[chollida1]

4 statements of fact that are not in dispute.

1) Tether is supposed to be backed 1:1 by USD.

2) There are now $1.7 Billion in tehters outstanding

3) They were turned down by all reputable banks they approached.

4) They have printed $450 million of tethers in the past week

https://coinmarketcap.com/currencies/tether/historical-data/...

Just ask yourself honestly..... do you really believe that there is a reputable bank anywhere in the world that would allow them to hold $1.7 Billion in an account and additionally make a deposit of $450 million in a single week?

Ocams razor says this can't possibly be true.

[brokensegue]

the most charitable explanation I've heard is that tether is backed by $2 billion in value of bitcoin.

[aqme28]

If that were true, they would print Tether when BTC price climbs, and perhaps get rid of Tether when the BTC price falls.

What happened instead was that they printed more Tether (450MM) when the bitcoin price was collapsing.

[take4]

They could be printing tether when BTC collapses to allow themselves to buy more BTC to try to pump it back up. This would make it in essence backed by BTC since it's what they are holding.

[brokensegue]

when they print it doesn't matter really since whenever BTC drops they are suddenly running a fractional reserve. the whole system is unstable if the theory is true.

[lucozade]

I can almost guarantee that they’re not doing that.

This would be explicitly against their own T&Cs, even the new ones. If they’re going to lie, why bother backing it with anything?

As second guessing Bitfinex is now a popular sport, my totally unsubstantiated guess is that they do have fiat to cover external, primary purchasers. Specifically, if you go to the site and buy tether with real money, they may well keep the reserve.

Their T&Cs don’t actually say they’ll honour the secondary market, just account holders. So, as long as they can meet that demand, they can print as much as they like themselves because they’ll never try to redeem it.

Dodgy as fuck but quite clever. No idea if it’s correct of course.

[pjc50]

But this is nonsense on stilts. It's supposed to be tethered to the USD, not bitcoin, and the value between the two flaps about all over the place.

[brokensegue]

yes

[olegkikin]

Maybe even more, if they invested ALL the dollars into bitcoin since their inception. That would be smart of them in hindsight. If that's the case, they could be sitting on $5B+ worth of BTC (or maybe a basket of cryptocurrencies).

[jgautsch]

That would be lucky, not smart. If a bank took my deposit to a casino and put it all on black, they'd go to jail whether they won or lost.

The risk of holding a tether should be reflected in its price. If the underlying asset is bitcoin, the risk profile of a tether would be the same as bitcoin, and thus the price should tightly correlate with (or be tethered to bitcoin, rather than USD).

If Tether tells people the token is backed by USD when in fact it's backed by bitcoin, that's fraud.

[bufferoverflow]

You realize your bank does exactly that? It's called fractional reserve banking. If I remember correctly, banks are only required to hold ~10% of the deposits. The rest gets invested. That's why your checking account is free, the bank makes profits off of your money.

[beberlei]

Its different, because you need to get a banking license to be a bank and use fractional reserve and controlled by central bank, and then the reserve is in the governments money. Bitfinex has no "banking license" and is not overseen by another actor.

Fractional Reserve Banks currency also usually exhibits natural demand on the account of being the currency required to pay taxes and accepted by stores/businesses in that country.

Yes, fractional reserve banking is bad. But at least the central banks have somewhat a clue how to control it and a legal framework to do so. Whereas for bitcoin exchanges, they just make it up along the way.

[jgautsch]

Whenever people compare Tether to fractional reserve banking it ignores important details.

Some important differences:

- Your bank tells you it's fractional reserve, Tether tells you they're full-reserve (deception for financial gain is fraud)

- Bank accounts are protected from bank insolvency by FDIC insurance

- Bank risk appetite is modulated by the rates they pay for that FDIC insurance

- The Fed acts as a lender of last resort, guaranteeing the liquidity of your deposits, in order to prevent a bank run

The Fed has the muscle to keep fractional reserve banking propped up. Tether may be lying about being full-reserve, and don't have the muscle to stop a tether run, which could get ugly.