Re:Crypto Coin Tether Defies Logic on Kraken’s Market, Raisi...
by fiter on Friday June 29, 2018 @04:18PM
(#17427525)
Fractional reserve refers to the reserve of cash, but it does not refer to the reserve of total assets/liabilities.
If you are implying Tether is backed by total assets/liabilities, then some people might be OK. On the other hand, some people might be concerned if it was backed by cryptocurrencies which are rather volatile. The volatility of the cryptocurrencies could then result in volatility in Tether.
Re:Crypto Coin Tether Defies Logic on Kraken’s Market, Raisi...
by theptip on Friday June 29, 2018 @06:24PM
(#17428318)
Tether claims to be 1:1 backed, i.e. each USDT issued is backed by a USD in their reserve. I don't believe that is actually true in Tether's case, but yes, I was referring to 1USD in reserve per 1USD-stable-token as the viable stable/pegged token case.
I think there are fundamental problems with Schellingcoins / other smart-contract-based coins which try to dynamically adjust the supply to maintain a peg; the underlying economics seems pretty shaky (e.g. see http://hackingdistributed.com/2017/06/19/bancor-is-flawed/).
I don't think that the same problems exist with fiat-backed coins though, IFF the full reserve is held. The problem with pegs is when you don't have enough reserve to prevent the peg being broken.
Tether is supposed to be full backed like this, but the fact that they broke up with their auditor suggests that they are not being honest about their reserves.
Although, if your USD-coin is issued by Bank of America, and they apply the same fractional reserve rules that they do to their normal deposits, is there any difference at all?
There's nothing in principle preventing a blockchain from tying wallets to KYC'd individuals, thus resolving the UBO for a given payment/settlement; Stellar and Ripple both have KYC protocols built in.