Dan- insightful application of the Treynor framework to Tether. It's interesting that you say the dealer's inventory is entirely dictated by their balance sheet, since in Tether's case they are a fully collateralized dollar bearer asset and cannot borrow (or so they've managed to convince the NY AG). The thing is that stablecoin issuers of fully collateralized tokens have to make good on their ability to redeem tokens for USD at any point in time.

I've found that dealers in the actual crypto markets here are institutions minting Tethers with their dollars to bring the price of the asset back to par (a dollar) and close the arbitrage available. Spreads are almost entirely deliniated in stablecoin markets by transaction costs to create/redeem the bearer asset, and in severe liquidity scenarios where dollars are so highly coveted they trade far above par.


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Is the Outside Bid/Ask what I observe in my online broker's quotes for stocks or options? Is the inside spread what they see, i.e. unobservable unless you have privileged access?

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Neilson, firstly thank you for your article. It is interesting that I watched mehrling lessons on Treyor model on yesterday.


1-How could Tether allow the bigger inventory? Company needs the demand for tether?

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