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One thing from the article that people should probably pay more attention to: > A hallmark of Tether is that its creators have said each token is backed by one

One thing from the article that people should probably pay more attention to: > A hallmark of Tether is that its creators have said each token is backed by one U.S. dollar, either through actual money or holdings that include commercial paper, corporate bonds and precious metals. That has triggered concerns that if lots of traders sold stable coins all at once, there could be a run on assets backstopping the tokens. Fitch Ratings has warned that such a scenario could destabilize short-term credit markets. Even if Tether is 100% backed and not fraudulent at all, a bank-run scenario could result in Tether needing to sell off billions of dollars of its assets very quickly. What happens if there is a precipitous sale of the assets that currently back the Tether token? Would there be ripple effects across the rest of the economy if additional volatility creeps into the commercial paper market as a result? Regardless as to the actual risk, concern over this specific scenario is animating much of the regulatory interest into stablecoins. One would expect restrictions to be imposed on what types of assets may be used to back stablecoins, and for explicit reporting requirements to be imposed as well.

JumpCrisscross 5y ago
> What happens if there is a precipitous sale of the assets that currently back the Tether token? If Tether is thusly backed, it's a non-interest bearing money market fund. We saw how those break down in the last crisis. In reality, Tether would just halt redemptions. (Unlike a money market fund, there is nothing holding them to convertibility.)
csomar 5y ago
Tether has a $60bn market cap. That's a drop in the ocean for the international markets.
- graeme 5y ago
  Lehman was quite small by the time it collapsed. Doesn’t mean Tether will have a ripple effect but you’re ignoring leverage.
  - paulgb 5y ago
    For something more recent, Archegos was a $10bn fund and something close to $200bn in asset devaluation was associated with its collapse.
- JumpCrisscross 5y ago
  > Tether has a $60bn market cap. That's a drop in the ocean for the international markets. Market cap here is more meaningless than usual as we don't care about Tether's liabilities but its assets. (Given their history, there is no reason to assume one strictly relates to the other.) If Tether has its $60bn in short-dated Treasuries, great, no problem. If they have $5bn in receivables financing to a homebuilder, fast liquidation could very well crater that market. While that happens, other holders could be forced to sell, thereby transmitting risk from crypto to the mainline. This happened when several money market funds "broke the buck" in '08, and led to a flurry of reforms that effectively banned maturity transformation in fund products. (Less jargon: you can't promise fixed-price redemption if you're buying securities.)

JumpCrisscross 5y ago

> What happens if there is a precipitous sale of the assets that currently back the Tether token? If Tether is thusly backed, it's a non-interest bearing money market fund. We saw how those break down in the last crisis. In reality, Tether would just halt redemptions. (Unlike a money market fund, there is nothing holding them to convertibility.)

csomar 5y ago

Tether has a $60bn market cap. That's a drop in the ocean for the international markets.

graeme 5y ago
Lehman was quite small by the time it collapsed. Doesn’t mean Tether will have a ripple effect but you’re ignoring leverage.
- paulgb 5y ago
  For something more recent, Archegos was a $10bn fund and something close to $200bn in asset devaluation was associated with its collapse.
JumpCrisscross 5y ago
> Tether has a $60bn market cap. That's a drop in the ocean for the international markets. Market cap here is more meaningless than usual as we don't care about Tether's liabilities but its assets. (Given their history, there is no reason to assume one strictly relates to the other.) If Tether has its $60bn in short-dated Treasuries, great, no problem. If they have $5bn in receivables financing to a homebuilder, fast liquidation could very well crater that market. While that happens, other holders could be forced to sell, thereby transmitting risk from crypto to the mainline. This happened when several money market funds "broke the buck" in '08, and led to a flurry of reforms that effectively banned maturity transformation in fund products. (Less jargon: you can't promise fixed-price redemption if you're buying securities.)