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Just trying to be picky: The most likely scenario is that Tether is _overall_ solvent, though not in liquid assets. What would likely happen in case of a bank

Just trying to be picky: The most likely scenario is that Tether is _overall_ solvent, though not in liquid assets. What would likely happen in case of a bank run is: 1) Tether will defend the peg and redeem at $1 2) Tether will freeze redeems because of limited liquidity 3) Tether will fill face huge pressure and regulatory threats 4) Some people will want to exit USDT immediately at a discounted price (say $0.5), while some others will buy discounted USDT hoping once Tether solves its liquidity issues or bankrupt they could get more than $0.5 per USDT. TLDR: USDT will most likely not go to $0 in case of default. Most likely there will be speculation on Tether's illiquid assets value that could be sold back to pay creditors.

Nursie 4y ago
> The most likely scenario is that Tether is _overall_ solvent, though not in liquid assets. What makes you believe this?
- eaurouge 4y ago
  By the numbers: - 66B in liabilities - 17B in redemptions over a 2 month period (proof of some liquidity) - 8 years of operation - 100s of millions in annual revenue How many billions are they short? What redemption rate would it take? Which catalyst? At this point, the question should be: what makes you believe they are insolvent? Edit: assets -> liabilities
  - Nursie 4y ago
    > 66B in assets We don't really know this, and a lot of their assets seem to be things like "corporate paper", which may simply be IOUs from exchanges they've given Tethers to. > At this point, the question should be: what makes you believe they are insolvent? A history of lies about audits, for a start. Admissions that they weren't fully backed in court at various points in the past (73% was bandied around by their own people at some point). Plus if the 'corporate paper' situation is anything like described, in any sort of crunch situation it could prove to be worthless.
    - eaurouge 4y ago
      > We don't really know this Yes, I should have said 66B in liabilities. We don't know how much they have backing these liabilities. > A history of lies about audits, for a start ... Indeed. So we're free to come up with our various estimates. None more correct than the other.
      - Nursie 4y ago
        > So we're free to come up with our various estimates. None more correct than the other. Doesn’t this seem like a massive, systemic threat in itself, that an audit-dodging, opaque institution underpins the ecosystem? Even if it is all present and correct (for some definition of present and correct) shouldn’t we be highly suspicious purely because of this evasive behaviour?
        eaurouge 4y ago
        > Doesn’t this seem like a massive, systemic threat in itself, that an audit-dodging, opaque institution underpins the ecosystem? It was. But it's increasingly less so. The market has hedged this risk somewhat, by decreasing its market share: https://www.theblock.co/data/decentralized-finance/stablecoins/share-of-total-stablecoin-supply https://www.theblock.co/data/decentralized-finance/stablecoi.... And will likely continue to do so.
    - charcircuit 4y ago
      >and a lot of their assets seem to be things like "corporate paper", Tether decreased the amount of corporate paper it was exposed to throughout 2022. December 03, 2021: 44.24% of the reserves was corporate paper September 30, 2022: 0.07% corporate paper Over this time frame Tether's shareholder captial cushion (assets - liabilities) increased from $137,337,226 to $250,107,738 If you want to be accurate you can say most of their assets are US treasury bonds.
      - Nursie 4y ago
        If you believe their figures, given their history of outright lies, and the fact that even the crypto-friendly auditing companies are dropping crypto company clients left right and centre (including BDO, who apparently signed off on this stuff, who are "evaluating" their services to the crypto economy - https://www.wsj.com/livecoverage/stock-market-news-today-12-16-2022/card/accounting-firm-bdo-evaluating-crypto-work-D2AdU122tCqCmnqjXSd1 https://www.wsj.com/livecoverage/stock-market-news-today-12-...)
  - honestfeedback 4y ago
    Sorry, but no. The burden is absolutely on so-called "stable" coin issuers, exchanges, and other parties trying to sell crypto assets to prove that they are somehow the exceptional case of responsible grownups working within the ecosystem...b/c the "success stories" of circa 2019 are turning out to just be the folks who had the biggest scams running, and no one seems to be able to explain what's actually changed since then. (Hint: nothing! Nothing has changed, except that some of the rubes are becoming aware that they're the suckers left holding the bag, which makes actual cash somewhat thinner on the ground.) Yes, sure, many of the exchanges are still running and money is moving around, so _someone_ is making a profit. But every time another domino falls the stans immediately challenge everyone to prove that _this particular_ actor is somehow insolvent, since obviously the rest of the ecosystem is sound...and in fact, the future of finance! Really! It all stinks, just like it did a year ago, and five years before that. To your numbers: they're made up, based on "value" of other crypto assets being shifted around, with no accounting standards, audits, or regulatory scrutiny to validate or back them.
    - eaurouge 4y ago
      > The burden is absolutely on so-called "stable" coin issuers The burden, perhaps. The question was about belief. Surely the rest of your comment (rant?) cannot be in response to my comment.
    - Faark 4y ago
      As a layman trying to understand all this, doesn't the latest BDO report on their transparency page https://tether.to/en/transparency/#reports https://tether.to/en/transparency/#reports indicate ~40 billion usb to be in US treasury bills? That sounds pretty safe/OK to me, or what am missing? Do you accuse BDO of issuing bullshit reports?
      - Nursie 4y ago
        So firstly, there's this - https://www.bloomberg.com/news/articles/2022-08-18/tether-drops-cayman-islands-firm-in-bdo-italia-attestation-deal https://www.bloomberg.com/news/articles/2022-08-18/tether-dr... Which seems to indicate that they signed an agreement with BDO Italia, "an independent subsidiary" of BDO. Not sure if that's significant in itself. Probably not. Secondly, BDO are "evaluating" their ongoing relationship with crypto firms - https://www.wsj.com/livecoverage/stock-market-news-today-12-16-2022/card/accounting-firm-bdo-evaluating-crypto-work-D2AdU122tCqCmnqjXSd1 https://www.wsj.com/livecoverage/stock-market-news-today-12-... And third, well, it's not an audit, it's more of a "Reserve balances look OK to us on this date" report. It doesn't (for instance) take into account any other liabilities the company may have. So I'd say this is (as another poster mentioned) better than nothing, which is what they used to give, but worse than an actual audit.
  - vkou 4y ago
    > At this point, the question should be: what makes you believe they are insolvent? Their unwillingness to undergo an audit, combined with their constant lies on this subject. This is something that literally every financial company on earth is capable of doing in an above-board fashion. That they haven't done so is deafening.
ivalm 4y ago
But the claim about Tether problems is about solvency, not liquidity. If they are insolvent then 1. They defend the peg 2. Run out of money 3. Remaining tether is worth $0. Now, probably they will not defend until exactly 0, and maybe they will have some illiquid assets that will be worth something, but I think $0.5 on a dollar is extremely ambitious. Kind of like FTX isn’t a liquidity issue, it’s a solvency issue.
- Galanwe 4y ago
  > But the claim about Tether problems is about solvency, not liquidity. I don't think solvency is really at stake for Tether. They have so much capital at this point that they are filthy rich just with treasuries returns. Of course that's just my opinion, you're free to disregard it. The main risk IMHO is their greed in investing in illiquid assets. > If they are insolvent then > 1. They defend the peg > 2. Run out of money > 3. Remaining tether is worth $0. My (picky) point is that no, this does not happen, because a company becomes bankrupt and ceases operation before $0. Even now, there are people actively buying FTX accounts at a discount, expecting to cash in once the liquidation settlement is over.

Nursie 4y ago

> The most likely scenario is that Tether is _overall_ solvent, though not in liquid assets. What makes you believe this?

eaurouge 4y ago
By the numbers: - 66B in liabilities - 17B in redemptions over a 2 month period (proof of some liquidity) - 8 years of operation - 100s of millions in annual revenue How many billions are they short? What redemption rate would it take? Which catalyst? At this point, the question should be: what makes you believe they are insolvent? Edit: assets -> liabilities
- Nursie 4y ago
  > 66B in assets We don't really know this, and a lot of their assets seem to be things like "corporate paper", which may simply be IOUs from exchanges they've given Tethers to. > At this point, the question should be: what makes you believe they are insolvent? A history of lies about audits, for a start. Admissions that they weren't fully backed in court at various points in the past (73% was bandied around by their own people at some point). Plus if the 'corporate paper' situation is anything like described, in any sort of crunch situation it could prove to be worthless.
  - eaurouge 4y ago
    > We don't really know this Yes, I should have said 66B in liabilities. We don't know how much they have backing these liabilities. > A history of lies about audits, for a start ... Indeed. So we're free to come up with our various estimates. None more correct than the other.
    - Nursie 4y ago
      > So we're free to come up with our various estimates. None more correct than the other. Doesn’t this seem like a massive, systemic threat in itself, that an audit-dodging, opaque institution underpins the ecosystem? Even if it is all present and correct (for some definition of present and correct) shouldn’t we be highly suspicious purely because of this evasive behaviour?
      - eaurouge 4y ago
        > Doesn’t this seem like a massive, systemic threat in itself, that an audit-dodging, opaque institution underpins the ecosystem? It was. But it's increasingly less so. The market has hedged this risk somewhat, by decreasing its market share: https://www.theblock.co/data/decentralized-finance/stablecoins/share-of-total-stablecoin-supply https://www.theblock.co/data/decentralized-finance/stablecoi.... And will likely continue to do so.
  - charcircuit 4y ago
    >and a lot of their assets seem to be things like "corporate paper", Tether decreased the amount of corporate paper it was exposed to throughout 2022. December 03, 2021: 44.24% of the reserves was corporate paper September 30, 2022: 0.07% corporate paper Over this time frame Tether's shareholder captial cushion (assets - liabilities) increased from $137,337,226 to $250,107,738 If you want to be accurate you can say most of their assets are US treasury bonds.
    - Nursie 4y ago
      If you believe their figures, given their history of outright lies, and the fact that even the crypto-friendly auditing companies are dropping crypto company clients left right and centre (including BDO, who apparently signed off on this stuff, who are "evaluating" their services to the crypto economy - https://www.wsj.com/livecoverage/stock-market-news-today-12-16-2022/card/accounting-firm-bdo-evaluating-crypto-work-D2AdU122tCqCmnqjXSd1 https://www.wsj.com/livecoverage/stock-market-news-today-12-...)
- honestfeedback 4y ago
  Sorry, but no. The burden is absolutely on so-called "stable" coin issuers, exchanges, and other parties trying to sell crypto assets to prove that they are somehow the exceptional case of responsible grownups working within the ecosystem...b/c the "success stories" of circa 2019 are turning out to just be the folks who had the biggest scams running, and no one seems to be able to explain what's actually changed since then. (Hint: nothing! Nothing has changed, except that some of the rubes are becoming aware that they're the suckers left holding the bag, which makes actual cash somewhat thinner on the ground.) Yes, sure, many of the exchanges are still running and money is moving around, so _someone_ is making a profit. But every time another domino falls the stans immediately challenge everyone to prove that _this particular_ actor is somehow insolvent, since obviously the rest of the ecosystem is sound...and in fact, the future of finance! Really! It all stinks, just like it did a year ago, and five years before that. To your numbers: they're made up, based on "value" of other crypto assets being shifted around, with no accounting standards, audits, or regulatory scrutiny to validate or back them.
  - eaurouge 4y ago
    > The burden is absolutely on so-called "stable" coin issuers The burden, perhaps. The question was about belief. Surely the rest of your comment (rant?) cannot be in response to my comment.
  - Faark 4y ago
    As a layman trying to understand all this, doesn't the latest BDO report on their transparency page https://tether.to/en/transparency/#reports https://tether.to/en/transparency/#reports indicate ~40 billion usb to be in US treasury bills? That sounds pretty safe/OK to me, or what am missing? Do you accuse BDO of issuing bullshit reports?
    - Nursie 4y ago
      So firstly, there's this - https://www.bloomberg.com/news/articles/2022-08-18/tether-drops-cayman-islands-firm-in-bdo-italia-attestation-deal https://www.bloomberg.com/news/articles/2022-08-18/tether-dr... Which seems to indicate that they signed an agreement with BDO Italia, "an independent subsidiary" of BDO. Not sure if that's significant in itself. Probably not. Secondly, BDO are "evaluating" their ongoing relationship with crypto firms - https://www.wsj.com/livecoverage/stock-market-news-today-12-16-2022/card/accounting-firm-bdo-evaluating-crypto-work-D2AdU122tCqCmnqjXSd1 https://www.wsj.com/livecoverage/stock-market-news-today-12-... And third, well, it's not an audit, it's more of a "Reserve balances look OK to us on this date" report. It doesn't (for instance) take into account any other liabilities the company may have. So I'd say this is (as another poster mentioned) better than nothing, which is what they used to give, but worse than an actual audit.
- vkou 4y ago
  > At this point, the question should be: what makes you believe they are insolvent? Their unwillingness to undergo an audit, combined with their constant lies on this subject. This is something that literally every financial company on earth is capable of doing in an above-board fashion. That they haven't done so is deafening.

ivalm 4y ago

But the claim about Tether problems is about solvency, not liquidity. If they are insolvent then 1. They defend the peg 2. Run out of money 3. Remaining tether is worth $0. Now, probably they will not defend until exactly 0, and maybe they will have some illiquid assets that will be worth something, but I think $0.5 on a dollar is extremely ambitious. Kind of like FTX isn’t a liquidity issue, it’s a solvency issue.

Galanwe 4y ago
> But the claim about Tether problems is about solvency, not liquidity. I don't think solvency is really at stake for Tether. They have so much capital at this point that they are filthy rich just with treasuries returns. Of course that's just my opinion, you're free to disregard it. The main risk IMHO is their greed in investing in illiquid assets. > If they are insolvent then > 1. They defend the peg > 2. Run out of money > 3. Remaining tether is worth $0. My (picky) point is that no, this does not happen, because a company becomes bankrupt and ceases operation before $0. Even now, there are people actively buying FTX accounts at a discount, expecting to cash in once the liquidation settlement is over.