Tether has taken a lot of heat for admitting it is running a fractional reserve. There’s no doubt that Tether’s unregulated nature makes this approach risky and that its lack of transparency is unsettling, but the entire modern banking system is architected on fractioned assets.
So, are these stablecoins any different than the legacy banking system? In practice, they act the same, but in structure, operations and regulation, they are still largely untamed.
Depending on your take, the news of Bitfinex drawing on Tether’s reserves to cover $850 million in losses — and the follow-up news that Tether is running a 74 percent fractional reserve — was either a spicy bombshell or a blandish nothingburger.
It’s either fraud and insolvency or…