Thread by @dkcrypto13

#Tether is an unregistered, unsecured debt security.

What does that mean?

"Unregistered debt security": 1 $USDT is a promise by Tether Inc to pay you back $1 should you request it back without interest. It is, funnily enough, not unlike commerical paper.

The way that it was sold (ie promising audits that never came, pretending the assets that "back" it sit in a bank account and playing as if you had any legal claims to those assets) make it a debt security in my view and it should have had a proper prospectus.

"Unsecured": There are no assets that legally back up 1 $USDT. ZERO. You have a company that has no contract with you. They say "we will always 'peg' it to 1 $". They do not explain what this peg means. It is just an internal accounting procedure and you have to take their word.

You have no legal claims at all to the assets backing up $USDT.

So how does the system work?

Simple. The participating exchanges can request #tether if they need to replenish their inventory and give a note to Tether Inc promising them the value in USD - "commercial paper"

#Tether then pretends this commerical paper is as good as cash, but problem is, commercial paper would be traded on a secondary market like any other debt - based on the creditworthiness of the issuer. The issuer here is #binance or #FTX. So how is this commercial paper backed?

#Binance has a lot of people selling $BTC to them for $USDT as #crypto market participants are gaslighted enough to believe they are moving into "cash". So binance sees the demand for #tether increase and says to Tether Inc "Guys, I need more for future $BTC sells on my exchange"

#Tether then proceeds to mint the $USDT and sends them to #binance in exchange for a note ("Commercial Paper") where binance promises to pay #tether the USD countervalue of the $USDT received. This promise is essentially backed by all revenues of #binance and all their assets.

Given #binance will receive a lot of #crypto for the $USDT they are selling to their users, more and more of this "backing" is in #crypto, which are currenly losing value. Further, their revenues are also tied to the trading volume in #crypto. All is dependent on that market.

TL;DR: #tether is backing $USDT with unsecured (no legal claim to any specific asset) promises from exchanges to pay them $USD. These promises ("commercial paper") are backed naturally mostly by #crypto.

As long as nobody tests this backing, things are fine. It will be tested.

In any case, 1 $USDT is only a non-contractual promise by an opaque company named #Tether Inc to pay 1 USD for it. There is no legal claim to assets, there is no 1-1 backing with cash. Tether is running an investment scheme with the money & $USDT should never be stable vs $USD.

You have been warned. This is not difficult to understand.