It's absolutely true of other algorithmic stablecoins.
When it comes to "backed" stablecoins like USDT the scam is even simpler: you just say it's backed by cash when it's not.
When it comes to "backed" stablecoins like USDT the scam is even simpler: you just say it's backed by cash when it's not.
See, if it fails then the big exchanges become insolvent, full stop.
Now here's the thing. With some exchange APIs you can see market order statuses, whether they're settled or not.
You can use this to determine market latency. If I want a market buy, how long does it take to settle.
So here's the thing, the latency on USDT buys was on the millisecond scale as best I could determine.
The latency on USDT sells was near minute scale.
It's a giant accusation so I'm not going to name-drop the exchanges I'm talking about and I'm just a single data point but if anyone else saw it contact me.
It looks like they "narrowed the channel" and put their thumb on the scale to prefer buys and float the price, pushing it back up.
Now this was at a time that the gas price was about 250/300gwe because of the massive UST exit and network delays were 15/20 minutes or so.
So even if you wanted to arbitrage it wouldn't have been worth it because the network was going way slower then exchange latency.
This started basically right when Tether tweeted about the billion in Avax and ran for about 12 hours or so
Ultimately it doesn't matter. These are unregulated securities and the exchanges can run their markets as the please and, if what I'm saying is right, good job keeping the thing you need to stay in business afloat. Coinbase stock (which I'm using as proxy for general sentiment) climbed 50% after tether got repegged and contagion appears to have been averted
I'm just wondering if anyone else saw this. It could be a coding defect on my part, a fluke because of the craziness of the market, me projecting and fooling myself, etc.
Please don't go around repeating this as fact, it as of now, needs independent verification
This is such a silly argument. USDT is definitely backed by USD. To claim that it isn’t is just a lie. I think what you meant to imply is that it’s not backed 1:1. This isn’t only an issue with Tether. This is the case with any fractional reserve banking system.
This document [1] from the Bank of England (UK’s central bank) is the best description I know of about how those ideas (“fractional reserve”, banks lending out deposits, “money multiplier” etc.) are wrong.
1. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
I guess you could say “fractional reserve banks” do, because “fractional reserve” is a textbook model and not something that happens in the real world.
The problem is that deposits are a liability. Banks can only lever up assets to lend, so deposits are on the wrong side of the balance sheet to do that. What limits how much banks can lend is capital (and capital adequacy ratios), not deposits.
Banks create new deposits when they lend, as well as creating an equal amount of private debt. The loan is an asset of the bank, which creates a corresponding liability.
Customer deposits coming in as cash or transfers from other banks are useful as liquidity, but can never be lent.
Some details if you’re interested: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
When someone makes a deposit in a bank it goes on both sides of the __balance__ sheet. On one side the "deposit" is a liability for the bank - who owes money to the depositor - but on the other side it increases the bank's "reserve" account.
Yes fractional reserve banking is a real thing, but real banks must publish audited financial statements so that outside observers can asses the banks financial position. From small local banks to national reserve banks, the financial statements are out in the open for depositors and borrowers to scrutinize. This isn't possible with Tether because the fiat side of their books are closed.
If everything is above board at Tether why not release the books? It's such an obvious PR win and would increase adoption of their currency.
They haven't done so because they know the books are cooked.
Its 2/3rd backed by dollars and 1/3rd a mixture of commercial paper, which we don't have further information about. Rumor mill always swirls about that paper, but its probably not that controversial and would only be 33% of Tether. Likely would result in a liquidity crisis if more than 70-80% of Tether's were redeemed at once. Although I wonder if that's even possible now given how much USDT is locked in DeFi apps and liquidity pools and burned.
(Projects often lock assets in a liquidity pool share and then destroy their access to that share, to ensure to their community that there is always the ability to trade)
So Tether will probably continue working for partially the dumbest reasons.
If anyone ever provably burns a tether, then the tether organisation will help 'recover' the tether to anyone holding keys to a previous address that held it, or just anyone with a reasonable story how they accidentally burned the tethers.
This is their policy since some big players accidentally sent tether to addresses on the wrong Blockchain...
That is insured by GOVERNMENTS...
There is a minor difference, though. On a typical fractional reserve bank the deposits are backed by assets worth more than what is the worth of the deposits.[1] Not only that, there are other liabilities that take the possible losses before the deposits are being hit.
On a typical stablecoin, there is a reason to suspect that the coins are backed by assets worth less than the market cap of the stablecoin.
The difference may seem subtle, but it is a difference of a legitimate business and a despicable scam.
[1] In case you are interested, you can go and check the balance sheet of any bank you want. The part where the value of excess assets to back the liabilites of the bank (deposits etc) is listed under "Equity"