"Elsewhere on the website, there’s a letter from an accounting firm stating that Tether has the reserves to back its coins, along with a pie chart showing that about $30 billion of its dollar holdings are invested in commercial paper—short-term loans to corporations. That would make Tether the seventh-largest holder of such debt, right up there with Charles Schwab and Vanguard Group."
Commercial paper is not dollars, so tether effectively admits it is not backed. The risk of default on commercial paper is huge compared to dollars held in reputable banks' accounts.
It's actually much better for tether to be invested in CP and similar paper. You can't leave $80bn in the bank, cos then you have gigantic concentrated credit risk to the bank. It's actually imperative you invest in CP, and preferably, government bills, to diversify your risk.
They don't have to stick the entire $80bn in one bank.
It is the lack of transparency around the CP that is raising eyebrows. Why can't Tether list the papers they are invested in? It is such a simple thing to do.
Could be all their CP holdings are in one company :)
Banks don’t claim otherwise for years while providing misleading non-audit “audits”, and they have the FDIC to fix things for anyone under $250k if they collapse.
And without it you get occasional massive runs on banks since they don't have actual full backing. Moreover the government will bail banks out if needed providing another but non-guaranteed layer of protection.
Maybe a better way to say it would have been that banks are safer because they're backed by the government including FDIC, bailouts, regulations, oversight, etc.
> And without it you get occasional massive runs on banks
FDIC doesn't prevent runs on banks. It only pays out after a bank is declared insolvent and there's nobody willing to buy the bank.
Banks are regulated for good reasons which make them safer. But at the end of the day banks are in the business of transmuting unsafe long term debt into safe demand deposits.
Commercial paper is not dollars, so tether effectively admits it is not backed. The risk of default on commercial paper is huge compared to dollars held in reputable banks' accounts.