Tether is a separate legal entity to BFX. Unlikely to pull down BFX (unless it triggers a run and BFX has been fractional reserve banking).
How does Tether even work? Suppose BFX/Tether went insolvent, would Tether remain? Or would people with any Tether just be screwed (ignoring the actual BTC price as a result of such an event)?
If Tether were to be insolvent (not fully backed by real USD), the moment it would be confirmed everybody would go dump their USDT for USD or other cryptos and very soon there would be noone buying it as the Tether bots would stop trying to maintain the peg so its value would crash to zero. Well, probably not really zero because:
- It's real fundamental value would depend on the perception of what percentage of Tether is backed by USD (ie: 20%, 60%, etc)
- Going under the price equating the real reserves, Teter (the company) could just try rebuy them all becoming solvent again (after destruction of the "overbooked" USDT).
After all the warnings about Tether, I wonder how many of it is still in the hands of people other than Teter itself. I would supposse many people have already dump it and noone would have a too big stake on it.
Yet the price of Tether haven't really crashed. BUT... what has crashed is all the crypto market which I think could be related. What if it was Tether/Bitfinex that had USDT somewhat backed.... NOT by USD but by a mix of USD, BTC and many other crypto?
If that were the case they would have been forced to liquidate those crypto assets to maintain the USDT peg stable. And, having to back more than 2 billion dollars overnight requires a lot of dumping, which causes panic and many other people dump too. Also as the price of the crypto assets go lower, more (coin units) dumping is required to extract the same value.... and there you have your doom circle.
Is that what has happened? Maybe, or at least it has been one in many factors behind the "crash".
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