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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% o

by 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.
tedunangst 5y ago
What's their interest rate exposure? If rates go up 0.5%, what's their paper worth?
- FabHK 5y ago
  Commercial paper is usually very short dated (definitely less than a year, average maturity appears to be only 2 months [1]), so if rates move up by a percentage point, the present value of the paper should drop less than 1%, maybe less than 0.2% (if it is very short dated). That's pretty close to their capital though! [1] https://www.federalreserve.gov/releases/cp/maturity.htm https://www.federalreserve.gov/releases/cp/maturity.htm

by FabHK 5y ago

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.

tedunangst 5y ago

What's their interest rate exposure? If rates go up 0.5%, what's their paper worth?

FabHK 5y ago
Commercial paper is usually very short dated (definitely less than a year, average maturity appears to be only 2 months [1]), so if rates move up by a percentage point, the present value of the paper should drop less than 1%, maybe less than 0.2% (if it is very short dated). That's pretty close to their capital though! [1] https://www.federalreserve.gov/releases/cp/maturity.htm https://www.federalreserve.gov/releases/cp/maturity.htm