So if 0.26% of tether is withdrawn into currency the coin would collapse? Am I reading that right?
If 0.26% of Tether is withdrawn, it would need to start liquidating assets. That will, most of the time, be fine. Commercial paper is exceedingly liquid.
But sometimes, the liquidation will prompt a price fall. This is a fire sale. That, in turn, prompts more redemption, as holders of Tether grow concerned about its stability. This is a bank run. If Tether has a safety buffer between the value of its assets (U.S. dollar money market securities) and its liabilities (Tethers), this will--most of the time--be fine. If the situation spirals, however, a bank run can lead to collapse.
If it is not complete junk. Which there is good reason to believe Tether's is, and zero willingness from their side to show it isn't.
Their “reserves” and ratios and backing mean basically nothing since nobody’s ever going to be permitted to redeem a meaningful quantity anyways - while at the same time being too big to fail in the crypto industry. Exchanges know this.
They are chuck-e-cheese tokens used to facilitate capital flight from mainland China, and to provide 85% of all trading volume in the crypto space. $4.9B of BTC daily trade volume vs $0.17B for USD proper. [2]
[1] tether.to/legal
There's been a big market for escaping RMB capital controls since they were instituted, often via various gangs and casinos [2]
[1] https://twitter.com/patio11/status/1424897022268645379
[2] https://www.casino.org/news/us-marshals-service-to-seize-imp...
If Tether actually owned any commercial paper, they'd be the biggest player in the commercial paper space. Nobody's ever heard of them, and they don't own 30 billion dollars of it.
What they do own are paper promises from other companies that are controlled by them. Which are worthless. I own a paper promise from my dad to pay me a trillion dollars, that doesn't make me the richest man in the world. [1]
[1] Until I leverage it into minting a 'commercial-paper-backed', unredeemable, unaudited 'stable'coin.
Currently, all the holders of tether could ask for dollars, and they'd all get them, and there'd even be 0.26% of the original balance left. (Under quite some assumptions, namely that they could sell the commercial paper at the value at which they hold it in their accounts.)
However, if the value of their assets would shrink, say, by 1%, their equity would be wiped out, and they'd not have enough dollars to satisfy their liabilities. Then, if people would start demanding their dollars, the last 1%-0.26% = 0.74% of tether holders would get nothing, because there'd be nothing left.
That could trigger a good old bank run - you don't want to be among that last percent of bag holders, so better take out your dollars now while they still have some.
This is the correct reading: 0.26% is the excess in total capital compared to liabilities.
Earlier in the article, they state that Tether has 5% cash+equivs, so you know that 5% of Tether could be redeemed without trouble. If there were redemptions in excess of that, they would need to sell securities.
If Tether ceased operations tomorrow, just abandoned USDT and walked away with all the cash, what happens?
As long as these centralized exchanges collude to refuse redeeming USDT to USD, there is no run of the bank scenario.