Tether is atleast supported with real world assets (USD/bonds etc). The amount and quality of the assets might be debatable but it can't go into a death spiral to zero like Luna and UST.
It's funny because this is pretty trivial stuff to audit for
a 3rd party, yet they only open their books to a private company of their choosing with questionable background. It's obvious what's going on. This is the biggest issue with crypto traders, they're too damn gullible as long as the news fits their agenda.
It's not an auditor. They just signed an attestation, which is not even remotely close to an audit, saying that they saw the numbers Tether showed them - that's it !
If my memory is good, they even specifically mention in the attestation that they didn't see the details (just the aggregated numbers) and they didn't check the process by which the management calculated those numbers.
So yeah, it's taking much longer than most people expect, but the issue is certain - Tether will collapse to 0 at some point.
For comparison: Citibank had only 11.73% Tier 1 capital in their 2021 report: https://www.citigroup.com/citi/investor/quarterly/2021/ar20_... Couldn't find a breakout of their Tier 1, but it includes high-quality credit items as well, so actual dollars is well below 11.73%.
So in other words: SiliconAngle.com is writing clickbait and doesn't understand modern banking.
Real banks practice fractional-reserve banking, where they are required to hold a percentage of assets as cash or central bank deposits. It's well-regulated and diversified. It's audited. Individual account holders' deposits are insured (FDIC in the US). This is all well-known and understood and reliable. Runs can still happen, shady accounting practices can still happen, and sometimes banks fail. Sometimes they fail catastrophically, and people can lose money, but it's about as trustworthy as things get.
Tether does not claim to be a fractional-reserve bank. They claim that 100% of the assets are backed by US dollar cash deposits. It's their entire raison d'etre. Except no one is enforcing it. It's not even remotely the same thing as a fractional-reserve bank.
> They claim that 100% of the assets are backed by US dollar cash deposits.
Still? (ie link?)
All I see is: “All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether's reserves.” (link here: https://tether.to/en/transparency/)
Yeah, they continuously try to rewrite history. The original whitepaper directly stated "Each tether issued into circulation will be backed in a one to one ratio with the equivalent amount of corresponding fiat currency held in reserves by Hong Kong based Tether Limited."
The fact that this comment is downvoted means that at least some people here doesn’t understand how to use the downvoting function. I think the comment highly contributed to the discussion by pointing out what Tether states today (and asking for more information if available). How is this not a constructive comment?
In the US, the required reserve ratio has been 0% since March 2020. I personally wouldn't view the traditional financial system as about as trustworthy as things get.
The ratio you're talking about is the amount that needs to be in the bank's account with the Federal Reserve as a fraction of its total liabilities. Only the money in that bank account qualifies for that reserve ratio; holding on to a literal stack of dollar bills in a bank vault somewhere does not.
That ratio is 0% because it's been judged that there are better ways to require solvency than doing that (chiefly, requiring capital buffers).
Tether's latest report says that it held about $140 million more in assets than liabilities, out of a $78 billion liability. It also says it holds about $5 billion in cryptocurrencies. So a 3% fall in cryptocurrencies would make Tether literally insolvent--or about an averagely bad day in cryptocurrency.
Let that sink in for a minute: Tether, by its own admission is barely solvent, so barely solvent a single not-especially-bad day would render them insolvent.
Now consider that this barely solvent state has persisted for their entire reports--they've always cited a very-barely-solvent state of their finances. Given that Tether has already admitted to lying in the past (and essentially cooking the books to mislead the public into thinking they were solvent), and that the books always seem to come out just perfectly not-quite-insolvent despite investing in very volatile assets, is it more likely that Tether has somehow found an investment strategy that just barely keeps them solvent, or that they are in fact insolvent and using every it's-technically-not-lying trick they can to get people not to realize it?
For what it's worth, as far as I understand it, Tether's Tier 1 capital isn't 3.87% but... 0.0%. Nothing Tether has produced has indicated any capital that can be raided to provide extra assets in the case that assets lose value--note that such capital isn't a part of the asset/liability ratio.
I don't think anyone's going around using shares of Citibank stock as currency, are they? Because that's one of the many criteria that need to be true for that comparison to make any sense.
Blows my mind because stablecoins could be so easy-- hold some cash and hold some US treasuries. Pocket the interest. Become rich.
Money Market funds already do this and the collapse of money market funds is usually a harbinger of worse things to come. Money market funds are non-FDIC insured places to park short term cash, typically backed by some combination of AAA commercial paper, municipal bonds and various vintages of T-Bills. Some also are exclusively holding California and New York City bonds and are are totally tax free. Money market funds can do things like suspending redemption in case of a panic to let things settle.
The idea behind USDC is to collateralize it 1:1 like a money market fund provided the underlying bonds hold. Tether is doing fractional reserve banking but has no central bank to act as a lender of last resort. Even then, banks pay into the FDIC which retains reserves itself like any other insurance.
Tether works as long as the money flowing in >= money flowing out.
A severe run on Tether would dry up liquidity very quickly.
Yes, in exchange for the privilege of money creation you need tight regulations and public disclosures.
Banking left unregulated turns into this mess time and time again. You'd think people would be more disciplined about betting private money creators. But they aren't. They never are. Particularly not when their neighbor is showing orders of magnitudes of paper gains. This was true in antiquity. It was true in our era of free banking. It's proven true, again, in crypto.
Depends on your country. In Australia, our banks are among the most regulated and survived through the GFC with barely a scratch.
Regulation is proven to work in the financial system. You just need to make sure you have enough of it which often the US hasn't. But in recent years that has been fixed up.
Also it's a false comparison. There is one Tether and tens of thousands of banks.
The S&L crisis was a “crisis” because non-bank S&Ls lost money in a way depositors haven’t. You have still not pointed to a single American depositor losing money since 1982, though I’d extend that to the post-War era.
I'm saying, if you're making a US dollar backed stablecoin, you could do it with minimal risk and still profit handsomely by just holding US treasuries.
Instead, we have stablecoins backed by all sorts of things like commercial paper in cryptocurrency exchanges.
Who is going to put their money in a stable coin paying 0.2% interest when the guy next door is offering 20%? Answer:anyone sane, but they wouldn’t be there in the first place
Irrelevant because for >99% of depositors (NOTE - not total deposits) FDIC insurance will pay them out in the event of a bank run.
For the vast majority of users - the difference in 1:1 backing and FDIC insurance is irrelevant. This is the reason you'll almost certainly never see a global bank run. It's the reason why we probably will eventually see a Tether bank run.
> Did Citibank claim that its value was one-to-one backed with U.S. dollar reserves until they were caught not doing so?
If not, they're probably not a relevant comparison to Tether.
I'm not getting what you're saying here: They should make good on their initial message from several years ago? They should now keep all assets in dollars and not earn interest?
Says who? Serious question. Is there any auditing of Tether's claims, by a reputable real-economy firm? Is there any legal or regulatory authority involved at all?
It can go into a death spiral. If confidence in Tether wanes, AND Tether is holding underperforming "cash equivalents", Tether can go to zero overnight.
