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What risks does the exchange incur from allowing the trade of tethers?

Exchanges make their money from people trading--not by holding their own reserves and betting on their values. If Tether value drops to zero, anyone holding Tethers would be upset, but exchanges would just have been profiting from all the trades necessary to bring that value down to zero.

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Allegedly, some exchanges commingle USD and USDT without informing their users. For exchanges that don't do that, the question "Why would exchanges even touch it ?" is less applicable.

As to why end users would touch it, that's obvious - a (potentially misguided) belief that things will work out fine.

IIRC some exchanges don’t make it clear you’re trading USDT, not USD. If Tether were to implode users might be able to sue the exchange to try to recover the USD value.

For that case, maybe, but I'm correcting parent post's presumption that trading in tethers necessarily imparts some huge risk onto the exchange.

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