[winslett]

Cryptocurrency has recreated the wild-cat banking crises of the late-1800s / early-1900s. Go read about the Knickerbocker Trust Company: https://en.wikipedia.org/wiki/Knickerbocker_Trust_Company

These events ultimately lead to the creation of the Federal Reserve for banks to participate in a semi-cooperative system that didn't devolve into save-yourself during times of crises.

The story here is that "unless there is a massive run" is actually a fairly common event.

[glerk]

The big crypto exchanges are currently acting as a sort of unofficial federal reserve. None of the big players has an interest in seeing USDT collapse and will step in to bail it out at the first signs of trouble.

I'm not saying that Tether the company is not shady. They should definitely be more transparent about what assets they are holding and their collateralization, but I think the risks of total collapse are largely overblown.

[hiq]

> None of the big players has an interest in seeing USDT collapse and will step in to bail it out at the first signs of trouble.

As an exchange, if you keep some reserves in USDT and you think it might collapse soon, you might have an interest in dumping your positions before it completely loses value. Maybe exchanges would benefit from responding to such a situation collectively as you suggest, but I think it's likelier that they will just protect their own interests as individual entities.

[winslett]

Totally agree that it’s “unofficial”, which makes it a when-not-if scenario.

At some point, total collapse of Tether’s pseudo-dollar will happen when the revenue generating exchanges feel they are support bad-money with good. All it takes is one player signaling a lack of support, and others stop supporting as well.

It’s a human psychological problem that’s a old as time. Think crypto can win over human rational to preserve self-interest? (side note: manipulation of self-interest is the goal of “weak hands” / “diamond hands”)

[rurp]

A big issue with this type of support is that the risks are correlated. Sure there are multiple big supporters of Tether right now, but if the sky starts falling and one of them decides to rush for the exit the others will likely make the same decision around the same time.