True if in the US, but I can speak to where I'm at in Asia, usdt is an alternative to a dollar (eurodollars) bank account and holding physical $ bills There's a robust trading market for Usdt here and my guess is that a local would rather have their savings in 10, 100 or 1000 usdt versus holding it in the local fiat currency equivalent
https://blockworks.co/newsletter/issue/32752631 Are stablecoins tokenized Eurodollars? I’ve asked a lot of people what a Eurodollar is and the two most common responses I get are “no idea” and blank stares. (Yes, I am available for your next dinner party.) The third most common response I get is that Eurodollars are “US dollars held in a non-US bank account.” I’ve always found that confusing. For starters, how did they get there? If you send $1,000 from your Chase account to my Citi account (account number available upon request), Chase settles that transaction by moving $1,000 from their Fed master account to Citi’s Fed master account. So, how do you send dollars to a non-US bank (which, by definition, doesn’t have a Fed master account)? You don’t. US dollars can’t leave the US banking system to become Eurodollars (with the possible exception of physical cash physically leaving the country, as in the Wolf of Wall Street photo above) — and Eurodollars can’t enter the US banking system to become US dollars. Where, then, do Eurodollars come from? “Their major source is a bookkeeper's pen,” according to Milton Friedman’s 1971 paper on the subject. Eurodollars, he says, are “printed” by non-US banks in the same way that US dollars are printed by US banks. I find this even more confusing. Because surely, if anyone could print US dollars, everyone would. Why, for example, would North Korea bother to steal all our crypto if they could just order the National Bank of Pyongyang to print a gazillion US dollars for them? If you find this as bewildering as I do, we’re in good company, per the Friedman quote at the top. I know what you’re thinking. You’ve made it this far in life without knowing how these mystifying Eurodollars work (or even knowing they were a thing), so why bother now? Normally, I’d agree with you. If it’s that hard to understand, it’s probably not worth understanding. But if you’re reading this newsletter, you probably do want to understand stablecoins — and Nic Carter has unofficially rebranded stablecoins as “tokenized Eurodollars.” So, if we want to understand stablecoins, we now have to understand Eurodollars, too. Sorry, I don’t make the rules. But here’s the good news: If you understand stablecoins, you’re already halfway there to understanding Eurodollars (which makes you halfway ahead of nearly everyone else). Let’s see if we can get the rest of the way, too. Tokenized IOUs You can’t buy much with stablecoins. To purchase anything other than crypto with the USDC in your digital wallet, for example, you will almost always have to send the USDC to a centralized exchange where you can swap it for US dollars. That’s because USDC is a liability (an IOU) of its issuer, Circle, and not everyone is willing to accept Circle IOUs as money. So, to spend your USDC, you first have to find someone who knows Circle is a good credit and will therefore trade you US dollars 1:1 for your USDC. Same goes for Eurodollars. Just as stablecoins are a liability of the issuer that creates them, Eurodollars are liabilities of the bank that creates them. They, too, are IOUs and IOUs only have value to the extent that people are confident the issuer is good for the money. The “money,” in this case, is US dollars — Eurodollars are ultimately a promise, if asked, to deliver US dollars to a US bank account in the US banking system. (“Payments settle to the US banking system, ultimately,” according to Joseph Wang.) That’s different from the US dollars you keep in your pocket or the ones that banks keep in a Fed master account, both of which are liabilities of the Fed and therefore carry no credit risk. When non-US banks print Eurodollars, then they are not creating money so much as they're creating credit. EuroIOUs So here’s a better explanation of where Eurodollars come from: “Eurodollars are created when a banker abroad decides to assume a dollar-denominated deposit liability,” as explained in a paper from Vanderbilt Law. No banker would accept a liability of the Bank of Pyongyang. So North Korea can print all the Eurodollars they want, they just won’t be worth anything. Eurodollars, like stablecoins (and unlike US dollars), are not all created equal. This distinction is more obvious in stablecoins. Stablecoins all have different names — USDC, USDT, etc. — so, it’s obvious that you’re trusting the issuer of the particular coin you hold. My shorthand way of understanding Eurodollars is therefore imagining that they all have different names. The Royal Bank of Canada’s RBCeurodollars would always trade 1:1 with US dollars. But the Royal Bank of North Korea’s RNKeurodollars would trade about like the Terra Luna stablecoin (i.e., at zero). This isn’t an exact analogy because I don’t think there is much of a market to trade one bank’s Eurodollars against another’s like there is with stablecoins. (Maybe you can OTC, though?) Instead, Eurodollars generally move freely from one bank to another, creating long chains of liabilities. This makes the Eurodollar system “an interlinked set of balance sheets,” according to the Eurodollar expert Robert McCauley. That’s a lot more complicated than the US banking system where all interbank liabilities are settled at the end of the day in Fed master accounts. Yes, the money in your bank account is also an IOU from your bank, but the Fed has de facto guaranteed those IOUs, which makes US dollar deposits practically indistinguishable from the base money held at the Fed. So, yes, Eurodollars are “US dollars in a non-US bank account.” But not all US dollars are created equal. Mystery solved? Are stablecoins really “tokenized Eurodollars” then? Sort of. They are, like Eurodollars, dollar-denominated liabilities created outside of the Fed’s jurisdiction. But the second-largest stablecoin issuer is based in the US, so I don’t think you’d consider USDC a Eurodollar any more than you consider your account balance with PayPal or Venmo to be Eurodollars. More importantly, I can’t see how stablecoins will ever scale like Eurodollars have done. Stablecoins are better than Eurodollars in many ways: anyone can hold them, the credit risk is obvious, there’s no “interlinked” system of balance sheets. But as long as they are fully reserved, they won’t be able to scale as fractionally-reserved Eurodollars have done. So, however much stablecoins are or are not tokenized Eurodollars, I don’t think they will ever be used as such. Either way, though, we now at least understand this mysterious form of money. (I think.) – Byron Gilliam
To keep things simple this is how I think tether works. You raise 100 dollars. You buy 100dollars worth of T-bills or other guaranteed security. You print 100 dollars of tether backed by your T-bills. Now you buy 100 dollars worth of bitcoin with your tether. Then sell your bitcoin for dollars. You now have $100 in cash and 100 in T-bills. Buy another $100 in T-bills and print another 100 tether. Rince and repeat. You are creating money out of thin air. The only guarantee you have that tether will redeem dollar for dollar is tethers promise that they will. Hell they won't even submit to an audit. I wouldn't trust them.
I trust Tether Usdt more than US banks for storing US $ so I've converted most of the US $ deposits in US banks to Tether Usdt US Banks are leveraged 20 to 1 per US $ deposit (thanks to fractional reserve banking) Usdt is 1-to-1 backed 100% reserves. No leverage, in fact Tether has excess reserves they even bought bitcoins with profits The way Citigroup stock is acting looks to be on verge of collapse same as in the GFC period, and if it does, the contagion to counterparties.... Fed bailout or bail in...
so you trust your hard earned money to known liars and fraudsters who did not release a single audit over a decade of operations vs Chase or City Banks?
It's possible they have changed their evil ways, and are just a bunch of really nice and trusty guys now. Everyone deserves some forgive & forget of their past criminal history. Just like a broken clock is correct 2x a day, a career criminal will eventually do something right by pure chance.
Yes, I trust Tether which is not insolvent and in fact thriving making billions of $ in net profits I don't trust any US bank which are insolvents Consider this, out of the 83 Billion Usdt circulating, I do not think $40 Billion can be redeemed within a year, i.e. lost private keys, tether locked in smart contracts, people saving in their wallets, etc However, even 20% withdrawal of deposits bank run and the banks do not have enough How do you sleep at night with your hard earned money deposited in the banks? Have you seen the lines in banks when the SIVB SBNY and other banks before the bailout? Are you going to be like those people? With Tether Usdt, it's a bearer asset/money, I have access to it 24/7 no bank holidays or business hours But I'm not here to give financial advice, I just point out the absurdity of banks in my own use-case
Have you seen how many people run tether ??? It is a joke for 80 billion company. Founders are liars and fraudsters. No audits ever produced. Whole crypto valuations is based on this fraud. And yet you trust them????
I don't think you read my post and every single item I pointed out as to why my fiat US $ is very much safer with Tether Usdt than f I keep them in the US banks You are saying that banks have 1000's of physical building branches and offices and millions of employees and if that's your argument that all that costs and overhead is much better than Tether's automated smart contract code that require less than 100 employees and generate billions of net profits $, I'll just say it doesn't make sense You're just repeating the same old tired Tether attacks that convince the no-coiners but crypto people like you and me know better
This is an excellent point. But we know that nobody will ever lose money in a US bank from a bankrun. If they ever make an example out of one bank then all the deposits would I'm sure evaporate. Now I of course wouldn't want to call their bluff, but can you imagine if they let depositors at one of the recent bank failures lose anything above the 250k insured limit? It would have been the end of US banking I would think. I don't know enough about the blockchain that tether runs on, but this would be my worry. I know enough about bitcoin, so I understand that, but absent exchanges blocking certain addresses, what sorts of pitfalls are there in the code that can make your USDT go up in smoke? It doesn't seem to me that any chain, except for bitcoin, is permissionless. Knowing validators can reject certain transactions, and 75% of validators are I think OFAC compliant (maybe I have the acronym wrong), I think there is a bit too much trust necessary, at least for me personally. (although I think you can use multiple chains for a USDT transaction, and that 75% point is for ETH I believe) At any rate, if we got down the list of bearer assets, like bitcoin where you have the private keys, this would be 100% bearer asset. Gold in your pocket is another 100% bearer asset. But maybe gold in your safety deposit box requires the bank to be open and for them to give you access, so that is maybe 90% bearer assets. Cash in your bank account is also maybe 90% bearer asset, but if you're a criminal, maybe you have a much higher chance of it being seized. So where does USDT lie here? I'm sure its not 100% like Bitcoin, but what are the possible ways your funds can be not available to you?