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tether has no constraints in terms of its issuance. it can create USDT out of whole cloth, and use it to purchase the cypto assets which back it, or use it to make the loans to exchanges which back it

which they use to run crypto exchanges

specifically, by loans to crypto institutions like alameda research

it's highly unlikely that the majority of tether's assets are treasuries or even high grade corporate debt. it's obviously majority backed by crypto

how tether works at an abstract level is like this. I'm tether and I issue an instrument called USDT, which I announce is pegged to the dollar at par. in order to support this peg I back USDT one-for-one with dollars and only issue new ones when someone buys them for dollars. eventually I...

if I issue dollar liabilities off chain, I expect a flow of dollar payments ie a loan

no that's liabilities on both sides, that doesnt work

lets say I'm a crypto bank like nexo. I promise you one dollar. I need to get that from somewhere. I borrow that dollar from a real bank. I lend it to you. you pay it back to me. i pay it back to the originating bank.

doesnt matter, it doesn't explain the flow of dollara

whatever though if they're lending dollar they must have come from somewhere

sure

they must have dollars, since they're lending them out, so where did they come from

either

but they cant just create them like they can create stable coins, it's a hard peg

what's the counterfactual? how do they get dollars?

if nexo is paying dollars to its customers it must have a source

not if nexo is paying out dollars

someone is acting as a bank for nexo. who? cant be that many options

but where do the dollars in this "pool" come from? they have to come from somewhere

nexo cant create them from nowhere they must enter into a relationship with another institution