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The most concerning thing to me about Tether is they appear to own Chinese corporate debt for some unknown reason. Isn't that an insane amount of risk? In what

by 0xy 4y ago

The most concerning thing to me about Tether is they appear to own Chinese corporate debt for some unknown reason. Isn't that an insane amount of risk? In what universe is Chinese corporate debt even remotely liquid? It could be invested in Evergrande-adjacent companies for all we know. And you know when push comes to shove the Chinese government will throw foreign investors under the bus first.

dsl 4y ago
The “too big to fail” businesses ended up being the best investments in the US. Commercial debt in China is guaranteed by proxy of the whole Chinese economy, because the government has direct ownership. The Chinese economy is in turn stabilized by the fact everything from your toothbrush to your car tires are made in China or using raw materials they control.
- pharmakom 4y ago
  China has the factories but they are hugely dependent on imports of materials and energy; technology from overseas companies; and overseas markets to export to. Throw in their demographics - which are less suited to manufacturing every year - and there could be serious problems for China on the horizon. I hope it leads to a more humane CCP.
- JumpCrisscross 4y ago
  > Commercial debt in China is guaranteed by proxy of the whole Chinese economy There is zero chance China prioritises offshore creditors in a crisis, a cryptocurrency exchange no less. This has precedent [1]. [1] https://www.wsj.com/articles/evergrande-is-leaving-foreign-bondholders-in-the-dark-advisers-say-11633707966 https://www.wsj.com/articles/evergrande-is-leaving-foreign-b...
jimmydorry 4y ago
Who's saying it's Chinese debt? It's more likely to be loans to crypto ventures. Until it's disclosed, it's anyone's guess, but anyone claiming anything with certaintity, is full of it.
- CTDOCodebases 4y ago
  It was a rumour but seeing as the biggest holders of USDT are incorporated in Hong Kong it is very believable. https://protos.com/tether-papers-crypto-stablecoin-usdt-investigation-analysis/ https://protos.com/tether-papers-crypto-stablecoin-usdt-inve...
CTDOCodebases 4y ago
Most likely the commercial paper was issued by crypto companies who all simultaneously seem to be incorporated in Hong Kong and the biggest borrowers of USDT.
ATsch 4y ago
I have absolutely no way to substantiate this, but I feel like if you needed to be able to say that you technically had a few billion in reserves as cheaply as possible but didn't actually think you'd ever need to liquidate it, buying the riskiest debt you could might be a great way to do that.
- charcircuit 4y ago
  I'm not following your logic. $1 worth of debt is worth $1 no matter how risky it is. The risk is built into how much it is worth. Risky debt is high risk high reward. Since these funds are backing a stablecoin it doesn't make sense to go for high risk plays with that much money.
  - kravvall 4y ago
    Risky debt asks way fewer questions where the money is from you lend them.
  - ATsch 4y ago
    I'm not very well versed in how selling debt works, but the way I assume it works is the following: Say someone still owes me $1M over the next 10 years, but I think that there's now only a 50% chance of the debt being repaid. It would make sense for me to try and sell that debt for at least $500k to get a guaranteed immediate return, right? And then that person could say that they hold $1M dollars, even though it's only worth half that much if they priced the risk into it. I may be misunderstanding things though.
    - nradov 4y ago
      Yes that's basically how it works. When a corporation holds a loan as an asset on their balance sheet, they're supposed to mark that asset to market reflecting the risk of default. But if marking to market isn't actually enforced by auditors or regulators then the company can pretend that the asset value is the same as face value. This can appear to work for years until there's a recession and a bunch of borrowers default.

by 0xy 4y ago

dsl 4y ago

The “too big to fail” businesses ended up being the best investments in the US. Commercial debt in China is guaranteed by proxy of the whole Chinese economy, because the government has direct ownership. The Chinese economy is in turn stabilized by the fact everything from your toothbrush to your car tires are made in China or using raw materials they control.

pharmakom 4y ago
China has the factories but they are hugely dependent on imports of materials and energy; technology from overseas companies; and overseas markets to export to. Throw in their demographics - which are less suited to manufacturing every year - and there could be serious problems for China on the horizon. I hope it leads to a more humane CCP.
JumpCrisscross 4y ago
> Commercial debt in China is guaranteed by proxy of the whole Chinese economy There is zero chance China prioritises offshore creditors in a crisis, a cryptocurrency exchange no less. This has precedent [1]. [1] https://www.wsj.com/articles/evergrande-is-leaving-foreign-bondholders-in-the-dark-advisers-say-11633707966 https://www.wsj.com/articles/evergrande-is-leaving-foreign-b...

jimmydorry 4y ago

Who's saying it's Chinese debt? It's more likely to be loans to crypto ventures. Until it's disclosed, it's anyone's guess, but anyone claiming anything with certaintity, is full of it.

CTDOCodebases 4y ago
It was a rumour but seeing as the biggest holders of USDT are incorporated in Hong Kong it is very believable. https://protos.com/tether-papers-crypto-stablecoin-usdt-investigation-analysis/ https://protos.com/tether-papers-crypto-stablecoin-usdt-inve...

CTDOCodebases 4y ago

Most likely the commercial paper was issued by crypto companies who all simultaneously seem to be incorporated in Hong Kong and the biggest borrowers of USDT.

ATsch 4y ago

I have absolutely no way to substantiate this, but I feel like if you needed to be able to say that you technically had a few billion in reserves as cheaply as possible but didn't actually think you'd ever need to liquidate it, buying the riskiest debt you could might be a great way to do that.

charcircuit 4y ago
I'm not following your logic. $1 worth of debt is worth $1 no matter how risky it is. The risk is built into how much it is worth. Risky debt is high risk high reward. Since these funds are backing a stablecoin it doesn't make sense to go for high risk plays with that much money.
- kravvall 4y ago
  Risky debt asks way fewer questions where the money is from you lend them.
- ATsch 4y ago
  I'm not very well versed in how selling debt works, but the way I assume it works is the following: Say someone still owes me $1M over the next 10 years, but I think that there's now only a 50% chance of the debt being repaid. It would make sense for me to try and sell that debt for at least $500k to get a guaranteed immediate return, right? And then that person could say that they hold $1M dollars, even though it's only worth half that much if they priced the risk into it. I may be misunderstanding things though.
  - nradov 4y ago
    Yes that's basically how it works. When a corporation holds a loan as an asset on their balance sheet, they're supposed to mark that asset to market reflecting the risk of default. But if marking to market isn't actually enforced by auditors or regulators then the company can pretend that the asset value is the same as face value. This can appear to work for years until there's a recession and a bunch of borrowers default.