4 ms·

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 v

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.
  - michaelt 5y ago
    > But, the existential risk to the (crypto) economy at large seems pretty small I believe the fear is: 1. The price of BTC is high because a lot of people are buying it. 2. A lot of those people buying it are paying with Tether's funny money which there is somehow $60 billion of. 3. If that $60 billion ceased to exist, the price of BTC would fall. 4. $60 billion is a lot of money, so the price of BTC would fall a lot.
raesene9 5y ago
That's the key point of course, you don't know and neither do I. Nor does anyone else outside of Tether. Tether is the No.1 most traded coin (by a decent margin) which makes it a very large part of the ecosystem. Now if their assets are all high quality low risk treasuries, it's likely all fine. If however their asset are loans to people who used those loans to buy other crypto currencies, things get a lot more risky. A large shock to the ecosystem, like Tether going bust, would seem like it would have a large impact on the overall space. We've seen in the last month that something a simple as a tweet can send the market up or down by multiple percent...
- thebean11 5y ago
  Wow, I just checked this and you're right. Tether volume is roughly the volume of BTC + ETH. Wonder why Tether and not DAI. Just not enough DAI available? DAI seems more risky to big traders?
espadrine 5y ago
> All assets liquidated today, what do you think the true value of a Tether is? $.70 USD? Given that only 3% of each dollar is backed by fiat, they can only guarantee $0.03 on each dollar requested. In the case of a bank run, the commercial paper etc. would be considered valueless, and unlike a real bank, their deposits are not insured. So the value of a Tether would theoretically fall to $0.03. In practice however, it is plausible that it would result in them blocking redemption and fleeing the country to avoid jail, so the value would be much closer to $0.
- ethbr0 5y ago
  > In the case of a bank run, the commercial paper etc. would be considered valueless It would not be considered valueless. It would be valued at the current market price it could be quickly cleared at. That price is substantially less than face value, but probably more than $0. And of course depends on who wrote the note and the terms.
  - espadrine 5y ago
    > It would be valued at the current market price it could be quickly cleared at. To clarify: there are two markets, one is redemption of USDT through the Tether company, the other is independent transaction of USDT vs. payment typically through exchanges. During asset liquidation, Tether’s assets would not be sold for the users’ redemption, but for the company’s creditors and shareholders. As soon as the suspicion of liquidation is there, there would be a bank run while redemptions still work. In the case of a bank run, the price of USDT would be dictated by the exchange market exclusively. As a massive number of people sell through redemption, it is clear to the holders that when the cash dries out, redemptions will close. So they will theoretically be ready to sell through the exchange at 3%, because that is the expected value of the return across all USDT holdings.
    - ethbr0 5y ago
      Can't we excise non-redemptions from this picture? As redemptions are (ultimately) the only way USDT is converted back to USD (regardless of how many times the USDT was traded, or at what price). That said, at the time of a redemption, isn't Tether legally required to sell or transfer assets to service the redemption (as long as they are able, subject to the timelines and qualifiers promised in their agreements)? Which is where I'm saying that if Tether holds $0.03 USD + 5 short term notes for every 1 USDT, they are obligated to turn over (or sell) those 5 notes (and $0.03) when a redemption is requested. While Tether may not be a bank, their users aren't just users: they're holders of Tether credit, subject to the terms that govern it.
_Nat_ 5y ago
> All assets liquidated today, what do you think the true value of a Tether is? $.70 USD? I guess you're assuming that their assets are truthfully reported, would be sold off, then evenly distributed? Not worried that someone might run off with the money or something?

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.
- michaelt 5y ago
  > But, the existential risk to the (crypto) economy at large seems pretty small I believe the fear is: 1. The price of BTC is high because a lot of people are buying it. 2. A lot of those people buying it are paying with Tether's funny money which there is somehow $60 billion of. 3. If that $60 billion ceased to exist, the price of BTC would fall. 4. $60 billion is a lot of money, so the price of BTC would fall a lot.

raesene9 5y ago

That's the key point of course, you don't know and neither do I. Nor does anyone else outside of Tether. Tether is the No.1 most traded coin (by a decent margin) which makes it a very large part of the ecosystem. Now if their assets are all high quality low risk treasuries, it's likely all fine. If however their asset are loans to people who used those loans to buy other crypto currencies, things get a lot more risky. A large shock to the ecosystem, like Tether going bust, would seem like it would have a large impact on the overall space. We've seen in the last month that something a simple as a tweet can send the market up or down by multiple percent...

thebean11 5y ago
Wow, I just checked this and you're right. Tether volume is roughly the volume of BTC + ETH. Wonder why Tether and not DAI. Just not enough DAI available? DAI seems more risky to big traders?

espadrine 5y ago

> All assets liquidated today, what do you think the true value of a Tether is? $.70 USD? Given that only 3% of each dollar is backed by fiat, they can only guarantee $0.03 on each dollar requested. In the case of a bank run, the commercial paper etc. would be considered valueless, and unlike a real bank, their deposits are not insured. So the value of a Tether would theoretically fall to $0.03. In practice however, it is plausible that it would result in them blocking redemption and fleeing the country to avoid jail, so the value would be much closer to $0.

ethbr0 5y ago
> In the case of a bank run, the commercial paper etc. would be considered valueless It would not be considered valueless. It would be valued at the current market price it could be quickly cleared at. That price is substantially less than face value, but probably more than $0. And of course depends on who wrote the note and the terms.
- espadrine 5y ago
  > It would be valued at the current market price it could be quickly cleared at. To clarify: there are two markets, one is redemption of USDT through the Tether company, the other is independent transaction of USDT vs. payment typically through exchanges. During asset liquidation, Tether’s assets would not be sold for the users’ redemption, but for the company’s creditors and shareholders. As soon as the suspicion of liquidation is there, there would be a bank run while redemptions still work. In the case of a bank run, the price of USDT would be dictated by the exchange market exclusively. As a massive number of people sell through redemption, it is clear to the holders that when the cash dries out, redemptions will close. So they will theoretically be ready to sell through the exchange at 3%, because that is the expected value of the return across all USDT holdings.
  - ethbr0 5y ago
    Can't we excise non-redemptions from this picture? As redemptions are (ultimately) the only way USDT is converted back to USD (regardless of how many times the USDT was traded, or at what price). That said, at the time of a redemption, isn't Tether legally required to sell or transfer assets to service the redemption (as long as they are able, subject to the timelines and qualifiers promised in their agreements)? Which is where I'm saying that if Tether holds $0.03 USD + 5 short term notes for every 1 USDT, they are obligated to turn over (or sell) those 5 notes (and $0.03) when a redemption is requested. While Tether may not be a bank, their users aren't just users: they're holders of Tether credit, subject to the terms that govern it.

_Nat_ 5y ago

> All assets liquidated today, what do you think the true value of a Tether is? $.70 USD? I guess you're assuming that their assets are truthfully reported, would be sold off, then evenly distributed? Not worried that someone might run off with the money or something?