... and you won’t ever use the USD for anything, it’ll be locked away untouchable by you. How do you profit from that? You can’t lend it, you can’t invest it, you can’t use it as collateral, it has to be unencumbered at all times and you have to incur the costs of managing it. Read the original whitepaper and try and identify a profit opportunity. This is all before considering that Tether is a fundamentally flawed concept: if Tether could operate a reliable banking relationship, so could others, and Tether would be pointless.

lupire 8y ago
$100M in deposits is $5M/yr in returns on float, just as your bank and insurance companies do with your deposits and premiums. It's technically not risk-free (FDIC notwithstanding) but that doesn't stop anyone.
- vegannet 8y ago
  I’m not clear how that applies to Tether: “[...] each tetherUSD in circulation represents one US dollar held in our reserves (i.e. a onetoone ratio) which means the system is fully reserved when the sum of all tethers in existence (at any point in time) is exactly equal to the balance of USD held in our reserve.” Where does the 5% come from?

scottlocklin 8y ago

>Tether is a fundamentally a risk free money making concept, it works just like gift certificates. T No, it actually works like fractional reserve banking, which for some reason, nobody has a problem with.

InclinedPlane 8y ago
"Some reason." Could be, and now I'm just spitballing here, but it could be the use of government backed currencies, the heavy degree of government oversight and regulation, and the federally insured deposits.
- scottlocklin 8y ago
  You should really, really look at how a bank actually works. You're in for a big surprise! Barring that you should look at Lawler's article on tether: https://kevinlawler.com/stablecoins https://kevinlawler.com/stablecoins He offers forward contracts if you think he's wrong. He's good for it.
arcticbull 8y ago
No bank pretends to be fully backed and simultaneously not FDIC insured when in reality 1/2 their assets (before they fired up their printer) are locked up in various jurisdictions because they were laundering money for the cartels. Even HSBC was only laundering a tiny, teensy smidge ($881M total out of $871B in assets, 0.09%) and that was the worst scandal in recent memory.

jerguismi 8y ago

> It's crazy that they messed this up, Tether is basically a money printing machine, all they had to do was be solvent. > Tether is a fundamentally a risk free money making concept To me it sounds like you don't really understand the risks of tethers business. It is light-years away from being risk free, because you are on the mercy of the banks where you store the fiat. The banks can freeze your money any time, as they now did (AFAIK). If you are operating a business with unclear regulation at this level, you can't really rely on banks like normal businesses can. The banks will cause problems with pretty high probability.

tinco 8y ago
Well ok, maybe I should have said "theoretically risk free", I meant more in the economic sense. You are right of course, I guess in practice there's no 100% safe way to store billions worth of assets anywhere. Though.. I can imagine there's a lot safer options than some small polish bank. Maybe they could become a bank themselves to contain some of the external risks.
- jerguismi 8y ago
  To become a bank you need an account at the central bank. Getting a banking license is difficult. And even after you get it, central bank can freeze your assets any time.