Historically tether appears to have had a few live accounts. When one gets killed, the financial institution controlling it investigates (takes a few month), historically finds hijinx but not a sufficiently high level of hijinx to not return the money, and returns it.
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During that period, the tokens which participants treat as fully backed are fully backed*. It’s the classic liquidity risk problem that banks are familiar with: the balance sheet is good for the money but we can’t lay hands on more than X0% of it within a short period.
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(Assuming arguendo that Tether is not a straight up fraud and that its balance sheet is USD equivalents. I have maybe 60% confidence that both of those are true.)
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Anyhow, what the community under appreciates at the moment is that illiquidity is not the only consequence of losing a banking relationship. Banks do talk to each other (quite a bit) and it is difficult to keep billions of dollars under the radar indefinitely.
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Eventually, a bank or, more likely, a regulator is going to say “Actually this doesn’t look like a legit deposit that we’re uncomfortable with supporting due to AML/regulatory reasons. It looks an awful lot like proceeds of crime intermingled with grey money.”
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And the terrifying outcome, from the cryptocurrency economy perspective, is the regulator doing what the USFH did with respect to Mutum Sigillum (Mt Gox’s US front): “OK, we’re going to give you two choices.”
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Door #1: Prove that it’s legal money. This should be trivial for you because KYC is the law and your compliance should be automatic. So have your lawyer suit up. BTW we expect this to take 3+ years. Door #2: We propose a 50% haircut.
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Gox’s bankruptcy administrator took the haircut. That was an eminently sensible call. I think there is a material risk that Tether absorbs a billion dollar hair cut.
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(This is the very literal and correct answer, not the usual cryptocurrency conspiracy mongering. It’s very literally a “They signed a piece of paper agreeing to forfeit to US 50% of money and waive legal redress as condition of having US wire back the other 50%.” situation)
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