Why the huge disparity? From an economic point of view, the bank is just as required to redeem its obligations as Tether.
The better comparison for stablecoins are money market funds. The lockup of those caused the worst of the 2008 financial crisis. They also have much stricter regulations than stablecoins.
Fitch today released an opinion that stablecoin liquidations could cause a similar sort of systemic risk. They need some kind of regulation. No stablecoin has even done an audit! (Attestations are not the same)
Yup. They’ve had attestations. In those, an auditor just looks at an account at a moment in time. So you could, for example:
1. Get a loan
2. Put it in the reserve account
3. Ask accountant to verify the amount
4. Accountant attests to seeing money in the reserve account
5. Afterwards, move money out to pay off the loans
Sound crazy? Tether actually did this, it only came out in the NYAG settlement.
USDC uses a US accountant, but nothing in the procedures they use would prevent such a scenario. The auditor merely relies on management assertions in an attestation.
The US dollar is backed the US. All banks are supervised and insured by that same government. If a bank takes on too much risk, a) there are people watching that, and b) the US can wind it up and pay everybody back. So a single bank failure causes approximately zero currency risk. As long as you stay under the FDIC limits, you'll get back every dollar you put in.
Tether, on the other hand, is backed a bunch of shady characters who have been caught lying about what backs their currency. They claim it's 1:1 with US dollars, meaning that people buying Tether have no risk. But the more we learn about what they're doing, the clearer it is that it's not the case.
https://www.prnewswire.com/news-releases/usd-coin-reserves-e...
Tether by contrast is a pretty much an obvious ponzi scheme that everyone is just playing along with because they're making money and hoping they get out with profits before it implodes.
https://www.google.com/amp/s/amp.reddit.com/r/MakerDAO/comme...
In one chart ETH still predominates, but in the second USDC is the largest portion.
With Tether they print it and give it out to their buddies for who knows what, maybe a pinky promise to repay some day.
Tether, well who knows? Tether has cash + nothing which very likely is less than the redemptions they may face. If people want to get real cash out tether has no one to go to to make sure they have cash.
Most countries that peg their currencies like China buy USD or "cash equivalents" like US treasury bonds. They don't lend out their reserves to a third party.