7 ms·

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

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
    People would only interact with the Tether treasury when there's a net increase or decrease in outstanding Tethers. Otherwise people would just trade with each other. Note that it does not work this way currently since normal people cannot buy/sell directly with the Tether treasury at all.
b_tterc_p 8y ago
You give the bank a dollar. The bank loans 90 cents of it to Bob who puts it in the bank too. The bank didn’t invent 90 cents. They’re owed 90 cents from Bob, and they will collect interest on the loan to profit. If no loans are made, the bank will eventually have more than $1.90 in reserves. There is risk here because you and bob might want your money at the same time, or Bob might default, but generally this doesn’t happen at scale. Now consider Tethers case. You give Tether a dollar. ???. Tether has $0.70 and you’re not even allowed to get it back.
- gridlockd 8y ago
  > You give the bank a dollar. The bank loans 90 cents of it to Bob who puts it in the bank too. The bank didn’t invent 90 cents. There are now 1.90$ credited to both me and Bob, where before there was only 1$ credited to me. The 90 extra cents are now part of the money supply. They appeared out of thin air. Perhaps it's unfair to say the bank "invented" the money, but it did create it. > They’re owed 90 cents from Bob, and they will collect interest on the loan to profit. If no loans are made, the bank will eventually have more than $1.90 in reserves. If Bob eventually pays back and the bank doesn't make any further loans, the bank will have 1$ (my dollar) and a couple of cents of interest. > You give Tether a dollar. ???. Tether has $0.70 and you’re not even allowed to get it back. If I give Tether a dollar Tether has another dollar. I get a Tether token which I can exchange on the open market for whatever the market price is. It supposedly is possible (though inconvenient) to get Tether itself to exchange their tokens for actual dollars (of which they hold only 70%) but (just like a bank) Tether relies on that not happening "at scale".
  - qaq 8y ago
    "There are now 1.90$ credited to both me and Bob, where before there was only 1$ credited to me. The 90 extra cents are now part of the money supply. They appeared out of thin air." I think you are confusing money supply and record keeping. The only spendable money is what bank actually has so if you and Bob where the only customers of that bank and bank loaned 90c of your 1 dollar to Bob the only money you could spend would be 10c. The only bank that creates money out of thin air is FED.

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
  People would only interact with the Tether treasury when there's a net increase or decrease in outstanding Tethers. Otherwise people would just trade with each other. Note that it does not work this way currently since normal people cannot buy/sell directly with the Tether treasury at all.

b_tterc_p 8y ago

You give the bank a dollar. The bank loans 90 cents of it to Bob who puts it in the bank too. The bank didn’t invent 90 cents. They’re owed 90 cents from Bob, and they will collect interest on the loan to profit. If no loans are made, the bank will eventually have more than $1.90 in reserves. There is risk here because you and bob might want your money at the same time, or Bob might default, but generally this doesn’t happen at scale. Now consider Tethers case. You give Tether a dollar. ???. Tether has $0.70 and you’re not even allowed to get it back.

gridlockd 8y ago
> You give the bank a dollar. The bank loans 90 cents of it to Bob who puts it in the bank too. The bank didn’t invent 90 cents. There are now 1.90$ credited to both me and Bob, where before there was only 1$ credited to me. The 90 extra cents are now part of the money supply. They appeared out of thin air. Perhaps it's unfair to say the bank "invented" the money, but it did create it. > They’re owed 90 cents from Bob, and they will collect interest on the loan to profit. If no loans are made, the bank will eventually have more than $1.90 in reserves. If Bob eventually pays back and the bank doesn't make any further loans, the bank will have 1$ (my dollar) and a couple of cents of interest. > You give Tether a dollar. ???. Tether has $0.70 and you’re not even allowed to get it back. If I give Tether a dollar Tether has another dollar. I get a Tether token which I can exchange on the open market for whatever the market price is. It supposedly is possible (though inconvenient) to get Tether itself to exchange their tokens for actual dollars (of which they hold only 70%) but (just like a bank) Tether relies on that not happening "at scale".
- qaq 8y ago
  "There are now 1.90$ credited to both me and Bob, where before there was only 1$ credited to me. The 90 extra cents are now part of the money supply. They appeared out of thin air." I think you are confusing money supply and record keeping. The only spendable money is what bank actually has so if you and Bob where the only customers of that bank and bank loaned 90c of your 1 dollar to Bob the only money you could spend would be 10c. The only bank that creates money out of thin air is FED.