John, all of this may be so right now, but we really have to stress test this.
Luna is an interesting case because their mechanism was on full display, as I said in a previous post, so it was easy to conjure up a plan to take it down. Waiting for a market drop was exactly what was needed because as BTC was being use to shore up the peg, its value kept dropping, which really provided the wind on the sails of the perpetrators. I don't know too much about the numbers involved, but it seems kind of silly to think that a few billion of BTC backed a stablecoin that had tens of billions in circulating supply. The idea that the Luna coin would be used to hold the peg, full well knowing that its value would also drop, I guess meant that there just wasn't enough value in order to maintain the peg. I'm sure I'm missing something, but looking at this all now, one has to wonder how a fluctuating coin could ever backstop a stablecoin. Clearly when value was dropping, you would reach a point where you didn't have enough.
Correct me if I'm wrong, but it seems to me that the value of BTC in their accounts, plus the value of the Luna coin, should have equaled the value of the UST in circulation... is this correct? But of course if BTC drops in price, and Luna drops in price, then the peg breaks, and if you only have 15B in value lets say, propping up 30B in circulating UST, then its game over. It this how it all worked?
Saying all this, you keep saying that Tether will never fail, but what are the weak points? The fact that the books are private means that the general public doesn't know if there is a number out there which will break it. Imagine enough Tethers being redeemed, and they say they need a few weeks to come up with the funds. Will this do it? I know you say much of USDT is locked up, but if most of the collateral is in commercial paper, how liquid is this really? Its of course a huge benefit if regular people cannot ask for USD back, but at the same time, a big whale who can ask for USD may all of a sudden ask for an amount too big. I bet the freely circulating supply of USDT is much bigger than the liquid USD that the company has on hand, and just like any bank branch says you need a few days if you want to withdraw 100k of cash or whatever value the actual number is, I bet that USDT will have similar issues.
The opaqueness of the operation makes it more resistant to attack than Luna/UST, but I do believe that it does have a weakness somewhere. Perhaps a court ruling would scare enough people, and then a delay in payment would be the nail in the coffin. And I understand that you're saying this is all highly unlikely, and I agree given how everything is hush hush, but just like Madoff eventually was exposed when the financial crisis hit and redemptions exceeded his ability to pay, USDT will probably cross paths with an event that will stress test its reserves.
