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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.c

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.
      - qeternity 5y ago
        Yes, that might be more likely. I was just framing things "at worst". Deltec, the bank that Tether bought, has a desk specializing in zombie debt, so it's entirely possible they have loads of debt bought for pennies on the dollar, that they have through accounting/market shenanigans recognized at par as their "commercial paper".
        ethbr0 5y ago
        I mean... technically they're completely unregulated, right? So they don't even have to perform shenanigans. They can just buy $1 par debt at $0.01 from Bob's Used Cars and value / declare it at $1. It's a super shady move, and would shake confidence if known, but would seem legally defensible. ("We valued it at a fair price. It turned out we were wrong and overvalued it. Oops.") They could probably declare it at >$1 if they really wanted to, but why do hard fraud instead of easy fraud?
        qeternity 5y ago
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.

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.
    - qeternity 5y ago
      Yes, that might be more likely. I was just framing things "at worst". Deltec, the bank that Tether bought, has a desk specializing in zombie debt, so it's entirely possible they have loads of debt bought for pennies on the dollar, that they have through accounting/market shenanigans recognized at par as their "commercial paper".
      - ethbr0 5y ago
        I mean... technically they're completely unregulated, right? So they don't even have to perform shenanigans. They can just buy $1 par debt at $0.01 from Bob's Used Cars and value / declare it at $1. It's a super shady move, and would shake confidence if known, but would seem legally defensible. ("We valued it at a fair price. It turned out we were wrong and overvalued it. Oops.") They could probably declare it at >$1 if they really wanted to, but why do hard fraud instead of easy fraud?
        qeternity 5y ago

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.