BTCMeansFreedom4All on Nostr: As I understand it, through arbitrage between the value of UST and the yield of the ...
As I understand it, through arbitrage between the value of UST and the yield of the US Treasury bonds that back them.
Treasury bonds often pay 4% APY. While this yield is less than the value of annual debasement of around 7% (I can provide source if asked), it doesn't matter to them because they pass the entirety of this value loss through debasement onto their customers who hold Tether.
If they issue 100,000,000 UST in exchange for 100,000,000 USD, they then turn around and buy Treasury bonds with the USD.
After a year their customers have lost 7% of the value of their money as it simply tracks the value loss of the regular USD 1 to 1.
But Tether the company hasn't lost any value as they don't own the majority of UST, they just guarantee it's value as 1 USD = 1 UST.
In essence their customers own shares of the Treasury bonds UST is backed with, but without any of the yield. The customers absorb the debasement loss of value, while Tether alone gets the 4% yield on the bonds. This is almost entirely where their profit comes from.
The more UST they issue, the more profit they receive from this arrangement which allows them to acquire more Treasury Bonds and issue more UST and so on.
As of today, Tether has issued over 140,000,000,000 UST so their profit would be at least over $5,600,000,000 annually if they only held US Treasury Bonds.
Their actual profits have broken $7,700,000,000 YTD, likely due to high returns from minor diversification into other assets that offer higher returns than Treasuries.
https://finance.yahoo.com/news/tether-reports-record-2-5b-081720051.html
Treasury bonds often pay 4% APY. While this yield is less than the value of annual debasement of around 7% (I can provide source if asked), it doesn't matter to them because they pass the entirety of this value loss through debasement onto their customers who hold Tether.
If they issue 100,000,000 UST in exchange for 100,000,000 USD, they then turn around and buy Treasury bonds with the USD.
After a year their customers have lost 7% of the value of their money as it simply tracks the value loss of the regular USD 1 to 1.
But Tether the company hasn't lost any value as they don't own the majority of UST, they just guarantee it's value as 1 USD = 1 UST.
In essence their customers own shares of the Treasury bonds UST is backed with, but without any of the yield. The customers absorb the debasement loss of value, while Tether alone gets the 4% yield on the bonds. This is almost entirely where their profit comes from.
The more UST they issue, the more profit they receive from this arrangement which allows them to acquire more Treasury Bonds and issue more UST and so on.
As of today, Tether has issued over 140,000,000,000 UST so their profit would be at least over $5,600,000,000 annually if they only held US Treasury Bonds.
Their actual profits have broken $7,700,000,000 YTD, likely due to high returns from minor diversification into other assets that offer higher returns than Treasuries.
https://finance.yahoo.com/news/tether-reports-record-2-5b-081720051.html