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Comment by jacobush | Hacker News Reader

If they were a bank with bank accounts, yes.

They are not a bank.

The whole premise of Tether was that it was backed by USD one-to-one.

No I mean, Tether, as a company, has two bank accounts, and in just two plain-jane bank accounts, has 2 billion USD. The FDIC limit is 250k.

Tomorrow if there is a crises, Tether goes from a 2 billion dollar company to a 500k company.

No company would do that. They would either spread across as many banks as possible to stretch out FDIC as much as they can, or they would keep their cash invested in some kind of relatively stable asset.

I find it hard to believe any company with significant cash reserves is "spreading it across as many banks as possible." The FDIC limit is $250k. Storing $2bn in chunks of $250k would require 8,000 bank accounts. That sounds like a logistical, and possibly legal, nightmare.

I'm no CFO, but I assume the standard practice is to either setup an investment office to manage cash reserves (ala Apple), and/or to invest cash in stable assets, hopefully with returns greater than inflation.

Actually, how do funds, investment vehicles, etc store these amounts of money?

Treasury bills.

Investing short-term customer demand deposits in longer-term investments like Treasury bills basically makes you a bank, as I understand it, probably with all the legal hassles and risks that come with that. I can see why they might not want to do that.

"In a diversified portfolio of assets"

Fundamentally, having $2.5bn in a bank account is almost always a silly idea due to opportunity cost: the alternative is that it could be invested in a mix of things that give a reliable and reasonable rate of return.

But haven't tether explicitly promised to keep the USD reserves as cash?

> But haven't tether explicitly promised to keep the USD reserves as cash?

Just as we think of bank deposits as cash, most accounting procedures (reasonably) treat Treasuries as cash.

I can imagine why central-bank-hating Austrians might not put money in treasury bonds.

Yes - sorry for being unclear , that was the 'almost' in my comment. I was explaining why this situation is unheard of and there isn't a standard practice, and why someone like Apple doesn't face this problem.

Actually this is exactly what major investment managers do with cash. There are services provided by major banks (e.g. State Street) to the IM industry that do automated sweeps into multiple bank accounts (hundreds or thousands of accounts in some cases), repos etc. Keep in mind that typically mutual funds, CITs, etc. are structured as separate corporate entities with separate cash books, so even though (name your major fund company e.g. Vanguard, Fidelity etc) may have trillions in assets, each individual fund may have a much smaller amount under its name.

While I can't speak about Tether, hypothetically speaking if you had a single legal entity with $2B in cash, I would expect it to be well diversified in very safe and managed pools, either bank accounts (up to FDIC limit), repos, CDs, or other safe short-term instruments.

Source: investment management industry knowledge and personal experience with the same.

I misunderstood / was too anxious to post...

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