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I recently read this phenomenal article on stablecoins: https://medium.com/reserve-currency/why-another-stablecoin-866f774afede https://medium.com/reserve-curre

I recently read this phenomenal article on stablecoins: https://medium.com/reserve-currency/why-another-stablecoin-866f774afede https://medium.com/reserve-currency/why-another-stablecoin-8... Here's some relevant context on how Tether works: > A traditional asset-backed stablecoin is simple to describe, and only gets complicated in practice. The issuer sells tokens for $1 each, and holds all of the dollars from those sales in reserve in a bank account. Any time someone wants to, they can redeem tokens for dollars with the issuer. This design is best with a trustworthy audit mechanism, like Trust Token is using for TrueUSD, in order to reassure holders that the money is there. > This means that the issuer can maintain a buy wall equal in size to 100% of the circulating supply of the stablecoin at all times. If it’s a trustworthy actor and does in fact maintain that buy wall, it can implement a perfect currency peg. This system is a lot like Hong Kong’s currency board, which has classically maintained very high USD reserves, and had no trouble weathering the storm in the Asian Financial Crisis we referenced earlier, in which many exchange rate pegs broke.

PeterisP 8y ago
The key words in the article is the "if" part, "If it’s a trustworthy actor and does in fact maintain that buy wall". There's a very, very, very large difference between an issuer that actually "holds all of the dollars from those sales in reserve in a bank account" and an issuer that only makes unaudited claims that they do so, like Tether. In the absence of reasonably expected evidence, you should assume that such claims may not be true.