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Someone help me understand this. All you need for a stable stablecoin is to save every dollar put in to it. The people behind Tether sell tethers for $1, they

Someone help me understand this. All you need for a stable stablecoin is to save every dollar put in to it. The people behind Tether sell tethers for $1, they save all of those dollars, and whenever the price of Tethers drops to $0.99, they buy tethers until the price is back up to $1. As long as they never spend anything from the reserve, this can't fail no matter how unpopular the currency is - they can back the currency right up until they buy back the last outstanding tether with their last dollar. Of course, they didn't save every dollar; they spent some and invested some, presumably in things that have lost money recently. But they should be solid as long as they have made more money on those investments than they've spent in salaries and yachts and what-not, and Tether was already huge back when BTC was below $2k. I know I'm leaving out a lot of detail here, but it seems like the only way Tether is not stable is if the people behind it have been wildly profligate. Is this about right, or am I off base?

candiddevmike 4y ago
Think the concern is the folks behind tether have printed tethers to buy/prop up Bitcoin over the years. You can see the issuance of new tethers align closely with Bitcoin rallies or sell offs.
droopyEyelids 4y ago
Someone buys $10 tethers for $10 worth of bitcoin, then bitcoin loses value, then the original buyer wants to redeem 10 tether for $10 USD.
- lupire 4y ago
  That's no problem at all. The person who bought the Bitcoin / sold the Tether loses , but that doesn't affect USDT.
  - jakelazaroff 4y ago
    The person who bought the Bitcoin and sold the USDT is the Tether organization itself. Here’s the same example, stated more explicitly: 1. I buy 10 USDT from Tether in exchange for $10 worth of Bitcoin. Tether now has 1:1 reserves of Bitcoin backing USDT. 2. The price of Bitcoin decreases by 50%. Tether no longer has enough reserves to cover all the USDT in circulation. 3. I want to sell my 10 USDT back to Tether and get my $10 worth of Bitcoin. But Tether only has $5 worth of Bitcoin in its reserves! USDT will lose its peg.
    - aeternum 4y ago
      This is a common misconception and is not at all how Tether works. Tether acts more like a central bank, they allow people to trade USD for USDT for exactly $1. Trading USD directly can be difficult because there are extensive KYC rules and not everyone has access to a USD bank account. On some exchanges, there is still a demand to trade in USD and it commands a premium due to the difficulty in trading it. This generates demand for USDT and slightly increase the price, suppose to $1.02 on this exchange. Arbitrage traders can now buy USDT for $1.00 and sell it on this other exchange for $1.02. The tether corporation simply holds the original $1 (of actual USD). They should have $1 USD for each USDT in circulation, and that's a lot of 'float' that they can invest in safe things like short-term US treasuries to make money off simply holding the cash. No need to speculate on Bitcoin or other risky investments, they are making plenty off just holding cash-equivalents.
      - jakelazaroff 4y ago
        > They should have $1 USD for each USDT in circulation, and that's a lot of 'float' that they can invest in safe things like short-term US treasuries to make money off simply holding the cash. That's the issue — they don't have $1 USD for each USDT in circulation.
        aeternum 4y ago
        How do you know? Tether has seen over 10B in withdrawals over the last couple weeks. The total circulating supply is 73B so that was something like a 12% withdrawal over a very short time window. Consider that banks are only required to maintain a 5% leverage ratio. 12% is a pretty extreme test, it's enough to cause most banks to fail. It also does not make sense for Tether to take on additional risk. They can make a nice yield by investing the 70B+ in very safe highly liquid short-term US treasuries.
        jakelazaroff 4y ago
        > How do you know? They've admitted to it in court. Multiple times. Patrick Mackenzie (patio11 on here) has a couple good articles about the fraud. [1][2] > 12% is a pretty extreme test, it's enough to cause most banks to fail. A bank can cover its customers' withdrawals by borrowing money from the Fed. If a run happens on Tether, who's going to rescue them? > It also does not make sense for Tether to take on additional risk. It might not make sense. That doesn't mean they didn't do it. [1] https://www.kalzumeus.com/2022/05/20/tether-required-recapitalization/ https://www.kalzumeus.com/2022/05/20/tether-required-recapit... [2] https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ (2019)
  - Majromax 4y ago
    Unless Tether itself is the entity on the other end of that transaction. From Tether's reserves report, it has $82.42bn of reserves against $82.26bn in liabilities ($82.19bn of which are the tokens), for a net equity position of about $160m. However, its reserves include $4.9bn of "other investments (including digital tokens)". Suppose that's all bitcoin, which is valued at "cost less impairment" (i.e. the lowest price bitcoin reaches since the purchase), and bitcoin drops by 10%. That would wipe out about $490mn of equity, putting Tether underwater. The same could happen with a similar drawdown on $3.7bn in "corporate bonds, funds and precious metals," which are marked to market.
hbosch 4y ago
In theory, you're correct. If 1B USDT is backed up, 1 to 1, with exactly 1B USD and no one every moves, sells, invests, or otherwise trades the underlying USD then the coin is actually stable... but it's already been established that Tether is backed by assets other than USD[0]. So... how much are you willing to trust them? 0. https://www.cnbc.com/2021/02/23/tether-bitfinex-reach-settlement-with-new-york-attorney-general.html https://www.cnbc.com/2021/02/23/tether-bitfinex-reach-settle...
- jerf 4y ago
  And look at the incentives of all the individual parties in such a scenario. I think this is the only way a "stablecoin" can function as designed... but it is not possible to construct an entity that has any scalable incentive to provide the backing that would create such a coin. For that entity, it is nothing but downside. Therefore, stable coins are a fiction on par with perpetual motion machines. In the short term there's all sorts of perpetual motion and over unity machines... in the long term, not so much.
  - rsync 4y ago
    What about the scenario your parent describes, but free redemption is 30 days and faster redemption costs (some basis points) ?
  - sudosysgen 4y ago
    Why couldn't you use short-term fed paper? Even a 0.5% yearly yield would be more than enough.
    - jerf 4y ago
      But why would you use short-term fed paper to make money with your stake, when you could just plain buy short-term fed paper, without the risk of people "redeeming" it from you? Backing a currency isn't about taking deposits from people. You can't back with deposits because your liabilities = assets then. You have to put your own stuff up, but then all you are doing is running the risk that people will redeem it away from you. Backing a currency is basically just giving your stuff away with extra steps.
idiotsecant 4y ago
>the only way Tether is not stable is if the people behind it have been wildly profligate This is exactly the case and exactly what most people believe has happened. It's a minor miracle that usdt hasn't evaporated already, it's a matter of time.
Majromax 4y ago
> whenever the price of Tethers drops to $0.99, they buy tethers until the price is back up to $1. Buy Tethers with what? If the money is in fact saved in regulated banks or other such instruments, there's nothing liquid left to defend the peg on the exchange. Instead, the standard "backed stablecoin" approach is to make money with a small spread on redemptions/creation, while allowing others to do that hard work. Tether takes (https://tether.to/es/fees https://tether.to/es/fees) a 0.1% spread on redemptions, so if you hand them $1mUSDT you'll get back $999k USD. > But they should be solid as long as they have made more money on those investments than they've spent in salaries and yachts and what-not, and Tether was already huge back when BTC was below $2k. One possible "bank run" scenario is that their backing is in fact stable, but it is illiquid. Suppose Tether invested part of its reserve in long-term loans to another company (like Binance). If Tether ever faces a crisis of confidence, it would face large-scale redemption requests, but it may be unable to call in its loans to fund those requests. That would leave Tether unable to redeem its currency, and a public suspension of redemptions would drive a further exodus. In theory, every single USDT in circulation could be redeemed at a moment's notice. Unwinding some $73 billion in investments would be a Herculean feat even if everything is fully legitimate.
- martincmartin 4y ago
  Like the bank run scene from It's A Wonderful Life: https://youtu.be/iPkJH6BT7dM?t=45 https://youtu.be/iPkJH6BT7dM?t=45
- datadata 4y ago
  > In theory, every single USDT in circulation could be redeemed at a moment's notice The easy way to protect against this is to not contractually promise instant redemption. I think this is what tether actually does, but I could not find a source. Regular savings account banks do typically do this, for example the bank has the right to ask for 7 days to honor a withdrawal. If you are tether and your asserts are in bonds that mature in under N days, then you could just promise redemption within N days to eliminate bank run risk. You would still of course have counter party risk that when the bond matures it is not paid back.
  - 4y ago
mesozoic 4y ago
You're assuming they're actually receiving the dollars for the tethers they mint which they have chose not to prove.
jonahbenton 4y ago
There is an assumption behind your question to the effect of saying "If we assume Tether is not, ultimately, a fraud, it seems like the only way..." That is, IMHO, a questionable assumption. Now, "fraud" in this case too strong a term. The intent to defraud may not be explicit in Tether's internal conversations and practices. All business ventures by definition involve risk, and corporate structures and venues and liability shields and so forth exist precisely to create a space for risky ventures to be undertaken without failure leading to death or personal poverty for the principals. In those cases, the customers, investors, and other participants are also partaking in the risk, based on information that is deliberately- sometimes responsibly, sometimes incidentally, and sometimes maliciously- incomplete. At the end of the day, when the full accounting is known, a post facto judgement of fraud vs speculation may be rendered. But the assumption that Tether is behaving as one might want one's bank to be behaving, in terms of customer/user risk exposure, should be strongly, strongly questioned.
- ufo 4y ago
  Let's be honest with ourselves... Tether is almost certainly intentionally fraudulent.
- sgammon 4y ago
  how is fraud too strong a term? what else would you call deliberate financial malfeasance?
  - jonahbenton 4y ago
    Have just seen it many times, specifically in finance, the risk complexity of which is really hard to understand, and which has an equilibrium of stasis punctuated with earthquake-level surprises that make even careful bets into speculations into existential threats more quickly than most people are able to respond. Fraud is a catchall for a really wide range of often unintentional outcomes. Incompetence rather than malice, though the common behaviors both of information hiding and cutting customer hair rather than one's own shades awfully close to malice, even if they are in compliance with terms and disclosures.
pyrrhotech 4y ago
That's how it should work. What if instead, multibillion dollar exchanges that have a vested interest in keeping the price of crypto propped up instead paid Tether much smaller numbers to print out of thin air and create artificial demand during any price drops?
- vkou 4y ago
  That is a fascinating hypothetical that an audit of tether would either prove or disprove. The fact that tether has never been audited makes the former more likely than not.
aftbit 4y ago
What if Tether has issued a substantial amount of USDT to people in exchange for either nothing or things that ultimately prove to be worth much less than $1/USDT issued?
TameAntelope 4y ago
My understanding is that while USDT isn't this $1:$1 ratio you describe, other stablecoins are, specifically USDC. So what you're describing does exist, but isn't what USDT is. IMO the infatuation with USDT has always confused me a bit; why would anyone use USDT over USDC in the first place?
- optimalsolver 4y ago
  USDC hasn't been audited either, so how would we know that?
  - TameAntelope 4y ago
    Because they've claimed it and we have no reason not to believe them, unlike USDT which we have many reasons not to believe them.
    - lmm 4y ago
      If your model is to trust entities until there's a specific reason to distrust them, I've got a billion dollars in USDLMM to sell you. Tether is larger and has been subject to more investigation than their competitors. (Don't get me wrong, I assume everyone in this space is some combination of fraud, ponzi, and money laundering)
      - TameAntelope 4y ago
        Tether has not survived those investigations. My model is the same as your model, you're just making assumptions I'm not.
  - nl 4y ago
    USDC has monthly "attestations" of their assets. This is less than an audit but it isn't nothing: https://www.centre.io/usdc-transparency https://www.centre.io/usdc-transparency I don't think even banks do monthly external audits. USDT does quarterly external reports: https://tether.to/en/transparency/#reports https://tether.to/en/transparency/#reports
MockObject 4y ago
> whenever the price of Tethers drops to $0.99 If the Tether is pegged to the USD, who would ever sell one for $0.99?
- flerchin 4y ago
  Folks who want their fiat.
  - MockObject 4y ago
    What does "pegged" even mean unless Tether is always willing to pay 1 USD for one? Then who would sell their tether for $0.99, at a loss?
    - oneoff786 4y ago
      Tether is not willing to do this
      - MockObject 4y ago
        So their idea of pegging is just a forcefully worded request?
        oneoff786 4y ago
        More of a vague promise to buy. They have a lot of dollars. If tether skips to 99 cents will they buy it from people to push the price up? Maybe. It’s been sitting at 99.9 for several days now.
        lmm 4y ago
        "Sure, it's pegged, Anyone who fills in the right forms can get their USD back. After a few weeks. And if the request is big enough. Oh, but there was a problem with your form. Sorry. Try correcting it and resubmitting it. No, we can't tell you what the problem was."
    - ohgodplsno 4y ago
bko 4y ago
Its not entirely obvious what they "should" do with the fiat they make selling their token. They could invest it something safe like treasuries and keep the interest for themselves. But even treasuries could go down in value and if there are enough withdrawls they'll have to sell it at a loss. Or they can invest in money market funds, or similar short term investments. Or commercial paper (unsecured short term debt). From what I read, they invested a lot in commercial paper to Chinese companies. It's all a game to eek out a slightly higher yield. They face the same problem as any bank. Except banks have a regulatory framework that tells them exactly how much they can invest and in what, and every decade or so the bank gets bailed out.
- deleted 4y ago
  [deleted]
Geee 4y ago
The problem is that it's not that simple to just park $80b on a bank account. The bank will use the money to buy bonds or give it out in mortgages to get interest on it. It's akin to kicking the can to the bank, and getting the money out might fail or be too slow. It's probably better to manage the reserve yourself, to be able to manage risk and liquidity properly, rather than outsource it to a bank.
- __turbobrew__ 4y ago
  It sounds like the only way to do this is to create your own bank which directly integrates with the federal reserve.
  - mtremsal 4y ago
    The banks used by crypto companies tend to be outside the US and have large crypto positions.
  - logifail 4y ago
    > It sounds like the only way to do this is to create your own bank which directly integrates with the federal reserve ...but isn't the whole point of Tether to stay as far away from the traditional banking system as they can? This of course includes avoiding - as much as possible - all the KYC/AML legislation that traditional banks are obliged to follow?
    - __turbobrew__ 4y ago
      There is tension between being as far away from the banking system as possible and having the ability to cash out your USDT to USD. The only way I can think of a stablecoin being totally independent of banks is to store their reserves as bank notes, and when someone wants to cash out USDT to USD they have to go pick up the bank notes. This glosses over the obvious challenges of storing billions of dollars in bank notes and distributing those notes during a cash out. The bank notes are also worth less than face value because you have to physically store and secure them.
    - 4y ago
deleted 4y ago
[deleted]
ohgodplsno 4y ago
Now imagine that Tether, instead of waiting for someone to give them a dollar to print one USDT, printed billions of them and said "yeah don't worry they were paid for they're backed. Trust us" and then never opened any of their books to anyone but a single unknown audit company that is basically owned by one of their friends. Also imagine that they took the actual money that was given to them and, instead of keeping them in a bank account, said they were going to invest them. (Or did not say it, and did it anyways). Imagine they invested it in amazingly profitable sectors like the housing market in China which is definitely not crashing right now. Tether isn't backed.
blihp 4y ago
The 'all you need' part is the part you can't hand-wave away. One typically can't both satisfy the requirements of generating a rate of return needed to remain viable[1] with low risk and keep the funds liquid. In the event of a run on their currency, they would need to have most of those funds available on short notice without a significant loss of principal to avoid an implosion. Even liquid, safe government bonds will often need to be sold below the price paid during extreme market conditions (the exact kind of situation that runs on the coin are likely to occur during) [1] Especially in a near-zero interest rate environment.
Bud 4y ago
The best rebuttal to this is the following quote from the article in question, which shows that not only is Tether NOT fully backed by cash, a lot of their supposed collateral sounds quite shady and they are also not letting anyone else audit what they are doing: "Regulators and economists have long questioned whether Tether has enough assets in its reserves to justify its stablecoin’s purported peg to the dollar. “USDT is, quite simply, fully backed by collateral,” Tether said in a statement Monday. “It has maintained its peg because every USDT is redeemable for dollars via Tether, and as such any time the price goes below $1 investors can earn a profit by buying USDT for a discount and redeeming it with Tether.” The company previously claimed tether was backed one-to-one by dollars in a bank account, but subsequently revealed it was using other assets including commercial paper — short-term corporate debt — and even digital tokens as collateral after a settlement with the New York attorney general. Last week, Tether said it reduced the amount of commercial paper it owns and increased its holdings of U.S. Treasury bills. For the first time, the British Virgin Islands-based firm said it also holds some foreign government debt. Tether declined to comment further on the source of its funds, but said it is pursuing a more thorough audit of its reserves."
015a 4y ago
Here's what you're missing: The USD:USDT exchange rate should always be 1:1. If 1 USDT is, due to market pressure, suddenly worth $0.98 USD, Tether's responsibility involves some analysis of either waiting for the market to resolve itself (maybe its a transient thing, and its an arbitrage opportunity, so The People may step in), or act as the source of market liquidity; they buy USDT up, with their dollar reserves. Now they, as they always do, have a reserve of USDT they can re-sell for $1 USD without minting new currency, which is convenient (though ultimately a liability on their balance sheets). But there's a second situation: the exchange rate hits 1 USDT == 1.02 USD. This would happen if demand for Tether were very high; people want safety and stability, so they demand USDT. But: they aren't interested in "leaving crypto"; they don't want to convert USD to USDT, they want to convert crypto assets to USDT. The open market doesn't have enough liquidity to support the 1:1 exchange rate, so the price of USDT starts rising. This absolutely happens in exchanges which price crypto assets in USDT, which is many. One exchange says 1 BTC = X USD, another says 1 BTC = X*1.01 USDT, and there's now an inter-exchange arbitrage opportunity based on the promise that 1 USD should be 1 USDT. That arbitrage, in some market conditions, can act as an upward force on the price of USDT. It is ALSO Tether's responsibility to cool off the market. What do they do in this situation? There's only one solution: they need to increase the liquidity pool of USDT. In other words, there are sources of demand for USDT outside the scope of the purist viewpoint of "give me one USD and you get one USDT" rooted in their responsibility not just to act as a reserve bank for USD/T, but also a market maker. Markets misbehave; Tether promises stability. What's the source of these USDT? They probably have some USDT in their reserves. But beyond that, they need to be minted! Their promise is that every minted token is backed with USD. Assume they're keeping their promise, then follow the line of questioning into where the USD comes from. Return on USD investments for sure. Bank loans? External investor capital? CEO working nights at McDonalds? Regardless, it gets minted and then sold (probably at $1 USD); they make the money back. And, of course, there's the situation if that assumption is wrong. They have no external source of capital; they just mint tokens to meet demand, hoping that they get sold at $1 USD to refill the reserves. And that's damn convenient, wouldn't it be? USD-backed investments are pretty risky; we could be in a down market and their AAPL shares are in the red; and its USUALLY the case that demand for USDT, for stability, would be high when other markets are in the red; when it rains it pours. They need to pay taxes on the ROI of those investments. Things like bank loans or external investor funding usually also have expectations of ROI. Those are all costs; and it would be REALLY convenient if they could just ignore those and mint the tokens, who cares, the money will flow back in. This actually works most of the time; it's literally called Fractional Reserve Banking, and everyone does it. But during black swan events, it can break down; especially when you mix in typical finance bro greed, but that isn't even necessary for something like USDT to break down. There's no perfectly safe way to create a reserve-backed stable asset. The best hope in a deflationary context is that if the price of USD:USDT goes to something like 1:1.01, people preemptively come to Tether, give them USD for USDT, then arbitrage it back to 1:1. But because the logistics of doing that are different than just exchanging crypto-to-crypto (latency, KYC, etc), there could be a demand mis-match. Tether can't let the price stay above 1:1 for long, because it actually devalues the USD basis of anyones' investments denominated in USDT, which is a loss-of-faith event that can spiral to be even worse. So Tether steps in.
shadedtriangle 4y ago
> All you need for a stable stablecoin is to save every dollar put in to it. That’s the issue right there. How does Tether save its dollars? We can see it in their transparency report[1]. Whether you believe them or not it’s not just cash in a bank account. * 0.41% Non-U.S. Treasury Bills * 55.53% U.S. Treasury Bills * 0.15% Reverse Repurchase Agreements * 5.81% Cash & Bank Deposits * 9.63% Money Market Funds * 28.47% Commercial Paper and Certificates of Deposit How much of that is liquid and directly convertible to dollars 1:1 in he next 24 hours? Not 100%. What happens when they start selling billions in Treasury Bills and Commercial Paper to fund redemptions? The market price of those assets will drop. What if the value of those assets is already below 1:1 because of recent market events? What if they’re not being as transparent as they say they are? > As long as they never spend anything from the reserve, this can't fail no matter how unpopular the currency is. This can easily fail many different ways. [1]: https://tether.to/en/transparency/#reports https://tether.to/en/transparency/#reports
- agumonkey 4y ago
  So the financial system is mostly reluctance ?
  - NortySpock 4y ago
    Well, friction in transactions, arbitrage, and collective belief in the value of an asset.
    - worik 4y ago
      >....and collective belief in the value of an asset. Among other things the financial system is a web of trust. IMO one of the fundamental things that crypto gets wrong is replacing trust with algorithms. I do not think that can be done. Trust is about people. Time will tell if an algorithm that can automate trust can be found. I do not expect it will
      - hackingforfun 4y ago
mdoms 4y ago
throwaway6734 4y ago
What's stopping them from just printing tethers without dollar backing and injecting them into the market?
- stavros 4y ago
  Tethers aren't dollar-backed, are they? You just create as many tethers as you want out of thin air, and you sell them for a dollar each. If people want to sell them back, you (presumably) have the dollars still.
- Gigachad 4y ago
  Considering how much marketing there is over “decentralised” and “trustlesss”, crypto systems are remarkably based in trust.
datalopers 4y ago
They don't have the dollars. That's the catch.
- yuvadam 4y ago
  [citation needed]
- TrackerFF 4y ago
  Oh they have dollars, but the question is: How much of their non-USD assets are very liquid, and not too sensitive to market conditions? Say they have 50% in cash, 30% in other easily convertible assets, and the last 20% in more speculative instruments. What if they figured - hey, let's put those 20% on the market. Any returns, we keep, no-one needs to know. The rest we can use as reserve to keep the 1:1 ratio. Hell, investing 20% of xx billions on any fund or security that beats inflation is going to make you filthy rich - especially when there's only a handful of employees. The disaster, of course, happens if/when any of the markets they're exposed to takes a nosedive, and they either can't prop it up fast enough, or get problems with paying. Probably just the cynic in me, but I wouldn't be surprised if that's how things play out internally. Without any solid audits, it's hard to say. For all I know they have a very high % of USD reserves, or they could be Bernie Madoff reincarnated.
chinchilla2020 4y ago
There is another, more legitimate way to create a stablecoin. DAI is the dramaless version of a USD stablecoin and is decentralized, secured by 150% reserve automatically, run entirely by smart contracts. https://makerdao.com/whitepaper/Dai-Whitepaper-Dec17-en.pdf https://makerdao.com/whitepaper/Dai-Whitepaper-Dec17-en.pdf It does not perfectly track USD but stays within a couple percentage points. Arbitrage traders automatically stabilize the coin thanks to the way the smart contracts are arranged.
balefrost 4y ago
The NY Attorney General successfully prosecuted the parent company of Tether and Bitfinex. They found that the two were sharing funds, transferring them back and forth to make it appear that Tether was fully backed while using the same funds to prop up Bitfinex (after they lost coins, maybe in a hack?) https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal https://ag.ny.gov/press-release/2021/attorney-general-james-... That doesn't necessarily mean that Tether's assets are less than its debts. I don't know the details. I just know that the NY Attorney General finds their activities to be shady.
- smoovb 4y ago
  The outcome was a $18.5 settlement with no admission of wrong doing. If there was really shady activity, would NYAG disclose it?
  - RugnirViking 4y ago
    If there was no shady activity, would tether pay a $18.5 million settlement for no reason?
  - balefrost 4y ago
    They did disclose it; it was in the press release: In the case of Tether, the company represented that each of its stablecoins were backed one-to-one by U.S. dollars in reserve. However, an investigation by the Office of the Attorney General (OAG) found that iFinex — the operator of Bitfinex — and Tether made false statements about the backing of the “tether” stablecoin, and about the movement of hundreds of millions of dollars between the two companies to cover up the truth about massive losses by Bitfinex. also Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. The settlement also bars Tether from trading with New Yorkers, and the must submit regular reports about their compliance with this prohibition. I suspect the AG got what they wanted, they just managed to do so without taking time in the court system. I would assume that Tether realized that it wasn't worth trying to defend themselves and so agreed to settle. My use of "successfully prosecuted" might not have been the right way to phrase it.
frgtpsswrdlame 4y ago
>The people behind Tether sell tethers for $1 This is the problem. I don't believe all the tethers were sold in exchange for $1. If Tether wasn't receiving $1 for every tether then everything else falls apart.
lottin 4y ago
A stablecoin that was fully backed with dollar reserves would be fail-proof. The problem is such a stablecoin would also be unprofitable, because the issuer would have expenses but no revenue. The way they generate revenue is by investing part or all of their reserves in assets that generate a return. However, as soon as they do that, the stablecoin is no longer fail-proof because these investments are not risk-free.
- User23 4y ago
  The risk-free rate of return is generally greater than 0%, so with a large enough issuance I imagine it could be done safely. But "don't get greedy" is a commonly ignored principle.
wyager 4y ago
Part of the issue is that the US government keeps fucking with their bank accounts, making it difficult to have 100% of their reserves in plain old cash deposits.
sam_goody 4y ago
Yeah, "Fake it till you make it", and they made it. They are the only stablecoin I would ever consider buying, because they by now have enough resources to fake it long term. I've read that the main reasons that people invest in a stablecoin (from least to most) is to: a) buy/sell other crypto easily, b) store illegal gains without drawing attention to yourself c) move your money out of the country. Reason C is especially pertinent to China, and the environment there (from what I read on U.S. media, which is HIGHLY unreliable) is not pushing them to run the bank. IMO, the biggest risk for Tether is that the AG suddenly announces that they won't be able to trade in the States, as that will cause a run, and that is definitely possible.

candiddevmike 4y ago

Think the concern is the folks behind tether have printed tethers to buy/prop up Bitcoin over the years. You can see the issuance of new tethers align closely with Bitcoin rallies or sell offs.

droopyEyelids 4y ago

Someone buys $10 tethers for $10 worth of bitcoin, then bitcoin loses value, then the original buyer wants to redeem 10 tether for $10 USD.

lupire 4y ago
That's no problem at all. The person who bought the Bitcoin / sold the Tether loses , but that doesn't affect USDT.
- jakelazaroff 4y ago
  The person who bought the Bitcoin and sold the USDT is the Tether organization itself. Here’s the same example, stated more explicitly: 1. I buy 10 USDT from Tether in exchange for $10 worth of Bitcoin. Tether now has 1:1 reserves of Bitcoin backing USDT. 2. The price of Bitcoin decreases by 50%. Tether no longer has enough reserves to cover all the USDT in circulation. 3. I want to sell my 10 USDT back to Tether and get my $10 worth of Bitcoin. But Tether only has $5 worth of Bitcoin in its reserves! USDT will lose its peg.
  - aeternum 4y ago
    This is a common misconception and is not at all how Tether works. Tether acts more like a central bank, they allow people to trade USD for USDT for exactly $1. Trading USD directly can be difficult because there are extensive KYC rules and not everyone has access to a USD bank account. On some exchanges, there is still a demand to trade in USD and it commands a premium due to the difficulty in trading it. This generates demand for USDT and slightly increase the price, suppose to $1.02 on this exchange. Arbitrage traders can now buy USDT for $1.00 and sell it on this other exchange for $1.02. The tether corporation simply holds the original $1 (of actual USD). They should have $1 USD for each USDT in circulation, and that's a lot of 'float' that they can invest in safe things like short-term US treasuries to make money off simply holding the cash. No need to speculate on Bitcoin or other risky investments, they are making plenty off just holding cash-equivalents.
    - jakelazaroff 4y ago
      > They should have $1 USD for each USDT in circulation, and that's a lot of 'float' that they can invest in safe things like short-term US treasuries to make money off simply holding the cash. That's the issue — they don't have $1 USD for each USDT in circulation.
      - aeternum 4y ago
        How do you know? Tether has seen over 10B in withdrawals over the last couple weeks. The total circulating supply is 73B so that was something like a 12% withdrawal over a very short time window. Consider that banks are only required to maintain a 5% leverage ratio. 12% is a pretty extreme test, it's enough to cause most banks to fail. It also does not make sense for Tether to take on additional risk. They can make a nice yield by investing the 70B+ in very safe highly liquid short-term US treasuries.
        jakelazaroff 4y ago
        > How do you know? They've admitted to it in court. Multiple times. Patrick Mackenzie (patio11 on here) has a couple good articles about the fraud. [1][2] > 12% is a pretty extreme test, it's enough to cause most banks to fail. A bank can cover its customers' withdrawals by borrowing money from the Fed. If a run happens on Tether, who's going to rescue them? > It also does not make sense for Tether to take on additional risk. It might not make sense. That doesn't mean they didn't do it. [1] https://www.kalzumeus.com/2022/05/20/tether-required-recapitalization/ https://www.kalzumeus.com/2022/05/20/tether-required-recapit... [2] https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ (2019)
- Majromax 4y ago
  Unless Tether itself is the entity on the other end of that transaction. From Tether's reserves report, it has $82.42bn of reserves against $82.26bn in liabilities ($82.19bn of which are the tokens), for a net equity position of about $160m. However, its reserves include $4.9bn of "other investments (including digital tokens)". Suppose that's all bitcoin, which is valued at "cost less impairment" (i.e. the lowest price bitcoin reaches since the purchase), and bitcoin drops by 10%. That would wipe out about $490mn of equity, putting Tether underwater. The same could happen with a similar drawdown on $3.7bn in "corporate bonds, funds and precious metals," which are marked to market.

hbosch 4y ago

In theory, you're correct. If 1B USDT is backed up, 1 to 1, with exactly 1B USD and no one every moves, sells, invests, or otherwise trades the underlying USD then the coin is actually stable... but it's already been established that Tether is backed by assets other than USD[0]. So... how much are you willing to trust them? 0. https://www.cnbc.com/2021/02/23/tether-bitfinex-reach-settlement-with-new-york-attorney-general.html https://www.cnbc.com/2021/02/23/tether-bitfinex-reach-settle...

jerf 4y ago
And look at the incentives of all the individual parties in such a scenario. I think this is the only way a "stablecoin" can function as designed... but it is not possible to construct an entity that has any scalable incentive to provide the backing that would create such a coin. For that entity, it is nothing but downside. Therefore, stable coins are a fiction on par with perpetual motion machines. In the short term there's all sorts of perpetual motion and over unity machines... in the long term, not so much.
- rsync 4y ago
  What about the scenario your parent describes, but free redemption is 30 days and faster redemption costs (some basis points) ?
- sudosysgen 4y ago
  Why couldn't you use short-term fed paper? Even a 0.5% yearly yield would be more than enough.
  - jerf 4y ago
    But why would you use short-term fed paper to make money with your stake, when you could just plain buy short-term fed paper, without the risk of people "redeeming" it from you? Backing a currency isn't about taking deposits from people. You can't back with deposits because your liabilities = assets then. You have to put your own stuff up, but then all you are doing is running the risk that people will redeem it away from you. Backing a currency is basically just giving your stuff away with extra steps.

idiotsecant 4y ago

>the only way Tether is not stable is if the people behind it have been wildly profligate This is exactly the case and exactly what most people believe has happened. It's a minor miracle that usdt hasn't evaporated already, it's a matter of time.

Majromax 4y ago

> whenever the price of Tethers drops to $0.99, they buy tethers until the price is back up to $1. Buy Tethers with what? If the money is in fact saved in regulated banks or other such instruments, there's nothing liquid left to defend the peg on the exchange. Instead, the standard "backed stablecoin" approach is to make money with a small spread on redemptions/creation, while allowing others to do that hard work. Tether takes (https://tether.to/es/fees https://tether.to/es/fees) a 0.1% spread on redemptions, so if you hand them $1mUSDT you'll get back $999k USD. > But they should be solid as long as they have made more money on those investments than they've spent in salaries and yachts and what-not, and Tether was already huge back when BTC was below $2k. One possible "bank run" scenario is that their backing is in fact stable, but it is illiquid. Suppose Tether invested part of its reserve in long-term loans to another company (like Binance). If Tether ever faces a crisis of confidence, it would face large-scale redemption requests, but it may be unable to call in its loans to fund those requests. That would leave Tether unable to redeem its currency, and a public suspension of redemptions would drive a further exodus. In theory, every single USDT in circulation could be redeemed at a moment's notice. Unwinding some $73 billion in investments would be a Herculean feat even if everything is fully legitimate.

martincmartin 4y ago
Like the bank run scene from It's A Wonderful Life: https://youtu.be/iPkJH6BT7dM?t=45 https://youtu.be/iPkJH6BT7dM?t=45
datadata 4y ago
> In theory, every single USDT in circulation could be redeemed at a moment's notice The easy way to protect against this is to not contractually promise instant redemption. I think this is what tether actually does, but I could not find a source. Regular savings account banks do typically do this, for example the bank has the right to ask for 7 days to honor a withdrawal. If you are tether and your asserts are in bonds that mature in under N days, then you could just promise redemption within N days to eliminate bank run risk. You would still of course have counter party risk that when the bond matures it is not paid back.
- 4y ago

mesozoic 4y ago

You're assuming they're actually receiving the dollars for the tethers they mint which they have chose not to prove.

jonahbenton 4y ago

There is an assumption behind your question to the effect of saying "If we assume Tether is not, ultimately, a fraud, it seems like the only way..." That is, IMHO, a questionable assumption. Now, "fraud" in this case too strong a term. The intent to defraud may not be explicit in Tether's internal conversations and practices. All business ventures by definition involve risk, and corporate structures and venues and liability shields and so forth exist precisely to create a space for risky ventures to be undertaken without failure leading to death or personal poverty for the principals. In those cases, the customers, investors, and other participants are also partaking in the risk, based on information that is deliberately- sometimes responsibly, sometimes incidentally, and sometimes maliciously- incomplete. At the end of the day, when the full accounting is known, a post facto judgement of fraud vs speculation may be rendered. But the assumption that Tether is behaving as one might want one's bank to be behaving, in terms of customer/user risk exposure, should be strongly, strongly questioned.

ufo 4y ago
Let's be honest with ourselves... Tether is almost certainly intentionally fraudulent.
sgammon 4y ago
how is fraud too strong a term? what else would you call deliberate financial malfeasance?
- jonahbenton 4y ago
  Have just seen it many times, specifically in finance, the risk complexity of which is really hard to understand, and which has an equilibrium of stasis punctuated with earthquake-level surprises that make even careful bets into speculations into existential threats more quickly than most people are able to respond. Fraud is a catchall for a really wide range of often unintentional outcomes. Incompetence rather than malice, though the common behaviors both of information hiding and cutting customer hair rather than one's own shades awfully close to malice, even if they are in compliance with terms and disclosures.

pyrrhotech 4y ago

That's how it should work. What if instead, multibillion dollar exchanges that have a vested interest in keeping the price of crypto propped up instead paid Tether much smaller numbers to print out of thin air and create artificial demand during any price drops?

vkou 4y ago
That is a fascinating hypothetical that an audit of tether would either prove or disprove. The fact that tether has never been audited makes the former more likely than not.

aftbit 4y ago

What if Tether has issued a substantial amount of USDT to people in exchange for either nothing or things that ultimately prove to be worth much less than $1/USDT issued?

TameAntelope 4y ago

My understanding is that while USDT isn't this $1:$1 ratio you describe, other stablecoins are, specifically USDC. So what you're describing does exist, but isn't what USDT is. IMO the infatuation with USDT has always confused me a bit; why would anyone use USDT over USDC in the first place?

optimalsolver 4y ago
USDC hasn't been audited either, so how would we know that?
- TameAntelope 4y ago
  Because they've claimed it and we have no reason not to believe them, unlike USDT which we have many reasons not to believe them.
  - lmm 4y ago
    If your model is to trust entities until there's a specific reason to distrust them, I've got a billion dollars in USDLMM to sell you. Tether is larger and has been subject to more investigation than their competitors. (Don't get me wrong, I assume everyone in this space is some combination of fraud, ponzi, and money laundering)
    - TameAntelope 4y ago
      Tether has not survived those investigations. My model is the same as your model, you're just making assumptions I'm not.
- nl 4y ago
  USDC has monthly "attestations" of their assets. This is less than an audit but it isn't nothing: https://www.centre.io/usdc-transparency https://www.centre.io/usdc-transparency I don't think even banks do monthly external audits. USDT does quarterly external reports: https://tether.to/en/transparency/#reports https://tether.to/en/transparency/#reports

MockObject 4y ago

> whenever the price of Tethers drops to $0.99 If the Tether is pegged to the USD, who would ever sell one for $0.99?

flerchin 4y ago
Folks who want their fiat.
- MockObject 4y ago
  What does "pegged" even mean unless Tether is always willing to pay 1 USD for one? Then who would sell their tether for $0.99, at a loss?
  - oneoff786 4y ago
    Tether is not willing to do this
    - MockObject 4y ago
      So their idea of pegging is just a forcefully worded request?
      - oneoff786 4y ago
        More of a vague promise to buy. They have a lot of dollars. If tether skips to 99 cents will they buy it from people to push the price up? Maybe. It’s been sitting at 99.9 for several days now.
      - lmm 4y ago
        "Sure, it's pegged, Anyone who fills in the right forms can get their USD back. After a few weeks. And if the request is big enough. Oh, but there was a problem with your form. Sorry. Try correcting it and resubmitting it. No, we can't tell you what the problem was."
  - ohgodplsno 4y ago

bko 4y ago

Its not entirely obvious what they "should" do with the fiat they make selling their token. They could invest it something safe like treasuries and keep the interest for themselves. But even treasuries could go down in value and if there are enough withdrawls they'll have to sell it at a loss. Or they can invest in money market funds, or similar short term investments. Or commercial paper (unsecured short term debt). From what I read, they invested a lot in commercial paper to Chinese companies. It's all a game to eek out a slightly higher yield. They face the same problem as any bank. Except banks have a regulatory framework that tells them exactly how much they can invest and in what, and every decade or so the bank gets bailed out.

deleted 4y ago
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Geee 4y ago

The problem is that it's not that simple to just park $80b on a bank account. The bank will use the money to buy bonds or give it out in mortgages to get interest on it. It's akin to kicking the can to the bank, and getting the money out might fail or be too slow. It's probably better to manage the reserve yourself, to be able to manage risk and liquidity properly, rather than outsource it to a bank.

__turbobrew__ 4y ago
It sounds like the only way to do this is to create your own bank which directly integrates with the federal reserve.
- mtremsal 4y ago
  The banks used by crypto companies tend to be outside the US and have large crypto positions.
- logifail 4y ago
  > It sounds like the only way to do this is to create your own bank which directly integrates with the federal reserve ...but isn't the whole point of Tether to stay as far away from the traditional banking system as they can? This of course includes avoiding - as much as possible - all the KYC/AML legislation that traditional banks are obliged to follow?
  - __turbobrew__ 4y ago
    There is tension between being as far away from the banking system as possible and having the ability to cash out your USDT to USD. The only way I can think of a stablecoin being totally independent of banks is to store their reserves as bank notes, and when someone wants to cash out USDT to USD they have to go pick up the bank notes. This glosses over the obvious challenges of storing billions of dollars in bank notes and distributing those notes during a cash out. The bank notes are also worth less than face value because you have to physically store and secure them.
  - 4y ago

deleted 4y ago

[deleted]

ohgodplsno 4y ago

Now imagine that Tether, instead of waiting for someone to give them a dollar to print one USDT, printed billions of them and said "yeah don't worry they were paid for they're backed. Trust us" and then never opened any of their books to anyone but a single unknown audit company that is basically owned by one of their friends. Also imagine that they took the actual money that was given to them and, instead of keeping them in a bank account, said they were going to invest them. (Or did not say it, and did it anyways). Imagine they invested it in amazingly profitable sectors like the housing market in China which is definitely not crashing right now. Tether isn't backed.

blihp 4y ago

The 'all you need' part is the part you can't hand-wave away. One typically can't both satisfy the requirements of generating a rate of return needed to remain viable[1] with low risk and keep the funds liquid. In the event of a run on their currency, they would need to have most of those funds available on short notice without a significant loss of principal to avoid an implosion. Even liquid, safe government bonds will often need to be sold below the price paid during extreme market conditions (the exact kind of situation that runs on the coin are likely to occur during) [1] Especially in a near-zero interest rate environment.

Bud 4y ago

The best rebuttal to this is the following quote from the article in question, which shows that not only is Tether NOT fully backed by cash, a lot of their supposed collateral sounds quite shady and they are also not letting anyone else audit what they are doing: "Regulators and economists have long questioned whether Tether has enough assets in its reserves to justify its stablecoin’s purported peg to the dollar. “USDT is, quite simply, fully backed by collateral,” Tether said in a statement Monday. “It has maintained its peg because every USDT is redeemable for dollars via Tether, and as such any time the price goes below $1 investors can earn a profit by buying USDT for a discount and redeeming it with Tether.” The company previously claimed tether was backed one-to-one by dollars in a bank account, but subsequently revealed it was using other assets including commercial paper — short-term corporate debt — and even digital tokens as collateral after a settlement with the New York attorney general. Last week, Tether said it reduced the amount of commercial paper it owns and increased its holdings of U.S. Treasury bills. For the first time, the British Virgin Islands-based firm said it also holds some foreign government debt. Tether declined to comment further on the source of its funds, but said it is pursuing a more thorough audit of its reserves."

015a 4y ago

Here's what you're missing: The USD:USDT exchange rate should always be 1:1. If 1 USDT is, due to market pressure, suddenly worth $0.98 USD, Tether's responsibility involves some analysis of either waiting for the market to resolve itself (maybe its a transient thing, and its an arbitrage opportunity, so The People may step in), or act as the source of market liquidity; they buy USDT up, with their dollar reserves. Now they, as they always do, have a reserve of USDT they can re-sell for $1 USD without minting new currency, which is convenient (though ultimately a liability on their balance sheets). But there's a second situation: the exchange rate hits 1 USDT == 1.02 USD. This would happen if demand for Tether were very high; people want safety and stability, so they demand USDT. But: they aren't interested in "leaving crypto"; they don't want to convert USD to USDT, they want to convert crypto assets to USDT. The open market doesn't have enough liquidity to support the 1:1 exchange rate, so the price of USDT starts rising. This absolutely happens in exchanges which price crypto assets in USDT, which is many. One exchange says 1 BTC = X USD, another says 1 BTC = X*1.01 USDT, and there's now an inter-exchange arbitrage opportunity based on the promise that 1 USD should be 1 USDT. That arbitrage, in some market conditions, can act as an upward force on the price of USDT. It is ALSO Tether's responsibility to cool off the market. What do they do in this situation? There's only one solution: they need to increase the liquidity pool of USDT. In other words, there are sources of demand for USDT outside the scope of the purist viewpoint of "give me one USD and you get one USDT" rooted in their responsibility not just to act as a reserve bank for USD/T, but also a market maker. Markets misbehave; Tether promises stability. What's the source of these USDT? They probably have some USDT in their reserves. But beyond that, they need to be minted! Their promise is that every minted token is backed with USD. Assume they're keeping their promise, then follow the line of questioning into where the USD comes from. Return on USD investments for sure. Bank loans? External investor capital? CEO working nights at McDonalds? Regardless, it gets minted and then sold (probably at $1 USD); they make the money back. And, of course, there's the situation if that assumption is wrong. They have no external source of capital; they just mint tokens to meet demand, hoping that they get sold at $1 USD to refill the reserves. And that's damn convenient, wouldn't it be? USD-backed investments are pretty risky; we could be in a down market and their AAPL shares are in the red; and its USUALLY the case that demand for USDT, for stability, would be high when other markets are in the red; when it rains it pours. They need to pay taxes on the ROI of those investments. Things like bank loans or external investor funding usually also have expectations of ROI. Those are all costs; and it would be REALLY convenient if they could just ignore those and mint the tokens, who cares, the money will flow back in. This actually works most of the time; it's literally called Fractional Reserve Banking, and everyone does it. But during black swan events, it can break down; especially when you mix in typical finance bro greed, but that isn't even necessary for something like USDT to break down. There's no perfectly safe way to create a reserve-backed stable asset. The best hope in a deflationary context is that if the price of USD:USDT goes to something like 1:1.01, people preemptively come to Tether, give them USD for USDT, then arbitrage it back to 1:1. But because the logistics of doing that are different than just exchanging crypto-to-crypto (latency, KYC, etc), there could be a demand mis-match. Tether can't let the price stay above 1:1 for long, because it actually devalues the USD basis of anyones' investments denominated in USDT, which is a loss-of-faith event that can spiral to be even worse. So Tether steps in.

shadedtriangle 4y ago

> All you need for a stable stablecoin is to save every dollar put in to it. That’s the issue right there. How does Tether save its dollars? We can see it in their transparency report[1]. Whether you believe them or not it’s not just cash in a bank account. * 0.41% Non-U.S. Treasury Bills * 55.53% U.S. Treasury Bills * 0.15% Reverse Repurchase Agreements * 5.81% Cash & Bank Deposits * 9.63% Money Market Funds * 28.47% Commercial Paper and Certificates of Deposit How much of that is liquid and directly convertible to dollars 1:1 in he next 24 hours? Not 100%. What happens when they start selling billions in Treasury Bills and Commercial Paper to fund redemptions? The market price of those assets will drop. What if the value of those assets is already below 1:1 because of recent market events? What if they’re not being as transparent as they say they are? > As long as they never spend anything from the reserve, this can't fail no matter how unpopular the currency is. This can easily fail many different ways. [1]: https://tether.to/en/transparency/#reports https://tether.to/en/transparency/#reports

agumonkey 4y ago
So the financial system is mostly reluctance ?
- NortySpock 4y ago
  Well, friction in transactions, arbitrage, and collective belief in the value of an asset.
  - worik 4y ago
    >....and collective belief in the value of an asset. Among other things the financial system is a web of trust. IMO one of the fundamental things that crypto gets wrong is replacing trust with algorithms. I do not think that can be done. Trust is about people. Time will tell if an algorithm that can automate trust can be found. I do not expect it will
    - hackingforfun 4y ago

mdoms 4y ago

throwaway6734 4y ago

What's stopping them from just printing tethers without dollar backing and injecting them into the market?

stavros 4y ago
Tethers aren't dollar-backed, are they? You just create as many tethers as you want out of thin air, and you sell them for a dollar each. If people want to sell them back, you (presumably) have the dollars still.
Gigachad 4y ago
Considering how much marketing there is over “decentralised” and “trustlesss”, crypto systems are remarkably based in trust.

datalopers 4y ago

They don't have the dollars. That's the catch.

yuvadam 4y ago
[citation needed]
TrackerFF 4y ago
Oh they have dollars, but the question is: How much of their non-USD assets are very liquid, and not too sensitive to market conditions? Say they have 50% in cash, 30% in other easily convertible assets, and the last 20% in more speculative instruments. What if they figured - hey, let's put those 20% on the market. Any returns, we keep, no-one needs to know. The rest we can use as reserve to keep the 1:1 ratio. Hell, investing 20% of xx billions on any fund or security that beats inflation is going to make you filthy rich - especially when there's only a handful of employees. The disaster, of course, happens if/when any of the markets they're exposed to takes a nosedive, and they either can't prop it up fast enough, or get problems with paying. Probably just the cynic in me, but I wouldn't be surprised if that's how things play out internally. Without any solid audits, it's hard to say. For all I know they have a very high % of USD reserves, or they could be Bernie Madoff reincarnated.

chinchilla2020 4y ago

There is another, more legitimate way to create a stablecoin. DAI is the dramaless version of a USD stablecoin and is decentralized, secured by 150% reserve automatically, run entirely by smart contracts. https://makerdao.com/whitepaper/Dai-Whitepaper-Dec17-en.pdf https://makerdao.com/whitepaper/Dai-Whitepaper-Dec17-en.pdf It does not perfectly track USD but stays within a couple percentage points. Arbitrage traders automatically stabilize the coin thanks to the way the smart contracts are arranged.

balefrost 4y ago

The NY Attorney General successfully prosecuted the parent company of Tether and Bitfinex. They found that the two were sharing funds, transferring them back and forth to make it appear that Tether was fully backed while using the same funds to prop up Bitfinex (after they lost coins, maybe in a hack?) https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal https://ag.ny.gov/press-release/2021/attorney-general-james-... That doesn't necessarily mean that Tether's assets are less than its debts. I don't know the details. I just know that the NY Attorney General finds their activities to be shady.

smoovb 4y ago
The outcome was a $18.5 settlement with no admission of wrong doing. If there was really shady activity, would NYAG disclose it?
- RugnirViking 4y ago
  If there was no shady activity, would tether pay a $18.5 million settlement for no reason?
- balefrost 4y ago
  They did disclose it; it was in the press release: In the case of Tether, the company represented that each of its stablecoins were backed one-to-one by U.S. dollars in reserve. However, an investigation by the Office of the Attorney General (OAG) found that iFinex — the operator of Bitfinex — and Tether made false statements about the backing of the “tether” stablecoin, and about the movement of hundreds of millions of dollars between the two companies to cover up the truth about massive losses by Bitfinex. also Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. The settlement also bars Tether from trading with New Yorkers, and the must submit regular reports about their compliance with this prohibition. I suspect the AG got what they wanted, they just managed to do so without taking time in the court system. I would assume that Tether realized that it wasn't worth trying to defend themselves and so agreed to settle. My use of "successfully prosecuted" might not have been the right way to phrase it.

frgtpsswrdlame 4y ago

>The people behind Tether sell tethers for $1 This is the problem. I don't believe all the tethers were sold in exchange for $1. If Tether wasn't receiving $1 for every tether then everything else falls apart.

lottin 4y ago

A stablecoin that was fully backed with dollar reserves would be fail-proof. The problem is such a stablecoin would also be unprofitable, because the issuer would have expenses but no revenue. The way they generate revenue is by investing part or all of their reserves in assets that generate a return. However, as soon as they do that, the stablecoin is no longer fail-proof because these investments are not risk-free.

User23 4y ago
The risk-free rate of return is generally greater than 0%, so with a large enough issuance I imagine it could be done safely. But "don't get greedy" is a commonly ignored principle.

wyager 4y ago

Part of the issue is that the US government keeps fucking with their bank accounts, making it difficult to have 100% of their reserves in plain old cash deposits.

sam_goody 4y ago

Yeah, "Fake it till you make it", and they made it. They are the only stablecoin I would ever consider buying, because they by now have enough resources to fake it long term. I've read that the main reasons that people invest in a stablecoin (from least to most) is to: a) buy/sell other crypto easily, b) store illegal gains without drawing attention to yourself c) move your money out of the country. Reason C is especially pertinent to China, and the environment there (from what I read on U.S. media, which is HIGHLY unreliable) is not pushing them to run the bank. IMO, the biggest risk for Tether is that the AG suddenly announces that they won't be able to trade in the States, as that will cause a run, and that is definitely possible.