The problem is that it's not that simple to just park $80b on a bank account. The bank will use the money to buy bonds or give it out in mortgages to get interest on it. It's akin to kicking the can to the bank, and getting the money out might fail or be too slow. It's probably better to manage the reserve yourself, to be able to manage risk and liquidity properly, rather than outsource it to a bank.
The problem with trying to park $80bn in a bank account is not the risk that the bank might invest it. That is what banks do. You can find a legitimate bank who will be willing to hold your $80bn with reasonable terms for how fast you can access it, backed by insured guarantees and as secure as you would like.
But such a bank, when you show up with your $80bn, in order to protect their ability to reliably offer those kinds of terms, will want to ask you a few questions about where you came by that cash.
And if you can only say ‘I have no idea’, and when they then ask ‘how much of it belongs to sanctioned individuals or is criminal proceeds?’ Your best guess is ‘not none of it’, then the legitimate banks are going to walk away from that conversation.
So then, yes: where are you going to keep that $80bn?
Yes, that's another problem and probably the more likely one. Buying and selling bonds and other stuff also requires arrangements with banks and so on, but might be easier from capital control perspective, or actually work as a money laundering mechanism, but I'm not really sure.
Because the very purpose of a stablecoin is that one person buys the stablecoins with real USD; okay, you can KYC with them. But then once they have those stablecoins they go off and use them - to pay someone else for something - like some Bitcoin or something. Possibly something illegal.
This is not someone you have a direct relationship with. And now those stablecoins ‘belong’ to that new person.
Then that person uses the stablecoins to pay another person for something else, and eventually a completely different person can now come along and go through your KYC process and cash out the coins.
All above board and legitimate.
Except in the middle there’s a part where you might actually be acting as a bank for an international drug cartel or a sanctioned Russian oligarch. You just can’t be sure.
Agreed, but as long as the people you interact with are above board, it's on them if they use it wrong, no? You could make the same argument for physical treasury bonds, or gift card codes, or generally any interaction with crypto currency, but I don't see any bank having an issue with that.
There is tension between being as far away from the banking system as possible and having the ability to cash out your USDT to USD.
The only way I can think of a stablecoin being totally independent of banks is to store their reserves as bank notes, and when someone wants to cash out USDT to USD they have to go pick up the bank notes. This glosses over the obvious challenges of storing billions of dollars in bank notes and distributing those notes during a cash out. The bank notes are also worth less than face value because you have to physically store and secure them.
> the whole point of Tether is to create a clean link to the US financial system
If one's business is "providing a clean link to the US financial system", why would one choose to avoid financial services regulation?[0]
If one is clean, or at least trying to look clean, why would one choose an accountant based in the Cayman Islands?[1] This bit in particular is beyond parody.
It would seem like the banks would be much better equipped to handle $80 billions because they have experience with companies that need to move cash around. If push comes to shoves and Tether needs that $80 billions immediately, the bank could always get an overnight loan from the interbank system or the Federal Reserve.
