>The Consolidated Reserves Report alleges that Tether’s reserves included, as of March 2022, $4,959,634,446 of “Other Investments (including digital tokens).” A 3.27% decrease in the value of these investments wipes out all Tether equity and causes their tokens to be undercollateralized.
First this is wrong, equity includes Enterprise Value which the article seems to ignore. The ability to control $70B of float is worth quite a lot enterprise value. They should be able to take out debt against that EV (or even sell shares/equity) if needed to re-collateralize.
They can also handle another 73-5=68B worth of redemptions before they need to touch those "Other Investments".
They've admitted to it in court. Multiple times. Patrick Mackenzie (patio11 on here) has a couple good articles about the fraud. [1][2]
> 12% is a pretty extreme test, it's enough to cause most banks to fail.
A bank can cover its customers' withdrawals by borrowing money from the Fed. If a run happens on Tether, who's going to rescue them?
> It also does not make sense for Tether to take on additional risk.
It might not make sense. That doesn't mean they didn't do it.
[1] https://www.kalzumeus.com/2022/05/20/tether-required-recapit...
[2] https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ (2019)