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Comment by RyanShook | Hacker News Reader

Isn't Tether actually backed by dollars though? Edit- here are current reserves: https://tether.to/en/transparency

Oh good lord no. It's backed by something they originally said was dollars, they then relented after people poked around a bit and confessed it's just a basket of stuff they consider equivalent to dollars (plus probably some dollars I guess?)

assets: NFT of tweet, hubcap, the power of love, cracked iPhone 5

Pizza coupons, beer bottles that can be deposited for a refund in California

I've never thought of can and bottle deposits as cash equivalents, but it checks out. More trustworthy than a lot of corporate paper out there today.

You're forgetting the 6 trillion-dollar "IOU, I'm good for it, pinky swear" from Deadbeat Dave. I'm assuming that's what their commercial paper holdings resemble.

I guess we have yet to find out if time ain’t Bitcoin.

For all we know, a portion of that is now UST that they scooped at a discount. It's "equivalent to dollars"

It's not that bad: https://tether.to/en/transparency/#reports

If it really is, then there is no problem at all.

The problem is: how do we trust that this report is true?

> Isn't Tether actually backed by dollars though?

No [1].

[1] https://en.wikipedia.org/wiki/Tether_(cryptocurrency)#Questi...

Most of Tether's MC increase has come since the pandemic started. Since then roughly $70B+ USD has been handed to Tether, who have used that $70B+ to purchase backing assets at heavily inflated pandemic valuations, corporate paper of suspect ratings, loans of USD for BTC at high prices, etc.

This all works if the assets are stable and inflation continues. If the assets behind Tether are deflating or turn to junk they'll increasingly be unable to redeem.

Part of keeping this going is not allowing average retail to redeem their Tether for USD (imagine a one-way bank where you can deposit but not withdraw) and working with the larger crypto trading shops to shore up short-term liquidity issues.

A partial asset backing is not necessarily a bad thing (fractional reserve banking), but banks are far more firmly backed and regulated by the USG and have FDIC guarantees. The longer assets deflate and recessionary pressures increase the higher statistical likelihood of an eventual bank run on Tether.

Once you have a fractional reserve system a run on the banks becomes inevitable.

No - the FDIC has basically eliminated the possibility of an old-fashioned bank run on traditional regulated banks.

People have been concerned about this for quite some time. It seems the answer that question is definitely not. Here is a somewhat dramatic write up: https://www.singlelunch.com/2021/05/19/the-tether-ponzi-sche...

It's like a fractional reserve situation.

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