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Galanwe

Just trying to be picky:

The most likely scenario is that Tether is _overall_ solvent, though not in liquid assets.

What would likely happen in case of a bank run is:

1) Tether will defend the peg and redeem at $1

2) Tether will freeze redeems because of limited liquidity

3) Tether will fill face huge pressure and regulatory threats

4) Some people will want to exit USDT immediately at a discounted price (say $0.5), while some others will buy discounted USDT hoping once Tether solves its liquidity issues or bankrupt they could get more than $0.5 per USDT.

TLDR: USDT will most likely not go to $0 in case of default. Most likely there will be speculation on Tether's illiquid assets value that could be sold back to pay creditors.

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But the claim about Tether problems is about solvency, not liquidity. If they are insolvent then

1. They defend the peg

2. Run out of money

3. Remaining tether is worth $0.

Now, probably they will not defend until exactly 0, and maybe they will have some illiquid assets that will be worth something, but I think $0.5 on a dollar is extremely ambitious. Kind of like FTX isn’t a liquidity issue, it’s a solvency issue.

> But the claim about Tether problems is about solvency, not liquidity.

I don't think solvency is really at stake for Tether. They have so much capital at this point that they are filthy rich just with treasuries returns. Of course that's just my opinion, you're free to disregard it.

The main risk IMHO is their greed in investing in illiquid assets.

> If they are insolvent then > 1. They defend the peg > 2. Run out of money > 3. Remaining tether is worth $0.

My (picky) point is that no, this does not happen, because a company becomes bankrupt and ceases operation before $0.

Even now, there are people actively buying FTX accounts at a discount, expecting to cash in once the liquidation settlement is over.

> The most likely scenario is that Tether is _overall_ solvent, though not in liquid assets.

What makes you believe this?

By the numbers:

- 66B in liabilities

- 17B in redemptions over a 2 month period (proof of some liquidity)

- 8 years of operation

- 100s of millions in annual revenue

How many billions are they short? What redemption rate would it take? Which catalyst?

At this point, the question should be: what makes you believe they are insolvent?

Edit: assets -> liabilities

> 66B in assets

We don't really know this, and a lot of their assets seem to be things like "corporate paper", which may simply be IOUs from exchanges they've given Tethers to.

> At this point, the question should be: what makes you believe they are insolvent?

A history of lies about audits, for a start. Admissions that they weren't fully backed in court at various points in the past (73% was bandied around by their own people at some point). Plus if the 'corporate paper' situation is anything like described, in any sort of crunch situation it could prove to be worthless.

> We don't really know this

Yes, I should have said 66B in liabilities. We don't know how much they have backing these liabilities.

> A history of lies about audits, for a start ...

Indeed. So we're free to come up with our various estimates. None more correct than the other.

> So we're free to come up with our various estimates. None more correct than the other.

Doesn’t this seem like a massive, systemic threat in itself, that an audit-dodging, opaque institution underpins the ecosystem?

Even if it is all present and correct (for some definition of present and correct) shouldn’t we be highly suspicious purely because of this evasive behaviour?

> Doesn’t this seem like a massive, systemic threat in itself, that an audit-dodging, opaque institution underpins the ecosystem?

It was. But it's increasingly less so. The market has hedged this risk somewhat, by decreasing its market share: https://www.theblock.co/data/decentralized-finance/stablecoi.... And will likely continue to do so.

>and a lot of their assets seem to be things like "corporate paper",

Tether decreased the amount of corporate paper it was exposed to throughout 2022.

December 03, 2021: 44.24% of the reserves was corporate paper

September 30, 2022: 0.07% corporate paper

Over this time frame Tether's shareholder captial cushion (assets - liabilities) increased from $137,337,226 to $250,107,738

If you want to be accurate you can say most of their assets are US treasury bonds.

If you believe their figures, given their history of outright lies, and the fact that even the crypto-friendly auditing companies are dropping crypto company clients left right and centre (including BDO, who apparently signed off on this stuff, who are "evaluating" their services to the crypto economy - https://www.wsj.com/livecoverage/stock-market-news-today-12-...)

>given their history of outright lies

Such as?

>and the fact that even the crypto-friendly auditing companies are dropping crypto company clients left right and centre

This has to do with the auditing companies being risk adverse as regulatory pressure around crypto increases. It doesn't mean that the reports they made were fraudulent.

> Such as?

For years their website claimed that the company was regularly audited, when they hadn't (still haven't AFAICT) undergone a single audit.

> This has to do with the auditing companies being risk adverse as regulatory pressure around crypto increases.

In at least some cases I think it has more to do with concerns over how the reports they were producing were being used by their clients -

"Mazars Group said in a statement to CNBC that it had “paused its activity relating to the provision of Proof of Reserves Reports for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public.”

“They do not constitute either an assurance or an audit opinion on subject matter. Instead they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time,”

https://www.cnbc.com/2022/12/16/mazars-suspends-all-work-wit...

>For years their website claimed that the company was regularly audited, when they hadn't (still haven't AFAICT) undergone a single audit.

Have you considered they may have audited it themselves? Just because there wasn't an audit published by an external auditer that doesn't mean no one has ever audited their accounts.

That’s not the claim they were making and is not the common understanding of what an audit is.

I would consider this every bit as bad. “We marked our own homework! And guess what? It was great!”

The whole concept is ludicrous.

The claim I found was "Our reserves are regularly audited."

Internal audits still have value as it means that someone can't steakily steal money from the reserves without them noticing.

Internal audits have no value for the outside world, so we have lies or weaselry, neither is a good look.

Further, they paid $41 million to settle a case over their lies - https://fortune.com/2021/10/15/tether-crypto-stablecoin-fine...

I don't think it's a stretch at this point to say they have a history of, at the very least, being highly economical with the truth and misrepresenting their own level of transparency. And I do think your argument is unreasonable.

Take a look back to 2017 on the wayback machine -

"Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD."

"Our reserve holdings are published daily and subject to frequent professional audits."

We know that neither of those things was true.

Sorry, but no.

The burden is absolutely on so-called "stable" coin issuers, exchanges, and other parties trying to sell crypto assets to prove that they are somehow the exceptional case of responsible grownups working within the ecosystem...b/c the "success stories" of circa 2019 are turning out to just be the folks who had the biggest scams running, and no one seems to be able to explain what's actually changed since then. (Hint: nothing! Nothing has changed, except that some of the rubes are becoming aware that they're the suckers left holding the bag, which makes actual cash somewhat thinner on the ground.)

Yes, sure, many of the exchanges are still running and money is moving around, so _someone_ is making a profit. But every time another domino falls the stans immediately challenge everyone to prove that _this particular_ actor is somehow insolvent, since obviously the rest of the ecosystem is sound...and in fact, the future of finance! Really!

It all stinks, just like it did a year ago, and five years before that.

To your numbers: they're made up, based on "value" of other crypto assets being shifted around, with no accounting standards, audits, or regulatory scrutiny to validate or back them.

> The burden is absolutely on so-called "stable" coin issuers

The burden, perhaps. The question was about belief.

Surely the rest of your comment (rant?) cannot be in response to my comment.

As a layman trying to understand all this, doesn't the latest BDO report on their transparency page https://tether.to/en/transparency/#reports indicate ~40 billion usb to be in US treasury bills? That sounds pretty safe/OK to me, or what am missing? Do you accuse BDO of issuing bullshit reports?

So firstly, there's this - https://www.bloomberg.com/news/articles/2022-08-18/tether-dr...

Which seems to indicate that they signed an agreement with BDO Italia, "an independent subsidiary" of BDO. Not sure if that's significant in itself. Probably not.

Secondly, BDO are "evaluating" their ongoing relationship with crypto firms - https://www.wsj.com/livecoverage/stock-market-news-today-12-...

And third, well, it's not an audit, it's more of a "Reserve balances look OK to us on this date" report. It doesn't (for instance) take into account any other liabilities the company may have.

So I'd say this is (as another poster mentioned) better than nothing, which is what they used to give, but worse than an actual audit.

> At this point, the question should be: what makes you believe they are insolvent?

Their unwillingness to undergo an audit, combined with their constant lies on this subject.

This is something that literally every financial company on earth is capable of doing in an above-board fashion. That they haven't done so is deafening.

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