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> With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never a
by MattGaiser 5y ago
> With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank.
So even if they are telling the truth, it is still on the edge.
- simmerup 5y agoSo if 0.26% of tether is withdrawn into currency the coin would collapse? Am I reading that right?
- JumpCrisscross 5y ago> if 0.26% of tether is withdrawn into currency the coin would collapse If 0.26% of Tether is withdrawn, it would need to start liquidating assets. That will, most of the time, be fine. Commercial paper is exceedingly liquid. But sometimes, the liquidation will prompt a price fall. This is a fire sale. That, in turn, prompts more redemption, as holders of Tether grow concerned about its stability. This is a bank run. If Tether has a safety buffer between the value of its assets (U.S. dollar money market securities) and its liabilities (Tethers), this will--most of the time--be fine. If the situation spirals, however, a bank run can lead to collapse.
- simmerup 5y agoI guess Tether make it hard to withdraw dollars for a reason.
- user-the-name 5y ago> Commercial paper is exceedingly liquid If it is not complete junk. Which there is good reason to believe Tether's is, and zero willingness from their side to show it isn't.
- arcticbull 5y agoThis is your regularly scheduled reminder that no US persons are permitted to redeem Tether according to their terms of service. Further according to their terms of service only designated customers are permitted to redeem Tether, they at their sole discretion make the determination as to who is the designated customer, they are permitted to delay redemptions arbitrarily, and they are permitted to fulfill redemptions in-kind with whatever garbage backing they may have instead of dollars. [1] Their “reserves” and ratios and backing mean basically nothing since nobody’s ever going to be permitted to redeem a meaningful quantity anyways - while at the same time being too big to fail in the crypto industry. Exchanges know this. They are chuck-e-cheese tokens used to facilitate capital flight from mainland China, and to provide 85% of all trading volume in the crypto space. $4.9B of BTC daily trade volume vs $0.17B for USD proper. [2] [1] tether.to/legal [2] https://coinlib.io/coin/BTC/Bitcoin https://coinlib.io/coin/BTC/Bitcoin
- wbc 5y agoI'm confused, how does that capital flight work exactly? Say I start w/ $1 million in RMB, how does Tether factor in here?
- arcticbull 5y agoYou go to an OTC desk in China, you buy Tethers with $1M USD worth of RMB, you send the Tethers out of China and cash them out either directly at Coinbase or via BTC. [1] There's been a big market for escaping RMB capital controls since they were instituted, often via various gangs and casinos [2] [1] https://twitter.com/patio11/status/1424897022268645379 https://twitter.com/patio11/status/1424897022268645379 [2] https://www.casino.org/news/us-marshals-service-to-seize-imperial-palace-saipan-casino-assets/ https://www.casino.org/news/us-marshals-service-to-seize-imp...
- archontes 5y agoTether doesn't have any liabilities, because it has no obligation whatsoever to redeem tethers for dollars.
- deleted 5y ago[deleted]
- vkou 5y ago> Commercial paper is exceedingly liquid. If Tether actually owned any commercial paper, they'd be the biggest player in the commercial paper space. Nobody's ever heard of them, and they don't own 30 billion dollars of it. What they do own are paper promises from other companies that are controlled by them. Which are worthless. I own a paper promise from my dad to pay me a trillion dollars, that doesn't make me the richest man in the world. [1] [1] Until I leverage it into minting a 'commercial-paper-backed', unredeemable, unaudited 'stable'coin.
- civilized 5y agoI take it you don't buy their latest Official Report From An Official Assurance Reporting Company Whose Job Is To Assure Us?
- kwonkicker 5y agoProb not but itd shake everything up. They'd have to get a lot of loans, and maybe sell out the company. For comparison, banks allowed to go as high as 10:1 so 383:1 is insane.
- FabHK 5y agoI don't think that's the right way to read it. Currently, all the holders of tether could ask for dollars, and they'd all get them, and there'd even be 0.26% of the original balance left. (Under quite some assumptions, namely that they could sell the commercial paper at the value at which they hold it in their accounts.) However, if the value of their assets would shrink, say, by 1%, their equity would be wiped out, and they'd not have enough dollars to satisfy their liabilities. Then, if people would start demanding their dollars, the last 1%-0.26% = 0.74% of tether holders would get nothing, because there'd be nothing left. That could trigger a good old bank run - you don't want to be among that last percent of bag holders, so better take out your dollars now while they still have some.
- jpmattia 5y ago> Currently, all the holders of tether could ask for dollars, and they'd all get them, and there'd even be 0.26% of the original balance left. This is the correct reading: 0.26% is the excess in total capital compared to liabilities. Earlier in the article, they state that Tether has 5% cash+equivs, so you know that 5% of Tether could be redeemed without trouble. If there were redemptions in excess of that, they would need to sell securities.
- jellicle 5y agoCan anyone "take out" dollars at all? Tether is a bank with a deposit window but no withdrawal window. If Tether ceased operations tomorrow, just abandoned USDT and walked away with all the cash, what happens?
- passwordreset 5y agohttps://tether.to/fees/ https://tether.to/fees/ claims that fiat withdrawal is possible, with a fee of "The greater of $1,000 or 0.1%".
- simmerup 5y agoWow, minimum of 100k before they'll convert into real money. That's one way to stop a bankrun.
- liuliu 5y agoYou can only redeem USDT to USD through centralized exchanges (after all, that's the point of stablecoins in dEx ...). As long as these centralized exchanges collude to refuse redeeming USDT to USD, there is no run of the bank scenario.
- deleted 5y ago[deleted]
- space_rock 5y agoThis statement from the Economist is basically a lie. It's like saying people trade Forex leveraged so your cash in hand is leveraged. Tether is leveraged by 3rd parties. Tether is redeemable 1to1
- SilasX 5y agoBanks are now required to have 0% of deposits as cash.[1] It’s funny whenever people start to get outraged at seeing fractional reserve banking in any context besides where we’ve ignored it and accepted it. [1] Citation for those who missed this development: https://www.eidebailly.com/insights/articles/2020/4/federal-reserve-eliminates-reserve-requirements https://www.eidebailly.com/insights/articles/2020/4/federal-...
- eightysixfour 5y agoYes, because the areas where we ignore and accept it are highly regulated and insured as a result of hundreds of years of learnings at this point. People react negatively when they see it outside of that context because it is something we have repeatedly seen fail and cause instability. This isn't hard to understand.
- SilasX 5y agoYes, that is a valid distinction to make, if the arguments/concerns around Tether were merely "hey, let's make sure regular banking regulation extends to this organization as well, to make sure it's all going in tip-top shape". But that's not why people bring up the figures. They're acting like it's inherently shady to have less than 100% (or 3, or whatever) cash reserves for something that ostensibly "has your money on demand", and such a scheme is inherently unsustainable, even though this is exactly what banks do.[1] Be careful not to equate "one technical distinction that makes sense" with "the the things the hive mind is actually outraged about". (Sorry, would have responded sooner but I got a "you're posting too fast, slow down" error.) [1] Fortunately, this article is focusing on the point about just extending regulation, but every other time this comes up, the figure is supposed to provoke outrage about "how can they not have our cash ready to go?"
- eightysixfour 5y agoI think it is fair for people to say it is inherently shady when the original plan for these tokens was to be 1:1 dollar backed. Moving the goal posts in this situation IS shady, and why people are now calling for regulation. People aren't railing against fractional reserves, they're railing against something that was advertised as having full reserve turning fractional with a few sentences on a website.
- chroem- 5y agoAs opposed to banks in the US, which legally have a 0% reserve requirement. [1] [1] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
- kn0where 5y agoThe big difference is the FDIC.
- toomuchtodo 5y agoWhich, if it were to fail (which is exceptionally unlikely), is backed by the US Treasury and the Federal Reserve. EDIT: Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts.
- dannyw 5y agoAKA: You, the American taxpayer.
- deleted 5y ago[deleted]
- howinteresting 5y agoSounds good to me. Why do neo-goldbugs always try and present this as some sort of gotcha? As an American taxpayer I'm happy to buy into the social contract that it implies.
- gruez 5y ago>Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts. Sounds like a feature to me. Printing money is effectively a socialized loss for everyone who's holding the currency.
- nonameiguess 5y agoThis is unfortunately no longer true. The Fed set the required reserve ratio to 0% last March. They still incentivize holding cash reserves by paying interest to banks roughly equal to what they could get by holding something like commercial paper, effectively giving banks free money since there isn't actually any risk, but they technically no longer require banks to hold any cash at all. Of course, the Fed allows this because demand deposit accounts at banks are insured by the FDIC, so people will get their money back even if the bank doesn't have it.
- lottin 5y agoDo you understand that cash reserves and regulatory capital are two different things?
- username_my1 5y agoThe problem is the promise, bitcoin and other "nonstable" crypto don't promise a fixed dollar value, similar to gold if you will. But if a crypto claims that it has a fixed currency value, then like banks (which they also say they have a fixed dollar reserve) it has to be regulated by the issuer of that currency. I don't see any problem in regulating stable coin.