Tether does not claim to be a fractional-reserve bank. They claim that 100% of the assets are backed by US dollar cash deposits. It's their entire raison d'etre. Except no one is enforcing it. It's not even remotely the same thing as a fractional-reserve bank.
Still? (ie link?)
All I see is: “All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether's reserves.” (link here: https://tether.to/en/transparency/)
For further reading, see the CFTC settlement
That ratio is 0% because it's been judged that there are better ways to require solvency than doing that (chiefly, requiring capital buffers).
Let that sink in for a minute: Tether, by its own admission is barely solvent, so barely solvent a single not-especially-bad day would render them insolvent.
Now consider that this barely solvent state has persisted for their entire reports--they've always cited a very-barely-solvent state of their finances. Given that Tether has already admitted to lying in the past (and essentially cooking the books to mislead the public into thinking they were solvent), and that the books always seem to come out just perfectly not-quite-insolvent despite investing in very volatile assets, is it more likely that Tether has somehow found an investment strategy that just barely keeps them solvent, or that they are in fact insolvent and using every it's-technically-not-lying trick they can to get people not to realize it?
For what it's worth, as far as I understand it, Tether's Tier 1 capital isn't 3.87% but... 0.0%. Nothing Tether has produced has indicated any capital that can be raided to provide extra assets in the case that assets lose value--note that such capital isn't a part of the asset/liability ratio.
Blows my mind because stablecoins could be so easy-- hold some cash and hold some US treasuries. Pocket the interest. Become rich.
The idea behind USDC is to collateralize it 1:1 like a money market fund provided the underlying bonds hold. Tether is doing fractional reserve banking but has no central bank to act as a lender of last resort. Even then, banks pay into the FDIC which retains reserves itself like any other insurance.
Tether works as long as the money flowing in >= money flowing out.
A severe run on Tether would dry up liquidity very quickly.
Not getting what you're saying here: Only banks should have that privilege?
Yes, in exchange for the privilege of money creation you need tight regulations and public disclosures.
Banking left unregulated turns into this mess time and time again. You'd think people would be more disciplined about betting private money creators. But they aren't. They never are. Particularly not when their neighbor is showing orders of magnitudes of paper gains. This was true in antiquity. It was true in our era of free banking. It's proven true, again, in crypto.
And yet, regulated banking also turns into a mess time and time again.
Regulation is proven to work in the financial system. You just need to make sure you have enough of it which often the US hasn't. But in recent years that has been fixed up.
Also it's a false comparison. There is one Tether and tens of thousands of banks.
Could you summarize how much money depositors across the entire United States lost to bank busts over the past, say 40 years?
And how does it stand up, compared to the crypto-of-the-month scams, losses, and exchange busts?
Nominal or actual? Just the Federal Savings and Loan crisis + the TARP bailouts were billions from the dilution of dollars.
And that's just the US.
The crypto space is repeating all the same bullet points, except with more outright fraud, with less accounting, and without any convictions.
I'm guessing you did not live through it: Like 2008, there were many causes. See eg the wiki: https://en.wikipedia.org/wiki/Savings_and_loan_crisis#Causes
But you also missed the heart of the matter: Money that was lost in the US, despite it having a regulated banking system.
This is a straw man. Nobody claimed nobody in a regulated system ever loses money.
Only if you read the above questions literally and miss his meaning:
> Into a mess for who? Depositors?
> Could you summarize how much money depositors across the entire United States lost to bank busts over the past, say 40 years?
Instead, we have stablecoins backed by all sorts of things like commercial paper in cryptocurrency exchanges.
If not, they're probably not a relevant comparison to Tether.
For the vast majority of users - the difference in 1:1 backing and FDIC insurance is irrelevant. This is the reason you'll almost certainly never see a global bank run. It's the reason why we probably will eventually see a Tether bank run.
I'm not getting what you're saying here: They should make good on their initial message from several years ago? They should now keep all assets in dollars and not earn interest?
Yes.
> They should now keep all assets in dollars and not earn interest?
Since that was how they initially generated interest in the asset, yes.
For comparison: Citibank had only 11.73% Tier 1 capital in their 2021 report: https://www.citigroup.com/citi/investor/quarterly/2021/ar20_... Couldn't find a breakout of their Tier 1, but it includes high-quality credit items as well, so actual dollars is well below 11.73%.
So in other words: SiliconAngle.com is writing clickbait and doesn't understand modern banking.