[Majromax]

> or fractional reserve banking

Which is why deposit insurance exists, regulated and mandated by governments. Bank regulators also impose audited capital requirements, reducing the risk that an illiquidity problem (a bank run) becomes an insolvency problem.

Tether has no such guarantees. Since it holds cash and cash-equivalents at far less than a 1:1 ratio compared to its liabilities (issued Tether), participating in the Tether ecosystem is placing an implicit bet that Tether's collateral will remain sound. If it doesn't -- for example if its commercial paper loses value -- then a run on Tether can indeed cause insolvency.