People know exactly what fractional reserve banking is, and understand that it is ignorant at best to assert that banks creating credit and informed parties accepting that credit at parity with Fed-issued reserve notes because both parties understand how the system works and can access those reserve notes on demand where required and a criminal enterprise selling a claim on a nonexistent asset to people that believe their fraudulent representations are the same thing.

Banks profit from the repayment of loans, not directly from the issue of money, and banks' willingness to accept each others' credit at parity to m0 reflects their knowledge of the facts about other banks' expected future income streams and guaranteed access to an m0 lending facility, not ignorance of their counterparty not having what they claim to have. If everyone wants to withdraw their USD from a bank as cash, the reserve lending system is designed to actually allow this to happen. Banks fail, infrequently, because the number of people who fail to meet repayment obligations to the bank exceeds expectations, not simply and inevitably because not enough Peters are willing to be robbed to repay Paul.

The two are similar only in the same sense that a futures contract and a shyster selling you the Brooklyn Bridge both involve the other party selling something they might not be able to deliver.

> institutions lend .. on many multiples of what they actually have in deposits.

That is not true at all. You are probably thinking of the minimum capital requirements (banks leverage) which measures all lending (bank assets) against their common equity. Deposits and credits are roughly equal and the minimum capital is required to cover mispricing on their assets. And no, banks are not being deregulated in this regard. In fact Basel III which regulates those reserve ratios is much stricter and it took several years for banks to recapitalize to the new minimum levels.

Or you are thinking about the bank's deposit with the fed (the fractional reserve part). But those reserves are not a problem for banks because if there is lack of reserves on the interbank market and the price (interest rate) of borrowing reserve increases above the fed's funds rate, then the Fed steps in and provides the reserves at the rate it wants to keep. This is part of central banking because a central bank cannot simultaneously control the amount of reserves AND the interest rate.

The money that’s backing the Tethers. As an example - you deposit 1mm USD with Bitfinex, and they give you 1mm Tethers. Bitfinex invests your 1mm USD every night at overnight Libor, earning interest each day they do so. When someone (you?) wants to redeem the 1mm Tethers, Bitfinex gives them the 1mm USD, but keeps the interest it earned. You question is a good one, though - why would people ever pledge USD to create Tethers in the first place, given that treasuries have a higher (non-zero!) return? One example: if your 1mm USD came from a criminal enterprise, then you couldn’t deposit it at a brokerage and buy treasuries (due to KYC rules, etc).