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The challenge with Tether is that it's basically impossible to prove or disprove their financial status. They don't have audited books, so no-one knows. So you

The challenge with Tether is that it's basically impossible to prove or disprove their financial status. They don't have audited books, so no-one knows. So you need to decide whether they're a risk or not. To me, the idea of having what is effectively a bank with a $60b+ balance sheet that has no auditor and no regulators, seems kind of risky. We also know, via the NYAG case, that they have in the past, said things that were not true (specifically continuing the claim to have a 1:1 USD backing after they no longer had those funds). The other aspect of Tether is "who's using them"? There are a range of stablecoins available now, multiple of whom are better regulated and audited than Tether. So why would rational organizations place $60b+ with Tether, when the risk is higher, and it's not like this is an investment where higher risk == higher return.

overtonwhy 5y ago
Tether actually was forced to release a break down of their assets and they have <4% cash reserves. So yeah, now everyone knows they're insolvent: https://www.coindesk.com/tether-first-reserve-composition-report-usdt https://www.coindesk.com/tether-first-reserve-composition-re...
- raesene9 5y ago
  Indeed there were some interesting pieces in that. They would argue that the composition showed that they had the required reserves, others would argue it showed they were insolvent :) As tether specifies the right to repay any redeemed tokens in securities, assuming the securities they hold actually keep their value, it seems like they'd be fine From https://tether.to/legal/ https://tether.to/legal/ "Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves." Of course the $60b question is, what are all the non-cash reserves they have, and how much are they worth.
  - notwedtm 5y ago
    It's all broken down in the video. A very large chunk is on "commercial paper" which is unsecured loans to...?
    - raesene9 5y ago
      Indeed that's the question to... it's a huge variance depending on who it's to, the terms of the loans and the interest rates received. No Basel II capital adequacy requirements here :)
  - ethbr0 5y ago
    The broader historical observation is: given a large amount of money, a requirement to keep it continuously invested, and a cloak behind which to operate, what financial institution in the history of humanity has made good choices? At best, they're choosing investments incompetently. (Chance Tether's team is equivalent to professionals at major banks?) At worst, they're choosing investments to maximize personal gain. Or to put it another way, what sort of company do you think is knocking on Tether's door, offering a good deal in exchange for a few billion "worth" of notes? It ain't Coke.
    - raesene9 5y ago
      Yep it definitely seems probable that there's risky behaviour at the least.
    - qeternity 5y ago
      > At worst, they're choosing investments to maximize personal gain. At worst, they don't have any investments.
      - ethbr0 5y ago
        It's possible, but given a choice between "flagrantly lying to the New York AG who just investigated you" vs "buying cheap debt no one else would touch and then overvaluing it, because you aren't regulated", the latter seems like a less legally perilous way of keeping things going.
- fuzzybear3965 5y ago
  All assets liquidated today, what do you think the true value of a Tether is? $.70 USD? The answer is not clear to me, but it seems like this is an important value. Also, aren't some of those assets (like treasury bills) interest-accruing? That would seem to offset some of the losses incurred by a short-term, high-volume liquidation event.
  - albntomat0 5y ago
    In my understanding, part of the issue is that we can't value or risk assess the backing ourselves. This is due to the lack of transparency on whose commercial paper Tether is holding, etc.
    - fuzzybear3965 5y ago
      For sure. I don't hold or trust Tether. But, the existential risk to the (crypto) economy at large seems pretty small, in my opinion. The unregulated, debased Tether seems less risky than holding regulated, backed-by-real-property mortgage-backed securities in 2007. It seems much a-do about not much, to me. But, I guess people need something to worry about.
      - albntomat0 5y ago
        Maybe? I don't think it'd be existential threat, but could be a massive shock/crash, in my opinion. I'll guess we'll have to wait and see!
      - ethbr0 5y ago
        I think this might be a misreading of 2007/8. Bad mortgage backed securities were the root risk. The unregulated leverage piled on top of those MBSs (credit default swaps) ballooned the consequences of that risk. But what really caused the global meltdown was (1) pervasiveness of exposure & (2) consequently, institutional uncertainty and withdrawal of liquidity. When the MBSs failed, the CDSs multiplied the dollar impact. Which would have been that, except that these assets underpined large portions of institution's balance sheets. And critically, unknown large portions. The "music stopping" was the breaking of institutional trust in the solvency of their counterparties, and hence evaporation of liquidity. The sheer opaqueness of the crypto exchanges might actually be an advantage here, as unlike traditional exchanges and the banking system, they're not used to keeping an eye on their counterparties' balances.
qeternity 5y ago
> The challenge with Tether is that it's basically impossible to prove or disprove their financial status. It's impossible for outsiders to prove or disprove. It would be trivial for Tether to do, which begs the question of why they don't (their reserves pie chart does not qualify). Tether claims that it's basically the only $60B+ institution in the world incapable of being audited. And given their ludicrously simple business model, it's mind boggling that they can even say this with a straight face. Of course the real reason they can't be audited is because it would ruin their business. And thus, here we are.
- elliekelly 5y ago
  As someone who has worked at a big four accounting firm hearing the clip of Tether’s CEO insisting no one would audit them was infuriating. I don’t know a single public accounting firm that wouldn’t be jumping at the opportunity to do that audit and use it to show how tech-savvy they are in an effort to drum up consulting business. Unless, of course, while negotiating every potential engagement Tether insisted on exceedingly unreasonable audit restrictions. (That’s assuming Tether has actually tried to engage an independent auditor, and I’m not really convinced they have.) Insane restrictions on the scope of the audit and/or the scope of auditor access is the one and only reason they’d be “unable” to find an accounting firm willing and able to conduct the audit. But lack of skill? Knowledge? Willingness to engage with potentially shady clients? Those are not really things that hinder an accounting firm’s ability to engage a client.
  - qeternity 5y ago
    Exactly. What Tether really mean is that nobody will give them the audit and rubber stamp that they want, which is of course different from nobody being willing to audit them.
csomar 5y ago
USDC has been growing at a faster pace. Tether has attraction because it was there first. This reminds me when Bitfinex was the exchange that moves Bitcoin price. Now, it's just another exchange. It'll take time but it'll eventually happen. > https://coinmarketcap.com/currencies/usd-coin/ https://coinmarketcap.com/currencies/usd-coin/
- raesene9 5y ago
  USD Coin has indeed increased in use, although given the supposed liquidity of these two assets, you could wonder why the move doesn't happen far faster than it has... Also there's a very interesting difference between USDC and Tether in terms of volume. based on https://nomics.com/ https://nomics.com/ Tether has a market cap of $62.85B and a 24 hour volume of $70.19B USDC has a market cap of $23.90B and a 24h volume of $1.84B So, for some reason, the velocity of Tethers is about 14 times higher than USDC, which seems unusual given they're nominally the same class of asset operating in similar markets.
  - thebean11 5y ago
    That seems potentially easy to explain given that some of the bigger (higher volume) exchanges support USDT and not USDC.
    - raesene9 5y ago
      I know that was the case in the past, but is it still the case? from a 10 minute look, the 4 largest exchanges by volume (Binance, Coinbase, Huobi, and Kraken) all seem to list USDC
      - thebean11 5y ago
        Hmm yeah maybe not, even Bitfinex trades USDC, and anyway they're a much smaller percentage of volume than I thought (jesus binance is huge). Wonder if it's just network effect then? Big traders use the USDT markets because they're more liquid -> the USDT markets become even more liquid and the cycle continues.

overtonwhy 5y ago

Tether actually was forced to release a break down of their assets and they have <4% cash reserves. So yeah, now everyone knows they're insolvent: https://www.coindesk.com/tether-first-reserve-composition-report-usdt https://www.coindesk.com/tether-first-reserve-composition-re...

raesene9 5y ago
Indeed there were some interesting pieces in that. They would argue that the composition showed that they had the required reserves, others would argue it showed they were insolvent :) As tether specifies the right to repay any redeemed tokens in securities, assuming the securities they hold actually keep their value, it seems like they'd be fine From https://tether.to/legal/ https://tether.to/legal/ "Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves." Of course the $60b question is, what are all the non-cash reserves they have, and how much are they worth.
- notwedtm 5y ago
  It's all broken down in the video. A very large chunk is on "commercial paper" which is unsecured loans to...?
  - raesene9 5y ago
    Indeed that's the question to... it's a huge variance depending on who it's to, the terms of the loans and the interest rates received. No Basel II capital adequacy requirements here :)
- ethbr0 5y ago
  The broader historical observation is: given a large amount of money, a requirement to keep it continuously invested, and a cloak behind which to operate, what financial institution in the history of humanity has made good choices? At best, they're choosing investments incompetently. (Chance Tether's team is equivalent to professionals at major banks?) At worst, they're choosing investments to maximize personal gain. Or to put it another way, what sort of company do you think is knocking on Tether's door, offering a good deal in exchange for a few billion "worth" of notes? It ain't Coke.
  - raesene9 5y ago
    Yep it definitely seems probable that there's risky behaviour at the least.
  - qeternity 5y ago
    > At worst, they're choosing investments to maximize personal gain. At worst, they don't have any investments.
    - ethbr0 5y ago
      It's possible, but given a choice between "flagrantly lying to the New York AG who just investigated you" vs "buying cheap debt no one else would touch and then overvaluing it, because you aren't regulated", the latter seems like a less legally perilous way of keeping things going.
fuzzybear3965 5y ago
All assets liquidated today, what do you think the true value of a Tether is? $.70 USD? The answer is not clear to me, but it seems like this is an important value. Also, aren't some of those assets (like treasury bills) interest-accruing? That would seem to offset some of the losses incurred by a short-term, high-volume liquidation event.
- albntomat0 5y ago
  In my understanding, part of the issue is that we can't value or risk assess the backing ourselves. This is due to the lack of transparency on whose commercial paper Tether is holding, etc.
  - fuzzybear3965 5y ago
    For sure. I don't hold or trust Tether. But, the existential risk to the (crypto) economy at large seems pretty small, in my opinion. The unregulated, debased Tether seems less risky than holding regulated, backed-by-real-property mortgage-backed securities in 2007. It seems much a-do about not much, to me. But, I guess people need something to worry about.
    - albntomat0 5y ago
      Maybe? I don't think it'd be existential threat, but could be a massive shock/crash, in my opinion. I'll guess we'll have to wait and see!
    - ethbr0 5y ago
      I think this might be a misreading of 2007/8. Bad mortgage backed securities were the root risk. The unregulated leverage piled on top of those MBSs (credit default swaps) ballooned the consequences of that risk. But what really caused the global meltdown was (1) pervasiveness of exposure & (2) consequently, institutional uncertainty and withdrawal of liquidity. When the MBSs failed, the CDSs multiplied the dollar impact. Which would have been that, except that these assets underpined large portions of institution's balance sheets. And critically, unknown large portions. The "music stopping" was the breaking of institutional trust in the solvency of their counterparties, and hence evaporation of liquidity. The sheer opaqueness of the crypto exchanges might actually be an advantage here, as unlike traditional exchanges and the banking system, they're not used to keeping an eye on their counterparties' balances.

qeternity 5y ago

> The challenge with Tether is that it's basically impossible to prove or disprove their financial status. It's impossible for outsiders to prove or disprove. It would be trivial for Tether to do, which begs the question of why they don't (their reserves pie chart does not qualify). Tether claims that it's basically the only $60B+ institution in the world incapable of being audited. And given their ludicrously simple business model, it's mind boggling that they can even say this with a straight face. Of course the real reason they can't be audited is because it would ruin their business. And thus, here we are.

elliekelly 5y ago
As someone who has worked at a big four accounting firm hearing the clip of Tether’s CEO insisting no one would audit them was infuriating. I don’t know a single public accounting firm that wouldn’t be jumping at the opportunity to do that audit and use it to show how tech-savvy they are in an effort to drum up consulting business. Unless, of course, while negotiating every potential engagement Tether insisted on exceedingly unreasonable audit restrictions. (That’s assuming Tether has actually tried to engage an independent auditor, and I’m not really convinced they have.) Insane restrictions on the scope of the audit and/or the scope of auditor access is the one and only reason they’d be “unable” to find an accounting firm willing and able to conduct the audit. But lack of skill? Knowledge? Willingness to engage with potentially shady clients? Those are not really things that hinder an accounting firm’s ability to engage a client.
- qeternity 5y ago
  Exactly. What Tether really mean is that nobody will give them the audit and rubber stamp that they want, which is of course different from nobody being willing to audit them.

csomar 5y ago

USDC has been growing at a faster pace. Tether has attraction because it was there first. This reminds me when Bitfinex was the exchange that moves Bitcoin price. Now, it's just another exchange. It'll take time but it'll eventually happen. > https://coinmarketcap.com/currencies/usd-coin/ https://coinmarketcap.com/currencies/usd-coin/

raesene9 5y ago
USD Coin has indeed increased in use, although given the supposed liquidity of these two assets, you could wonder why the move doesn't happen far faster than it has... Also there's a very interesting difference between USDC and Tether in terms of volume. based on https://nomics.com/ https://nomics.com/ Tether has a market cap of $62.85B and a 24 hour volume of $70.19B USDC has a market cap of $23.90B and a 24h volume of $1.84B So, for some reason, the velocity of Tethers is about 14 times higher than USDC, which seems unusual given they're nominally the same class of asset operating in similar markets.
- thebean11 5y ago
  That seems potentially easy to explain given that some of the bigger (higher volume) exchanges support USDT and not USDC.
  - raesene9 5y ago
    I know that was the case in the past, but is it still the case? from a 10 minute look, the 4 largest exchanges by volume (Binance, Coinbase, Huobi, and Kraken) all seem to list USDC
    - thebean11 5y ago
      Hmm yeah maybe not, even Bitfinex trades USDC, and anyway they're a much smaller percentage of volume than I thought (jesus binance is huge). Wonder if it's just network effect then? Big traders use the USDT markets because they're more liquid -> the USDT markets become even more liquid and the cycle continues.