Insurance and regulation is good for you as a consumer, and yeah that is new.
But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks.
Tether is not a bank. You have no guarantee of being allowed to exchange tether for dollars. It’s just... a weird service that doesn’t make sense. Tether doesn’t “work” because tether doesn’t do anything
> But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks.
Greater or equal face value, not actual value. Tether is basically making the same claim.
> Tether is not a bank.
I never said that Tether was a bank.
> You have no guarantee of being allowed to exchange tether for dollars.
To be pedantic, no such guarantee exists for bank deposits either.
> It’s just... a weird service that doesn’t make sense. Tether doesn’t “work” because tether doesn’t do anything.
Tether obviously does work, it's probably the most stable cryptocurrency out there, despite being run by sketchy people. You can exchange it for other cryptocurrencies and you can exchange cryptocurrencies for ordinary currencies. Absent proper access to ordinary banking, Tether has been a tool for exchanges to perform settlements in the hundreds of millions of dollars. The view that Tether "does nothing" is just uninformed.
From my perspective you’re just justifying tether’s failure to keep its promises by saying it’s not as bad as banks, but also saying it’s not a bank when it’s pointed out how it utterly fails as a bank replacement; when it’s then pointed out that tether doesn’t serve any real purpose and is just a temporary store of value before it eventually collapses, you go back to the fractional reserve comparison.
It also feels like you’re jumping on a worn out bridge and telling me it hasn’t broke yet. Look! It only lost 30% of my money so far!
I'm not justifying anything, I'm making an observation. I don't hold any Tethers nor do I have any intention to do so. I'm absolutely not saying Tether is "not as bad as a bank".
However, as far as a cryptocurrency goes, Tether obviously works even when it's only backed by fractional reserves. Remember, most cryptocurrencies are backed by nothing.
> It only lost 30% of my money so far!
If I held any Tether, I could exchange them right now for dollars almost one to one. That's been true for most of the time of Tether's existence. The peg worked even when it wasn't clear whether Tether had any money whatsoever.
Ponzi schemes also hold value- for a while. Right now, we’re in the while. The peg has worked. It seems unlikely to me that it will continue to work. I suppose that’s the last I’ll say on the matter.
Ponzi schemes also need to produce persistent returns, Tether doesn't. Ponzi schemes aren't priced like free-floating currencies, Tether is.
If we look at the peg carefully, Tether has often traded above one dollar. That's because of Tether's utility as a cryptocurrency. Actual dollars are far harder to move around than Tether. Other cryptocurrencies are backed by nothing and often far more volatile.
The market is certainly pricing in the risk of the fractional reserve, but it priced it so low that it's almost imperceptible. In lieu of any catastrophic events, the peg will probably hold, because it held for the longest time, when it was unclear if there was any backing whatsoever.
The guarantee you can withdraw funds from a bank account does exist, it’s the FDIC. Tethers terms of service specifically state you’re buying funbucks / chuck-e-cheese tokens and they have no redemption value. A unit of value in your bank account represents a claim you have against the assets held in the bank backed by the weight of the US government. A Tether is worth whatever you can get the next guy to buy your bags for representing no obligations on anyone.
> The guarantee you can withdraw funds from a bank account does exist, it’s the FDIC.
Like I said, I'm being pedantic. The FDIC doesn't give you a guarantee that you can withdraw any money from a bank account. It offers you insurance on the amount - up to 250,000$ - in the event of bank failure.
> Tethers terms of service specifically state you’re buying funbucks / chuck-e-cheese tokens and they have no redemption value. A unit of value in your bank account represents a claim you have against the assets held in the bank backed by the weight of the US government.
While I think the characterization of Tether as "Chuck-E-Cheese tokens" is fair, a claim beyond 250,000$ against a bankrupt bank may well be worth 0$, despite the (considerable!) "weight of the US government". In that event, I would probably prefer to have the Chuck-E-Cheese tokens instead.
> A Tether is worth whatever you can get the next guy to buy your bags for representing no obligations on anyone.
While there may be no legal obligation for Tether to exchange its tokens for actual dollars, there still is a reputational obligation to do so, if we're assuming that Tether is intended to run as a legitimate business (which is admittedly a big assumption). In that sense it's somewhat comparable to PayPal.
Tether works great in the actual goal: give shady exchanges access to USD without having to do all the KYC/AML it takes to get access to traditional financing.
Insurance and regulation is good for you as a consumer, and yeah that is new.
But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks.
Tether is not a bank. You have no guarantee of being allowed to exchange tether for dollars. It’s just... a weird service that doesn’t make sense. Tether doesn’t “work” because tether doesn’t do anything