The most important point in this article is that whether Tether is fully collateralized ultimately doesn't matter. As long as there are well-capitalized parties (Bitfinex, other exchanges) that want to prop up Tether, it will be fine. Nobody should be under the illusion that Tether is decentralized or anything other than a bet on Bitfinex.
> As of this writing, on May 20th, it has yet to regain the peg<p>This is misleading. Tether has consistently traded between $0.998 and $0.999 between May 13th and May 20th. See <a href="https://coinmarketcap.com/currencies/tether/" rel="nofollow">https://coinmarketcap.com/currencies/tether/</a><p>Is it trading at 0.1% lower than it was before the Terra USD collapse? Yes. Has it "lost its peg"? No.
The problem here is that everyone in the crypto industry is taking George Soros's approach to bubbles: <i>“When I see a bubble, I rush in to buy it.”</i><p>There is more money to be made on the gravy train of providing liquidity for trades, yield farming, etc. than in trying to short Tether and potentially bleeding out before it goes bust.
Its pretty frustrating that people are using these shady stablecoins where you can't see the code or assets backing them (eg USDT), when there are stablecoins that are fully open source and you can see the backing in real time (eg DAI)
> As of this writing, on May 20th, it has yet to regain the peg.<p>Its trading at $0.99974 and has gone over $1 several times just today and over the last week. Which definition of peg matters here? Its not causing mass liquidations in Defi platforms because it trades so close to peg, it is still redeemable for $1.00 if you are non-US and have over 100,000 units.<p>This article has percentages for <i>everything</i> except when they don't reinforce the universally negative view of tether.<p>Is there another source that is less invested to corroborate everything more accurately?<p>Its kind of stupid to observe something different and be seen as “pro tether”, but lets just stick to accuracy.
It recently occurred to me, with the whole LUNA fiasco, that <i>any</i> "stablecoin" that is 1-1 backed by fiat can come under attack from leveraged traders, and get de-pegged. So it really doesn't matter what backing tether has, although more is obviously better. When the music stops it's anyone's guess what will happen.
Is this what the earlier "hash drop" tweet [0] was about?<p>[0] <a href="https://twitter.com/patio11/status/1527616238586716160" rel="nofollow">https://twitter.com/patio11/status/1527616238586716160</a>
What happens if Tether fails, realistically?<p>There's a lot of doomsaying around it, but after seeing the crypto market shrug off the loss of Terra Luna without contagion or bailout ala GFC crisis, the fear may be overblown. Terra was backed entirely by hot air, whereas Tether is mostly backed. Wouldn't the net loss be similar or even less?
Your casino chips are fine until the casino blows up<p><a href="https://en.wikipedia.org/wiki/Harvey%27s_Resort_Hotel_bombing" rel="nofollow">https://en.wikipedia.org/wiki/Harvey%27s_Resort_Hotel_bombin...</a>
Are there verifiable numbers available on whether Tether has a net outflow of fiat? That's the real question. If they're under-reserved, and there's an ongoing net outflow, they will at some point run out of money.<p>There's definitely outflow. Tether's reported market cap peaked at $83 billion in early May, and now it's down to $74 billion. So at least 10% of Tether has already been redeemed. There are other major stablecoins now, so nobody has to use Tether.<p>This is one of those things that will look fine, until it doesn't. As has now been demonstrated several times, stablecoins have only two stable points: 1 and 0.
The post states:<p>>"It is well-understood in the cryptocurrency community that Tether’s reserves are a polite fiction. If pushed on this, clueful members of the community, such as their co-conspirators, will (quietly) admit that Tether depends on a de facto guarantee of support from members of its consolidated group, such as Bitfinex, which can inject more equity at will.?<p>Can someone say what is meant but "its consolidated group"? Is this a loose alliance or something more formal?
silly question, being USDT "only" 80B, why does it matter if it collapses? considering cryptos market cap is more than 1T, and 100B's wipeouts routine, sometimes during crypto winters (where we observe -80% across the board) or collapses such as Luna recently (>50B? no idea)<p>Of course, panic would happen, but still. I think people would move on, forget, and continue believing whatever they want to<p>just curious to read counterarguments
Can somebody explain why the NYAG required that they publish quarterly attestations given how little reliable information they actually provide? What was the point?
I think Tether is the ultimate "Fake it till you make it" organization in crypto. Its kind of a joke now but everyone is in on the joke but it will probably end up being the defacto crypto parking place once things get real in crypto (e.g. you can buy a house with it) and the adults come in and shake out the current management.
> This essay makes some confident claims about the future and I wish to have cryptographic proof that I did not edit those claims between now and when they inevitably come to pass.<p>The only unconditional claim I saw was that Tether will lie again. Am I missing something?<p>This one is a bit more interesting:<p>> Tether originally promised to back the reserves with cash in a bank account. This was a lie. It was a well-chosen lie, because the value of cash does not routinely fluctuate. Backing a fixed liability with volatile assets and a wafer-thin equity cushion would have the predictable result of causing the liabilities to become unbacked in many stressful situations for any of the backing assets.<p>What's interesting is that I'm not sure many banks would <i>want</i> to hold the cash, regardless of the source.<p>When a bank receives cash deposits it has to do <i>something</i> with it. The money doesn't sit as bank notes in a vault.<p>The bank has a problem. The cash becomes its own liability. The depositor can withdraw the cash at any time and the bank needs to fulfill that obligation. And a lot of cash means a lot of obligation. So the bank desperately wants to turn the cash liability it faces with a deposit into an asset (i.e., somebody else's debt).<p>How do do that?<p>Banks are highly regulated on this point, especially post-GFC. There aren't a lot of options. What they'd like to do is issue loans to high-quality borrowers at profitable rates. But if the quality of borrow is going down the tubes (it is) and interest rates are at historic lows (they were), they would rather not do that.<p>Treasuries are an option. But the demand for short-term treasuries has been so intense that yields have been driven down to absurd levels relative to other instruments.<p>All of which is to say that the very idea of a US dollar-backed "stable" coin may not be possible for any entity other than the US Federal reserve or the Treasury.<p>And this defeats the entire purpose for Tether holders. They can already park cash at a bank. They hold tether to be out of the US banking system jurisdiction.
Claims have been circulating for years, now, about Tether's lack of adequate collateralization, and the lack of trustworthiness of their people.<p>And yet, users out there are holding a total of $73 billion worth of Tether.<p>Who are those users holding Tether? Who <i>wants</i> to hold Tether? What's the motive of Tether holders? What market need is Tether addressing, and how can that need be addressed while avoiding Tether's issues?<p>Doesn't DAI work toward basically the same market need as Tether, but in a way that's actually decentralized and actually has checkable reserves? Why don't people desert Tether for DAI?
I have nothing but respect for Patrick, and he has done great investigative Journalism (or at least curation of other peoples journalism) but I still feel like he is cherry picking facts (that there certainly is some shady stuff going on around Tether) here to support a predetermined conclusion(Tether is bad because crypto is bad because crypto's primary use case is money laundering) which seems to be an undercurrent of all of his writing on the topic.<p>If we held the industry that Patrick works in to the standards that Patrick wants to hold the crypto world to we would call all of them "scams". Basically every international bank has a long history of money laundering. Every single large bank is doing much more complicated and riskier things with their balance sheet than Tether.<p>I don't think they are scams but I don't think Tether is either.<p>In many ways this is just the crypto world leveling down to the level of sketchiness that the average large bank exists at. Which is really not a defense, I dislike those banks and I dislike and distrust Tether.<p>But I don't think the risks of some kind crypto solvency contagion event are even as high as what's going on in the traditional banking world right now and that is given that traditional banks balance sheets at least on the surface are in the best shape they've been in in a decade.<p>Any way tldr: I think Patrick is technically correct but framing the large picture according to a big double standard.
So Tether is doing something akin to fractional reserve banking? From what I understand, this shouldn’t cause a problem unless there is a massive run (everyone trying to convert their USDT into dollars at the same time).<p>Since most of the USDT is owned by big exchanges who need it to provide liquidity and have no interest in crashing the crypto market, I don’t think this is likely to happen.
Patrick is overindexing on the investments portion of the report – which is a little under 5% of backing. There are investment deals and crypto, but it's unknown if this represents the entirety of the amount fwiw.<p>If we take a step back and look at the key takeaway from the audit report is that amount of commercial paper was reduced and amount of T-bills (essentially cash) was increased by 5 bil. Good news if you think solvency is an issue, but of course they're all scoundrels eh?/s<p>Tether might have done shady things in the past as the article, but the scale to which Tether operates now (10s of bllns), in addition to scrutiny from SDNY, external audit, etc mean that Tether from before is much different from the Tether now, and it has pulled off the made it portion of "fake it till you make it".
Tether fud in 2022 is truly embarassing and slanderous. The only time they had real problems was when part of their money was stolen and confiscated with connection to Crypto Capital - which only happened because they were refused normal banking. The only way tether fails is if the situation repeats in some way - but it appears American government finally gave up on trying to destroy usdt.<p>As long as the US government itself doesn't try to destroy them again - in few years tether is going into hundreds of billions.