Even cryptocurrency advocates should realize that Tether is extremely shady.

Tether has gigantic red flags including not being able to actually exchange it for dollars even though it is pegged to dollars. It's so brazen it's hard to even believe it.

Fractional reserve banking has the same problem, yet provides a real, functional purpose for finance.

Tether has a purpose - to be a savings account is not that purpose.

You can exchange your bank savings account for dollars (or Euro, or whatever).

Hundreds of millions of people do this every day around the world without issue, because this is a solved problem.

Everyone cannot actually withdraw their balance to fiat all at once - this would be a bank run and wouldn't actually be allowed to occur.

True, but you can actually withdraw your balance.

You cannot withdraw your Tether balance. They literally do not allow that. The best you can do is get an intermediary coin that some places might let you change into cash or another crypto.

As I understand tether allows direct conversions to fiat, you just need big enough amount. Also it is very easy to convert to bitcoin, which is very easy to convert to fiat.

You should read the article -- this is addressed in it.

The minor difference is that you can withdraw your balance from banks, but you cannot redeem Tethers to what it's supposed to be backed by: U.S. dollars.

Everyone cannot actually withdraw their balance to fiat all at once.

You're right, due to fractional banking and if people do a bank run will happen and the bank will fail (unless someone saves it).

But it's at least possible to withdraw from banks. Redeeming Tethers is impossible.

... and earned that acceptance over a very long period of time, not because they said "trust us" enough times.

I'm not advocating for tether. But it is not a ponzi scheme. And I think that most of the users understand what tether is - they are not excepting returns, they also understand that it is unregulated vehicle where the backing can disappear any time if the issuers get into trouble. I would guess biggest use-case is moving fiat between exchanges without having compliance issues, which you would have with banks.

Correct, Tether is not a ponzi scheme, because a ponzi scheme is a specific type of scam vehicle in which earlier investors are paid their "profits" out of the investments made by later investors.

In Tether, only the original investors get profits, which they get form everyone else investing in Tether, so this is an entirely different type of scam.

It does fill a need, and no one expects returns from it, but it most likely is fractionally reserved by btc. This means that if the price of btc drops too low and too many people cash out then it's over, because each tether cashed out will mean more and more btc are required.

I think it is fractionally reserved with bitfenix's btc deposits. A while back you could see their master address, which hundreds of millions of USD worth of btc.

It's not fractionally reserved. Fractionally reserved banking implies that only a fraction of the reserve is in liquid cash (And that the remainder exists as independently audited, but not immediately liquid investments, backed by an insurance policy.)

Tether has never been independently audited, whatever non-liquid reserves/investments they have are not backed by an insurance policy. It is not a fractional reserve. It's a con artist's idea of "Hey, I can just open a bank, take 80% of the deposit money, do 'things' with it, and claim I am running a fractional reserve."

It's a tether scheme?

The scheme to create a token that is supposedly worth $1 to buy BTC and other coins off exchanges and then selling those coins for real USD.

For anyone interested in the origins of Tether, look up Bitfinex hack.