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To answer your direct question, Tether is sold as a fully-backed instrument, so there's major (potentially billions of dollars of) fraud if it's not fully backe
by theptip 9y ago
To answer your direct question, Tether is sold as a fully-backed instrument, so there's major (potentially billions of dollars of) fraud if it's not fully backed. That's an issue because consumers aren't getting what they paid for, i.e. the underlying risk profile is different from what they thought the were buying.
The big difference with Tether is that in traditional banking, fractional reserves are legal, and regulated (i.e. banks are required to prove their reserves, and are required to hold a certain percentage of their deposits).
If there's a run on a consumer bank, and they don't have enough reserves to repay their customers, then FDIC insurance steps in to protect the customers. In this case, there's no protection, so everyone holding tether will be screwed if there's a run.
- oil7abibi 9y agoSo if Tether was FDIC backed, then you’d technically be OK with this situation?
- bomb199 9y agoNot OP, but I presume the regulations would be important too. Part of being FDIC backed is maintaining a certain amount of currency that is VERIFIED. Issue here is that there is no one giving confidence that Bitfenix has any currency at all, we have to trust their word.
- freeone3000 9y agoIf Tether was FDIC backed, it'd essentially be a bank with weird procedures for putting money in and getting money out.
- jandrese 9y agoActually yes, because FDIC backing would mean they've gone through all of the necessary steps to become a real bank. I would have some confidence that they actually have the USD to back up their holdings as they claim. If still turn out to be a scam then at least I'd have something to fall back on, and some people over at the FDIC would have some questions to answer.
- theptip 9y agoNo, as I said, > Tether is sold as a fully-backed instrument, so there's major (potentially billions of dollars of) fraud if it's not fully backed The fraud issue (not to mention the securities price manipulation issue) is still a big deal.