Hacker News Reader

Comment by wallaBBB | Hacker News Reader

Oh it’s even worse. For a while now some[0] have suggested part of the backing is in bonds issues by Chinese real estate companies

[0] https://twitter.com/thelastbearsta1/status/14690072004965908...

View on HN

It could be worse than that. It could be commercial paper from Bitfinex or one of their other related party holdings.

Bitfinex seems like a very good business. I mean at least since 2016 - but 8 years is enough. It is possible that they still mismanaged it catastrophically - but fees are really good in crypto exchanges and margin loses are socialized - so they are not a risk factor for the exchange.

Chinese real estate would be considerably better than crypto company loans, tbh.

Chinese real estate companies are defaulting on their international bonds en masse and CN government has shown no interest in bailing them on that end.

Better to be backed by overvalued, sketchy physical real estate than nothing at all (see also: TerraUSD).

They are backed by companies with near-zero or less than zero valuation (liabilities > assets). Many of these companies that are defaulting have no money on hand but have already sold apartments that they have not even started building yet.

They are equivalent to a crypto that the market has lost faith in (both are worth nothing).

According to Advchina, the underlying asset is of such poor quality that they will be torn down or abandoned. And from my understanding owning a property doesn’t mean you own it forever. It’s time limited by the government.

This comes from the rumor that the commercial paper is from China.

What I find more believable is the commercial paper is actually from crypto hedge funds and exchanges incorporated in Hong Kong.[0]

[0] - https://protos.com/tether-papers-crypto-stablecoin-usdt-inve...

So tether could be theoretically backed by...bitcoin?

Possibly somewhat. There is typically a differentiation between commercial paper and asset backed commercial paper so who knows. It might depend on the individual lending USDT.

I believe that these exchanges/crypto funds are borrowing USDT with interest payable in USD and principle payable in USDT. This would incentivise borrowers to buy USDT when the peg breaks to the down side thus keeping USDT pegged to the dollar.

I think it would be more accurate to say that USDT is not backed by anything. The loans are backed by commercial paper but if the borrowers are not fulfilling these debts in USD in reality there is no backing.

I presume the incentives that stop the peg breaking to the down side will only hold as long as the exchanges/crypto funds stay liquid. If there is a sustained mass exodus out of USDT I predict things will get ugly.

Reply on news.ycombinator.com