My guess is nobody can get them on not being 1:1 but this idea of AML violations as the attack vector makes a lot of sense.
Regardless of whether that is true or not, seems like a terrible idea. Tether doesn't need backing on the crypto side of the ledger - they can create new tether there. If there is a depeg, it'll be from a large amount of money flowing from Bitcoin -> USD or the like. It is highly likely that will correlate to the price of bitcoin dropping (possibly substantially in the event of a Tether depeg). So I'd expect the valuation of their reserves to correlate in a bad way with the chance of them needing to sell those reserves.
Presumably they're doing this for operational reasons but I wouldn't put much weight to it in a discussion on Tether's resilience.
Plus, being a cynic I'd treat that as evidence against Tether being fully backed. Crypto that Tether owns directly could easily have been purchased without any fiat money entering the crypto ecosystem.
We had precisely the same amount of information about FTX's Bitcoins as we do for Tether, for what it's worth.
Isn’t that the public Tether bitcoin address with over 75K coins?
https://platform.arkhamintelligence.com/explorer/address/bc1...
That's precisely A LOT more than anyone knew about FTX's non-existent Bitcoin.
Tether publishes their reserves [1], only 4% are Bitcoin. 84% is "cash & cash equivalents & other short-term deposits", 3% is precious metals, 5.55% is "secured loans". They report $5B in net equity, ~4.2%. So basically, if their collection of assets declines in value by 4.2%, they become unable to redeem every coin. There are a _lot_ of ways for that to happen with 87% of their assets in T-bills and money market funds. If the shortest T-bill is 4 weeks to maturity, they have plenty of time to incur interest rate risk (e.g.: Silicon Valley Bank).
My calculations show that for a 4 week to maturity T-bill, the duration is approximately 0.077, meaning that if interest rates go up by 1%, it loses 0.07%. So even if rates go up by 5% in a week, they only lose 0.35%.
The problem with SVB is they weren’t holding very short dated bonds. Pretty much every large company has to deal with interest rate risk but as long as they keep the average duration low it doesn’t tend to be an issue.
https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYg...
Edit: to save people a click, the report shows 125 Billion in assets vs 113 Billion in liabilities. Approx 81 Bil in T-bills
