Imho, it’s far more likely that Tether has very few assets backing their issuance and that a crypto implosion could spark contagion in other markets.
As I understand it, exchanges wire Tether large amounts of USD, and then Tether mints and equal amount of USDT and sends it back to exchanges.
Then one day it all blows up, the fraud is exposed, and everything goes to zero.
That way Tether prints USDT out of thin air and makes an income from a sum of money they largely don’t hold while the exchanges get to hold the bulk of fiat that gets deposited. The “commercial paper” could just be these loans owed by exchanges via a seperate shell company.
How existing eurodollar system works… yet people constantly whine about USDT… lol
Tether is essentially crypto with all the properties of fiat except the good ones. A tool that allows people to trade and avoid triggering tax events in certain jurisdictions because it is still technically a cryptocurrency.
Sure, _maybe_ for a US bank with another US bank within the US (you have to ignore collateral rehypothication, which in practice you really can't ignore…).
But this is not how it works with an Indonesian bank dealing with a Chinese bank when they denominate their OTC bilateral transactions in USD…
Unless you think that their respective governments are issuing USD and not just those banks swapping USD liabilities with one another, as well as unless you also think that those respective governments are guaranteeing USD deposits in those banks are fully backed by USD in a bank account somewhere and not just mostly USD denominated "assets" (future USD cashflow on those swapped liabilities)…
> A tool that allows people to trade and avoid triggering tax events in certain jurisdictions
Which is not even unique to Tether… who operates just like any other bank in eurodollar markets (and withdrawls from blockchains to tradfi fiat will trigger easily taxable events, $100k min with USDT).
Like i said in another comment, i fully expect peoples minds to be blown (if they are currently clutching their pearls with USDT) with an on chain entity does exactly what tether does but has no physical offices nor employees because its a DAO…
How does Tether prop up the value of USDT if there is a mass sell off into fiat? Is this the duty of the exchanges? Does Tether buy USDT off exchanges in order to push up price when there is a sell off? How big a sell off can they contain?
How would a DAO offer the same promises of “backing” that made USDT possible without government issued stable-coins?
SSDD with pretty much every bank/branch not domiciled in the US that has accounts denominated in USD… they make the same promises
> How does Tether prop up the value of USDT if there is a mass sell off into fiat? Is this the duty of the exchanges? Does Tether buy USDT off exchanges in order to push up price when there is a sell off? How big a sell off can they contain?
As long as Tether continues to have higher cash flows than many tradfi banks operating in eurodollar markets now (esp in smaller countries), you'd be better off asking these questions about those other banks now…
> How would a DAO offer the same promises of “backing” that made USDT possible without government issued stable-coins?
On chain liabilities between DAOs and centralized orgs on chain denominated in decentralized uncollateralized stablecoins, and the desire for people to purchase such liabilities at discounts with fluctuation price of the stablecoins that freely float against things like USDT/USDC/DAI/TUSD/etc (not too different from the incentives involved in eurodollar futures markets).
It doesn't make any sense.
What does make sense is the exchange wants to do business. No one wants to give the exchange USD. So they accept USDT.
1. Tether prints USDT then offers above market price on the exchange.
2. People put their crypto in the exchange to arbitrage the high/fake price.
3. Tether buys real bitcoins for fake printed money.
4. The exchange is happy with taking a small cut, even if it's just fake USDT money.
5. Now Tether is backed by Bitcoin - an asset they can guarantee appreciates.
6. The exchanges can use their USDT cut to buy crypto on their exchanges, too.
This is risk free for Tether as long as they can keep the scheme going.
It also makes complete sense to me why when Tether is printing vast sums - meme coins explode.
It's easier for the exchanges to convert their USDT into meme coins. No one wants to hand over their bitcoins to a shady exchange for fake money. But they'll fork over their Shiba Inu coins for 1000x the price. Why not?
Just look at the volumes on the exchanges that trade Tether and meme coins while Tether is printing money.
In 2019, Tether's lifetime holdings were $2.1B and even that was not fully backed, and they're now printing nearly $4B a week.
At this rate, and recognizing that comparing to revenue is not a strict apples-to-apples, this would put them on track by the end of 2021 within the top 20 largest companies in the world, eclipsing Alphabet, AT&T, even Samsung and Saudi Aramco.
How anyone can say that with a straight face beggars belief.