But if crypto survives the current brutal winter, Tether, its dominant liquidity provider, must grow up. That is why Tether has recently been on a campaign to clean up its image. Long accused of padding its balance sheet with questionable commercial paper, in June 2022 it pledged to eliminate all of what was once $30 billion of the asset from its reserves and put most of that into US Treasury bills and other cash equivalents. Then in August it hired top five accounting firm BDO with the goal of undergoing a full audit. Last Tuesday the company announced that it will stop lending out USDTs – whose loans amount to 9% of its assets – by the end of 2023.
T bills and such cash equivalents now pay positive (nominal) interest rates. So, it’s not necessary to take risk to reach for yield any more.
So, don’t take risk to reach for yield. You can live quite well off a couple of percent a year of $60 billion after all……
You can live well; but greed (human nature) means that they’ll always want more, and unless they chain themselves to the auditors, they’ll always be tempted to push the risk boundaries.
You can live quite well off a couple of percent a year of $60 billion after all……
You can live even better if you sequester the bulk of the $60bn and leave almost nothing to back your BS currency.
$100k/year? Can you grow your savings with smart financial advisors who use TIPS and inflation swaps behind the scenes so your savings continue to provide you the interest to buy a very posh material life?
People will want a positive growth after inflation if possible, and while T bills now have higher nominal rates, they are actually lower after inflation than before.
I think there will still be reaching for (real positive) yield.
M @ 1:28:
People holding a stablecoin are looking for crypto features (ease of moving money about, I suppose) without the volatility of non-stable crypto-currencies. If they are willing to hold USDT (or similar) simply because they expect that $100 USD invested in USDT in January can be redeemed for $100 USD in December (and at any time in between), they are not looking for a real return: they have already accepted a 6% (ish) decline in real terms.
As Tim notes, if nominal returns on T-Bills are (say) 2%, and Tether sits on $60Bn USD they can make a nice return for themselves – $1.2Bn over the year on their investment in the platform plus whatever working capital they need before they start issuing USDT. They don’t care that their real return is “only” 1.13Bn. Tether doesn’t face the decline in purchasing power on the T-Bills heldas security for the USDT; their clients do.