During that period, the tokens which participants treat as fully backed are fully backed*. It’s the classic liquidity risk problem that banks are familiar with: the balance sheet is good for the money but we can’t lay hands on more than X0% of it within a short period.
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Tether doesn’t have single digit percentage point exposure to a US financial institution who couldn’t pay them 100% and wouldn’t be able to settle for months. They probably have close to total exposure to a financial institution which will be offering much worse.
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(If you believe I am wrong you can call up your OTC desk of choice and offer to buy N million dollars of tether at a 3% discount to par. Hoover up that free money.)
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(You know why you can’t call up an OTC desk and offer to buy a deposit held in a US bank for a 3% discount to par, at a trade size of millions? And indeed financial professionals would laugh you out of the room for suggesting it? Yeah.)
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