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Tether reserves backed by 2.9% cash
- StavrosK 5y agoWhy print money when a private company can just create its own? Just imagine what's going to happen when there's a bank run on Tether.
- thaumasiotes 5y agoPresumably, USDT would lose value. What then?
- StavrosK 5y agoThe entire cryptocurrency market would collapse and cryptocurrency would become usable again.
- deleted 5y ago[deleted]
- Forbo 5y agoI anxiously await the next bear market crunch to flush out all the garbage that has gotten sucked in. It feels like 2017 all over again.
- viraptor 5y agoCoinbase will be very happy with the influx of USDC users.
- joering2 5y agoIts unbelievable that someone stoles a $20,000 car and do 15 behind bars, yet here we have folks that embazzled $850,000,000 and AG will sit down with them to kibdly negotiate a plea deal and penalize them 4% of what they stole. I mean seriously what the hell happened to Lady Justice??
- celticninja 5y agoits the age old thing, if you owe the bank $100k you have a problem, if you owe the bank $100million then the bank has the problem.
- WJW 5y agoIt has always been this way, read about some of the things the ancient Romans or renaissance Brits/French got up to when you feel like it.
- iso1210 5y agoAlways been that way. The richer you are the more likely you'll get off. The more abstract a crime the lighter the sentence. Throw them both together.
- pjc50 5y ago"Crime" is more about class than people are willing to admit.
- whywhywhywhy 5y agoStealing a car is an act of aggression against an individual. Crimes are not simply about the monetary damages.
- joering2 5y agoBut wouldn't you argue that a guy who stole a car and was peacefully caught with no damage to car, people or property, caused less damage than what $850,000,000 stolen from gullible investors did? I mean - wouldn't that turn off victims from ever entering any stock market, be it NASDAQ or even their 401k found, causing more damage to the US financial ecosystem?
- whywhywhywhy 5y agoOut of interest what violent crime would you consider comparable to "$850,000,000 stolen from gullible investors"? What should the prison sentence be for that in your eyes? and what would a violent crime that gets a similar sentence be?
- nopassrecover 5y agoIt’s an interesting thought isn’t it. Many of us in the haze of an enlightenment narrative in the 90s thought the web would empower through a decentralised model, and while it’s done that of course, it has also created powerful new sources of centralised power, monopolies, and walled gardens, that have challenged (and often won against) existing legal, societal, and political structures and norms. It starts feeling a bit Neal Stephenson or Max Barry if you imagine a world in which monetary policy underpinning Western (and other) economies is further removed from existing political (especially democratic) levers. Weber’s argument that states draw their legitimacy from a monopoly on the legitimate use of force is largely supported in Western economies by a monopoly on the legitimate exchange of value as well. What does international trade, yet alone your annual tax return, look like in a world in which “govcoin” is just one (and a lower preferred one at that) of many currencies used day-to-day?
- viraptor 5y ago> What does international trade, yet alone your annual tax return, look like in a world in which “govcoin” is just one (and a lower preferred one at that) of many currencies used day-to-day? That's already a reality for many companies doing international trade. Especially global special-purpose device producers from smaller countries. It's annoying with paperwork and dealing with "what price was actually paid at the time", but it's not new. They contract a team from X, do work in Y, source materials from Z, V, W, then pay local accounting and tax in their govcoin equivalent - which happens to be the local currency. For day-to-day multiple local currencies check out the history of the Brazilian Real.
- nopassrecover 5y agoGood examples. What do you think it means for the stability of nation states, either domestically or on an international scale, in such a world though? It’s the increasing practicality of doing this (buy your breakfast in StarbucksCoin, your lunch in McCoin, and your groceries in WalCoin) that makes it more possible as a reality. But how does a government have credibility and get taken seriously domestically if the currency they control is increasingly irrelevant day to day? How does the US continue to maintain leverage over energy costs? Etc.
- initplus 5y agoCan't have a bankrun if you don't allow withdrawls. Tether will not actually redeem your USDT for USD.
- Forbo 5y agoThis just seems like Mt. Gox 2.0 waiting to happen.
- Animats 5y agoJust imagine what's going to happen when there's a bank run on Tether. Tether FAQ: "Unfortunately, Tether has decided to stop serving U.S. individual and corporate customers altogether. As of January 1, 2018, no issuance or redeeming services will be available to these users."[1] If there's a significant net outflow from Tether to USD, there's a good chance the whole thing comes apart. Remember, with Tether, there is no potential upside. If you're not using it for something within days, don't keep any money in it. [1] https://tether.to/faqs/ https://tether.to/faqs/
- tumetab1 5y agoThe same of what happens in a regular bank run, cash conversions are delayed. That being said, the comparison is not totally fair. In the regular fiat banking system a bank run, the withdrawal of most deposits, destroys a bank because it fails to meet the reserves ratios mandated by the system. In the case of Tether there no such requirement and the reserves are liquid enough to meet the withdrawal requests in about a month - at least 2 workdays days for cash-like reserves liquidations, 2 workdays days to wire to cash to exchanges. Non-cash-like reserves might take longer but 2 weeks should be enough. Since Tether reserves aren't that being on each asset class and overall market probably won't trigger their own reservers depreciation. That being said the actual exchange rate on the exchanges will this happen will drop because people will panic sell and not wait for Tether company to meet their sell orders at 1USD.
- lifty 5y agoThe whole modern banking system is run in the same way. Private banks create money as loans, but they are backstopped by the Fed and there's the FDIC insurance up to a certain amount. Tether might also create money but there's big additional risk because it doesn't have access to the Fed.
- ur-whale 5y agohttps://archive.is/i88vx https://archive.is/i88vx
- ur-whale 5y ago> Chief Technical Officer Paolo Ardoino Can't say this news comes out as a surprise. I'm actually surprised by the fact that there are any reserves at all. What is really interesting about Bitfinex / Tether is to research the history of the people who started these entities, especially their history prior to Bitcoin's existence. Here's a taste: https://nicolaborzi.medium.com/the-lawless-rollercoaster-of-bitcoin-enriches-few-investors-while-many-often-lose-everything-f9b4789444c2 https://nicolaborzi.medium.com/the-lawless-rollercoaster-of-... As much as I'm a proponent of crypto, some folks very early on intuitively realized that the friction-less nature of the new technology made it the perfect vessel for running scams: https://steemkr.com/bitcoin/@binyamin/bitfinex-s-founder-seemingly-tried-to-start-a-ponzi-scheme https://steemkr.com/bitcoin/@binyamin/bitfinex-s-founder-see...
- TrackerFF 5y agoOn a tangent - ever since cryptocurrencies gained popularity, every known crook and MLM scam-artist here in Europe shifted their focus to some coin service. Some of these are of course difficult to soit, as they tend to use numerous different names and identities, and have been in the scamming "game" for decades. The takeaway from all of this is that one should absolutely do a quick research on founders and key figures when dealing with businesses that focus on crypto. People don't tend to change overnight, and especially not those that have been scamming people for decades before.
- user-the-name 5y agoThere's not much point in doing research like that, given that the vast majority of cryptocurrency businesses are scams, whether or not the founders are known or unknown scammers. Just assume it's a scam from the off, it will save you a lot of work and money.
- DebtDeflation 5y agoFrom your first link: "On November 5, 2018, as an executive of Tether Mr Devasini lent 900 million dollars to Bitfinex and as an executive of Bitfinex, Mr Devasini signed the receipt to Tether." That sounds totally legit and normal.
- dehrmann 5y agoThe pitch is clearly a lie, but I'm also not too worried about them counting commercial paper and t-bills as "cash."
- deleted 5y ago[deleted]
- rich_sasha 5y agoAgreed re T-bills, with CP surely it depends on the issuer? Not the elephant in the room either way, I agree.
- lvs 5y agoWell that obviously depends on what the commercial paper is. The treasuries are going to be liquid under most conditions, but who knows with paper.
- adflux 5y agoAlso what's the paper and who issued? AAA or dogshit wrapped in catshit?
- grey-area 5y agoThe giveaway is that they don’t even disclose what this commercial paper is or who the issuers are. Given their history of fraud the most likely explanation is they are shell companies run by the same people and the money doesn’t exist.
- initplus 5y agoI do wonder to what extent Tether has a symbiotic relationship with large exchanges, and what the loans are denominated in. It's easy to imagine how issuing loans denominated in USDT would be attractive to Tether. And that debt can be converted into an asset on Tether's balance sheet. And voila the tether is backed.
- scoopertrooper 5y ago
- mathrando 5y agoI expect better from FT. Tether is very similar to prime money market funds, in both structure and portfolio composition. I guess the Fidelity's of the world aren't keen on competition. https://www.nytimes.com/2008/09/20/business/20moneys.html https://www.nytimes.com/2008/09/20/business/20moneys.html https://www.nytimes.com/2020/03/19/business/coronavirus-money-market-mutual-funds.html https://www.nytimes.com/2020/03/19/business/coronavirus-mone...
- tkfu 5y agoThat's a bit of a mischaracterization. The 75% that they're describing as "Cash & Cash Equivalents" might be similar to money market funds in composition, but we can't know whether it is or not because they don't give any details about the commercial paper. They don't even make the claim that it's asset-backed. Because they aren't saying anything about that, and they're not audited, they could very well be making riskier bets. But more importantly, there's the 25% of their funds that bears absolutely no resemblance to anything a money market fund would do. The quote the FT article publishes from Martin Walker looks pretty reasonable to me: > It is pretty clear looking at the makeup of the reserves — a tiny proportion of the reserves are cash on account at banks — that Tether is operating like a bank but with none of the normal disclosure. > They are creating a dollar substitute and basically running a banking and payments business but without the oversight that anyone else doing a similar kind of business would have.
- mathrando 5y ago> They are creating a dollar substitute and basically running a banking and payments business but without the oversight that anyone else doing a similar kind of business would have. You could take that word-for-word from the debate that raged after Treasury bailed out the prime funds in 2008.
- tkfu 5y agoMoney market funds arguably act like a banking business, but are subject to regulation of their marketing material that obliges them to explain that they're not, and they certainly don't operate like a payments business. Money market deposit accounts are a different story, and are highly regulated (and secured). That being said, even if your comparison was accurate "hey, look at this similar business that caused harm and chaos during the last financial crisis" isn't exactly a glowing endorsement, is it?
- sickmate 5y agoAs a comparison, USDC reserves are 100% backed by US dollars held in custody accounts, currently 9.3B. https://www.centre.io/hubfs/pdfs/attestation/grant-thorton_circle_usdc_reserves20210429.pdf?hsLang=en https://www.centre.io/hubfs/pdfs/attestation/grant-thorton_c...
- phire 5y agoUSDC's "custody accounts" aren't cash either: "US Dollars held in custody accounts are the total balances in accounts held by the Company at federally insured US depository institutions and in approved investments on behalf of the USDC holders at the Report Date."
- Lionga 5y agowhat defines an "approved investment" ?
- csomar 5y ago> you agree Circle is free to use the funds provided for its own purposes prior to redemption subject to the terms of this Agreement. > Circle may also invest these fiat funds in highly-liquid, AAA-rated fixed income securities. I wrote about this here: https://omarabid.com/usd-stable-coins https://omarabid.com/usd-stable-coins Only Gemini USD is fully backed by US treasuries. Everyone else is using this money to play roulette.
- nimchimpsky 5y agodai ?
- SilasX 5y agoYes! And it redeems on demand! But what’s perplexed me is, the Gemini dollar (GUSD) is somehow more volatile than Dai, which uses much more complex, experimental means of stabilizing its value: https://coinmarketcap.com/currencies/multi-collateral-dai/ https://coinmarketcap.com/currencies/multi-collateral-dai/ https://coinmarketcap.com/currencies/gemini-dollar/ https://coinmarketcap.com/currencies/gemini-dollar/
- dillondoyle 5y agoThis is an opinion piece and the headline & article are clickbait IMHO. From Tether's chart, they literally have 2.9% in cash. So I guess the headline technically checks out. But Tether reported over 75% held in cash equivalents, the same type of liquid assets Apple reports when reporters say Apple is sitting on billions in 'cash' I think maybe more interesting, Tether reports only 1.64% slice of pie has some crypto holdings. Which seems kind of interesting given the theories about some shady btc/usd/tether pumping cycle scam might be happening behind the scenes. https://tether.to/wp-content/uploads/2021/05/tether-march-31-2021-reserves-breakdown.pdf https://tether.to/wp-content/uploads/2021/05/tether-march-31...
- pja 5y agoIt’s not that long ago that Tether was claiming that all reserves were cash deposits. Now something like 75% of the reserves are loans to ... well, who knows? My guess is other crypto-companies, but it’s impossible to tell. (It’s also very weird to lump together “bonds” and “gold” in the same pot - these are completely different asset classes.) If one were of a cynical turn of mind (and who wouldn’t be, given Tether’s history?) one might suspect that the commercial paper consisted of loans of freshly printed USDT to crypto companies & trading platforms who are using it to trade cryptocurrencies (because you can’t really use USDT for anything else at this scale). One might also suspect similar things about other entries in this breakdown. Tether is a wildcat bank.
- jimmydorry 5y agoI mean, this was exactly what Tether was made for. Moving large amounts of USD frictionlessly between exchanges without causing taxable events or losing money to spreads. The top purchasers of USDT would be exchanges and "whales" (ranging from the extremely large crypto traders to the odd investment firms / hedge funds). It wouldn't be surprising at all if the entities purchasing USDT are ultimately holding onto their USD but using the Tether issued to them and paying what essentially becomes just a transaction fee. As long as everyone can prove to Tether that they are good for what they purchase, the IOU trading scheme doesn't necessarily have to end in bloodshed / collapse either.
- 5y ago
- chrisco255 5y agoTether's balance sheet: https://wallet.tether.to/transparency https://wallet.tether.to/transparency Balance breakdown: https://tether.to/tether-releases-breakdown-of-its-reserves/ https://tether.to/tether-releases-breakdown-of-its-reserves/
- chrisco255 5y agoAlso I didn't know what commercial paper is but it is apparently a very short term loan up to 270 days: https://corporatefinanceinstitute.com/resources/knowledge/credit/commercial-paper/ https://corporatefinanceinstitute.com/resources/knowledge/cr...
- Havoc 5y agoIt’s basically helping corporate entities with Cashflow. Tends to just be rolled forward so despite short term it is effectively part of their permanent funding structure
- tarsinge 5y agoI think it's the money exchanges like Binance "owe" them for the free Tether they receive. This is accounting shenanigans because the money is nowhere (i.e. when they mint Tether and send them to an exchange the commercial paper account gets credited mechanically). It's not physical reserves, but reserves in the accounting sense.
- lamontcg 5y agoAnd the collateral is probably bitcoin in Binance's cold wallets. So ultimately it is backed by crypto. Which also gives the answer to how it is kept stable (at least in the short term) because the paper is denominated in dollars and they'd have to pay back real cash if the value of the Tether slid.
- jbverschoor 5y agoDoes it really matter when banks have a reserve requirement of 0% since 2 years?
- maest 5y agoThe two are incomparable.
- applepple 5y agoHow are they any different? They both do fractional reserve banking. If anything, Tether is more robust because they aren't controlled by central banks.
- tarsinge 5y agoA random individual in the street can do fractional banking too, and by that reasoning is more robust than a bank. Why would you specifically trust Tether with your money?
- kanwisher 5y agoWe used to have private banks 100 years ago, and people would lose their money on a run on the bank. Central banks were created to have a shared liquidity pool so you are all safe in your deposits. Not just a private company that issues money and can run away with it all
- JimWestergren 5y agoAnd they keep creating around half a billion USDT per day ...
- raducu 5y agoThe market cap of Tether seems to be on an exponential curve. I wonder for how long can they keep it going like that.
- dandanua 5y ago1. Print fake money 2. Buy crypto with them and create a huge hype 3. Sell crypto for real money 4. Profit 5. Receive your Nobel prize in Economics
- raducu 5y agoA bit like the stock markets right now.
- TomSwirly 5y agoNot really. Stocks are overvalued, but are backed by real-world items with an actual value. A stock's value is bounded below by its breakup value. So if people lost interest in IBM, at some point the stock would be worth buying just for its property and IP. But there's nothing preventing any cryptocoin from going to zero, except sentiment.
- Traster 5y agoThis just seems fundamentally something you don't want an unregulated entity doing.
- Marazan 5y agoI run ScamStableCrypto. I create a billion ScamStableCoins and claim they are worth $1 each. I give a billion ScamStableCoins to ScamCryptoExchange. ScamCryptoExchange is run by me. ScamCryptoExchange writes an IOU for one billion US dollars and gives it ScamStableCrypto (my right hand gives something to my left hand). I, as ScamStableCrypto, write down in my balance book that I have a billion dollars of Commercial Paper. I announce that ScamStableCoin is fully backed.
- ackbar03 5y agoSounds like a plan, I'm in!
- martin_a 5y agoShifting all my savings to ScamStableCoin this evening! To the moon!
- jiofih 5y agoSounds like fantasy. Whatever they wrote you the IOU for also comes out of your book, so your balance is $0. Doesn’t work like that.
- Clewza313 5y agoTether released a statement of assets. They said nothing at all about liabilities.
- tambourineman88 5y agoNo idea if this is worth the paper it is written on but Stuart Hoegner posted this on Twitter: https://tether.to/wp-content/uploads/2021/04/tether-assurance-mar-2021-2.pdf https://tether.to/wp-content/uploads/2021/04/tether-assuranc...
- DebtDeflation 5y ago>"Our opinion is limited solely to the CRR and the corresponding consolidated total assets and consolidated total liabilities as of 31 March 2021" IOW, "They have the total amount of CP, loans, and bonds they say they have. Whether or not the issuers of those IOUs is Bitfinex or some shell company connected to the owners of Tether we have no opinion on"
- Acrobatic_Road 5y agoUh, this chart looks surprisingly good. Does it matter it tether is partially backed by "cash equivalents" such as t-bills? If those aren't good for cash, believe me, tether is the least of your worries. I'm more interested in the other 25%. Does anyone know what it is?
- Marazan 5y agoThe level of detail they have given for "Commercial Paper" means that it is worthless. Commercial paper makes up about 50% of Tether's balance book.
- Acrobatic_Road 5y agoIs it? Commercial paper is short term (<9mo), and tether is a long term project. So, unless the composition of tether's backing has changed substantially in the last few years (and I remember them stating years ago that it was mostly these "cash equivalents"), then I'm not really worried because it sounds like their borrowers* have been paying them back.
- jimmydorry 5y agoIt feels like people don't understand Tether. Tether was originally created to be an intermediary between exchanges and anyone that wanted to move large amounts of USD without paying price spreads to buy / sell on either end. Tethers are essentially IOUs pegged to USD. While the Tether organization may have originally waited for the Tether purchaser to transfer the money into their accounts before issuing the Tether, by 2018 at the latest, this has to have changed when Tether was forced to cease dealing with US citizens. If not from the start, their model of trust must have allowed their large clients (the exchanges, etc.) to hold onto the USD and instead issue "Commerical Paper" to back the Tethers issued. Tether obviously isn't going to reveal the exact arrangements here, and from the outset, their claims of having bank accounts with billions of dollars was suspect... but this revelation has been nothing new, and if anything, things look positive now. Tether doesn't appear to just be printing Tether with absolutely no backing.
- 5y ago
- ajg4 5y agothe market does not seem to care. we are indeed living in a post-truth era.
- dgellow 5y agoGive it time. Almost no one knows what Tether is. It's also a really technical, and thus niche, topic, not a lot of people understand the scam. Eventually a regulator body will finally do something about it.
- DebtDeflation 5y ago>Give it time. Yes. Bernie Madoff's scam lasted at least 16 years (1992-2008) and some suspect it could have started as far back as the 1970s.
- mathgenius 5y agoThe market creates the "truth".
- boublepop 5y agoHow do we tell “the market” from the half a billion fake dollars being pumped into the exchanges each day and the fake volume being traded between exchanges that hold significant amounts of USDT they know have no value when hell comes down but they need to respect until that point to keep the delusion going long enough to make more on new crypto than they are already under water? I have a sense that a healthy maker analysis would show that the market does indeed care, but there’s to much fraud in the mix for it to be clear unless you dig out the details.
- al3xandre 5y agoAfter some research, it is possible to short Tether for roughly 15% borrowing fee per year. Who is with me ?
- raducu 5y agoCareful, your loan will become "comercial paper" and back more tethers.
- 35fbe7d3d5b9 5y agoWhen you encounter a pump and dump the worst thing you can do is go long. The next worst thing you can do is go short.
- graphtrader 5y agoLeast surprising thing ever. Even the most religious zealot nun who has taken a blood oath of poverty would become corrupted in that situation and the money would trickle away.
- seanhunter 5y agoIf you wanted to operate a fully legitimate tethered cryptocurrency, you have to do two things. Firstly you have to make public the basket of holdings backing the currency and secondly you have to bake in an arbitrage mechachanism to ensure the price of the basket and the price of teh currency don't drift too much. The way this works for the most obvious analogous product I can think of in the financial markets (index ETFs like SPY https://www.ssga.com/us/en/institutional/etfs/funds/spdr-sp-500-etf-trust-spy https://www.ssga.com/us/en/institutional/etfs/funds/spdr-sp-... for instance) is known as the ETF creation and redemption mechanism. For any given ETF there is a pool of participating brokers who are entitled to create or redeem units in the etf with the ETF administrator. So if the price of the ETF gets too high relative to the assets then these brokers can buy the assets in the market and hand them in to the ETF admin who will add those assets to the ETF and give them in return the new units that are created as a result. This has the effect of raising the prices of the constituents and reducing the price of the ETF units (when the broker then sells those new units), bringing the prices back into equilibrium. Conversely if the ETF units are too cheap, the broker can buy the units in the market and redeem them for the correct proportion of underlying assets (ie exactly the reverse process) bringing the price into balance the opposite way. It's incredibly important for this mechanism (and the public record of assets in the basket it relies on) to be built in to the process if the price is to be truly tethered. Otherwise the tether is just an illusion and in the ETF world, ETFs which didn't have this type of mechanism went completely haywire and became defunct.
- 35fbe7d3d5b9 5y ago> It's incredibly important for this mechanism (and the public record of assets in the basket it relies on) to be built in to the process if the price is to be truly tethered. Otherwise the tether is just an illusion and in the ETF world, ETFs which didn't have this type of mechanism went completely haywire and became defunct. This is what's so surprising to me. Markets are efficient and rational, right? (;-)) Well, we just learned a great deal. And no matter how you optimistic or pessimistically you value the ~95% of assets backing USDT that aren't cash, we should all agree on one thing: you won't value them 1:1 to the dollar. So why hasn't the peg moved? The only explanations I can think of: this risk was priced in, which seems a stretch... or that USDT:USD has never been priced based on fundamentals.
- sireat 5y agoFor some reason I am reminded of a short anecdote from Good Soldier Svejk - https://en.wikipedia.org/wiki/The_Good_Soldier_%C5%A0vejk https://en.wikipedia.org/wiki/The_Good_Soldier_%C5%A0vejk Before WW1 in Austro-Hungary a small game of cards takes place in a bar. The stakes are tiny a few krona at the beginning. By the end of the night people have mortgaged their properties, their belongings, their wives and have written IOUs for trillions of krona. It ends with one of the players reporting to the police for illegal gambling hoping to collect a finder's fee on the total amount of IOUs...
- kim0 5y agoAn alternative interesting approach is an algorithmic stable coin like https://havenprotocol.org/ https://havenprotocol.org/ which also includes Monero style privacy!
- runeks 5y agoHonest question: if I deposit ten billion dollars in my bank account at a regulated US bank, what happens to it? Is the bank not going to buy T-bills with it, or even commercial paper? What are the rules around this for regulated banks?