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> 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 reg

> 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.
- logifail 4y ago
  > Regular savings account banks do typically do this, for example the bank has the right to ask for 7 days to honor a withdrawal Source? I'm familiar with savings accounts described as "instant access" or "easy access" where you can get your money out whenever you feel like it. Unless the bank actually markets an account as a "notice account", can they really ask for 7 days notice?
  - datadata 4y ago
    Here is an example: https://www.capitalone.com/bank/disclosures/savings-accounts/online-savings-account/ https://www.capitalone.com/bank/disclosures/savings-accounts... > Advance Notice of Withdrawal: Under federal law, we must reserve the right to require you to give us at least 7 days written notice before you take money out of your 360 Savings. (This hardly ever happens but legally we have to say it!)
    - logifail 4y ago
      > Here is an example [..] Interesting, and this appears to be federally-mandated. Wow. Are there other jurisdictions where this kind of rule exists?
      - Symbiote 4y ago
        I used to have savings accounts with similar terms in the UK. They have a higher interest rate. https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#notice https://www.moneysavingexpert.com/savings/savings-accounts-b...
        logifail 4y ago
        Sure, I understand the general principle of locking up your investment for longer and [perhaps] getting better conditions, but the notice periods on those accounts aren't government-mandated, though?
User23 4y ago
A Tether is an IOU for a dollar right? So long as you have one USD per Tether issued you can always redeem your outstanding IOUs. I acknowledge the complexities of investing that collateral in more or less liquid instruments, but in principle the notion appears sound. I'd be happy to give you an interest free IOU in any amount you like if you provide me cash money for that nominal value in exchange.

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.

logifail 4y ago
> Regular savings account banks do typically do this, for example the bank has the right to ask for 7 days to honor a withdrawal Source? I'm familiar with savings accounts described as "instant access" or "easy access" where you can get your money out whenever you feel like it. Unless the bank actually markets an account as a "notice account", can they really ask for 7 days notice?
- datadata 4y ago
  Here is an example: https://www.capitalone.com/bank/disclosures/savings-accounts/online-savings-account/ https://www.capitalone.com/bank/disclosures/savings-accounts... > Advance Notice of Withdrawal: Under federal law, we must reserve the right to require you to give us at least 7 days written notice before you take money out of your 360 Savings. (This hardly ever happens but legally we have to say it!)
  - logifail 4y ago
    > Here is an example [..] Interesting, and this appears to be federally-mandated. Wow. Are there other jurisdictions where this kind of rule exists?
    - Symbiote 4y ago
      I used to have savings accounts with similar terms in the UK. They have a higher interest rate. https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#notice https://www.moneysavingexpert.com/savings/savings-accounts-b...
      - logifail 4y ago
        Sure, I understand the general principle of locking up your investment for longer and [perhaps] getting better conditions, but the notice periods on those accounts aren't government-mandated, though?

User23 4y ago

A Tether is an IOU for a dollar right? So long as you have one USD per Tether issued you can always redeem your outstanding IOUs. I acknowledge the complexities of investing that collateral in more or less liquid instruments, but in principle the notion appears sound. I'd be happy to give you an interest free IOU in any amount you like if you provide me cash money for that nominal value in exchange.