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.
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.
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.
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.
Source: https://www.fdic.gov/resources/deposit-insurance/faq/
FDIC insurance is, standard, $250,000 per depositor, per insured bank, for each account ownership category. [1]
Brokerage balances are SIPC insured against brokerage defaults, but not a money market fund imploding. [2]
[1] https://www.fdic.gov/resources/deposit-insurance/brochures/d...
That run was stopped by the government guaranteeing all assets and nationalising the Rock. That's not likely to happen with crypto.
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?
[0]: https://www.kalzumeus.com/2022/05/20/tether-required-recapit...
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.
They’re not?
> you cannot have a bank run anymore. It's not possible.
Right, because the banking system can always create dollars out of nothing to satisfy any outstanding liabilities.
> Banks are backed by the FDIC which in turn is backed by the Fed
The Fed is a creature of Congress. It’s all sovereign currency issuance.
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?
Openings like this are not a precursor for anything good, and indeed:
> You're complaining that dollars are created out of nothing - they're not, of course,
No, not "of course". (These conversations would be so much more interesting if people had even a basic knowledge of finance, or a little less ego.)
In fact, Tether increases the US dollar money supply in exactly the same way that Eurodollars do: https://www.investopedia.com/terms/e/eurodollar.asp
(Fractional reserve banking also "creates" dollars.)
Source: spent years writing mathematical models for options and other derivatives on Wall Street before I decided it was evil.
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]
[1] https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
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.
So 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.
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.
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.
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).
People then get all hand wavy and point at the fact banks have fractional reserves too.
A more accurate description would be „withdrawals minus deposits”, but it’s quite obvious that this is what is meant.
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.
An exchange could borrow the USDT, and when returned, they could be burned - with no dollars changing hands.
Therefore it's the number of total coins which is falling.
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?