[peyton]

You have to look at the system as a whole. They run Bitfinex, a centralized exchange. They can just change balances in a database, like FTX. There’s no need for fractional reserve.

Tether is simply shadow banking and brings liquidity into Bitfinex. It’s very simple:

1. Export finished goods from China for dollars.

2. Import inputs for step 1 from places like Turkey, Ukraine, and others and pay inflated invoices with dollars from step 1.

3. Receive Tether out-of-band for step 2.

4. Swap Tether for dollars on Bitfinex.

5. Buy property in Western countries in the names of your children who have US, Canadian, and UK passports.

Reverse the steps for redemption.