Comment by antonvs | Hacker News Reader

Comment by antonvs | Hacker News Reader

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> Failing to understand how you could peg Tether to the USD and have people believe you.

In principle, it's simple: people pay you USD for Tether, you charge them a small percentage fee, put the remaining USD in a reserve account, and issue the buyer a corresponding amount of Tether. You do the reverse to buy Tether back from people.

For the trust issue, you get a reputable company to audit your reserves and Tether/USD transactions.

If you do this, no defense of anything is needed - if someone wants to sell Tether, they can always come back to the company that issues it and exchange their Tether for some of the dollars in the reserve account at an exchange rate of 1:1 minus fees.

In practice however, the auditing and transparency for Tether is not sufficient to be sure that this is what's actually happening. So the "having people believe you" part is definitely an issue right now.

> Even the Bank of England failed to maintain the peg to the German Deutschmark some years ago.

That's not the same kind of peg, at all. A Tether is just supposed to be a proxy for a USD. The pound and Deutschmark were two otherwise completely independent currencies, so the idea of pegging one to the other was dubious to start with. Here's a brief article which covers some of the issues with that peg: https://www.investopedia.com/ask/answers/08/george-soros-ban...

> Tether is just supposed to be a proxy for USD.

That would make sense indeed, so for every tether coin issued they’d normally have to pull a dollar out of circulation. Otherwise they re printing money isn’t it? Even if true, saying that they back it up is not enough.

Too late to edit.

Now that I think of it this would make sense for the FED to actually use the blockchain tech to manage its currency supply. Instead of the printing press they issue cryptodollars which supposedly are better than paper because they can be easily and fastly moved around or whatever. But not for a 3rd party to just say: This is a dollar, but called differently, trust us, we issued it.

> That would make sense indeed, so for every tether coin issued they’d normally have to pull a dollar out of circulation.

Correct.

> Otherwise they're printing money isn’t it?

Correct.

> Even if true, saying that they back it up is not enough.

Right. The original idea was that they would provided audited statements proving they held the necessary reserves. They did start out doing something like this, as described here:

https://medium.com/@bitfinexed/the-so-called-tether-audit-th...

See the screenshot of their "previous release" which showed reserves of $44 million across seven banks.

However, for various reasons, including avoiding regulations which would make running this kind of business much more difficult, subsequent releases were less specific and suffer from a host of issues described in the above article. Nevertheless, the latest release mentioned in the article did show $442 million of reserves backing Tethers.

You're correct that the Fed could certainly use a blockchain. However, there's nothing wrong in principle with the idea of a 3rd party issuing a token representing a dollar, if they provide appropriate auditing and comply with regulations in a respectable jurisdiction. No-one is currently doing that.

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