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0 pointstrutannus4y ago0 comments

> will run out of dollars and this whole machine will fall apart

Sounds like it could be three things:

1) Their USD standard is bunk. If you're on a commodity money - or secondary exchange money - standard then you can only issue as many certs as there are units of that money in your reserves. With the XAU standard, you can't just mint gold certs without gold underlying it. That's not how any of this works!

2) They just FDR'ed their users, and took them off the USD standard but didn't tell them.

3) Less technically: sounds like they're skimming off the USD for themselves and hoping everyone doesn't divest at the same time. This could be either fraud, or it could just be incomitance, ignorance or any other *ance really.

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AlexandrB4y ago

I think it's nothing as dramatic as (1). Just that instead of holding USD currency, they're holding equivalent "commercial paper"[1]. This means that everything will be ok as long as they can sell these bonds when the time comes. But if any of the held bonds fail or decrease in value, Tether will be in serious trouble.

I could see Tether becoming insolvent if/when there is another financial crisis that reveals some of these bonds as junk.

[1] https://www.coindesk.com/tether-first-reserve-composition-re...

trutannusOP4y ago

I can definitely see that being the case. The only issue here is that if you're actually just holding bonds and not cash, saying your currency is on a USD standard is patently false.

If your currency is backed by some kind of non-cash instrument, then what you've actually got is some kind of ETF like structure, not a currency qua exchange currency.

overtonwhy4y ago

After Tether allegedly lost high 9 figures to a "scam" #1 seems not that unlikely.

"Last week, New York Attorney General Letitia James announced that iFinex—the parent company of Bitfinex, an exchange, and Tether, a dollar-backed digital token—is under investigation for fraud. At issue is $850 million that disappeared from Bitfinex’s coffers in mid-2018. The funds may have been stolen while in the possession of Crypto Capital, a payments processing company based in Panama. Crypto Capital has also been tied to Quadriga, a Canadian exchange which lost $140 million a few months ago."

https://qz.com/1607657/tether-could-bring-down-bitcoin-after...

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