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It would be very simple for Tether to just hold $1 for each 1 Tether coin. They could invest their cash in safe assets like treasury bills that yield 4% or more

It would be very simple for Tether to just hold $1 for each 1 Tether coin. They could invest their cash in safe assets like treasury bills that yield 4% or more. Meanwhile, they pay no interest in Tethers. So they get a 4% return for doing nothing at all. As far as I know, there is no evidence that they are doing anything else. (There is some evidence that they did something else in the past, when interest rates were way lower.) But this hasn't stopped tons of people from speculating that they are.

from-nibly 2y ago
If it was that easy then we'd probably see more banks that do just that.
- pavlov 2y ago
  That is what banks do. But it’s more complicated because the current trading value of a bond is not the same as the expected return you’d get if you hold it to maturity. Last year Silicon Valley Bank and others got into trouble for this reason. Let’s say you invested $100M into a 10-year bond when interest rates were at 2%. With interest, you’ll be getting back about $122M in ten years. Nice. But what if you’re a bank and suddenly every depositor wants to withdraw that $100M? You can’t wait ten years. You need to sell the bond. Now you face the problem that interest rates are at 4%. Somebody with $100M can invest it in a 10-year bond that will return $148M instead of your measly $122M. So nobody will pay full price for your 2% bond because they can get a better return elsewhere.
  - from-nibly 2y ago
    But banks also make loans, and do fractional reserve banking, so obviously owning bonds isn't enough.
    - jujube3 2y ago
      The Fed doesn't let banks do this because it would be "too safe" https://en.wikipedia.org/wiki/Narrow_banking https://en.wikipedia.org/wiki/Narrow_banking
JumpCrisscross 2y ago
> there is no evidence that they are doing anything else There is a lot of evidence they aren't just buying Treasuries. The only times people looked, the money was being held in weird stuff, including frozen deposits at non-FDIC insured banks and private loans [1]. [1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlement_agreement_-_execution_version.b-t_signed-c2_oag_signed.pdf https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
- alchemist1e9 2y ago
  How about you find anything other the NYAG settlement that you keep mischaracterizing?
treyd 2y ago
> It would be very simple for Tether to just hold $1 for each 1 Tether coin. It would not be "very simple" for them to do this. No commercial bank lets you walk up to the teller with $1B and ask to deposit it, much less $93B. The financial system doesn't work that way. They have to cycle it through bonds on the repo market, which is what most huge firms do.
- a_dabbler 2y ago
  HSBC has had money laundering scandals with amounts in excess of 1b$
- jujube3 2y ago
  This seems like annoying pedantry. Holding same-as-cash assets is not rocket science, there are plenty of professionals who could help you with that. On Vanguard you can buy things like T-bills with a few clicks. (I am not suggesting that they're using Vanguard specifically)
delabay 2y ago
What you describe is their actual business model. Tether makes the most profit per employee of any company in the world. Their transparency, speed, and market success is renown. This thread is full of tether truthers living in 2017.
shadowmanifold 2y ago
You can't run a 120 billion dollar bond trading operation with like 4 people. That amount of money is a huge amount of work to manage no matter what you are trading. The simple explanation of how they do this is that they don't have anything close to 120 billion to manage. It is really a sociological and network experiment of how long fraud can persist when the fraud is in the short term interest of all nodes of the network. I suspect the reason Bernie Madoff was able to persist for so long is that many of the investors thought he was front running trades because of his position with Nasdaq. People tend to be fine with fraud if they are directly benefiting from the fraud and only risking their capital in the process. Time is not a good measure of non-fraud. That is just a rationalization because any crypto investor has to basically keep the idea of a tether fraud out of their head at this point considering the risk to the ecosystem would be so catastrophic. What does actually grow in time is the risk to the network.
- alchemist1e9 2y ago
  > You can't run a 120 billion dollar bond trading operation with like 4 people. They delegate much of those issues to multiple regulated third parties. The much referenced NYAG settlement in this discussion never shows they were committing massive fraud. There were periods when reserves included assets like receivables or funds temporarily seized by authorities but there was no finding that USDT wasn’t fully backed. The link to that settlement is thrown around with the implication that “see they are fraudulent” for those who don’t read the details. I used to think exactly like all the anti-Tether people and conspiracies but the fact is that there exists no evidence for massive fraud and much evidence it isn’t.

from-nibly 2y ago

If it was that easy then we'd probably see more banks that do just that.

pavlov 2y ago
That is what banks do. But it’s more complicated because the current trading value of a bond is not the same as the expected return you’d get if you hold it to maturity. Last year Silicon Valley Bank and others got into trouble for this reason. Let’s say you invested $100M into a 10-year bond when interest rates were at 2%. With interest, you’ll be getting back about $122M in ten years. Nice. But what if you’re a bank and suddenly every depositor wants to withdraw that $100M? You can’t wait ten years. You need to sell the bond. Now you face the problem that interest rates are at 4%. Somebody with $100M can invest it in a 10-year bond that will return $148M instead of your measly $122M. So nobody will pay full price for your 2% bond because they can get a better return elsewhere.
- from-nibly 2y ago
  But banks also make loans, and do fractional reserve banking, so obviously owning bonds isn't enough.
  - jujube3 2y ago
    The Fed doesn't let banks do this because it would be "too safe" https://en.wikipedia.org/wiki/Narrow_banking https://en.wikipedia.org/wiki/Narrow_banking

JumpCrisscross 2y ago

> there is no evidence that they are doing anything else There is a lot of evidence they aren't just buying Treasuries. The only times people looked, the money was being held in weird stuff, including frozen deposits at non-FDIC insured banks and private loans [1]. [1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlement_agreement_-_execution_version.b-t_signed-c2_oag_signed.pdf https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

alchemist1e9 2y ago
How about you find anything other the NYAG settlement that you keep mischaracterizing?

treyd 2y ago

> It would be very simple for Tether to just hold $1 for each 1 Tether coin. It would not be "very simple" for them to do this. No commercial bank lets you walk up to the teller with $1B and ask to deposit it, much less $93B. The financial system doesn't work that way. They have to cycle it through bonds on the repo market, which is what most huge firms do.

a_dabbler 2y ago
HSBC has had money laundering scandals with amounts in excess of 1b$
jujube3 2y ago
This seems like annoying pedantry. Holding same-as-cash assets is not rocket science, there are plenty of professionals who could help you with that. On Vanguard you can buy things like T-bills with a few clicks. (I am not suggesting that they're using Vanguard specifically)

delabay 2y ago

What you describe is their actual business model. Tether makes the most profit per employee of any company in the world. Their transparency, speed, and market success is renown. This thread is full of tether truthers living in 2017.

shadowmanifold 2y ago

You can't run a 120 billion dollar bond trading operation with like 4 people. That amount of money is a huge amount of work to manage no matter what you are trading. The simple explanation of how they do this is that they don't have anything close to 120 billion to manage. It is really a sociological and network experiment of how long fraud can persist when the fraud is in the short term interest of all nodes of the network. I suspect the reason Bernie Madoff was able to persist for so long is that many of the investors thought he was front running trades because of his position with Nasdaq. People tend to be fine with fraud if they are directly benefiting from the fraud and only risking their capital in the process. Time is not a good measure of non-fraud. That is just a rationalization because any crypto investor has to basically keep the idea of a tether fraud out of their head at this point considering the risk to the ecosystem would be so catastrophic. What does actually grow in time is the risk to the network.

alchemist1e9 2y ago
> You can't run a 120 billion dollar bond trading operation with like 4 people. They delegate much of those issues to multiple regulated third parties. The much referenced NYAG settlement in this discussion never shows they were committing massive fraud. There were periods when reserves included assets like receivables or funds temporarily seized by authorities but there was no finding that USDT wasn’t fully backed. The link to that settlement is thrown around with the implication that “see they are fraudulent” for those who don’t read the details. I used to think exactly like all the anti-Tether people and conspiracies but the fact is that there exists no evidence for massive fraud and much evidence it isn’t.