> They had 30% of their assets seized in a money laundering sting but of course, the exchange rate remained 1:1 instead of 1:0.7
Is the exchange rate supposed to be related to the amount of assets they hold? If you go to exchange one currency for the other in either direction and that's the amount you can get, that's the exchange rate. If everybody tried to cash out all at once then they might not have enough, but neither would Bank of America. That doesn't mean the exchange rate between physical cash and Bank of America deposits isn't 1:1.
Meanwhile they presumably turn a profit, so just because they lost some of their assets, how do you even know they don't still have enough?
> Meanwhile they presumably turn a profit, so just because they lost some of their assets, how do you even know they don't still have enough?
How do you know they have any? In order to have any semblance of legitimacy Tether needs to complete and publish the audit they promised every 6 months for 5 years.
Currently, based on their own website, the limiting factor is that their auditors only publish their reports in Mandarin, so there's literally nothing they could possibly do to release them. Even though those same auditors happily published attestations in English [1]. Before they were fired, and replaced with Friedman LLP, who quit.
The problem isn't the fact that the exchange rate remained 1:1, it's that they stuck by their claim that every USDT is backed 1:1 by USD. What replaced the seized reserves?
BoA doesn't claim to back every deposit 1:1 with physical cash. Far from it. The whole basis of fractional reserve banking is that they lend most of those deposits out to other customers. This is fine though, because the deposits are insured by a government-backed protection scheme.
If the crisis is broad enough, BoA and government will end up in the same basket: government has its own financial problems like huge national debt, rising unemployment etc.
Bad example. BofA besides having the federal government to prop it up works on fractional reserve explicitly.
Tether works on explicitly the opposite principle. One banked dollar for every minted Tether. Since they have no government propping them up, the certainty of those dollars is the only thing you can hold onto as far as Tether’s reality. Once they’re gone, the music stops.
Is the exchange rate supposed to be related to the amount of assets they hold? If you go to exchange one currency for the other in either direction and that's the amount you can get, that's the exchange rate. If everybody tried to cash out all at once then they might not have enough, but neither would Bank of America. That doesn't mean the exchange rate between physical cash and Bank of America deposits isn't 1:1.
Meanwhile they presumably turn a profit, so just because they lost some of their assets, how do you even know they don't still have enough?