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Can someone explain why USDC or Tether is held to such a high standard ... 100% reserves, and they all have to be in cash -- while banks have fractional require
by EGreg 5y ago
Can someone explain why USDC or Tether is held to such a high standard ... 100% reserves, and they all have to be in cash -- while banks have fractional requirements that hover around 10% and since the pandemic have been essentially zero?
Why the huge disparity? From an economic point of view, the bank is just as required to redeem its obligations as Tether.
- bmm6o 5y agoIsn't Tether just being held to their own claims? They only need to be 100% backed because they say they are 100% backed.
- EGreg 5y agoSeems there is a wider thing at play here https://www.prnewswire.com/news-releases/usd-coin-reserves-evolving-to-100-percent-cash-and-short-duration-us-treasuries-301360289.html https://www.prnewswire.com/news-releases/usd-coin-reserves-e...
- wmf 5y agoMostly people are just responding to Tether's own claims about being fully backed.
- graeme 5y agoBanks have very specific regulations to comply with that are much much much stricter than anything Tether or USDC face. The better comparison for stablecoins are money market funds. The lockup of those caused the worst of the 2008 financial crisis. They also have much stricter regulations than stablecoins. Fitch today released an opinion that stablecoin liquidations could cause a similar sort of systemic risk. They need some kind of regulation. No stablecoin has even done an audit! (Attestations are not the same)
- thebean11 5y agoUSDC certainly claims to be audited, by a big US accounting firm no less. Is there some nuance I’m missing?
- airstrike 5y agoYou may be equating "audited financials" with the mountain of regulations banks need to comply with that go way beyond their financial performance.
- dmitriid 5y agoThe nuance is "claims". It's never been properly audited.
- ac29 5y agoIf they've been audited, they've never released those audits.
- graeme 5y ago> Is there some nuance I’m missing? Yup. They’ve had attestations. In those, an auditor just looks at an account at a moment in time. So you could, for example: 1. Get a loan 2. Put it in the reserve account 3. Ask accountant to verify the amount 4. Accountant attests to seeing money in the reserve account 5. Afterwards, move money out to pay off the loans Sound crazy? Tether actually did this, it only came out in the NYAG settlement. USDC uses a US accountant, but nothing in the procedures they use would prevent such a scenario. The auditor merely relies on management assertions in an attestation.
- floor2 5y agoBecause banks are heavily regulated, professionally managed and back-stopped by the most powerful entities in the world (the governments of the countries of their operations). Tether by contrast is a pretty much an obvious ponzi scheme that everyone is just playing along with because they're making money and hoping they get out with profits before it implodes.
- przeor 5y agoHow about DAI?
- legutierr 5y agoDAI is mostly collateralized by USDC so there is a lot of overlap in the risk exposure of the two assets.
- przeor 5y agowhy someone would colletarize a stablecoin like USDC to generate less stablecoins like DAI? Where id the gain while on a dollar to dollar its close to 1:1 ratio all the time?
- deleted 5y ago[deleted]
- legutierr 5y agoIt’s not that DAI is over-collateralized with USDC, it’s that among all the different collateral types, USDC is over represented. This Reddit thread provides a pretty good explanation as to what is going on: https://www.google.com/amp/s/amp.reddit.com/r/MakerDAO/comments/nwydtj/what_is_the_point_of_giving_usdc_as_a_collateral/ https://www.google.com/amp/s/amp.reddit.com/r/MakerDAO/comme...
- cinquemb 5y agoHere are live stats about dai (and including its collateralization)[0] [0] https://daistats.com/#/overview https://daistats.com/#/overview
- bluecalm 5y agoMain reason is that banks are more responsible with giving out loans. Those loans are assets. Of course once you start giving out loans like candy to people who should never get them who then use them to buy highly speculative assets then the whole idea goes to hell. With Tether they print it and give it out to their buddies for who knows what, maybe a pinky promise to repay some day.
- wpietri 5y agoBecause banks don't create their own currencies. The US dollar is backed the US. All banks are supervised and insured by that same government. If a bank takes on too much risk, a) there are people watching that, and b) the US can wind it up and pay everybody back. So a single bank failure causes approximately zero currency risk. As long as you stay under the FDIC limits, you'll get back every dollar you put in. Tether, on the other hand, is backed a bunch of shady characters who have been caught lying about what backs their currency. They claim it's 1:1 with US dollars, meaning that people buying Tether have no risk. But the more we learn about what they're doing, the clearer it is that it's not the case.
- johnrgrace 5y agoBanks have two things 1. Whateve they don't hold in cash is invested in loans, cash plus loans have a value greater than the redemptions they could face. 2. In the case of liquidy problems they have the federal reserve system to backstop a healthy bank with cash so there isn't a run on the bank. Tether, well who knows? Tether has cash + nothing which very likely is less than the redemptions they may face. If people want to get real cash out tether has no one to go to to make sure they have cash.
- imtringued 5y agoAccording to free banking they would issue their own currency that would trade with an exchange rate vs the USD. The idea of pegging the exchange rate with the dollar while not having any meaningful dollar reserves is the absurd part. Most countries that peg their currencies like China buy USD or "cash equivalents" like US treasury bonds. They don't lend out their reserves to a third party.