Tethers are supposed to be backed by $1 in assets. You're complaining that dollars are created out of nothing - they're not, of course, but even if they were: When Tether holds less than $1 of backing assets for each $1 of USDT in circulation it's worth strictly less than the $1 you're deriding. It is this gap we're talking about. So your comment isn't just wrong, it's completely irrelevant and a distraction from a real problem.
Dollars enter circulation when they're borrowed. They leave circulation when the loan is repaid. The value of a dollar is derived from the obligation to repay the debt that created that dollar, and the legal system which enforces these contracts. Banks undergo rigorous audits so we know for a fact how this works and that this works.
Banks are backed by the FDIC which in turn is backed by the Fed, you cannot have a bank run anymore. It's not possible. As such fractional reserve isn't a meaningful risk to depositors.
Tether has no lender of last resort. $.80 of backing reserves for $1 of USDT doesn't mean each person gets $0.80. It means the first 80 people get $1, the last 20 people get $0. Tether has also never been audited.
It's not possible for the "average person" to lose bank deposits. But if a cryptocurrency company is storing much more than FDIC limits in a single bank(because few banks are willing to deal with them), you could easily have a run on that bank.
So even having $1 of USD backing reserves for $1 of USDT, there could still be withdrawal limits, halts, etc. because the underlying bank lent the deposits out.
It needs to be paper cash in a safe to really protect against mass-withdrawals, and even then getting it "into the system" when people want it back could take a few days and lead to temporary halts.
Yes, it is possible. FDIC doesn't insure all deposits. Typically you're capped at X thousands across all your accounts. I'm not sure what the current value of X is, 250?
That said, a bank run is improbable. Also, be careful with cash holdings at investment institutions. Those are typically not FDIC ensured, especially if your cash is held in a money market account.
This is not correct. The FDIC is very concise with their commitments.
> A: Yes. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category.
Source: https://www.fdic.gov/resources/deposit-insurance/faq/
FDIC insurance is, standard, $250,000 per depositor, per insured bank, for each account ownership category. [1]
Brokerage balances are SIPC insured against brokerage defaults, but not a money market fund imploding. [2]
[1] https://www.fdic.gov/resources/deposit-insurance/brochures/d...
That run was stopped by the government guaranteeing all assets and nationalising the Rock. That's not likely to happen with crypto.
By your own standard, if the existing system is so broken and morally corrupt, why do you think it is right to defend Tether?
Tether started with the promise they were fully 1:1 backed with USD. They broke this promise. Later they came up with "collaterized with a basket of assets", which was also a lie and they required re-capitalization [0]
How long are you going to keep lying to yourself and trying to defend a company that is run by criminals?
[0]: https://www.kalzumeus.com/2022/05/20/tether-required-recapit...
If you think that something someone says is wrong, then address it (and/or downvote). If you think that something someone says is breaking the rules, flag it.
Don't mock the very idea of meaningful discussion just because you don't like what someone trying to be sincere says.
They’re not?
> you cannot have a bank run anymore. It's not possible.
Right, because the banking system can always create dollars out of nothing to satisfy any outstanding liabilities.
> Banks are backed by the FDIC which in turn is backed by the Fed
The Fed is a creature of Congress. It’s all sovereign currency issuance.
Can they though? Don't they create new liablities with this? Effectively ending in "finance debt with more debt" scheme that has eventually got to collapse?
Openings like this are not a precursor for anything good, and indeed:
> You're complaining that dollars are created out of nothing - they're not, of course,
No, not "of course". (These conversations would be so much more interesting if people had even a basic knowledge of finance, or a little less ego.)
In fact, Tether increases the US dollar money supply in exactly the same way that Eurodollars do: https://www.investopedia.com/terms/e/eurodollar.asp
(Fractional reserve banking also "creates" dollars.)
Source: spent years writing mathematical models for options and other derivatives on Wall Street before I decided it was evil.
It's the FDIC. The FDIC was created in the wake of the Great Depression to make sure bank runs stopped. And in the last ~100 years since it was created they've succeeded. [1]
Banks pay into the fund, which is used to make depositors whole in the event of insolvency. If the fund is exhausted, the FDIC also has a line of credit with the Fed. They have $125B of assets give or take, and a $100B line of credit.
That said, we haven't drawn on the fund yet, AFAIK. Even in 2008, when WaMu collapsed, the OTS took ownership of WaMu Bank and sold it to JPMorgan. [2]
[1] https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...