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My current theory is that they are not fully backed, but they are backed enough for it to not really matter (ex: if they are 95% backed with highly liquid asset
by xur17 4y ago
My current theory is that they are not fully backed, but they are backed enough for it to not really matter (ex: if they are 95% backed with highly liquid assets, it's very unlikely that they'll ever breach that).
And given the current interest rates, they could just be parking it all in short term US treasuries, and slowly fixing the issue. If they play their cards right, they can migrate to something that is both fully backed, and highly profitable.
- bnralt 4y agoAgreed, I wouldn't be surprised if that were the case. In order to find yourself insolvent, you not only need to have losses in the principle greater than your gains, but you also need to have people trying to pull out enough money that you can't cover it. IE, if 50% of the principal was spent on crypto gambling and Tether lost ~80% of it (so they lost 40% of the total principal), and the other 50% was put in safe assets and they got 20% of that (10% of the principal), they'd be down to 70% of the principal. But they're only going to be insolvent if people try to cash out 70% of the Tether in circulation at once. And like you said, just putting that into fairly safe investments is going to undo a lot of the damage. Heck, even just getting the returns an online savings account is giving now would have them make back the principal in about a decade. Which isn't to say they won't fall apart. But I think a lot of people go to far assuming that their collapse is inevitable.
- nradov 4y agoThere are rumors that a significant fraction of Tether assets are in Chinese commercial paper. Fine for now, but a serious recession or political turmoil in China would impair the value of those assets.