Tether isn’t a very complicated concept. I find it odd how people seem to struggle with it. Sometimes very intelligent people.
Someone said: Q: What’s backing your cash in banks? A: NOTHING.
Tether reserves breakdown: + 76.0% in cash & cash equivalents + 12.5% in secured loans + 10.0% in precious metals + 1.6% in other investments including Bitcoin (Source: Tether_to) > Now ask this question: What’s backing your cash in banks? Turns out it’s hard to answer.
In response to the cash reserves breakdown there were several anti-tether opinions: The cash equivalents contain a lot of undisclosed commercial papers. Tether is the weak link of crypto. I can see this is causing a systematic problem if/when there is a bear cycle. They basically are introducing fractional reserve banking to Bitcoin.
Someone replied: There already was a bear cycle. Tether was just fine.
A prompt response was, the size of the sector way back then was much smaller and there was no DeFi lending/leverage. These are new risks.
Some were left confused asking: I don’t understand. Tether is not a bank but a cryptocurrency, can’t be backed by whatever they want? Why dudes compare it with fully regulated banks that get fresh printed money by Fed every day?
If I start spending counterfeit USD, do we just say it’s a free for all and leave it all on the recipient? I suppose we can try that experiment. People have traded cryptos, bought with government fiat, for Tether. If Tether is nothing, that’s theft!
Many felt they were low on Bitcoin allocation!
Someone who was furious expressed, “So Tether idiots have gone from it’s not backed by anything’ to ‘I don’t like the composition of its backing’ and people are still listening to them?”
Someone who tried to nitpick stated, as far as I understood the “cash equivalent” category, what Tether is using is not cash equivalent as understood by the general accounting principles.
More specifically, unsecured commercial papers are not cash equivalent: In the absence of other information I would assume the CP is unsecured. In which case, it is NOT a “cash equivalent” as the analysis says. It’s a current asset with significant credit risk.
It doesn’t matter what you lower the reserve ratio to. Banks won’t lend anyways. There’s a lack of good collateral in the system to back new loans. Ever since Lehman brothers collapsed in finance’s cowboy years Banks have become way too risk averse so this change did nothing.
There are only 4% of pure cash, others are fake scammy bubble equivalents.
However, there are Tether Advocates who justify the backing.
