Yes, that is a valid distinction to make, if the arguments/concerns around Tether were merely "hey, let's make sure regular banking regulation extends to this organization as well, to make sure it's all going in tip-top shape".
But that's not why people bring up the figures. They're acting like it's inherently shady to have less than 100% (or 3, or whatever) cash reserves for something that ostensibly "has your money on demand", and such a scheme is inherently unsustainable, even though this is exactly what banks do.[1]
Be careful not to equate "one technical distinction that makes sense" with "the the things the hive mind is actually outraged about".
(Sorry, would have responded sooner but I got a "you're posting too fast, slow down" error.)
[1] Fortunately, this article is focusing on the point about just extending regulation, but every other time this comes up, the figure is supposed to provoke outrage about "how can they not have our cash ready to go?"
> They're acting like it's inherently shady to have less than 100% (or 3, or whatever) cash reserves for something that ostensibly "has your money on demand", and such a scheme is inherently unsustainable, even though this is exactly what banks do.[1]
This is not correct.
Just because banks are fractional reserve, doesn't mean that they don't have enough assets to cover their deposits.
It means that they don't have liquid assets to cover their deposits.
If a bank ever fails to have enough assets to cover its deposits, it immediately become insolvent, and is taken away from its owners.
Tether does not have enough liquid + illiquid[1] assets to cover their deposits. If they did, they wouldn't keep dodging audits. They aren't running a fractional reserve bank, they are simply running a fraud.
The reason we let banks get away with this is because they are routinely audited, and are insured against insolvency. Tether is neither.
[1] The nature of their fraud is that they are grossly overvaluing their illiquid assets. Because they have never undergone an audit, they can get away with this - they can claim that their illiquid assets are worth <whatever value they want>, with no third party oversight.
> [1] The nature of their fraud is that they are grossly overvaluing their illiquid assets. Because they have never undergone an audit, they can get away with this - they can claim that their illiquid assets are worth <whatever value they want>, with no third party oversight.
Indeed, the attestations (not audits!) that they have the money backing it even explicitly have the note on them that the assets are marked at cost of purchase, instead of mark-to-market.
I think it is fair for people to say it is inherently shady when the original plan for these tokens was to be 1:1 dollar backed. Moving the goal posts in this situation IS shady, and why people are now calling for regulation.
People aren't railing against fractional reserves, they're railing against something that was advertised as having full reserve turning fractional with a few sentences on a website.
But that's not why people bring up the figures. They're acting like it's inherently shady to have less than 100% (or 3, or whatever) cash reserves for something that ostensibly "has your money on demand", and such a scheme is inherently unsustainable, even though this is exactly what banks do.[1]
Be careful not to equate "one technical distinction that makes sense" with "the the things the hive mind is actually outraged about".
(Sorry, would have responded sooner but I got a "you're posting too fast, slow down" error.)
[1] Fortunately, this article is focusing on the point about just extending regulation, but every other time this comes up, the figure is supposed to provoke outrage about "how can they not have our cash ready to go?"