A quarter of their investments are commercial paper, which hasn't averaged as high as 2% yield since a brief period in March 2020. Actual cash of course has 0% yield. US Treasuries (sub 1-year), which make up nearly half their assets, also hasn't hit 2% yield any time recently. So no, they aren't recouping their loss on cryptocurrency.
> I think people fail to notice how similar a (non-fraud) tether model is to a traditional bank: you take short term deposits, you make long term loans, and you hope to have enough capital on hand to deal with any runs. Given the liquidity of modern capital markets, it's very rare for the fed to have to bail out small deposit banks. So it's reasonable to assume the same will apply to tether.
One of the reasons why banks rarely have to be bailed out is because there are stringent regulations on bank holdings. For example, a minimum tier 1 capital ratio, the amount of equity that needs to be held to cover unexpected asset shortfalls. This requirement is I believe 10%, and based on the evidence Tether has produced, Tether's tier 1 capital ratio is... 0%. It should also be noted that Tether is perilously close to insolvent, with (claimed) assets about 100-101% of total liabilities; most financial institutions prefer to be at least ~110-115% of total liabilities.
Compare Tether to banks if you want to, just be aware that it just makes Tether's financials look even worse in comparison.
I'm just laying out the maths...
And to be clear, they only need to make 2% total to cover their crypto loses. If the average tether coin exists for 18 months before being redeemed, 1.5% per annum will net them 2.2% over that period and they're golden.
That extra 0.2%, for a $10bn withdrawal is 2million USD in profit right? Not bad split equally between 5 employees, for a month with massive crypto loses and 10bn in net withdrawals...
That’s exactly what’s unethical about it. They’re operating a bank, but have skipped all the regulations and oversight that banks operate with.
I have no issue with Tether operating a fractional reserve deposit system, if they are subject to the same oversight (and insurance) that banks are subject to.
But tether has no risk of contagion to a bank does it?
And markets have never been more stable or deep or liquid.
So the case for regulation here is weak.
Again. I don't actually know if tether is a giant fraud, or how much actual business case there is here for stable coins. I'm just saying, it's sort of easy to make a case at least that they're fine.
Made, realised and not spent/withdrawn by them. The required assumption here is that the pool of money behind tether grows / is reinvested. But given they only need to keep 1:1 (assuming even that is true) the investment profits may have been exchanged for hookers and blow for all we know.
Also, if 2% of outstanding tether has been lost (forgotten wallet keys etc) then those can never be redeemed and again, tether wins.
Inflation is another factor worth considering here: tethers deposits are deminishing but it's investments are (or should be) shielded.
I think people fail to notice how similar a (non-fraud) tether model is to a traditional bank: you take short term deposits, you make long term loans, and you hope to have enough capital on hand to deal with any runs. Given the liquidity of modern capital markets, it's very rare for the fed to have to bail out small deposit banks. So it's reasonable to assume the same will apply to tether.