[JackFr]

If Tether held less than $1 in assets for every $1 in circulation...there's a name for what that is...

A bank.

But if Tether is a bank, then UST isn't a 'stablecoin' it's a deposit. And Tether is engaging in what banks have done for centuries, that is increasing the money supply through credit. They are doing it in an illegal and unregulated way which most likely will result in tears and recriminations. But ultimately there is nothing new under the sun.

Edit:

I was wrong in what I wrote above.

Tether is acting as a bank, and yes UST's are simply deposits, but all those people correcting me are right. Their assets (at least nominally) should match or exceed their libailities.

[jcranmer]

If Tether holds less than $1 in assets for every $1 in liabilities, it's insolvent. Even banks generally hold at least ~$1.15 in assets for every $1 in liabilities.

But in general, Tether is part of what's known as the "shadow banking" industry--something that quacks like a bank but isn't regulated as if it were a bank. And shadow banking has caused the last several financial crises.

[rayiner]

The irony of people treating banking like some big scam someone cleverly invented is how easy it is to accidentally invent a bank.

[NovemberWhiskey]

>If Tether held less than $1 in assets for every $1 in circulation...there's a name for what that is... A bank.

Please provide a current example of a bank with <$1 in assets for $1 of liabilities. I ask because if that's how you're defining a bank, that's not (I think) the usual definition.

[ska]

> held less than $1 in assets for every $1 in circulation...there's a name for what that is... A bank.

I think you are mixing up fractional reserve and assets. Banks have more assets on their books than liabilities, or they are failed/insolvent. Even if tether wants to be a bank (in which case, they should be clear about it) it's not clear that they have the assets in any real sense.

[WinstonSmith84]

Maybe something in between. Increasing money supply would mean minting USDT out of thin air. Maybe they do, maybe they don't - hopefully the latter.

What they are likely doing is trading that USDT reserves on Bitcoin. Bitfinex is a well known market maker - and a very profitable one. That's probably why they are very much reluctant to disclose their reserves, because they don't have that in cash - unlikely. Knowing how much they own of everything would open the door to critics, and to attacks - the latter is essentially what happened for UST - attackers knew exactly how much cash they needed to depeg UST

[ChrisClark]

You keep saying UST, but that's not Tether. That's the Luna stablecoin that crashed to nothing.

[aaaaaaaaata]

P.S. Tether is USDT — can't just tell them they're wrong, help them be right!

[IAmEveryone]

A common definition, which happens to better capture my idea of what tether is doing (wrong), is that a bank transforms short-term deposits into long(er)-term loans.