<story><title>Regulators should treat stablecoins like banks</title><url>https://www.economist.com/leaders/2021/08/07/why-regulators-should-treat-stablecoins-like-banks</url></story><parent_chain><item><author>simmerup</author><text>So if 0.26% of tether is withdrawn into currency the coin would collapse? Am I reading that right?</text></item><item><author>MattGaiser</author><text>&amp;gt; With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank.&lt;p&gt;So even if they are telling the truth, it is still on the edge.</text></item></parent_chain><comment><author>JumpCrisscross</author><text>&amp;gt; &lt;i&gt;if 0.26% of tether is withdrawn into currency the coin would collapse&lt;/i&gt;&lt;p&gt;If 0.26% of Tether is withdrawn, it would need to start liquidating assets. That will, most of the time, be fine. Commercial paper is exceedingly liquid.&lt;p&gt;But sometimes, the liquidation will prompt a price fall. This is a fire sale. That, in turn, prompts more redemption, as holders of Tether grow concerned about its stability. This is a bank run. If Tether has a safety buffer between the value of its assets (U.S. dollar money market securities) and its liabilities (Tethers), this will--most of the time--be fine. If the situation spirals, however, a bank run can lead to collapse.</text></comment>
<story><title>Regulators should treat stablecoins like banks</title><url>https://www.economist.com/leaders/2021/08/07/why-regulators-should-treat-stablecoins-like-banks</url></story><parent_chain><item><author>simmerup</author><text>So if 0.26% of tether is withdrawn into currency the coin would collapse? Am I reading that right?</text></item><item><author>MattGaiser</author><text>&amp;gt; With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank.&lt;p&gt;So even if they are telling the truth, it is still on the edge.</text></item></parent_chain><comment><author>FabHK</author><text>I don&amp;#x27;t think that&amp;#x27;s the right way to read it.&lt;p&gt;Currently, all the holders of tether could ask for dollars, and they&amp;#x27;d all get them, and there&amp;#x27;d even be 0.26% of the original balance left. (Under quite some assumptions, namely that they could sell the commercial paper at the value at which they hold it in their accounts.)&lt;p&gt;However, if the value of their assets would shrink, say, by 1%, their equity would be wiped out, and they&amp;#x27;d not have enough dollars to satisfy their liabilities. Then, if people would start demanding their dollars, the last 1%-0.26% = 0.74% of tether holders would get nothing, because there&amp;#x27;d be nothing left.&lt;p&gt;That could trigger a good old bank run - you don&amp;#x27;t want to be among that last percent of bag holders, so better take out your dollars now while they still have some.</text></comment>