4 ms·

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 ban

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.
shawabawa3 4y ago
Tether's liquidity position keeps getting compares to banks, as though banks hold 10% of all reserves and nothing else They hold 10% in _cash_, and 90% in debt. That debt is liquid and can be traded for more cash easily in the case of a bank run (possibly even guaranteed by the fed?) Tether _may_ be holding cash and assets covering 100% of its reserves, but 1) it's not sure, 2) it's not clear how liquid those assets are (e.g. dubious CP) If Tether hold cash+assets covering 90% of issuance then it's a scam. If they hold 99% then it's a scam. It's not equivalent to fractional reserve banking
- SilasX 4y ago
  The $15000 personal loans that banks make are liquid?
  - ceejayoz 4y ago
    Yes. They're readily sold (in large, predictable bunches) to other banks if necessary. It's not a perfect system; see the subprime mortgage crisis for an example.
    - SilasX 4y ago
      Sorry for asking!
codebolt 4y ago
> Does that make traditional bank a huge scam? That's exactly why traditional banks are subject to heavy oversight and regulations, and deposits are protected by govt guarantees. Tether on the other hand is operating completely in the dark and has been involved in a lot of shady activity that does nothing but undermine trust in their ability to do treasury operations in a responsible manner.
sdgdfgsfdfgsdfg 4y ago
Whats your source for this claim? If the redeeming parties are associated with Tether/Bitfinex, I would highly doubt that the money is actually going back into the regular financial system.
_hcuq 4y ago
Banks are backed by deposit insurance. Ie the government.
jacknews 4y ago
It's a fair point, I also view banks and fractional currency as slightly scammy, but subtly, not outright. One difference is that there are apparently strict rules that banks and central banks are supposed to follow (though the rules seem to change or bend expediently), and they are backed up by the government ('bailed out') if they screw up. Also the Tether people themselves do not appear to be revered for their integrity.
beefield 4y ago
> which legacy bank would be able to redeem all money of all account holders? the answer is: none. That answer is correct only in a very limited sense. All legacy banks have more assets than (non-equity) liabilities. In addition to that, banks have liabilities with lower seniority than deposits, which take losses before deposits. So yes, if a healthy bank faces a liquidity crisis, all deposits can't be paid out immediately. But they can be paid in full after the assets are liquidated. That's why banks are not huge scams. They are machines that create long term lending from short term borrowing, which actually is a useful thing. And yes, that contains many known risks, which is precisely why banks are regulated and audited. (I have yet to hear an understandable explanation how a mortgage or business loan works in crypto world - without fractional reserve banking, that is.) What potentially makes stablecoins scams is if they do not have assets to cover their liabilities. And funny thing is, that would be extremely easy to show to be not the case by being open about the details of the reserves. So easy, in fact, that it is practically impossible to come up with any other reason for not being open about the reserves than them actually being scams.
matthewdgreen 4y ago
Tether says 7 or 8B were redeemed yesterday. But nobody can actually verify that even those redemptions were processed for real cash. All we know is that Tether is very heavily advertising the notion that their redemption window is working great.
gizmo686 4y ago
1) Banks are solvent. Assets exceed liabilities. They have a liquidity problem if there is a bank run, but can unwind there position and pay all account holders if given enough time to do so. (To be clear, it is still possible for a bank to go insolvent) 2) Historically, bank failures and bank runs were a major recurring problem. Our current financial regulations are written in the blood of those past failures. 3) Among the many safegaurds in place is the FDIC, which insures depositors against bank failures. The FDIC is backed by the US government. There are two different failure modes for Teather 1) A liquididy problem (bank run). Teather pauses redemptions while until it is able to liquidate its other assests. Might cause a panic, but long term, your Teathers can still be redeamed for dollars. If their is trust in the market about this, 3rd parties can provide liquidity as a form of arbiteage (causing the value to dip below $1, but not crash) 2) A solvency problem. Tether runs out of money and the remaining holders get 0. Or, Tether knows they haveva problem and pay everyone pennies on the dollar. People are concerned about failure (2)
johnrgrace 4y ago
Every legacy bank can redeem all of the money their account holders have in a single day, they don't have the cash on hand but the federal reserve is there on hand to provide liquidity to any solvent bank. The whole framework of oversight and regulation is what makes it possible for banks to have this backstop.

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.

shawabawa3 4y ago

Tether's liquidity position keeps getting compares to banks, as though banks hold 10% of all reserves and nothing else They hold 10% in _cash_, and 90% in debt. That debt is liquid and can be traded for more cash easily in the case of a bank run (possibly even guaranteed by the fed?) Tether _may_ be holding cash and assets covering 100% of its reserves, but 1) it's not sure, 2) it's not clear how liquid those assets are (e.g. dubious CP) If Tether hold cash+assets covering 90% of issuance then it's a scam. If they hold 99% then it's a scam. It's not equivalent to fractional reserve banking

SilasX 4y ago
The $15000 personal loans that banks make are liquid?
- ceejayoz 4y ago
  Yes. They're readily sold (in large, predictable bunches) to other banks if necessary. It's not a perfect system; see the subprime mortgage crisis for an example.
  - SilasX 4y ago
    Sorry for asking!

codebolt 4y ago

> Does that make traditional bank a huge scam? That's exactly why traditional banks are subject to heavy oversight and regulations, and deposits are protected by govt guarantees. Tether on the other hand is operating completely in the dark and has been involved in a lot of shady activity that does nothing but undermine trust in their ability to do treasury operations in a responsible manner.

sdgdfgsfdfgsdfg 4y ago

Whats your source for this claim? If the redeeming parties are associated with Tether/Bitfinex, I would highly doubt that the money is actually going back into the regular financial system.

_hcuq 4y ago

Banks are backed by deposit insurance. Ie the government.

jacknews 4y ago

It's a fair point, I also view banks and fractional currency as slightly scammy, but subtly, not outright. One difference is that there are apparently strict rules that banks and central banks are supposed to follow (though the rules seem to change or bend expediently), and they are backed up by the government ('bailed out') if they screw up. Also the Tether people themselves do not appear to be revered for their integrity.

beefield 4y ago

> which legacy bank would be able to redeem all money of all account holders? the answer is: none. That answer is correct only in a very limited sense. All legacy banks have more assets than (non-equity) liabilities. In addition to that, banks have liabilities with lower seniority than deposits, which take losses before deposits. So yes, if a healthy bank faces a liquidity crisis, all deposits can't be paid out immediately. But they can be paid in full after the assets are liquidated. That's why banks are not huge scams. They are machines that create long term lending from short term borrowing, which actually is a useful thing. And yes, that contains many known risks, which is precisely why banks are regulated and audited. (I have yet to hear an understandable explanation how a mortgage or business loan works in crypto world - without fractional reserve banking, that is.) What potentially makes stablecoins scams is if they do not have assets to cover their liabilities. And funny thing is, that would be extremely easy to show to be not the case by being open about the details of the reserves. So easy, in fact, that it is practically impossible to come up with any other reason for not being open about the reserves than them actually being scams.

matthewdgreen 4y ago

Tether says 7 or 8B were redeemed yesterday. But nobody can actually verify that even those redemptions were processed for real cash. All we know is that Tether is very heavily advertising the notion that their redemption window is working great.

gizmo686 4y ago

1) Banks are solvent. Assets exceed liabilities. They have a liquidity problem if there is a bank run, but can unwind there position and pay all account holders if given enough time to do so. (To be clear, it is still possible for a bank to go insolvent) 2) Historically, bank failures and bank runs were a major recurring problem. Our current financial regulations are written in the blood of those past failures. 3) Among the many safegaurds in place is the FDIC, which insures depositors against bank failures. The FDIC is backed by the US government. There are two different failure modes for Teather 1) A liquididy problem (bank run). Teather pauses redemptions while until it is able to liquidate its other assests. Might cause a panic, but long term, your Teathers can still be redeamed for dollars. If their is trust in the market about this, 3rd parties can provide liquidity as a form of arbiteage (causing the value to dip below $1, but not crash) 2) A solvency problem. Tether runs out of money and the remaining holders get 0. Or, Tether knows they haveva problem and pay everyone pennies on the dollar. People are concerned about failure (2)

johnrgrace 4y ago

Every legacy bank can redeem all of the money their account holders have in a single day, they don't have the cash on hand but the federal reserve is there on hand to provide liquidity to any solvent bank. The whole framework of oversight and regulation is what makes it possible for banks to have this backstop.