One way to reason about why it doesn’t matter: insolvency is not the key part of the financial survival constraint, liquidity is. You could think of tether as j

One way to reason about why it doesn’t matter: insolvency is not the key part of the financial survival constraint, liquidity is. You could think of tether as just “leveraged” against its underlying USD holdings. It’s only problematic if there is a run on tether, so to speak, where it does not have enough liquidity of USD reserves to satisfy redemptions. (There’s some kind of a limit on redemption though, right?) The same is true for other types of money - a bank does not hold reserves (assets) against all of its deposits (liabilities), but that does not prevent it from operating, or from bank customers understanding bank deposits as “real money”. To be clear, I’m not very informed about tether, and as a lay person I do find it to be a shocking situation that probably makes sense to label as fraud. I’m just trying to offer some explanation.