[scoopertrooper]

Commercial paper definitely shouldn't be classed as cash. They can have quite a lot of risk attached to them.

The biggest problem with this whole thing is that Tether is essentially acting as a unregulated and unaudited bank. It has a whole bunch of depositors that have the right to demand their funds within 72 hours, meanwhile many of their assets cannot be converted into cash within that period.

Tether is highly susceptible to a bank run and isn't eligible for federal deposit insurance.

[skybrian]

Where did you get “72 hours” from?

That got me curious about what their rules actually are. From their terms of service [1]:

> 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.

Also, US citizens aren’t allowed to use their service at all.

This seems sort of like an unregulated ETF that keeps all profits from investments for themselves. Easy money if you get it. If they don’t get too greedy it seems like they could keep it going indefinitely?

[1] https://tether.to/legal/

[adflux]

It's a pyramid scheme, Works until people start to pull out their money collectively

[blagie]

Not quite a pyramid scheme.

The basic scheme is:

* Issue crypto pegged to the dollar

* Hold interest-generating reserves

* Collect interest

I externalize risk, but it's a relatively low risk. That's different from a pyramid scheme.

Low risk isn't the same as unimportant risk. The whole point of crypto is to mitigate very similar sorts of systemic risks. Cash works pretty well most of the time.

[ric2b]

Sounds really close to a bank, without being one.

[blagie]

You're right. A lot of crypto schemes are very close to classical, preregulation banks.

Early banks issued IOUs for deposits. At some point, traders started swapping bank IOUs in lieu of moving gold, since slips of papers were easier-to-handle and equivalent.

At some point after that, bankers noticed they could lend out the gold for a profit.

Fast-forward a few hundred years, and the central bank issues IOUs in the form of dollar bills, and no one else is legally permitted to mint currency. As of a half-century ago, those are no longer backed by gold. Banks, in turn, handle deposits as bits on a computer (which are even more convenient than paper), backed by worthless slips of US-issued paper. Only the US doesn't even bother printing much of the paper anymore, since it's "deposits at the fed."

I wonder if we're heading for a similar path? Government bans the use of non-sanctioned cryptocurrency, like it once did with bank-issued bank notes, and issues it's own cryptocurrency? It kinda makes sense, since it wants to be able to adjust money supply in the public (or political) good.

[627467]

Won't most things break if people start pulling out their money collectively? Ie. National economies, companies, etc

[ric2b]

It's more like a bank without deposit insurance.

[nootropicat]

Insolvency is different from illiquidity.

[adflux]

You are assuming the paper backing the coin is proper