I recommend to look at the tether trading volume. If too many people are requesting their dollars at the same time, tether will go bankrupt and with it the bulk of the 'value' of the crypto empire.
(hard to get a site that is up and has a good chart for that rn..)
"To be crystal clear: every time you sell Tethers on Kraken, you are forcing Tether Ltd. to pay you in US dollars. If you can manage to sell enough Tethers for USD on Kraken, then Tether Ltd. will run out of dollars and this whole machine — which currently undergirds 70% of all crypto trading flows — will fall apart.
Well-capitalized hedge fund managers may wish to re-read the above paragraph, and ponder its implications."
> will run out of dollars and this whole machine will fall apart
Sounds like it could be three things:
1) Their USD standard is bunk. If you're on a commodity money - or secondary exchange money - standard then you can only issue as many certs as there are units of that money in your reserves. With the XAU standard, you can't just mint gold certs without gold underlying it. That's not how any of this works!
2) They just FDR'ed their users, and took them off the USD standard but didn't tell them.
3) Less technically: sounds like they're skimming off the USD for themselves and hoping everyone doesn't divest at the same time. This could be either fraud, or it could just be incomitance, ignorance or any other *ance really.
I think it's nothing as dramatic as (1). Just that instead of holding USD currency, they're holding equivalent "commercial paper"[1]. This means that everything will be ok as long as they can sell these bonds when the time comes. But if any of the held bonds fail or decrease in value, Tether will be in serious trouble.
I could see Tether becoming insolvent if/when there is another financial crisis that reveals some of these bonds as junk.
I can definitely see that being the case. The only issue here is that if you're actually just holding bonds and not cash, saying your currency is on a USD standard is patently false.
If your currency is backed by some kind of non-cash instrument, then what you've actually got is some kind of ETF like structure, not a currency qua exchange currency.
After Tether allegedly lost high 9 figures to a "scam" #1 seems not that unlikely.
"Last week, New York Attorney General Letitia James announced that iFinex—the parent company of Bitfinex, an exchange, and Tether, a dollar-backed digital token—is under investigation for fraud. At issue is $850 million that disappeared from Bitfinex’s coffers in mid-2018. The funds may have been stolen while in the possession of Crypto Capital, a payments processing company based in Panama. Crypto Capital has also been tied to Quadriga, a Canadian exchange which lost $140 million a few months ago."
According to their Terms and Conditions, Tether has no obligation whatsoever to redeem their currency for dollars, so while they may not be backed (and almost certainly are not), a bank run is not really their problem.
You say it as if it is regulated. They will simply put a stop for real customers and pump some orders in the market to keep the peg. I fail to see how they can fail except massive incompetence in managing this scheme.
(hard to get a site that is up and has a good chart for that rn..)