Tether is centrally managed by a company which keeps real USD in a bank account. When you redeem your Tether they pay you from their bank account (though their legal terms do not require them to do so). If they have problems accessing their bank accounts for legal or other reasons then they won't be able to make these payments. That is what happened recently when Tether dropped to about 90 cents. It has since recovered but the incident has renewed interest in pegged coins that aren't tied to bank accounts.
Really? That is interesting. You figure it would be a simple solution, just use a bank account, but when things go south you see why more complicated measures are needed.
I am not 100% sure on this, but I believe that they actually set USD aside as collateral to back up the amount of USD that they need to be able to generate to buy back the BTC when users cash it back in.
Tether is centrally managed by a company which keeps real USD in a bank account. When you redeem your Tether they pay you from their bank account (though their legal terms do not require them to do so). If they have problems accessing their bank accounts for legal or other reasons then they won't be able to make these payments. That is what happened recently when Tether dropped to about 90 cents. It has since recovered but the incident has renewed interest in pegged coins that aren't tied to bank accounts.
Really? That is interesting. You figure it would be a simple solution, just use a bank account, but when things go south you see why more complicated measures are needed.
I am not 100% sure on this, but I believe that they actually set USD aside as collateral to back up the amount of USD that they need to be able to generate to buy back the BTC when users cash it back in.