All the people responding to you are missing the distinction too... They can create/destroy coins at will. They say that they only do this when customers receive/withdraw fiat but we all know that's not the case and they aren't truthful about it.
EXACTLY. What people miss the point about tether is that they can claim anything, at the end of the day there’s no transparency to what is really going on behind the curtain. And keep in mind US citizens cannot legally redeem tethers for USD either.
Tethers are supposed to be backed by $1 in assets. You're complaining that dollars are created out of nothing - they're not, of course, but even if they were: When Tether holds less than $1 of backing assets for each $1 of USDT in circulation it's worth strictly less than the $1 you're deriding. It is this gap we're talking about. So your comment isn't just wrong, it's completely irrelevant and a distraction from a real problem.
Dollars enter circulation when they're borrowed. They leave circulation when the loan is repaid. The value of a dollar is derived from the obligation to repay the debt that created that dollar, and the legal system which enforces these contracts. Banks undergo rigorous audits so we know for a fact how this works and that this works.
Banks are backed by the FDIC which in turn is backed by the Fed, you cannot have a bank run anymore. It's not possible. As such fractional reserve isn't a meaningful risk to depositors.
Tether has no lender of last resort. $.80 of backing reserves for $1 of USDT doesn't mean each person gets $0.80. It means the first 80 people get $1, the last 20 people get $0. Tether has also never been audited.
> you cannot have a bank run anymore. It's not possible. As such fractional reserve isn't a meaningful risk to depositors.
It's not possible for the "average person" to lose bank deposits. But if a cryptocurrency company is storing much more than FDIC limits in a single bank(because few banks are willing to deal with them), you could easily have a run on that bank.
So even having $1 of USD backing reserves for $1 of USDT, there could still be withdrawal limits, halts, etc. because the underlying bank lent the deposits out.
It needs to be paper cash in a safe to really protect against mass-withdrawals, and even then getting it "into the system" when people want it back could take a few days and lead to temporary halts.
> Banks are backed by the FDIC which in turn is backed by the Fed, you cannot have a bank run anymore. It's not possible.
Yes, it is possible. FDIC doesn't insure all deposits. Typically you're capped at X thousands across all your accounts. I'm not sure what the current value of X is, 250?
That said, a bank run is improbable. Also, be careful with cash holdings at investment institutions. Those are typically not FDIC ensured, especially if your cash is held in a money market account.
> Yes, it is possible. FDIC doesn't insure all deposits. Typically you're capped at X thousands across all your accounts. I'm not sure what the current value of X is, 250?
This is not correct. The FDIC is very concise with their commitments.
> A: Yes. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category.
Yeah, the UK had a bank run (Northern Rock) during the financial crisis in 2007. Once confidence was lost, some of the run was people with more money than our insurance limit in there, the rest ordinary small depositors who didn't feel like trusting an untested insurance mechanism when they could have banknotes.
That run was stopped by the government guaranteeing all assets and nationalising the Rock. That's not likely to happen with crypto.
Are you really trying to defend Tether by saying they are no different than the banks and that they are applying the same tactics from the fiat-system?
By your own standard, if the existing system is so broken and morally corrupt, why do you think it is right to defend Tether?
Tether started with the promise they were fully 1:1 backed with USD. They broke this promise. Later they came up with "collaterized with a basket of assets", which was also a lie and they required re-capitalization [0]
How long are you going to keep lying to yourself and trying to defend a company that is run by criminals?
No, this is not a Taco Bell. This is HackerNews, and while it may not be exactly a graduate-level economics classroom, we do try to have serious discussions here. You are not adding to that in any way.
If you think that something someone says is wrong, then address it (and/or downvote). If you think that something someone says is breaking the rules, flag it.
Don't mock the very idea of meaningful discussion just because you don't like what someone trying to be sincere says.
> Right, because the banking system can always create dollars out of nothing to satisfy any outstanding liabilities.
Can they though? Don't they create new liablities with this? Effectively ending in "finance debt with more debt" scheme that has eventually got to collapse?
It’s a category error to confuse household liabilities with sovereign liabilities. So long as a sovereign currency issuer retains sovereignty it can expand its balance sheet freely. And yes through gross mismanagement it could provoke a revolution and thus lose sovereignty.
No one's being told otherwise with banks though. The current backup plan for 19th-century-style fiat bank runs is central bank insurance and money printing, not a rather bold claim that the banks are holding on to tens of billion of dollars in cash and not doing anything with it.
> The current backup plan for 19th-century-style fiat bank runs is central bank insurance and money printing...
It's the FDIC. The FDIC was created in the wake of the Great Depression to make sure bank runs stopped. And in the last ~100 years since it was created they've succeeded. [1]
Banks pay into the fund, which is used to make depositors whole in the event of insolvency. If the fund is exhausted, the FDIC also has a line of credit with the Fed. They have $125B of assets give or take, and a $100B line of credit.
That said, we haven't drawn on the fund yet, AFAIK. Even in 2008, when WaMu collapsed, the OTS took ownership of WaMu Bank and sold it to JPMorgan. [2]
There's more than the FDIC. The government has shown over and over that it will bailout and/or nationalize financial institutions that could bring the entire system down (such as AIG). I'm not saying this system is perfect, but it's a LOT more robust and time tested than any cryptocurrency we have today.
I was being general because there are more countries in the world than the US, but this mechanism is the norm in most of the (US-aligned at least) world.
It's tether. It did briefly detach from its peg at USD $1 but the "valuation" of a coin has been roughly constant. It's $10bn out of originally $83bn, and it's still trading at $0.998 or so. So yeah, people have taken a big chunk of money out. That's called a withdrawal. We do not know that it is a cash withdrawal.
It's still detached, and it's been the longest period it's been unpegged from US$1 since it started to have high volume. Look at any graph (coinmarketcap.com is an easy one), since early 2019 when volume picked up it was never more than 6-7 days below US$1. It's been for 14 days and counting this time.
Yes, it just means tokens were removed from circulation. Doesn't mean someone has redeemed them. It might have been action by Tether itself also.
That is before they printed tokens without backing, used them to prop up market prices. And now they are pulling those out after likely making some gains when prices were high.
Since the valuation is steady at $1, that means the total amount of coins must have decreased by 10 billion. Since the only way to remove coins is to convert them back out to USD (ie, 'withdrawing') there is not much of a distinction there.
> if the price is still $1 but the circulation has gone down by 10 billion, that means $10B worth of it has been cached out
Tether being caught lying is practically perennial. Unless we have records showing someone receiving $10bn from Tether, it's safe to be sceptical of the claim.
I still think that Bitfinex is operating as a central bank and primarily loaning out Tether against bitcoin (and eth) cold wallets.
Instead of $10B of tether being converted to USD and taken out of the crypto ecosystem, what I suspect has happened is that $10B of loans have been paid back in tether and the collateral has lost value so the borrower cannot re-borrow the tether. Bitfinex doesn't ever redeem tether for USD and that isn't how tether is burned.
This means that it is predominantly crypto backed, which will at some point collapse if crypto collapses, but it is much more intrinsically stable than Terra/Luna up until crypto fails.
Maybe I'm wrong and we're about to see Tether bolt for the exits and crash and take out all of crypto with it. But crypto has been through a worse crypto bear market before, and Tether has been burned before without a systemic panic.
well it's not due to price changes, 1 USDT = 1$, so yes there are less coins in circulation.
Poster below says Tether can create and destroy coins at will. They can certainly create them, not sure they can destroy them if in others wallets (and doing so would be a huge adverse news event). If they have destroyed coins can only be their own (in their own wallets) but I suspect that would also be transparent. My feeling is that yes there have been $10bn of redemptions.
No, it's not. Because that could be a possible motivation for tether to remove supply, to artificially increase the price again, to get close to peg. And as far as I understand, nothing in Tether is transparent, so I'm not sure if they can't just destroy their own tokens without someone being sure that this is happening.
Actually they most certainly can and have. The ERC20 contract for USDT has a blacklist function and the administrator can block transfers for arbitrary addresses, rendering it worthless. Same with USDC.
They can mint a quadrillion Tether today and that would do the job pretty well. The Tether would still be in the wallets, but at that point it would be quicker to just read from /dev/urandom if you wanted some random-ish bits.
if tether is backed 1:1 with dollars, how is it not withdrawals?
I.e. either the number of total coins in circulation has dropped (unsure how that is different than withdrawing) or its valuation has dropped (i.e. it lost its peg).
If they are just destroying coins, then they weren't 1:1 (possibly more than 1:1 before, but also possibly less).
It depends. Tether lies constantly, and has lied many times. We have NYAG and CFTC settlements to that effect.
The point parent is making, AFAIK, is that without actual audits (that they have promised for years were only months away) we have no idea if they actually processed $10B of withdrawals. Or whether they simply nuked $10B of unbacked Tethers from orbit. Maybe they printed $10B, used it to buy Bitcoin, then sold the Bitcoin back for USDT and nuked the USDT? We have no way to know without a formal audit.
Important to note that they can only nuke that is under their control right now, and presumably Bitfinex' (and perhaps some other entities). Everything that is in wider circulation can only be removed through actual withdrawals.
Isn't the point of a stable coin is that it is always worth $1 each? So market cap is a valuation of $1 * total coins has gone down by $10B. So that means 10B coins were redeemed.
Tether is stable coin. Number of coins is valuation. Each coin is always 1USD (unless they loose the peg).
So if 84 billion coins are there in circulation . 84 billion of dollars had been exchanged for coins . If the coins reduces to 73 billion then 11 billion coins have been redeemed back to dollars
Seems like an important distinction?