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> Tether reserves the right to refuse registration to, to bar transactions from or to, or to suspend or terminate the administration of Services, Digital Tokens Address, or Digital Tokens Wallet for or with, any user for any reason (or for no reason) at any time

> 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.

https://tether.to/en/legal/

Hahaha holy shit, how has there been so much discussion about Tether that doesn't start and end citing these clauses?

crypto currencies need an FDIC

Which would defeat the point of crypto currencies

Serious question, how can you sue over this kind of thing?

I thought the whole point of crypto is that it's not regulated. And that also meant that if you got screwed then you are SOL.

They can be sued if they claim that they hold more assets than they are issuing. If you tell everyone that it's a dollar per coin, and suddenly there are 5 billion coins, you better have $5 billion to your name somehow.

Not sure if there have been similar lawsuits in the crypto world yet.

Tether isn’t a real company operating in a country that applies laws to it. That’s the whole point.

Tether is a company and laws have been applied to it.

https://ag.ny.gov/press-release/2021/attorney-general-james-...

https://www.bloomberg.com/news/articles/2021-07-26/tether-ex...

For that to be true, that coin needs to abide to the same laws as real currency.

If I say that "1 dollar = 1 virtual thingy" and suddenly there are a lot of virtual thingies and their price fall, then what's the crime aside me personally being a lying f*ck that can´t be trusted anymore?

I don't see how "legitDollarCoins" is legally more legit than, say, lootboxes.

Turns out that lying to people on a large scale is a crime named 'Fraud'.

It's a security and is regulated as such. So SEC, torts, etc.

In this case if you're marketing $TOKEN as a stablecoin and there's no resources to back it up then it's literally a $PONZICOIN.

$USDC might be okay, I know they've made moves to back their coin in dollars and treasuries.

It's simply fraud. There are laws against fraud.

You don’t need a crime to sue somebody. You need a tort.

It's basically all uncharted waters. Yesterday's freakout over Coinbase saying that all customer assets could be seized in the case of bankruptcy was basically them saying they have absolutely no idea what would happen because no precedent exists. In reality, regulatory agencies have broad authority and can seek more when needed to deal with unexpected events. If they think Coinbase or Tether represent a systemic risk, they will find a way to bail out investors because the downside risk of doing nothing is too great. It's possible some of the major crypto institutions have reached Too Big To Fail status regardless of whatever statutory authority exists to protect them. The biggest problem is simply that ownership is anonymous so we have no idea which countries have the most exposure or who to rescue.

> If they think Coinbase or Tether represent a systemic risk, they will find a way to bail out investors because the downside risk of doing nothing is too great. It's possible some of the major crypto institutions have reached Too Big To Fail status regardless of whatever statutory authority exists to protect them.

That's silly. The only people who actually believe this are the ones who have so bought into the hype that they don't realize that crypto is not a functional part of our system of currency that underlies our economic production. Crypto is an asset that is prone to bubbles that provides little to no actual economic production. The "major crypto institutions" will have to be bailed out privately, if at all.

It doesn't matter if it's a scam or if it provides value. Lots of activity leading up to the 2007 crisis was scammy but once enough people and institutions were exposed it had to be dealt with. If Moderna says they put all the cash in Tether and now they're broke and can't produce vaccines, they'll get bailed out.

All that being said I don't actually think that we'll see anything like that. There will be some negative wealth effect but unlikely any systemic risk. Traditional financial institutions have been leery of crypto from the start and they still control the vast majority of capital.

Moderna might get bailed out...though I am skeptical how they would justify having so much cash in Tether rather than an actual bank and as such I highly doubt they would get terms as favorable as the banks got in 2008.

Tether itself certainly would not get bailed. There is literally zero chance that the US Government would decide to help keep Tether pegged. Tether simply isn't important enough to the broader economy, it only exists so that sketchy businesses that have trouble interacting with banks can have an easier access.

You don’t get to just decide that regulation doesn’t apply. The SEC can decide to regulate you, for offering a security or fraudulent statement later for instance

I'm certain that with billions of dollars on the line a creative lawyer will find some avenue to attempt to get the money back. At the very least there's an arguable case that they've committed some level of fraud by mis-stating how well backed it is. The question of whether you'd win, and whether you'd be able to enforce any judgement are different issues.

That'd be great to watch. It is amazing how quick people turn on each other once shit hits the fan. They'll all be pointing fingers at each other full circle.

Amusingly anyone who does know the backing amount has an incredible opportunity to profit off of a decision to flee too

And then, what are the odds they have already taken the money they plan to take.

The problem with Tether is that for all we know, it could be completely unbacked and therefore worthless.

Well not completely, in the sense that they seem to be exchanging USDT for USD at a 1:1 ratio if you show up with 100k or more. There have been no reports of people that tried to get that and didn't get it.

On the other hand maybe people holding a lot of USDT wouldn't not want to tell anyone else if they were unable to redeem it before they had sold it all on the exchanges...

That last part is key: you’d only publicly share bad news if you had unloaded – and if the news isn’t good they’d have an incentive to offer a major holder a better deal with an NDA.

> There have been no reports of people that tried to get that and didn't get it.

Have there been reports of people using the exchange successfully?

> There have been no reports of people that tried to get that and didn't

There were no reports of Bernie Madoff not being able to repay investors until the day he ran out of cash.

Even that never really happened, did it? Madoff was never not able to make a payment.

His kids reported him to the police before they could be found out by anyone else. Of course, as part of the reporting, they also got immunity from the consequences of the company they worked for being an elaborate ponzi scheme.

I suspect it's highly likely that this was a scheme they came up with to ensure that no one in the family, other than Madoff himself, would have to suffer the consequences of their crime.

> Even that never really happened, did it? Madoff was never not able to make a payment.

Until the day it collapsed. It collapsed because he didn't have enough cash to cover withdrawals and he could not find new victims.

That's how all Ponzi schemes collapse.

If it is 20% backed, haven't they pocketed the other 80bill already anyway? Therefore the 20B left is just a lottery ticket you might as well pay to have a chance to klept some more hundreds of bills?

What am I missing here? That the 80 bill has been badly spent on papering over some exchange losses?

People use USDT to buy and sell other tokens, it's like an on/off ramp to all things "crypto". You give them 1USD, they give you 1USDT, and you can buy whatever fake coin you like.

The issue is that it's true that for every 1USD you give to Tether, there's 1USDT, but it's not true that for every 1USDT Tether mints, there's 1USD in some bank. Estimates are in the low 10%, but it's probably less. They have essentially a money printer.

(Some) people really believe that USDT is pegged to the dollar, so they really believe that if they have some ETH for instance, and they sell that ETH for USDT, that the translation ETH -> USDT -> USD is maintained, but that's the whole problem, nothing stops them from minting USDT without the real USD existing. So nothing stops them from "buying" your "hard earned" ETH/Bitcoin/whatevercoin with USDT pulled out of thin air.

That's why New York said essentially "these people are liers and nothing they say is true". It's just that people continue to play this game. And why is that? Because no financial institution would give you Bitcoin/ETH/whatever for dollars, because if they do, they are essentially banks and all the KyC rules / regulations apply.

So they came up with this charade, these "stable coins" are nothing more than a workaround for on and off ramps, because people have FIAT money (real money if you ask me). This is why Bitcoin doesn't go lower than 30.000, because there's huge amount of Tether being used to buy Bitcoin and keep the price up. Once this money printer charade goes bust we will see the actual price of Bitcoin, Ether, NFTs and so on.

Point of clarification.

If they give you 1 USDT for 1 dollar that's fine as long as they can return that dollar when you return the USDT. The problem is when the number of coins in circulation not held by Tether is not backed with 1:1 cash or currency equivalents.

IT's actually that the other 80% never existed at all.

Dude, it's at 99.5 cents.. it's dipped this much before.

It was at 95 cents about six hours ago.

Not entirely unexpected to see a dip of that magnitude due to limited liquidity at nighttime when most USD payment rails are offline (market makers don't have infinitely deep pockets), but also not exactly confidence-inspiring.

For the record, USDT was at its lowest point ~$0.91, sometime in April 2017, and seems to have recovered after that as well.

I'd never touch USDT for other reasons (why not use Dai?), but I won't say it doesn't seem like the money printer will go on for just a bit more.

It's like people have never heard of Dai? I don't get it.

Isn't Dai crypto-backed? That would give it a risk profile, but also not make it risk-free: Counterparty risk (Tether) vs. exchange rate risk of the backing assets (Dai).

It's multi-collateralized, so backed by crypto, but also backed by crypto that is backed by actual paper (ie. USDC counterparty risk) and is overcollateralized (so the backing is more than how much $ DAI there is by a substantial margin - ~166%). It has a number of additional clever tricks to keep the peg (burning MKR, etc.), but unlike Terra is not only clever tricks.

Lol, sounds like the mortgage backed assets before the housing crash.

"Back it up with enough securities that are backed up by enough securities that are backed up by enough securities, you will turn the literal shit the eventual security is backed up by into gold".

Most financial instruments are backed by other securities, so it "sounds like" the 2008 crash because it sounds like every financial instrument.

the problem with the crash is that the risk of the junk mortgages was not adequately assessed due to market failure.

How is it overcollateralized? If someone buys on Dai token for $1 then where do the backers of Dai get the extra $0.66?

I encourage you to do your own research, there is more than enough information out there.

The basic jist is that there are two ways of getting Dai, either

1. buying it from someone else with Dai (no extra $0.66)

2. minting it as a loan collateralized by your holdings in some other crypto (which requires $1 + X% backing) where X varies depending on the crypto. I believe you also get paid some "stability" fees for doing this, but I don't remember the detail. Because your vault gets liquidated if your collateral value goes below $1 + X%, people usually go considerably above $1 + X% in their collateral so there is no chance of that happening.

Some DAI is also minted by corporations that the DAO has voted to form a relationship with (so it's secured by actual loans into real-estate), but I believe that as of now this is a very small percentage of the whole.

All dai that you would buy from someone else is minted by #2 . You can see the backing here: https://daistats.com/#/

166% collateral doesn't seem so safe in a market where swings of 20%+ are not uncommon and 50%+ are not unheard of. Plus the value of many cryptocurrencies seem to be correlated and they will shed value together in a bad market. I think the thing that would give me the most confidence is the large portion of USDC collateral - but why not just use USDC then?

> 166% collateral doesn't seem so safe in a market where swings of 20%+ are not uncommon and 50%+ are not unheard of

If vault gets below the $1 + X%, then it is automatically auctioned. You can imagine quickly being able to switch the collateral backing to USDC by voting to raise the X for ETH while vaults are being liquidated in auction.

basically, if ETH falls like this, demand for Dai will skyrocket due to the auctions, and the only collateralization left will be the stable collateral.

The people most likely to be screwed are vault holders whose collateral is auctioned at a discount to boost the price of Dai, but the Dai will remain stable.

> why not just use USDC then?

Because being diversified is good and USDC is entirely centralized.

correction: stability fee is paid by the vault owner towards burning MKR governance token.

Yep, this fractional reserve scheme they're running sounds shady. Almost like what banks are doing when they create book money out of nothing. Which is of course perfectly legal if you're rich enough to set up a private bank but the difference is they're doing it on a public ledger where everyone can see exactly how much emission there is, while bank books aren't public. Doing it in the open clearly goes too far, they're giving away the bank secrets.

That’s actually a bit of a misunderstanding of how banks work. “Fractional reserve” isn’t really actually a thing in the real world (just a textbook model). The confusion stems from a rule in the US, where banks were required to have a particular type of asset (central bank reserves) in an amount equaling at least 10% of deposits. People misunderstood this to mean that banks only have 10% of deposits backed with any asset, which is completely wrong! Banks have to have assets backing 100% of deposits, or else they’re insolvent! The reserve requirement was a liquidity thing, and I don’t think it’s actually a requirement at all any more. Most other countries don’t have a reserve requirement either.

Now, it is basically correct that banks create money (when they lend, because the created loan (debt to the customer) is an asset to the bank, and at the same time they create a liability (to the bank) that is the deposit (the money loaned)), as you can read about here [1] from the Bank of England. But that’s not a secret, it’s just not commonly known.

What Tether is doing, of course, is different, because they seem to create money out of nothing without having the assets to cover them, and/or without the licensing to create assets (loans), which of course carries with it obligations like capital adequacy requirements to be able to cover expected losses with capital (not deposits, a real bank isn’t actually allowed to use customer deposits for lending, but they are used as part of the liquidity that the bank needs).

1. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

> Banks have to have assets backing 100% of deposits, or else they’re insolvent!

Yeah, by asset you mean "loan to other person", and that person will often deposit their loaned money in the same bank, where it will be loaned out again.

Banks do not have 100% of "assets", otherwise bank runs wouldn't be so catastrophic when enough people try to withdraw their funds in actual currency. Because it's not there. Your misunderstanding is that you're focusing on your average savings account, these types of accounts are inconsequential in the grand scheme of things, in fact many banks don't even want these customers since they can't make much money that way if at all.

Now as for credit it is not fully backed and they do create money out of nothing, any econ 101 course teaches you that. That is actually how most new money is created, though bank credits. The "money" is book money which is not legal tender, which means yes, they literally just make an entry into their books (today digital), same as Tether minting money out of thin air.

The most fatal aspect is that many people do not understand the complicated legal situation when giving money to banks. They imagine it like their money is sitting in a virtual safe just for them and the bank can't touch it. In reality once it enters the banks books you have lost custody of the actual asset (government money), which is why insurance is needed in case the bank goes under. In the EU for example all savings are insured up to 100k€.

>What Tether is doing, of course, is different, because they seem to create money out of nothing without having the assets to cover them

This is what banks do, you simply do not understand.

>"Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer's bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank's economists, ""this refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant credit using funds placed with them previously as deposits by other customers"". By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money)."

https://www.bundesbank.de/en/tasks/topics/how-money-is-creat...