> The issuer might run a fractional reserve (this is the accusation against Tether, the most popular stablecoin at the moment)
Very important to note - a stablecoin running a "fractional reserve" in the way that people talk about would just be fraudulent/insolvent.
Modern banks have actually never operated under the "fractional reserve" model as described in economics textbooks, but it's true that they only a fraction of their assets are held as bank reserves. Very importantly though, solvent banks always have more assets than liabilities (customer deposits are a liability to the bank). Usually a lot of those assets are loans, but they also hold bonds and other investments.
If Tether has issued a single token without an asset to back it that is worth at least US$1, then that's not operating like a bank does, it's just fraud.
The “fractional reserve” model implies incorrect ideas of how banks work - either as intermediaries between depositors and borrowers, or implying the “money multiplier” model of credit creation. Those are not the case in the real world. The actual model is often called “endogenous money”.
As I said, the confusion many people have is that it is correct that bank reserves are a fraction of the bank’s assets, so the name “fractional reserve” would intuitively seem correct.
Very important to note - a stablecoin running a "fractional reserve" in the way that people talk about would just be fraudulent/insolvent.
Modern banks have actually never operated under the "fractional reserve" model as described in economics textbooks, but it's true that they only a fraction of their assets are held as bank reserves. Very importantly though, solvent banks always have more assets than liabilities (customer deposits are a liability to the bank). Usually a lot of those assets are loans, but they also hold bonds and other investments.
If Tether has issued a single token without an asset to back it that is worth at least US$1, then that's not operating like a bank does, it's just fraud.