5 ms·

So if 0.26% of tether is withdrawn into currency the coin would collapse?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 if 0.26% of tether is withdrawn into currency the coin would collapse If 0.26% of Tether is withdrawn, it would need to start liquidating assets.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 ago
  I 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 ago
  This 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 ago
    I'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 ago
      You 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 ago
  Tether 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 ago
    I take it you don't buy their latest Official Report From An Official Assurance Reporting Company Whose Job Is To Assure Us?
kwonkicker 5y ago
Prob 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 ago
I 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 ago
  Can 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 ago
    https://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 ago
      Wow, minimum of 100k before they'll convert into real money. That's one way to stop a bankrun.
liuliu 5y ago
You 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 ago
This 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

> 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 ago
I 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 ago
This 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 ago
  I'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 ago
    You 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 ago
Tether 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 ago
  I take it you don't buy their latest Official Report From An Official Assurance Reporting Company Whose Job Is To Assure Us?

kwonkicker 5y ago

Prob 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 ago

I 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 ago
Can 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 ago
  https://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 ago
    Wow, minimum of 100k before they'll convert into real money. That's one way to stop a bankrun.

liuliu 5y ago

You 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 ago

This 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