> my logic that insolvency should lead to immediate destruction
But it doesn't. And it shouldn't.
Businesses can and do survive insolvency (sometimes without the public ever knowing!). Insolvency just means that either liabilities are greater than assets, or cash flow does not meet expenditures. Either one can be a temporary situation which can be solved with things like bridge loans. (Or bankruptcy proceedings!)
More nefariously, in the case of Tether, so long as they don't see redemptions exceeding their assets, they can continue to hide the fact that they are insolvent indefinitely.
You are equating liquidity with solvency, it seems to me.
People don't seem to want to admit insolvency is inherently worse than illiquidity.
It may be empirically true that entities can hide insolvency.
But it doesn't seem logical for anyone who knows they are insolvent to ignore it.
If they are solvent, sure, ignore the possibility of a bank run. Why should it start?
But if they are insolvent, then someone will lose their money, and you and everyone else who finds out should want to not be last in line, which should make it collapse almost instantly, provided that the information leaks to any number of people.
It seems sometimes like a lot of things are sort of like Wile E Coyote not falling until he looks down. Something can be widely known, but not believed until some catalyst makes it impossible to deny or rationalize or BS.
Still, learning that something is insolvent ought not to follow that pattern too much, because again, it doesn't matter if everyone else in the world is ignoring the problem, if you are certain it exists, you need to act.
I could be leaping to conclusions, as I'm not an accountant, but isn't that the phrase that distinguishes it from temporary liquidity problems?
Anyway, if people sometimes use insolvency to include illiquidity, that's not helpful in a discussion distinguishing short term problems from long term problems. Maybe it varies with context.
If you don't believe it does, and insist that insolvency includes illiquidity, then the appropriate thing is to find (teach me) a better word, that serves the purpose of excluding it.
But it doesn't. And it shouldn't.
Businesses can and do survive insolvency (sometimes without the public ever knowing!). Insolvency just means that either liabilities are greater than assets, or cash flow does not meet expenditures. Either one can be a temporary situation which can be solved with things like bridge loans. (Or bankruptcy proceedings!)
More nefariously, in the case of Tether, so long as they don't see redemptions exceeding their assets, they can continue to hide the fact that they are insolvent indefinitely.