As a comparison, USDC reserves are 100% backed by US dollars held in custody accounts, currently 9.3B.<p><a href="https://www.centre.io/hubfs/pdfs/attestation/grant-thorton_circle_usdc_reserves20210429.pdf?hsLang=en" rel="nofollow">https://www.centre.io/hubfs/pdfs/attestation/grant-thorton_c...</a>
If you wanted to operate a fully legitimate tethered cryptocurrency, you have to do two things. Firstly you have to make public the basket of holdings backing the currency and secondly you have to bake in an arbitrage mechachanism to ensure the price of the basket and the price of teh currency don't drift too much.<p>The way this works for the most obvious analogous product I can think of in the financial markets (index ETFs like SPY <a href="https://www.ssga.com/us/en/institutional/etfs/funds/spdr-sp-500-etf-trust-spy" rel="nofollow">https://www.ssga.com/us/en/institutional/etfs/funds/spdr-sp-...</a> for instance) is known as the ETF creation and redemption mechanism. For any given ETF there is a pool of participating brokers who are entitled to create or redeem units in the etf with the ETF administrator. So if the price of the ETF gets too high relative to the assets then these brokers can buy the assets in the market and hand them in to the ETF admin who will add those assets to the ETF and give them in return the new units that are created as a result. This has the effect of raising the prices of the constituents and reducing the price of the ETF units (when the broker then sells those new units), bringing the prices back into equilibrium.<p>Conversely if the ETF units are too cheap, the broker can buy the units in the market and redeem them for the correct proportion of underlying assets (ie exactly the reverse process) bringing the price into balance the opposite way.<p>It's incredibly important for this mechanism (and the public record of assets in the basket it relies on) to be built in to the process if the price is to be truly tethered. Otherwise the tether is just an illusion and in the ETF world, ETFs which didn't have this type of mechanism went completely haywire and became defunct.
> Chief Technical Officer Paolo Ardoino<p>Can't say this news comes out as a surprise. I'm actually surprised by the fact that there are <i>any</i> reserves at all.<p>What is really interesting about Bitfinex / Tether is to research the history of the people who started these entities, especially their history prior to Bitcoin's existence.<p>Here's a taste:<p><a href="https://nicolaborzi.medium.com/the-lawless-rollercoaster-of-bitcoin-enriches-few-investors-while-many-often-lose-everything-f9b4789444c2" rel="nofollow">https://nicolaborzi.medium.com/the-lawless-rollercoaster-of-...</a><p>As much as I'm a proponent of crypto, some folks <i>very early on</i> intuitively realized that the friction-less nature of the new technology made it the perfect vessel for running scams:<p><a href="https://steemkr.com/bitcoin/@binyamin/bitfinex-s-founder-seemingly-tried-to-start-a-ponzi-scheme" rel="nofollow">https://steemkr.com/bitcoin/@binyamin/bitfinex-s-founder-see...</a>
I run ScamStableCrypto.<p>I create a billion ScamStableCoins and claim they are worth $1 each.<p>I give a billion ScamStableCoins to ScamCryptoExchange. ScamCryptoExchange is run by me. ScamCryptoExchange writes an IOU for one billion US dollars and gives it ScamStableCrypto (my right hand gives something to my left hand).<p>I, as ScamStableCrypto, write down in my balance book that I have a billion dollars of Commercial Paper.<p>I announce that ScamStableCoin is fully backed.
For some reason I am reminded of a short anecdote from Good Soldier Svejk - <a href="https://en.wikipedia.org/wiki/The_Good_Soldier_%C5%A0vejk" rel="nofollow">https://en.wikipedia.org/wiki/The_Good_Soldier_%C5%A0vejk</a><p>Before WW1 in Austro-Hungary a small game of cards takes place in a bar.<p>The stakes are tiny a few krona at the beginning.<p>By the end of the night people have mortgaged their properties, their belongings, their wives and have written IOUs for trillions of krona.<p>It ends with one of the players reporting to the police for illegal gambling hoping to collect a finder's fee on the total amount of IOUs...
1. Print fake money<p>2. Buy crypto with them and create a huge hype<p>3. Sell crypto for real money<p>4. Profit<p>5. Receive your Nobel prize in Economics
Least surprising thing ever.<p>Even the most religious zealot nun who has taken a blood oath of poverty would become corrupted in that situation and the money would trickle away.
Honest question: if I deposit ten billion dollars in my bank account at a regulated US bank, what happens to it? Is the bank not going to buy T-bills with it, or even commercial paper? What are the rules around this for regulated banks?
An alternative interesting approach is an algorithmic stable coin like <a href="https://havenprotocol.org/" rel="nofollow">https://havenprotocol.org/</a> which also includes Monero style privacy!
Uh, this chart looks surprisingly good. Does it matter it tether is partially backed by "cash equivalents" such as t-bills? If those aren't good for cash, believe me, tether is the least of your worries.<p>I'm more interested in the other 25%. Does anyone know what it is?
I expect better from FT. Tether is very similar to prime money market funds, in both structure and portfolio composition. I guess the Fidelity's of the world aren't keen on competition.<p><a href="https://www.nytimes.com/2008/09/20/business/20moneys.html" rel="nofollow">https://www.nytimes.com/2008/09/20/business/20moneys.html</a><p><a href="https://www.nytimes.com/2020/03/19/business/coronavirus-money-market-mutual-funds.html" rel="nofollow">https://www.nytimes.com/2020/03/19/business/coronavirus-mone...</a>
This is an opinion piece and the headline & article are clickbait IMHO.<p>From Tether's chart, they literally have 2.9% in cash. So I guess the headline technically checks out.<p>But Tether reported over 75% held in cash equivalents, the same type of liquid assets Apple reports when reporters say Apple is sitting on billions in 'cash'<p>I think maybe more interesting, Tether reports only 1.64% slice of pie has some crypto holdings. Which seems kind of interesting given the theories about some shady btc/usd/tether pumping cycle scam might be happening behind the scenes.<p><a href="https://tether.to/wp-content/uploads/2021/05/tether-march-31-2021-reserves-breakdown.pdf" rel="nofollow">https://tether.to/wp-content/uploads/2021/05/tether-march-31...</a>