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.

And Tether is not the only stablecoin that admits that it is backing its tokens with cash and “equivalent assets”; all of its competitors state in their terms of use that they can (and/or do) back tokens with cash-like investments, like government treasury bonds or other securities.

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…

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Source: https://thebitcoinnews.com/in-light-of-tethers-fractional-reserve-a-shadow-of-fiatcoins-future/