What Effects Did the Tether Reserves Breakdown Have on Bitcoin and The Market?

[bbc.reporter]

I would like to see audits made in those commercial papers. I want to laugh together with everyone if those commercial papers were issued by Binance, Okex, Huobi and Poloniex. The Chinese hustling gang hehehe.

Also, for everyone. Read all the articles about iFinex, Bitfinex and Tether  from this website.

https://bennettftomlin.com/

It is one of the best source of information for tether skeptics.

Hot damn I always thought Okex was S.Korean, a quick look up confirms I was wrong. Not that it would have mattered, their reputation precedes them.

I come from a non-profit background and I used to think some of the audits in the field cut a lot of corners (but I accepted it as a consideration of the complexities of record keeping and security in environments with extreme instability)... and then I saw audits for small corporates in Europe later on and got a bit of a shock.

So no surprise if Chinese hustlers can get away with more ridiculous ones.

Thanks for the link! I feel like I've read some of his writing before. Used to follow Tether-drama a bit in 2016/17 (?), back when the idea of Spoofy enthralled me.

This article is another one to read for the tether skeptic. It appears that the NYAG, the bitcoin news media and the whole community have been much preoccupied on the reserves. This article argues that capital matters more. On the next quarterly audits, the NYAG should certainly ask for more information on those commerical papers to study if the borrowers that issued them are at risk of debt default. Tether is not capitalized adequately to absorb losses.



But what does matter is capital.

For banks, funds and other financial institutions, capital is the difference between assets and liabilities. It is the cushion that can absorb losses from asset price falls, whether because of fire sales to raise cash for redemption requests or simply from adverse market movements or creditor defaults.

The accountant's attestations reveal that Tether has very little capital. The gap between assets and liabilities is paper-thin: on 31st March 2021 (pdf), for example, it was 0.36% of total consolidated assets, on a balance sheet of more than $40bn in size. Stablecoin holders are thus seriously exposed to the risk that asset values will fall sufficiently for the par peg to USD to break – what money market funds call “breaking the buck”.

Source https://www.coppolacomment.com/2021/05/tethers-smoke-and-mirrors.html

[buwaytress]

The accountant's attestations reveal that Tether has very little capital. The gap between assets and liabilities is paper-thin: on 31st March 2021 (pdf), for example, it was 0.36% of total consolidated assets, on a balance sheet of more than $40bn in size. Stablecoin holders are thus seriously exposed to the risk that asset values will fall sufficiently for the par peg to USD to break – what money market funds call “breaking the buck”.

Agree the focus has been too centred on reserves, but that's really an important measure that strangely, even banking systems are keen to do away with -- it follows that Tether should not be punished if banks have foregone that requirement.

I suppose at the end of the day, they should all just be allowed to run themselves into the ground to demonstrate just how rotten the whole system really is -- going to be a lot of pain for stablecoin holders, though I can easily foresee corporate bailouts (temporarily) saving the day.

[Silberman]

We know that Tether has claimed that all of their USDT tokens are backed by actual cash deposits. Throughout the years, they have changed this claim to say different things, though. Looking at the pie charts they made public, we can see that their whole reserves aren’t backed up by cash and cash equivalents.

“Cash & Cash Equivalents & Other Short-Term Deposits & Commercial Paper” take up 75.85% of their reserves. But how much of that is actually backed up by cash? According to the chart, only 3.87%.

The biggest reserves of over 65% are commercial papers. This category should represent some type of securities. According to the source, a similar type of commercial papers was part of the problem that led to the bankruptcy of Lehmann Brothers, which signalled the beginning of the financial crisis of 2008.

Wall Street investor Caitlin Long, who has defended Tether many times in the past, was critical of Tether’s choice of assets to keep as reserves. If Tether wanted to keep the risk for users as low as possible, she believes that government bonds would have been a much better choice. The commercial papers introduce a credit risk that could result in USDT no longer being pegged to the USD. Instead, Tether went for “commercial papers” to profit on the interest rates. According to the same source, a 1% interest would net the company a profit of $582 million annually.

If that is true, Tether makes money with the funds users invest when they buy USDT but leaves all the risks on the users by keeping inadequate reserves.

We have known for the longest time that the claims about tether were completely false however I am surprised to the extent of their lies as they have so little money compared to all the tether that is in circulation, and even then the price of tether is still the same which is the same what happens with fiat, if anything this should be a reminder of why we cannot have any kind of centralization when it comes to money as the one that has the power will always abuse it regardless of their claims.

[bbc.reporter]

The accountant's attestations reveal that Tether has very little capital. The gap between assets and liabilities is paper-thin: on 31st March 2021 (pdf), for example, it was 0.36% of total consolidated assets, on a balance sheet of more than $40bn in size. Stablecoin holders are thus seriously exposed to the risk that asset values will fall sufficiently for the par peg to USD to break – what money market funds call “breaking the buck”.

Agree the focus has been too centred on reserves, but that's really an important measure that strangely, even banking systems are keen to do away with -- it follows that Tether should not be punished if banks have foregone that requirement.

I suppose at the end of the day, they should all just be allowed to run themselves into the ground to demonstrate just how rotten the whole system really is -- going to be a lot of pain for stablecoin holders, though I can easily foresee corporate bailouts (temporarily) saving the day.

However, we have not seen the other stablecoin issuers declare how much capital they have in their own attestations. This amusingly makes Tether the most transparent stablecoin issuer the cryptospace presently has hehehehe.

[Pmalek]

Bump

[magneto]

I think that this news should alarm Tether holders more than BTC holders.

BTC prices correcting from its ATH is merely a normal reaction due to the unsustainable growth that we have seen over the past few months. It is completely independent from the governance and reserve structure of USDT, no matter how much the media tries to convince you.

But this is scary for the stablecoin industry. Holders of these tokens need to understand that they are getting ripped off - being paid 0 interest and allowing Tether to nonetheless conduct fractional reserve.

[Pmalek]

But this is scary for the stablecoin industry. Holders of these tokens need to understand that they are getting ripped off - being paid 0 interest and allowing Tether to nonetheless conduct fractional reserve.

bbc.reporter is right when he questioned how do the reserves of other stablecoin brands look like. Tether has been in the spotlight for years, but they are not the only ones that do business in dubious ways. I wonder what would happen if other stablecoins had to release similar reports about their financial assets, and what impact that would have on the market?

[bbc.reporter]

I am afraid the speculation that those commercial papers might be issued by some of the biggest exchanges in the cryptospace in exchange for a loan in Tether might be possible. Sam Bankman-Fried was asked a question if they issued commercial paper to receive Tether. His reply made it look that he was caught stealing a cookie hehehe. I like Sam, I also like FTX. However, this is discouraging.

If this is true, I only expected this on CZ and Binance or Justin Sun and Poloniex. FTX involved in this is very unexpected.



Source https://m.youtube.com/watch?v=dKHqw9p4xi4
10:51 of video

[magneto]

But this is scary for the stablecoin industry. Holders of these tokens need to understand that they are getting ripped off - being paid 0 interest and allowing Tether to nonetheless conduct fractional reserve.

bbc.reporter is right when he questioned how do the reserves of other stablecoin brands look like. Tether has been in the spotlight for years, but they are not the only ones that do business in dubious ways. I wonder what would happen if other stablecoins had to release similar reports about their financial assets, and what impact that would have on the market?

Indeed. I'm definitely not just talking about USDT here.

All of the stablecoins are or will enter a mode of fractional reserve sooner or later. Don't forget that Tether started out being fully backed 100% with USD reserves and nothing else - but transitioned quickly to investing with the funds when they realised people would use their service regardless as they have established themselves in the marketplace.

The stablecoin market is doomed, imo, and the fact that so many aspects of DeFi is dependent on this does not help whatsoever.

[bbc.reporter]

@magneto. It is not only defi that is dependent on them. It is the whole cryptospace. It can be argued that presently much of these stablecoins’ use case is to pump the market.

Also, yes, they will fractionalize and very easily. There are no regulators overlooking them.

[bbc.reporter]

The markets are presently dumping because of the fear that a contagion from Evergrande’s bankruptcy might cause the next financial crisis. If anyone does not read the news, google Evergrande, China news.

In any case, this thread on Twitter has a theory that Tether is holding commercial papers issued by Chinese real estate development companies similar to Evergrande. This might not be very bullish for the cryptospace.

https://twitter.com/thelastbearsta1/status/1418302465557110785?s=21

[adaseb]

The markets are presently dumping because of the fear that a contagion from Evergrande’s bankruptcy might cause the next financial crisis. If anyone does not read the news, google Evergrande, China news.

In any case, this thread on Twitter has a theory that Tether is holding commercial papers issued by Chinese real estate development companies similar to Evergrande. This might not be very bullish for the cryptospace.

https://twitter.com/thelastbearsta1/status/1418302465557110785?s=21

I’ve read that tweet back in July. While it’s possible it’s all speculation and no direct proof. Now whether Evergrande goes bankrupt or gets a bail out is not similar to the Lehman brothers back in 2008. Even if Lehman brothers got a bail out there would be a recession anyways.

I think everybody is trying to time the top of this stock market cycle and they use any news possible like this to mark the start of the bear market. However look at how many times in the past there was some event and people assumed the stock indices topped and they kept going higher and higher anyways.

[bbc.reporter]

@adaseb. I reckon that we cannot be quite certain of anything. We cannot be certain that it will be similar to the Lehman Brothers, however, we also cannot be certain that it will not be similar to the Lehman Brothers. Many of the experts also did not expect the Lehman Brothers hehehehe.

This is another thread with much knowledge about the situation in China and Evergrande. The limit on leverage in China was not only on the cryptospace. It was on many sectors of their economy.



Evergrande: why most analysis is dead in water and how best to understand and navigate what’s happening? Both denialists and alarmists are getting it wrong. Let’s start by understanding this: what is happening is the result of a CCP-initiated policy change to curb leverage. 1/N

Source https://twitter.com/inartecarlodoss/status/1438944431734919175?s=21

[Kyraishi]

I think that it is definitely something insidious like a cancer.

Fact of the matter is that this is precisely the fractional reserve that we have been warned against and were trying to get rid of with decentralized cryptos - but just reincarnated with blockchain technology.

It's a bit ridiculous given that a centralized body has this much leveraged over BTC prices over the short term just by issuing fiat tokens backed by nothing alone.

[bbc.reporter]

There have been hundreds of millions of USDT being sent to exchanges according to @Whalealert Twitter account, however, I speculate that it might not be to pump bitcoin. Check the peg USDT/USD. It appears that there is much selling of USDT to USD.

[marine4u]

The breakdown of declining stablecoin reserves could represent a predictive action of accumulation that is engaging more in bitcoin and crypto.  Most stablecoins are sitting right on the slots of exchanges.  If the stablecoin indicators continue to fall, it is the reason I think the market will go up.  Of course, I would ignore the Evergrande debt pump completely in this situation.

The possibility that we will have a new ATH if this is true and emerge after FUD China - Evergrande is very large

[el kaka22]

I really do not care even if they show that they have 200% in their reserves to what they owe. At the end of the day we are giving our money to someone so they could offer us something that worths absolutely nothing. Normally people make these claims for bitcoin, it is not tangible and has no value, but bitcoin is not centralized and we decide how much it should worth.

If it is 43k today then we decided that it should be 43k, if it is 20k tomorrow it will be because we decided that, if one day it is 1 million dollars or zero then we all decided that. USDT is not like that, it is $1 sharp without any changes and Tether company decided that, which makes zero sense to me.

[bbc.reporter]

Evergrande and other Chinese property developers commercial papers’ speculated connection with Tether are explained in this video. This is not assumed to be true, these are only speculations. However, the coincedences are everywhere.

https://youtu.be/zvR6nuTFF8c

[bbc.reporter]

It is speculated that similar to how the American government has used the credit card companies to have some control over the restrictions on gambling on the internet in their country, it might also use the stablecoin issuers to have some control over the cryptospace market.



Biden Administration to Congress: Put Stablecoins Under Federal Supervision – Or We Will

A group of U.S. regulators urged lawmakers to subject stablecoin issuers to the same strict federal oversight as banks, in a highly anticipated report released Monday.

Congress should also require custodial wallet providers to be regulated by a federal agency and limit stablecoin issuers’ interactions with non-financial companies such as tech or telecom providers, the President’s Working Group for Financial Markets said.

The report is part of an escalating effort by policymakers to rein in this $138 billion segment of the broader crypto market to mitigate the risks they believe stablecoins pose to consumers, markets and the financial system. Stablecoins, or cryptocurrencies pegged to the value of another asset such as the U.S. dollar, have seen explosive growth over the last two years despite lingering questions about their backing.

Source https://www.coindesk.com/policy/2021/11/01/biden-administration-to-congress-put-stablecoins-under-federal-supervision-or-we-will/



Where are those people who supported Biden in this forum?

[Fundamentals Of]

I think this is not the first breakdown that Tether released. I cannot remember how the first breakdown looked like but there might not be a big difference. So I don't think this is a big issue that will necessarily have an impact on Bitcoin. And also, Tether has been synonymous with controversy for several years already and yet Bitcoin remains solid and strong. In fact, even Tether still remains at the top even if it has been branded questionable by many crypto people.