Also - to preempt any statements about USDT having a higher backing rate than most banks... US banks have something USDT doesn't - FDIC account insurance. When it comes to banks the buck doesn't stop with the bank - it stops with the US government.

Devil's advocate: USDT might not have FDIC insurance, but there are stablecoins that do

AFAIK there are no FDIC insured stable coins - there's apparently USDF[1] which is being promoted by FDIC insured banks but the coins themselves aren't subject to FDIC insuring and could quite possibly either bankrupt the backing entity or be abandoned in the case of a bank run.

Which stablecoins were you talking about?

1. https://www.coindesk.com/markets/2022/01/13/fdic-still-uncle...

In that case, and with the caveat that deposit insurance is wired and uncertain at the best of times, that makes stablecoin a regulated bank.

This makes it for for the user. I don't see how a bank can comply with banking law though. How does a bank prevent criminals, sanctioned orgs, money launderers or whatnot from using it?

It's possible that regulators will leave a loophole like this in play. They aren't always sharp.

What that is, is a bank where account are a wallet. It's still a USD bank account.

This is so close to the truth it hurts.

When you think about it, banks simply agree to transact with each other and thereby offer a payment network. When you have a Chase bank account what your balance is showing is how many "Chase dollars" Chase is owing you. Those dollars can be redeemed 1:1 for physical dollars.

>If the total outstanding coins isn't fully backed by real USD, then that bank will eventually run.

Well, the way banks operate they also only need to keep a fraction of their deposits liquid and immediately withdrawable. However, there is one big difference here. The Fed is actually the one providing the inter bank payment infrastructure with so called bank reserves which can only be held on servers owned by the Fed. A lot of the QE stuff is just there to make treasuries as liquid as deposits. It's not money printing. It's more like lending liquid money in bank accounts that isn't locked up via a certificate of deposit.

The big problem that Tether and so on have is that the central bank isn't on their side. So the only safe investment is just plain dollars. Running an unregulated bank is going to backfire at some point.

One version of a stablecoin is. There are lots of other forms (ex: algorithmic stablecoins) that are transparently backed by other assets that you yourself can audit.

The value of other assets can change. Only the USD is USD.

It's still the case that users take all the long tail risk, and earn none of the reward.

What about algorithmic stablecoins?

UST is an algorithmic stablecoin and briefly de-pegged when it had a "bank run", but the incentives to keep it pegged ultimately won. As long as LUNA doesn't go to 0, then UST should always re-peg (theoretically).

Sure, or just Dai.