With how shady they acted I would have assumed that number was 0%. A bit shocked it wasn't a total scam to be honest, even if they did misrepresent that it was in fiat not risky investment assets.
Create new tether, declare 1:1 fiat, sell new tether for 1 fiat each.
It only really becomes a problem if they're trying to be completely backed, as new tether isn't an option then.
Also everyone: omg tether was not 100% collateralized by fiat dollars at all times, sometimes, but also not at all times!
I just feel like the arguments are weak. Tether was controversial because it was centralized at all and requires ongoing trust and its collateral is not verifiable except by the state's subpoenas. Then the argument moved to something much more .... tolerant of their existence but requires completely ignoring how all the rest of finance works to make it an issue with Tether. Strange. At this point I can acknowledge that the market can bear it. Tether, like everything non-crypto, are vulnerable to bank runs, and that works. If people actually wanted fiat, then Tether could be in trouble. But Tether users do not want fiat and redemptions barely occur. People don't want to accept the reality that Tether actually works as stated. Like if you just assume it works as described, using the investigations of multiple US agencies, then it makes sense! Tethers are created when people deposit fiat on Bitfinex, deposit directly with the Tether issuer, sometimes by Tether issuer when Tether trades at a premium (in exchange for other cryptos that are not dollars), and sometimes arbitrarily. But its better to assume the first 3 everytime a big tether print occurs, than to always assume the last one, because the formers are what all the US regulators and enforcement agencies have also found to have occurred most of the time. Not that hard. It is a trusted system, like everything else we are used to. They change their contract to reflect any deviation from 100% usd collateralization and that's not that controversial. Fractional systems also work. Ideology doesn't make something else suddenly not work.
The key point is that it wasn't fully backed and Tether represented that it was: "Tether misrepresented to customers and the market that Tether maintained sufficient U.S. dollar reserves to back every USDT in circulation with the “equivalent amount of corresponding fiat currency” held by Tether and “safely deposited” in Tether’s bank accounts. In fact Tether reserves were not “fully-backed” the majority of the time."
Tether can either do a sort of fractional banking or not, but what they're getting fined for is lying about it.
"Because you thought I (cheated on you|took drugs|did crimes) and I hadn't, I decided I might as well do it for real, so there's no harm done" is not a defense, it's a hollow self-justification.
Ah yes, the reasonable defense of "Your honor, I only robbed the bank because someone thought I was going to. Therefore, it's not my fault."
here everyone just expected them to be doing that, and eventually they did it, not different than someone nobody expected to be doing that eventually being found to have done it as well. these cases prove that at one point they had not, even when everyone assumed they were. its like taking a time machine back to 2016 and telling people "hey actually they're fully backed", its interesting to find out, from the state's investigations, that they actually were.
thats the only chronology I explained.
lets play a new game: what's inaccurate about what I said? seems like thats a much more productive discussion.
the reason I think the distinction matters is because its resolved now. And that resolution involves Tether still existing. So our passion about a systemic threat to crypto and maybe the broader financial system will not involve the state doing something about that. which is fairly important to understand, both for your decision to use it even if briefly, or for espousing your passion about why others shouldn't use it.
As you pay off your loan, the new money that was created is destroyed.
This is how the money supply is actively managed, it's not some tinfoil hat conspiracy haha.
There is also a 1/2 trillion dollar fund (FDIC) and a further 1/2 trillion dollar line of credit at the Fed to ensure depositor funds are secure.
The federal reserve, created via act of congress, exists to manage the money supply - to maintain a low, fixed rate of inflation and maximum employment. These two features are correlated, by the way, as you can see in the Philips curve.
Now, Tether on the other hand is just printing fake money to pump up the market to benefit themselves and a small cabal of crypto holders who recognized early on the liquidity did not exist to support their desired level of wealth.
They lie about it regularly - in fact their announcement of this settlement included a bald faced lie.
> Tether: "As to the Tether reserves, there is no finding that tether tokens were not fully backed at all times—simply that the reserves were not all in cash and all in a bank account titled in Tether’s name, at all times."
> CFTC: "In fact Tether reserves were not “fully-backed” the majority of the time."
This is the central bank of crypto, 85% of all trading volume is against USDT, and they have shown themselves to be the least trustworthy entity in the world. Just a new Liberty Reserve.
What you mentioned happens. And requires a charter from governments to occur.
What I mentioned happens too. And simply relies on the tolerance of the market.
One is about banks.
Another is about the amount of unsecured leverage that all individuals and entities can operate with, and whether their counterparties need disclosure or not.
“Fractional reserve” in this context, is more about the ratio of collateral, used colloquially for quicker understanding. “Loan to value” could be helpful for other people to understand. “margin requirements” for other people.
I am only referencing the reality that individuals, businesses, and almost any kind of entity, can have a lower value of assets redeemeable for any liability they issue or accrue. It can be a “fraction” or their “reserves”.
We've long since given up on the idea that anyone should be able to do whatever they want no matter who it harms.
You are focusing far too much on the marketing that uses the terms currency. Any individual or corporation is capable of creating a product said to be redeemable for something in their treasury. This has nothing to do with the parallels to the federal reserve when corporation calls its product a stablecoin or dollar-like. All settlements with Tether's companies have been exclusively related to the reality that the corporation's product was not in fact redeemable for the thing they said it was. That is the only issue, every authority that matters has said that was the only issue. Both crypto twitter as well as blockchain skeptic's opinion doesn't matter here. Their armchair legal analysis don't matter. Their comparisons to the state-monopoly on currency issuance doesn't matter. The corporation having marketing and legal agreements that accurately describe what their product can be redeemed for, if anything at all, simply has to be congruent with reality. That's the totality of the sanction from the CFTC, and the same with the NYAG at one state level. But I will give you one bone, and that's the reality that the DOJ can of course come with a parallel criminal prosecution for the same activity. So if that will validate your thoughts on anything, just wait for that if it ever comes. I'm not worried about "being right", only saying what this settlement is saying.
https://en.wikipedia.org/wiki/History_of_the_United_States_d...
>In February 1965, President Charles de Gaulle announced his intention to exchange its U.S. dollar reserves for gold at the official exchange rate. He sent the French Navy across the Atlantic to pick up the French reserve of gold and was followed by several countries. As it resulted in considerably reducing U.S. gold stock and U.S. economic influence, it led U.S. President Richard Nixon to end unilaterally the convertibility of the dollar to gold on August 15, 1971 (the "Nixon Shock"). This was meant to be a temporary measure but the dollar became permanently a floating fiat money and in October 1976, the U.S. government officially changed the definition of the dollar; references to gold were removed from statutes.
https://en.wikipedia.org/wiki/Exorbitant_privilege
There is some irony in the US gov objecting to Tether's methods. While the USD is backed by what exactly? What are these reserves of the Federal Reserve? Meanwhile, the 1 trillion dollar platinum coin is being proposed. Yes, it is fair to say Tether is guilty of having insufficient reserves. But how meaningful is it to say that they have insufficient reserves of an unbacked currency?
Because being backed by USD reserves is their whole (self reported) value proposition and the supposed reason why 1 USDT == 1 USD on the open market. If this is all false, USDT should float relative to USD like any other crypto equity.
It's backed by the obligation to repay roughly $50 trillion (private plus public debt). I honestly don't get how people misunderstand the new system. The money system is quite simple. Money is just the liquid portion of credit and credit has value because a debtor has obligated himself to accept credit as payment.
A business isn't accepting USD because it has faith in the USD, it's because it is in debt and needs to earn the money back by providing goods and services or alternatively it needs the money to buy products and services from other companies that are in debt.
The way tether is run is quite strange. It's not a bank so people expect it to have a reasonable amount of cash reserves or alternatively they expect tether to declare that they do not intend to hold cash reserves and that holding tethers has a completely different risk profile than holding USD which also means it would have its own exchange rate vs USD instead of 1:1.
>Meanwhile, the 1 trillion dollar platinum coin is being proposed
That's just a hack to get around a self imposed debt ceiling. Everyone knows it's stupid. Blame the bigger idiots in congress that want it to be necessary.
The US is saying "we don't care if you market your product as a currency, all we see is a product. If you say it is redeemable for something, it actually better be or we fine you. But it doesn't matter to us if it is redeemable for anything, just make that match how you advertise it."
People care way more about this than government regulators do. The derivatives regulators looked at it, found something that affected the spot market based on confidence alone, and got their fine and a company agreement to match so people can be more objective about their confidence.