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At the risk of igniting a bun fight, perhaps someone with actual knowledge could chime in on the implications of this decision. My personal, completely unsubst

At the risk of igniting a bun fight, perhaps someone with actual knowledge could chime in on the implications of this decision. My personal, completely unsubstantiated view is that Tether is probably a huge scam. Does this decision force it to reveal whether it is or not, um, or not?

mmerlin 4y ago
The emperor has no clothes, and most crypto seems to be either a scam at worst or delusionally impractical at best. Bullshit turns to dust in the harsh light of the sun, and i reckon a massive dust storm is what will remain of most tokens that were never really needed for any practical purpose whatsoever, except maybe laundering illegally gotten gains from drugs or corruption, IMHO
ajaimk 4y ago
TLDR; NYAG knows where the tether collateral is stored. Now, you can too.
mywaifuismeta 4y ago
I don't think anyone knows for sure. There is a decent chance that Tether is (or was before the crash) decently backed by "stuff" - just not with what it claims to be backed by. I'd imagine other crypto holdings were a significant part of it. In other words, it's not really a stablecoin, but some other complex derivative instrument. So it depends on how you define scam. It's certainly false advertising and has always been.
- nly 4y ago
  My money is on it being "backed" by Bitcoin
- CaptainZapp 4y ago
  It could as well be backed by nothing, but hot air. Since the company is so evasive and has been for years nobody outside really knows.
- compsciphd 4y ago
  its fundamentally not then not different than any other DeFi algorithmic stable coin.
- aaaaaaaaata 4y ago
  Dollar equivalent corporate paper, was the jargon I heard — which sounds like fancy-talk for "Evergrande bonds".
- gregable 4y ago
  I suspect it's backed by loans to bitfinex. Basically tether mints a bunch of USDT, 'loans' it to bitfinex which then creates an asset on tether's balance sheet of the loan. Bitfinex then goes and buys BTC with the USDT raising the price of BTC. The problem here is that there is no actual USD anywhere in this system. Net, the system is just one where tether is getting minted out of thin air and then sold to the public for BTC or whatever coins.
lozenge 4y ago
They've already revealed they're a scam, by admitting they're backed by "commercial paper".
- simmerup 4y ago
  The fact that they so widely advertised themselves as being back 1:1 with USD and then admitted they were lying ruins all their credibility in my eyes. In addition, I’m surprised so many people defend them by effectively saying ‘this time they’re not lying’ — with no evidence. All I can see it as is wishful thinking than sound judgement.
  - headsoup 4y ago
    They defend them because they have a vested interest in the whole pyramid not collapsing.
    - aaaaaaaaata 4y ago
      On the contrary, many of us (as technologists) have a vested interest in shaking out these gambler-creating factions so the rest of the tech may flourish. Been waiting for Tether to take a K.O. punch for some time, as a cryptocurrency maximalist (eventualist?).
- matthewdgreen 4y ago
  According to Tether's disclosures, they have been of the largest owners of commercial paper in the world. And yet nobody has seen them in the US markets. https://www.ft.com/content/342966af-98dc-4b48-b997-38c00804270a https://www.ft.com/content/342966af-98dc-4b48-b997-38c008042...
faeriechangling 4y ago
I mean we've seen this play out already, bankers have been forced to open their books due to shady dealings as early as the 14th century. What happens is that banks fall both legitimate and crooked, things get stabilised for awhile, time passes, everybody eventually forgets why such regulations came into being, greed happens again, and this continues on until the present day with the chaos becoming less frequent yet simultaneously spawning hilariously large black swan events. I don't know how the fine details of all this will shake out, not well enough to make any money off the affair, but I know the rough outline of exactly what is going to happen. Read up on the early history of fractional reserve banking if you'd like to know too.
IAmEveryone 4y ago
I hate the whole cryptocurrency thing more than most people, but tether may just not be a scam, at least in the legal sense. Holding their reserves in something other than cash is the way they can make money. The community will consider it betrayal because it essentially relies on the existing system they loath. But other than that, there isn’t too much wrong with it. That may also point at a reason why they would want to keep this private, which otherwise seems suspicious. That doesn’t mean people won’t lose all or some of their money with them. Some of these holdings may not be as liquid as needed in a full-on bank run, and they, like all stablecoins, suffer from the mismatch of having no upside by definition but some downside risk.
- pjc50 4y ago
  > Holding their reserves in something other than cash is the way they can make money Depending on what it is, that's also a way they can lose money. If you think of Tether as an investment organisation that takes $ and hands out claims which they say are worth 1$, while making a bunch of investments, what's that in regular investment land? A money market fund. What can go wrong? https://www.investopedia.com/articles/economics/09/money-market-reserve-fund-meltdown.asp https://www.investopedia.com/articles/economics/09/money-mar...
  - NovemberWhiskey 4y ago
    Yes; I think that's absolutely right and insightful - the right way to think about Tether is that it's an opaque (refuses to disclose asset mix; is not audited), expensive (pays no interest; charges for redemptions), unregulated (not subject to the SEC or any other regulatory body) money market fund. In the real world, literally no-one would own that.
    - pjc50 4y ago
      You can in theory hold it off-exchange and transmit it without KYC, which has to imply a certain category of use. But most of it is being used as the "float" by exchanges, I believe.
- 4y ago
WinstonSmith84 4y ago
7 or 8B were redeemed yesterday within 24 hours, not bad isn't it? This goes without saying that it's only 10% of the market cap, but still better than many banks ... Speaking of banks, another question: which legacy bank would be able to redeem all money of all account holders? the answer is: none. The money you have on your account is "safe" only because there is no panic. Does that make traditional bank a huge scam?
- InitialLastName 4y ago
  a) Banks have actual rules they have to follow with respect to fractional reserves. b) Individual bank accounts (in the US) are backstopped by the federal government, via FDIC. It might still be a scam, but it's a scam whose validity is backed by the most expensive military on Earth.
  - xuki 4y ago
    Here is the secret: USD is not backed by anything, and the US can print an unlimited amount of it. That's why they have zero risk of a bank run. Tether is "backed" by USD and they can't print USD, that's where the problem lies.
- eloff 4y ago
  I wanted to make a comment explaining how banks are different because they lend that money back out - it's not like they don't have it, they just don't have it liquid. Regulations are very strict about what percentage they must keep available. Also there's things like FDIC insurance. But at the of the day they are something akin to a government sanctioned ponzi scheme. It's true that if everyone asks a bank for their money back at the same time, the bank will fail. I imagine you're bringing this up to say that crypto is no worse than traditional banks. I disagree strongly with that.
  - karpierz 4y ago
    Also, it's not even that debt isn't liquid; debt (much like corporate stocks, bonds, etc.) is very liquid. It's just not something you want to be forced to exit prematurely. So it's not even that the bank can't pay out, it's just that it costs them a little extra.
akudha 4y ago
If there is nothing shady going on, then why wouldn't they want to share these documents? Are these trade secrets or something similar?
- JumpCrisscross 4y ago
  > why wouldn't they want to share these documents? Are these trade secrets or something similar? Playing devil’s advocate, their users clearly don’t care if they’re backed. As such, they’re running a hedge fund with zero cost of capital. Those typically have good reasons for treating their strategies as proprietary.
- smoovb 4y ago
  One reason is that Tether is not a US company and does not itself operate in the USA. Submitting anything to a US court is a willingness to be subject to US rules and laws.
  - grumple 4y ago
    Tether is used by Americans, transacting with Americans on American soil, pegging itself to the American dollar, using American dollars as reserves, using the internet which is controlled by America, holding reserves in a banking system largely controlled by America... Tether.to lists a US address and phone number. Their ip returns a cloudflare ip in California. They are definitely subject to US law. Pretty sure the US could do things like have them arrested in their home countries, extradited, have their bank accounts seized, etc. I suspect the US could also seize all US dollars without the consent of any foreign nation as well, seems like a natural way to defend a currency. Hard to claim you're backed by US dollars in that case.
    - charcircuit 4y ago
      >Tether.to lists a US address and phone number Where? >Their ip returns a cloudflare ip in California. Cloudflare uses anycast. Their IPs don't have a single location.
- 4y ago
grumple 4y ago
If Tether had sufficient reserves, they wouldn't be fighting to hide the details of those reserves. It should be obvious to any observer that they have little reserves and have basically taken the money and run.
- aaaaaaaaata 4y ago
  Or technically, or numerically sufficient assets, but based on a subjective (if not controversial) interpretation of the value of those assets.
simias 4y ago
I share your opinion, although apparently over the past week Tether's market cap dropped from $83B to $74B which, if true, means that at least $9B have been redeemed in a few days. In other words, they had at least $9B in liquid, USD-convertible assets they could use to redeem those tokens. USDT is currently trading slightly below its peg (around $0.999) and only dipped very temporarily to $0.98 as the cryptocurrency market was crashing. Now of course they still have $74B to account for and maybe I'm just naive but I have a little more faith in USDT now than I had a week ago, I still think that it's mostly backed by monopoly money but maybe not as much as I thought.
- matthewdgreen 4y ago
  Or alternatively they "redeemed" a bunch of unbacked tokens that they (or a partner company) owned, in order to give the impression that their redemption window was processing large amounts successfully. I'm sure that's not actually the case, but it would be consistent with the "Tether printing unbacked tokens for its own trading" theory of Tether fraud. This may seem like a conspiracy theory, but: the reason these "conspiracy theories" are so easy to believe is that Tether is unregulated and highly non-transparent.
- shkkmo 4y ago
  A dropping market cap absolutely doesn't mean that liquid, easily USD convertible assets were used to redeem them. It is quite possible that a number of exhanges which had traded IOUs for Tether, Traded that Tether back to have the IOUs canceled. Edit: Now that I think about it, it really would make sense. They are fighting to keep these records secret, but they may also be cleaning up their books a little in case they lose and have to make their holdings public.
- deleted 4y ago
  [deleted]
- gitfan86 4y ago
  Being only 90% backed by cash isn't the problem. A lot of people could afford to lose 10%, if the money was evenly distributed. Tether would still be a scam in that situation, but it wouldn't destroy the crypto ecosystem. The risk is that there could be a bank run. People panic and drive down the price trying to get rid of their tether. Now crypto as a whole has lost a lot of the liquidity used to buy/sell crypto. This causes a further panic across other crypto assets.
matheusmoreira 4y ago
> My personal, completely unsubstantiated view is that Tether is probably a huge scam. Tether's not really doing anything different from the what banks do every day. If it crashes the government should just bail them out like they did with the banks in 2008. They will spare banks from the consequences of their actions, so there's no reason why they can't do the same for Tether.
- soared 4y ago
  Bank accounts are FDIC insured up to 250k, coinbase/tether/etc are not.
  - mkr-hn 4y ago
    Also: the banks were expected to and did pay it back collectively, with profit.[0] I don't see how Tether could do that if it turns out the fundamentals are bogus. [0] https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
- MailNerd 4y ago
  There's an incentive to bail out the banks to keep up trust in the currency, so government can print more. What would be the incentive for crypto?
roenxi 4y ago
It doesn't really matter at this point. Anyone dealing with Tether either doesn't care or is so ignorant that new revelations won't matter. Case in point I was buying tether when the peg looked like it was failing a few days ago - so I bought a few dollars for about $0.98. Obviously a tiny trade because I'm not crazy - more for the fun of being able to say I did - but whether the crypto is backed or not was a non-issue. This was to buy a completely different cryptocurrency on a different exchange, and Tether was just a conduit to get fiat money in to the system. Tether failing might be catastrophic for the crypto ecosystem. It also might not be. Technically speaking, the stablecoins look easy to replace. There is a big test of the whole crypto ecosystem coming to find out how it weathers a recession - total collapse? holds some value? most value? heaven help us, makes money? - which will make for interesting times.

mmerlin 4y ago

The emperor has no clothes, and most crypto seems to be either a scam at worst or delusionally impractical at best. Bullshit turns to dust in the harsh light of the sun, and i reckon a massive dust storm is what will remain of most tokens that were never really needed for any practical purpose whatsoever, except maybe laundering illegally gotten gains from drugs or corruption, IMHO

ajaimk 4y ago

TLDR; NYAG knows where the tether collateral is stored. Now, you can too.

mywaifuismeta 4y ago

I don't think anyone knows for sure. There is a decent chance that Tether is (or was before the crash) decently backed by "stuff" - just not with what it claims to be backed by. I'd imagine other crypto holdings were a significant part of it. In other words, it's not really a stablecoin, but some other complex derivative instrument. So it depends on how you define scam. It's certainly false advertising and has always been.

nly 4y ago
My money is on it being "backed" by Bitcoin
CaptainZapp 4y ago
It could as well be backed by nothing, but hot air. Since the company is so evasive and has been for years nobody outside really knows.
compsciphd 4y ago
its fundamentally not then not different than any other DeFi algorithmic stable coin.
aaaaaaaaata 4y ago
Dollar equivalent corporate paper, was the jargon I heard — which sounds like fancy-talk for "Evergrande bonds".
gregable 4y ago
I suspect it's backed by loans to bitfinex. Basically tether mints a bunch of USDT, 'loans' it to bitfinex which then creates an asset on tether's balance sheet of the loan. Bitfinex then goes and buys BTC with the USDT raising the price of BTC. The problem here is that there is no actual USD anywhere in this system. Net, the system is just one where tether is getting minted out of thin air and then sold to the public for BTC or whatever coins.

lozenge 4y ago

They've already revealed they're a scam, by admitting they're backed by "commercial paper".

simmerup 4y ago
The fact that they so widely advertised themselves as being back 1:1 with USD and then admitted they were lying ruins all their credibility in my eyes. In addition, I’m surprised so many people defend them by effectively saying ‘this time they’re not lying’ — with no evidence. All I can see it as is wishful thinking than sound judgement.
- headsoup 4y ago
  They defend them because they have a vested interest in the whole pyramid not collapsing.
  - aaaaaaaaata 4y ago
    On the contrary, many of us (as technologists) have a vested interest in shaking out these gambler-creating factions so the rest of the tech may flourish. Been waiting for Tether to take a K.O. punch for some time, as a cryptocurrency maximalist (eventualist?).
matthewdgreen 4y ago
According to Tether's disclosures, they have been of the largest owners of commercial paper in the world. And yet nobody has seen them in the US markets. https://www.ft.com/content/342966af-98dc-4b48-b997-38c00804270a https://www.ft.com/content/342966af-98dc-4b48-b997-38c008042...

faeriechangling 4y ago

I mean we've seen this play out already, bankers have been forced to open their books due to shady dealings as early as the 14th century. What happens is that banks fall both legitimate and crooked, things get stabilised for awhile, time passes, everybody eventually forgets why such regulations came into being, greed happens again, and this continues on until the present day with the chaos becoming less frequent yet simultaneously spawning hilariously large black swan events. I don't know how the fine details of all this will shake out, not well enough to make any money off the affair, but I know the rough outline of exactly what is going to happen. Read up on the early history of fractional reserve banking if you'd like to know too.

IAmEveryone 4y ago

I hate the whole cryptocurrency thing more than most people, but tether may just not be a scam, at least in the legal sense. Holding their reserves in something other than cash is the way they can make money. The community will consider it betrayal because it essentially relies on the existing system they loath. But other than that, there isn’t too much wrong with it. That may also point at a reason why they would want to keep this private, which otherwise seems suspicious. That doesn’t mean people won’t lose all or some of their money with them. Some of these holdings may not be as liquid as needed in a full-on bank run, and they, like all stablecoins, suffer from the mismatch of having no upside by definition but some downside risk.

pjc50 4y ago
> Holding their reserves in something other than cash is the way they can make money Depending on what it is, that's also a way they can lose money. If you think of Tether as an investment organisation that takes $ and hands out claims which they say are worth 1$, while making a bunch of investments, what's that in regular investment land? A money market fund. What can go wrong? https://www.investopedia.com/articles/economics/09/money-market-reserve-fund-meltdown.asp https://www.investopedia.com/articles/economics/09/money-mar...
- NovemberWhiskey 4y ago
  Yes; I think that's absolutely right and insightful - the right way to think about Tether is that it's an opaque (refuses to disclose asset mix; is not audited), expensive (pays no interest; charges for redemptions), unregulated (not subject to the SEC or any other regulatory body) money market fund. In the real world, literally no-one would own that.
  - pjc50 4y ago
    You can in theory hold it off-exchange and transmit it without KYC, which has to imply a certain category of use. But most of it is being used as the "float" by exchanges, I believe.
4y ago

WinstonSmith84 4y ago

7 or 8B were redeemed yesterday within 24 hours, not bad isn't it? This goes without saying that it's only 10% of the market cap, but still better than many banks ... Speaking of banks, another question: which legacy bank would be able to redeem all money of all account holders? the answer is: none. The money you have on your account is "safe" only because there is no panic. Does that make traditional bank a huge scam?

InitialLastName 4y ago
a) Banks have actual rules they have to follow with respect to fractional reserves. b) Individual bank accounts (in the US) are backstopped by the federal government, via FDIC. It might still be a scam, but it's a scam whose validity is backed by the most expensive military on Earth.
- xuki 4y ago
  Here is the secret: USD is not backed by anything, and the US can print an unlimited amount of it. That's why they have zero risk of a bank run. Tether is "backed" by USD and they can't print USD, that's where the problem lies.
eloff 4y ago
I wanted to make a comment explaining how banks are different because they lend that money back out - it's not like they don't have it, they just don't have it liquid. Regulations are very strict about what percentage they must keep available. Also there's things like FDIC insurance. But at the of the day they are something akin to a government sanctioned ponzi scheme. It's true that if everyone asks a bank for their money back at the same time, the bank will fail. I imagine you're bringing this up to say that crypto is no worse than traditional banks. I disagree strongly with that.
- karpierz 4y ago
  Also, it's not even that debt isn't liquid; debt (much like corporate stocks, bonds, etc.) is very liquid. It's just not something you want to be forced to exit prematurely. So it's not even that the bank can't pay out, it's just that it costs them a little extra.

akudha 4y ago

If there is nothing shady going on, then why wouldn't they want to share these documents? Are these trade secrets or something similar?

JumpCrisscross 4y ago
> why wouldn't they want to share these documents? Are these trade secrets or something similar? Playing devil’s advocate, their users clearly don’t care if they’re backed. As such, they’re running a hedge fund with zero cost of capital. Those typically have good reasons for treating their strategies as proprietary.
smoovb 4y ago
One reason is that Tether is not a US company and does not itself operate in the USA. Submitting anything to a US court is a willingness to be subject to US rules and laws.
- grumple 4y ago
  Tether is used by Americans, transacting with Americans on American soil, pegging itself to the American dollar, using American dollars as reserves, using the internet which is controlled by America, holding reserves in a banking system largely controlled by America... Tether.to lists a US address and phone number. Their ip returns a cloudflare ip in California. They are definitely subject to US law. Pretty sure the US could do things like have them arrested in their home countries, extradited, have their bank accounts seized, etc. I suspect the US could also seize all US dollars without the consent of any foreign nation as well, seems like a natural way to defend a currency. Hard to claim you're backed by US dollars in that case.
  - charcircuit 4y ago
    >Tether.to lists a US address and phone number Where? >Their ip returns a cloudflare ip in California. Cloudflare uses anycast. Their IPs don't have a single location.
4y ago

grumple 4y ago

If Tether had sufficient reserves, they wouldn't be fighting to hide the details of those reserves. It should be obvious to any observer that they have little reserves and have basically taken the money and run.

aaaaaaaaata 4y ago
Or technically, or numerically sufficient assets, but based on a subjective (if not controversial) interpretation of the value of those assets.

simias 4y ago

I share your opinion, although apparently over the past week Tether's market cap dropped from $83B to $74B which, if true, means that at least $9B have been redeemed in a few days. In other words, they had at least $9B in liquid, USD-convertible assets they could use to redeem those tokens. USDT is currently trading slightly below its peg (around $0.999) and only dipped very temporarily to $0.98 as the cryptocurrency market was crashing. Now of course they still have $74B to account for and maybe I'm just naive but I have a little more faith in USDT now than I had a week ago, I still think that it's mostly backed by monopoly money but maybe not as much as I thought.

matthewdgreen 4y ago
Or alternatively they "redeemed" a bunch of unbacked tokens that they (or a partner company) owned, in order to give the impression that their redemption window was processing large amounts successfully. I'm sure that's not actually the case, but it would be consistent with the "Tether printing unbacked tokens for its own trading" theory of Tether fraud. This may seem like a conspiracy theory, but: the reason these "conspiracy theories" are so easy to believe is that Tether is unregulated and highly non-transparent.
shkkmo 4y ago
A dropping market cap absolutely doesn't mean that liquid, easily USD convertible assets were used to redeem them. It is quite possible that a number of exhanges which had traded IOUs for Tether, Traded that Tether back to have the IOUs canceled. Edit: Now that I think about it, it really would make sense. They are fighting to keep these records secret, but they may also be cleaning up their books a little in case they lose and have to make their holdings public.
deleted 4y ago
[deleted]
gitfan86 4y ago
Being only 90% backed by cash isn't the problem. A lot of people could afford to lose 10%, if the money was evenly distributed. Tether would still be a scam in that situation, but it wouldn't destroy the crypto ecosystem. The risk is that there could be a bank run. People panic and drive down the price trying to get rid of their tether. Now crypto as a whole has lost a lot of the liquidity used to buy/sell crypto. This causes a further panic across other crypto assets.

matheusmoreira 4y ago

> My personal, completely unsubstantiated view is that Tether is probably a huge scam. Tether's not really doing anything different from the what banks do every day. If it crashes the government should just bail them out like they did with the banks in 2008. They will spare banks from the consequences of their actions, so there's no reason why they can't do the same for Tether.

soared 4y ago
Bank accounts are FDIC insured up to 250k, coinbase/tether/etc are not.
- mkr-hn 4y ago
  Also: the banks were expected to and did pay it back collectively, with profit.[0] I don't see how Tether could do that if it turns out the fundamentals are bogus. [0] https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
MailNerd 4y ago
There's an incentive to bail out the banks to keep up trust in the currency, so government can print more. What would be the incentive for crypto?

roenxi 4y ago

It doesn't really matter at this point. Anyone dealing with Tether either doesn't care or is so ignorant that new revelations won't matter. Case in point I was buying tether when the peg looked like it was failing a few days ago - so I bought a few dollars for about $0.98. Obviously a tiny trade because I'm not crazy - more for the fun of being able to say I did - but whether the crypto is backed or not was a non-issue. This was to buy a completely different cryptocurrency on a different exchange, and Tether was just a conduit to get fiat money in to the system. Tether failing might be catastrophic for the crypto ecosystem. It also might not be. Technically speaking, the stablecoins look easy to replace. There is a big test of the whole crypto ecosystem coming to find out how it weathers a recession - total collapse? holds some value? most value? heaven help us, makes money? - which will make for interesting times.