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If there is no USD bank account, Tether cannot perform the functions of creating, holding, and redeeming USDT.
Creation: Without a bank account, USDT cannot be created because traders cannot send USD.
USD Custody: Without a bank account, there is no place to hold the USD that backs USDT.
Redemption of USDT: Without a bank account, USDT cannot be redeemed because there is no bank account to send USD to the redeemer.
Having a bank account is not sufficient for success, as not all banks are equal. While thousands of banks globally can accept USD deposits, only certain banks hold primary accounts with the Federal Reserve. Any bank wishing to settle USD through the Federal Reserve as part of its role as a USD agent must hold a primary account. The Federal Reserve retains full discretion over which banks it grants primary accounts to.
I will quickly explain how the agency banking business operates.
There are three banks: A, B, and C. Banks A and B are located in two non-US jurisdictions. Bank C is a US bank with a primary account. Banks A and B wish to transfer USD within the legal financial system. They each apply to use Bank C as their agent bank. Bank C assesses the banks' client bases and approves them.
Bank A needs to remit $1,000 to Bank B. The flow of funds is $1,000 from Bank A's account at Bank C to Bank B's account at Bank C.
Let's slightly alter the example by adding Bank D, also a US bank with a primary account. Bank A uses Bank C as its agent bank, while Bank B uses Bank D as its agent bank. Now, what happens when Bank A wants to remit $1,000 to Bank B? The flow of funds is Bank C transferring $1,000 from its Federal Reserve account to Bank D's Federal Reserve account. Bank D then deposits $1,000 into Bank B's account.
Typically, banks outside the US use agent banks to wire USD globally. This is because once USD moves between different jurisdictions, it must be cleared directly through the Federal Reserve.
I have been involved in the cryptocurrency space since 2013, and typically, the banks that cryptocurrency exchanges deposit fiat into are not US-registered banks, meaning they rely on US banks with primary accounts to process fiat deposits and withdrawals. These smaller non-US banks are eager for deposits and banking cryptocurrency companies because they can charge hefty fees and incur no costs for deposits. Banks globally often have an urgent need for cheap USD financing, as the USD is the global reserve currency. However, these smaller foreign banks must interact with their agent banks to handle USD deposits and withdrawals outside their jurisdiction. While agent banks tolerate fiat flows associated with crypto businesses, sometimes, for whatever reason, certain crypto clients are ousted from smaller banks at the behest of the agent bank. If smaller banks fail to comply, they risk losing their relationship with the agent bank and the ability to move USD internationally. |
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Post time 21-3-2024 15:45:12
