Why does Tether dare to gamble with 20% of its reserves? Because the remaining 80% of the issuance cannot be redeemed at once. USDT has three "moats" that other stablecoins (including USDC) cannot compare to. And these three lines of defense have locked in the vast majority of liquidity. 1. The 'hostage effect' of liquidity Currently, the majority of contracts and spot prices in the market are concentrated on the USDT trading pair. For market makers, to thrive in this industry, they must always have a considerable amount of USDT lying in their inventory. This is not something they want to hold, but something they are 'forced' to hold in order to do business. Once they sell USDT and market liquidity dries up, they should also stop doing their own business. This fund of over 10 billion US dollars is Tether's most secure position and a true 'hostage'. 2. The 'natural barrier' in gray areas In this world, there is a plethora of games, underground cash flows, or capital flight demands from capital controlled countries. Roughly estimated, this group of 'invisible' funds accounts for at least 20% of the USDT issuance. Imagine, is it possible for this group of people to apply to Tether to redeem fiat currency? Absolutely impossible. To exchange 1:1 with Tether official for US dollars, you must go through extremely strict KYC/AML review and provide a compliant bank account to receive the funds. For those who are in the gray industry or are avoiding sanctions, actively applying for redemption is like "falling into a trap". So, the billions of USDT held by this group of people are essentially 'in and out'. They can only circulate on the chain or switch hands through underground OTC, and can never touch Tether's fiat reserve window. These gray demands are Tether's confidence, because these people will never and dare not knock on the door to exchange money. 3. Proxy Buffer of Redemption Mechanism This is probably the most important design of Tether to prevent bank runs, and it is also the biggest difference between it and algorithmic stablecoins. Think back to the LUNA/UT tragedy: if you hold $100 million worth of UST, when panic occurs, you can directly interact with the on chain protocol and instantly cast UST into LUNA and smash it into the market. This decentralized and threshold free redemption mechanism allows panic emotions to transform into a death spiral without any hindrance. But USDT is completely different. Even if you are a whale holding 100 million USDT, you cannot directly exchange money with Tether. Tether's counters are only open to a very small number of top institutions that have undergone strict KYC, such as Cumberland. This' institutional proxy redemption 'mechanism creates an extremely important buffer zone: Physical isolation: Panic Sell in the market cannot directly penetrate Tether's treasury. Pressure dispersion: If retail and large investors want to run, they can only cut each other in the secondary market (Binance, Curve), which will lead to price decoupling (such as USDT falling to 0.98), but will not reduce the fiat reserves on Tether's account. Arbitrage valve: Real redemptions only occur when whitelist institutions consider it profitable (such as buying low USDT and exchanging high USD). Simply put, the biggest fear of a bank run is a large number of redemptions in a short period of time, but as long as Tether can cope with the redemption pace of these agencies, there is actually no problem. Conclusion Because of these three lines of defense: MM cannot escape (commercial bundling) Black money has nowhere to go (rigid demand) Individual investors cannot change (mechanism isolation) Tether dares to bet on direction with 20% of its reserves so boldly. They are well aware that even in extreme situations, the 80% of liquid assets are sufficient to handle all 'qualified and truly capable' funds. Although it may seem ugly, this is the truth of the industry.