Because hedge funds sometimes collapse, and Tether's original premise was that being something that couldn't happen. It's why they promised every $1 worth of USDT corresponded to $1 USD in a bank account, prominently on their website, for several years after that stopped being true.
Fruads often look healthy on the outside right up until the collapse. No one's arguing Tether holds no assets, but they've been very cagey - and frequently, outright fraudulent - about whether they hold enough for their stated model.
If Tether was backed 1:1 with Bitcoin, and Bitcoin sank 50%, Tether'd be able to redeem half of their Tethers without an outward indication of issues. "See! We're fine, we're paying out all requests!"
https://ag.ny.gov/press-release/2021/attorney-general-james-...
> The OAG’s investigation found that, starting no later than mid-2017, Tether had no access to banking, anywhere in the world, and so for periods of time held no reserves to back tethers in circulation at the rate of one dollar for every tether, contrary to its representations. In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’
> On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
That's not good.
Then, On May 10, 2019 "To alleviate the cash shortfall, BitFinex announced it would conduct a private offering for $1 billion for it's token Unus Sed Leo."
SBF, a crypto insider, has said these issues are the growing pains of a company not allowed to use the US banking system and suck with second and third tier banking solutions.
You think this makes them look less sleazy? Who gives someone nearly a billion dollars without a contract?
Such as? There is concrete evidence that Tether has repeatedly defrauded the field.
https://www.wsj.com/articles/SB10001424127887324767004578491...
Bank depositors have the FDIC as a backstop, too.
The risk to Tether is not default, a but an attack.