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Comment by caymanjim | Hacker News Reader

Real banks practice fractional-reserve banking, where they are required to hold a percentage of assets as cash or central bank deposits. It's well-regulated and diversified. It's audited. Individual account holders' deposits are insured (FDIC in the US). This is all well-known and understood and reliable. Runs can still happen, shady accounting practices can still happen, and sometimes banks fail. Sometimes they fail catastrophically, and people can lose money, but it's about as trustworthy as things get.

Tether does not claim to be a fractional-reserve bank. They claim that 100% of the assets are backed by US dollar cash deposits. It's their entire raison d'etre. Except no one is enforcing it. It's not even remotely the same thing as a fractional-reserve bank.

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> They claim that 100% of the assets are backed by US dollar cash deposits.

Still? (ie link?)

All I see is: “All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether's reserves.” (link here: https://tether.to/en/transparency/)

Yeah, they continuously try to rewrite history. The original whitepaper directly stated "Each tether issued into circulation will be backed in a one to one ratio with the equivalent amount of corresponding fiat currency held in reserves by Hong Kong based Tether Limited."

For further reading, see the CFTC settlement

The fact that this comment is downvoted means that at least some people here doesn’t understand how to use the downvoting function. I think the comment highly contributed to the discussion by pointing out what Tether states today (and asking for more information if available). How is this not a constructive comment?

In the US, the required reserve ratio has been 0% since March 2020. I personally wouldn't view the traditional financial system as about as trustworthy as things get.

AFAIK reserve requirements (ie. cash on hand) was dropped to 0%, but capital requirements (ie. assets on hand) are still there.

When was the last time anyone lost the money in their checking account due to a bank failing in the US?

The ratio you're talking about is the amount that needs to be in the bank's account with the Federal Reserve as a fraction of its total liabilities. Only the money in that bank account qualifies for that reserve ratio; holding on to a literal stack of dollar bills in a bank vault somewhere does not.

That ratio is 0% because it's been judged that there are better ways to require solvency than doing that (chiefly, requiring capital buffers).

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