They are absolutely running afoul of banking regulations but that's not exactly catastrophic for the whole market. Unless there's a bank run the only thing Tether actually needs to do is keep the trading value of their coin near $1.
> Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.
What is actually bad about Tether that doesn't apply to USD and the current largely functional banking system?
Like rake them over the coals for lying about having assets they didn't but if Tether had been from the start open about holding only a small fraction in cash would it be a problem?
Sure. If the Nigerian prince was actually a Nigerian prince and actually gave me $100M, that changes the scenario substantially.
They acquired their dominant position via fraud. Their website claimed audits they never completed. They issued bank attestations showing funds they didn't have legal rights to; transferred from Bitfinex in the day before, and then back out the day after. To this day, there's no way of knowing if that fraud continues; they've yet to complete an audit or provide the transparency promised for years.
You answered your own question. There are no
1. regulations
2. regulators
3. capital requirements
4. backing insurance guaranteesNo.
They still, to this day, have not completed one of their promised audits. As such, we don't know what their current state is, and they have a track record of lying about it. There are rumblings that much of their current holdings are in commercial paper that aren't worth what they're assessed as, because Tether values them at the purchase price rather than the current mark-to-market value.
Even if they're solvent now, getting there via fraud is bad.
> ceejayoz 4 hours ago [–]
> Yup. https://tether.to/legal/
>> Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.
To me, that disclaimer sounds like they are trying to make a scam legal later when a rug is pulled out from underneath everyone and a trap is sprung like darknet drug bazars that shutdown and take everyone's assets once there was enough money on the platform.
Tether is a scam on a whole other level than this
We’ve seen bank runs before. We’ve seen failed currencies. These aren’t unprecedented events.
With that said, the old Buffett quote “it’s only when the tide goes out that you see who’s been swimming naked” has never been more apt than to this situation.
To take your hypothetical example, you’re correct that the user in question is able to trade on their token to someone else for another asset quickly - but as the article states, issuances outstrip redemptions by 20:1.
That means almost all of these tokens are still in circulation. Someone is on the hook for those losses.
The thing is, who’s liable? If the whole marketplace is a fugazi then it’s probably up to the exchanges to organise haircuts as they deem appropriate.
That isn’t even the real problem though. What’s the value of [COIN] if 95% of the market cap is suddenly revealed to be fake money?
I mean, sure, you can assume everyone will just shrug that off and hold what they have while you sell, but it seems really unlikely.
tldr; this information suggests that most of the value in most of cryptocurrency tokens does not and has never existed.
Lebanon’s central bank was found to be engaging in funny business. Its currency crashed. Tether is akin to the central bank of USDT, not another player in the system.
> They are absolutely running afoul of banking regulations
> the only thing Tether actually needs to do is keep the trading value of their coin near $1.
How do you propose Tether do that if they don't have financial backing to create a watermark below which the value won't fall? Increase the scam?
At any given moment you just need the ability to pay out the people who come to you and ask which is already teeny tiny (as evident by banks needing less than 5% cash reserves of deposits) and made even smaller since people don't typically cash Tether out directly and do it at exchanges.
> as evident by banks needing less than 5% cash reserves of deposits
You may not be aware, but when you deposit money into a bank, deposits are insured, so it doesn't matter if they have 1% on hand. You will eventually get your deposit back. That is not even close to what Tether is.