[nullc]

Still missing the context on that, because AFAICT the reports seem to show that it was at one point 100% backed.

It's very possible that I'm missing something, since this isn't something I've paid a lot of attention to (as it always seemed obvious that it would eventually end up in this state).

[vkou]

Suppose that you became a bank. I create an account, and deposit $100 into you.

You take that $100, keep $20, and then lend the other $80 to a heroin-addled homeless person. He swears he'll give it back next year, plus interest. And gives you a receipt and everything.

Now, suppose that you are dragged up into a courtroom, over your mishandling of customer funds. You point out that no funds were mishandled - you have $20 in cash... and an $80 IOU from a junkie. You are fully capitalized! Solid as houses!

Reality: You're not. Any independent auditor with two brain cells to rub together will not value that $80 IOU at face value (The chap is highly unlikely to pay you back.) Your bank is actually insolvent.

Tether Reality: Bitfinex/The Tether Corporation played a shell game, such that they are '100% capitalized' if you add up their cash reserves + IOUs. The IOUs aren't worth the paper they are printed on.

It's possible that at some point in the distant past, they were 100% capitalized, but given their resistance to external audits, it's highly unlikely that it has been the case.

The most amazing thing about this entire adventure is that USDT/USD still trades at par. It seems like BitFinex could host a press conference, with the entire leadership team wearing T-Shirts that say "WE STOLE ALL YOUR MONEY", and it wouldn't move the market (The 'bitcoin enthusiasts' would obviously interpret it to be a sarcastic dig at all the bad publicity surrounding them.)

[nullc]

I agree they weren't fully capitalized after they lent funds out, but the poster I was responding to was claiming that their filings prove they never were fully capitalized as they had long claimed.

It appears to me that instead, their filings are strong evidence against the poster prior claims-- suggesting instead that they were at one point fully capitalized (and are not any longer, of course).

[vkou]

The thing with a Schrodinger's scam is that it really doesn't matter whether or not the scam was fully capitalized.

When you issue a full reserve currency, without any of the necessary oversight required to run one (Like... An independent auditor...) you're committed to operating in a manner indistinguishable from a scammer.

It's possible that they were fully capitalized for the first twenty minutes of Tether's launch. It is possible they were fully capitalized for the first twenty days. Or the first twenty months. Without any kind of proper bookkeeping - which was a deliberate decision on their part[1], we have no idea. And it doesn't matter. [3]

[1] The most charitable interpretation of why they made that decision was that their long-term plan for keeping Tether running would be under-the-table money laundering through Crypto Capital, or its ilk.[2]

[2] [3] Mind you, this means that the entire implementation of Tether is unsustainable! It doesn't matter that they are sitting on a multi-billion-dollar, 100% capitalized reserve if their customers can't ever redeem Tether for USD! Such a situation is indistinguishable from having a 0% capitalized 'reserve'.