Bitcoin’s reliance on stablecoins harks back to the Wild West of finance
wsj.com
wsj.com
Tether is way too much like that.
Remember, Tether has no upside. There is no reason to ever hold Tether for any length of time.
[1] https://www.timesofisrael.com/before-dying-bernie-madoff-lif...
It looks like USDC, issued by a company co-owned by Coinbase (YC incubated right?) and Circle, is quickly replacing tether. One year ago there were about 1/10th of USDC compared to tether, now it's half.
Apparently USDC are really fully backed by real USD and the smart contract for USDC can block any address containing USDC at any time (which eases some concerns regarding complying with authorities while it probably raises some concerns for others).
I take it for those concerned it wouldn't be unwise to sell your USDTs for USDCs.
For somehow I don't believe that Coinbase is pulling a ponzi scheme with USDC.
[1] https://www.centre.io/hubfs/pdfs/attestation/grant-thorton_c...
This is a HUGE change and massively cause for alarm.
> https://www.singlelunch.com/2021/05/19/the-tether-ponzi-sche...
> [Tether was] Failing to complete an audit and settling on an attestation “for transparency”. The morning of the attestation, tether moved $380m from sister company bitfinex into a bank account to pass the verification
I stay away from Tether completely as it has a shaky past and unknown ties with China and exchanges.
To qualify to borrow at 4.5%, you have to have a loan to value ratio of 20%. If I understand correctly, that means you have to deposit 5x crypt than the value of the loan.
On the savings side, the rates vary. If you deposit BTC, you earn 5% for the first 0.5 coins, 2% for the next 19.5 coins, and 0.5% for the rest.
Since the loans are secured, if the value of bitcoin does not move too much they can cover defaults by liquidating the collateral. Given the volatility of crypto currencies though, I still assume they will blow up at some point in the future.
They're effectively speculating that Tether will crash, and they get to pay you back with cheap Tethers.
I think only 8.4 years, because that's the doubling period for 8.6% (1.086^8.4 ≈ 2).
Edit: but I guess it's indeed over a decade if you take tax into account
Those 8.6% APY are only available for a month at most. The APY changes all the time as more people deposit their money.
I know, here come the Enron or Mt. Gox rebuttals. The regulation and oversight that BlockFi has is much greater than those other examples.
It would be interesting if somebody could figure out the likelihood that BlockFi fails. Though I don't see how.
If it was as safe as you seem to think it is, why didn't they just pony up their own money? 8.6% is far above any standard investment vehicle at the moment. For a safe investment, it's free money!
These types of loans of course aren't useful for most people in the traditional sense where somebody needs access to money they don't have. These are mostly for 2 cases: 1) Exposure to other crypto when you think both your collatoral and the crpyto you want to be lent will both be worth more. SO you borrow $100 worth of USDC, give $200 BTC as collatoral, use the $100 USDC to buy $100 worth of ETH. SO if after a month ETH and BTC have gone up, you can sell enough to pay the $100 USDC loan and keep the profit.
2) Access to illiquid capital. If you have $1 million of BTC but don't want to sell it and trigger a capital gains event, you use that as temporary collateral to get access to something else, thus never selling your current crpyto holdings (unless they fall below the liquidate threshold of the loan)
I should say too, using these methods still has counter party risk regardless.
Then there's also foreign exchange risk. The return on these loans is quoted in terms of the currency the debt is denominated in, whereas what the investor cares about is the return of the investment in terms of their local currency. This is the same situation that an investor would face if they decided to buy Argentine bonds, which pay over 20% annually in pesos. The return that they would get in their local currency would likely be much smaller. It could even be negative.
Why isn't it arbitrated away? Because institutions and market makers don't trust crypto. When they do, I'm sure it'll go as low as rest of market rates.
The other reason is they cut the middle man between a creditor and debtor i.e. banks.
If banks started to sell financial products based on liquidity pools, they had a hard time to compete with places like compound or aave. However, they would set themselves free of the federal fund rate and therefore they could actually provide higher rates to their customers.
So basically, rates would be rising everywhere.
Here in Europe banks are entering an existential crisis as the ECB maintains zero and negative interest rates (of course, this is simplified as there are actually several different federal funds). Banks can’t finance their business anymore. This led to increasing bank fees, bank mergers and basically bad service for their customers including no interest paid on savings.
Defi will sweep away the banking market on the long run if central banks keep doing their lax monetary policy for much longer.
Because banks are regulated (to avoid systemic risks), so they need to balance deposits with risk free loans (or discounting the riskier loans with extra capital).
> Defi will sweep away the banking market on the long run if central banks keep doing their lax monetary policy for much longer.
By definition if they provide higher yields, this should be because they are riskier. (It might be a non-obvious risk, e.g. liquidity risk due to lack of lender of last resort).
You mean "reserves". This is the reserve requirement of banks which they need to hold for deposits. These reserves are held by their responsible central bank. Which they need to pay for in the Euro zone (that's what it means federal fund rates being negative). So this gets me back to my initial point: Banks depend on the federal fund rates. DeFi systems do not.
But I agree with you, higher yields do reflect higher risks. Of course, depositing money in DeFi protocols is still riskier than leaving it on your bank. But bringing money to your bank means you're so risk averse you're willing to lose money for keeping your money. At least inside the Euro zone, currently.
Because yield is the price that borrowers pay for borrowing funds. When there are a lot of funds available for borrowing and not many people wanting to borrow yields will fall. There is just nothing central banks or commercial banks can do to raise yields if there is little demand for loans.
I am sorry but I think you've got this completely the wrong way. The demand for loans did not shrink in the last couple of years: Look at the housing prices (including the infamously high rents) and the volume of credits people burden themselves with. Rather, the amount of liquidity (i.e. money) circulating around has increased significantly. This pushed interest rates down to a minimum. And why is that so? It's because central banks are flooding the economy with money for years. So it is well within their power to change that. But it won't be nice for many parts of our inflated economies ...
[1] https://en.wikipedia.org/wiki/Money_creation#Role_of_banks_i...
“Holds Bitcoin” and “received a pile of loose VC money” are not the gold standard of reliability in a financial provider that promises stable returns on a no-risk investment.
Full disclosure: I did not find BlockFi's brief descriptions of their risk management strategies to be comforting.
The index fund can crash for up to 5 years but will almost certainly bounce back within 5 years time.
The Blockfi thing can lose your money and never bounce back.
Why on earth would you compare it to those rather than an index tracker?
I think we are probably eons apart on the meanings of the words “solid”, “stable”, and “established” here.
Is this documented anywhere? What's the procedure within USDC to perform this block? Is it just whoever has the right private key can execute this blocking function and propagate it through the blockchain?
https://etherscan.io/address/0xa0b86991c6218b36c1d19d4a2e9eb...
The smart contract has a "blacklist" function.
There’s no reason credit instruments should be on a blockchain in the first place, given you’re depending on a central party for redemption.
Can you elaborate? Say you issue RUNEKs, how do we move them around freely in a digital world with the assumption that you are not required for transfers?
You already depend on me for redeeming your coins for USD, so depending on me for transfers doesn’t present any additional risk.
Looks like a full API to manage a blacklist and an authorization scheme for adding blacklist administrators.
Although having an un-block function is good thinking since it would allow them to reverse course - no bad decision is permanent.
How about DAI ? This stablecoin doesn't have both USDT's and USDC's disadvantages
If your threat model is government-backed censorship, though, it should be an improvement.
If i interpret this correctly, this could lead to a very high spike in interest for dai lenders on other collateral currencies, in case the usdc collateral goes bad.
Most traders I know use tether to move funds between exchanges for arbitrages and/or wait out a correction. Some are also using it to generate yield, but other than that, nobody is holding onto it for the very long term.
And Tether is not the only game in town, USDC (which is by well known/regulated entities here in US) has been getting a lot of traction, it now has about 1/3rd of Tether's market cap.
I.e places with exchanges that don’t have good fiat rails for various reasons.
https://www.cryptovantage.com/news/why-is-tether-so-popular-...
I assume these people don’t stay in tether long, they just use it like a checking account when they cash in and out of positions.
I also assume that if tether went away tomorrow, people would either use another stablecoin like USDC and if all stablecoins went away, they would just trade in and out of btc.
I think it’s unlikely that this would happen to all stable coins. So what would this scenario look like if USDC or DAI still existed?
Why? Because the narrative that fueled this sequence has been "people with ever deeper pockets coming into crypto", and we are close to the end of this narratives' natural life anyway. The current "ever-deeper pockets" are institutional investors, which is as far as it gets in terms of deep pockets anyway, but which are also very sensitive to risk and need calculable risk envelopes. Stablecoins, with their publicly-known market caps, provide an approach to guesstimate the total amount of actual value underlying cryptocurrencies and thus help significantly in evaluating the risk of a crypto investment - theoretically, as long as we know that there is X amount of fiat money invested, the total crypto market cap cannot fall below that value. If we now learn that a huge chunk of this money does not exist anymore or never existed at all, the risk calculation becomes much worse. It is akin to a fiat currency of a country that is found to have blatantly invented big chunks of its official GDP for years - nobody would want to store value in that currency anymore. And without institutional investors, there are no "deeper pockets" anymore, hence the primary reason why most people hold cryptocurrencies - to participate in the growing crypto pie - falls apart, which should trigger a series of waves of sell-offs, similar to the "buying waves" during the last decade, but inverted (quick drops to lower lows, followed by slow recoveries to lower highs, followed by lower lows and so on).
At least this is what I expect.
The biggest difference you highlight is a big difference. On youtube, you can watch a series of documentaries by Milton Friedman, Free to Choose. In an early episode of this, he explains how the Great Depression was triggered by the fed failing to lend liquidity to a legitimate commercial bank that needed it.
As you point out, there is no equivalent liquidity safety net for Tether. It may be that in a tether crisis the fed would feel compelled to step in and bailout anyway to prevent systemic problems. The Long Term Capital Management bailout had this character. It was not the fed’s responsibility to bail it out, but there was noone else to do it, and if they had not then it would have created a systemic crisis comparable to the start of the great depression.
This will not happen in 2021. Crypto is not systemically important now. But as it becomes integrated, Tether becomes a larger problem.
Look, I am not an not expert on monetary policy. And I do believe Milton Friedman was a brilliant economist. But this specific American view that he popularized -- the Great Depression was caused by a failure of the Federal Reserve to monetize its way out of a recession -- was and is being challenged. Milton Friedman had a very narrow focus on technical monetary policy and therefore missed out on quite a many pieces in the puzzle.
After the First World War governments world wide were sitting on a pile of debt. Many were tempted by an easy fix i.e. expanding the monetary base, lowering interest rates and, hence, cheaply repay their debts. Inflation was rampant in the 1920s. As I am German, I'd like to add that it was the newly German republic (burdened with tremendous reparations) that destroyed its national currency in 1923 and, hence, triggered political turmoil eventually leading to the rise of fascism.
In the US inflation at first triggered an economic boom with cheap credits and ever rising stock prices. But early in 1929 consumer prices also have been rising sharply and the Federal Reserve reacted, correctly, by off-selling securities (especially government securities ...) and raising the Federal fund rate. But because the FED acted too late this caused a credit crunch. Stock markets being fuelled by credits crashed culminating in the Black Thursday.
While a bear market sets the stage for a recession (correcting all malinvestments in the past boom) it does not necessarily mean the onset of a year-long depression. This happened because of ill-advised economic policies by the Hoover administration.
The government started a massive deficit spending program trying to support wages by issuing public work programs and subsidising farming products. In 1930 the "Smoot-Hawley Tariff Act" cut off the American economy from foreign trade by a steep rise of import tariffs in an attempt to keep prices high as they were falling due farming subsidies. Foreign countries retaliated with increasing tariffs and American exports collapsed. As a result millions of farmers and businessmen went bankrupt since they could not sell their products abroad any more and prices fell even further. Since rising government debts were not monetized away any more by the FED, the government had to increase many taxes to unprecedented levels striking another blow at the economy. When FDR gained power in 1933 he essentially continued Hoovers policies and extended the 1929 recession into a decade of deep depression.
So what it is that we can learn from history?
According to Milton Friedman the FED should just have continued its inflationary policies to avoid the recession -- but to what ends? One could also conclude it should have simply started to counter inflation much earlier. But more importantly, the Federal government should not have restricted the economic freedom of its people in a phase where the economy tried to recover from a over-inflated boom phase caused by the FED itself.
This view on the Great Depression is of course strongly influence by Austrian economics: https://mises.org/library/great-depression.
I am not implying that this is the only correct interpretation of history. But HN readers might be interested in a completely alternative view of the events that led to the infliction of this great American trauma.
"There is this product/service X, that is bought and traded fro billions. I don't see any use cases myself so clearly there isn't any reason to use it. Market is wrong and I am right."
Tether uses this scheme to issue loans and collect interest without the pesky step of actually having cash reserves to loan out.
Is there a reason why exchanges even need such loans?
How? Having massive amounts of tether in your wallet doesn't increase trade volume, having users who trade increases trade volume. If I own 1B USDT and deposit it to some random exchange and let it sit there, the volume isn't going to change one bit.
With a stablecoin like Tether, you have people constantly "cashing out" by just trading their BTC/ETH/etc for Tether. It is much easier to go back and forth between some "hard"-dollar value (scare quotes due to the question around how "hard" Tether actually is) and cryptos, and therefore encourages more trading. Long story short – Tether reduces the friction of certain trades, which obviously is going to make those trades more common.
Are we talking about whales or someone holding a bitcoin or two? Trading/withdraw limits at non-USDT exchanges (eg. coinbase/kraken/gemini) are quite generous, and you'd only be running into issues if you're selling several bitcoins per day. As a concrete example, kraken has a $500k daily withdraw limit for their "Intermediate" account.
Most exchanges do not have true USD. Coinbase and binance yes, but only because they do the KYC work. Anywhere else like Probit, KuCoin, any DeFi - there will only be stable coins.
Crypto rollercoaster - up down sideways and in circles - sure I'm game. Tether that is stable until it implodes...hell no. Even without direct exposure the blast radius worries me.
I feel like the risk of full-on panic selling seems more and more unlikely as time goes by and more institutional investors get into crypto. And even if everyone did take out their money at the same time, isn't most of the value actually backed by the dollars of whoever was the biggest fool?
Tether imploding would be more like a bank run, where you can see YOUR MONEY as a number on the screen then when you go to cash out, you simply can no longer access your money. Or maybe you can withdraw $100 a day, but no more. If and when that happens (or threatens to happen), everyone freaks out and tries to get their money at once - which is exactly why the banking system in the U.S. is backed by the federal government so this doesn't happen.
The higher risk is that a good swath of crypto investment is done on leverage, which can increase with the more money you have. So with $100MM and a bit of lying you can go invest 10x your money in crypto and get some fat returns - lets say you go all-in and put $1B in Tether and get an 8% return on your money - thanks to leverage you are actually making 80% return on your $100M (sample #s, but you get the idea). This works great until things blow up, because you don't just lose your $100M, the BANKS that gave you leverage ("margin") lose $900M too, so one idiot taking this gamble can have a massive impact on the banking system as a whole.
This isn't just theory either, something akin to this happened about a month ago: https://www.thestandard.com.hk/breaking-news/section/2/16880...
And that wasn't even fallout from a Ponzi scheme, but simply from: bad risk management + leverage + minimal oversight + lying. The real stupidity is that these banks have continued to provide margin loans at very low rates with loose oversight, which should remind you of "race-to-the-bottom" mortgage market that blew up housing around 15 years ago. Except now we are talking about hedge funds and billionaires and a billions of dollars being thrown into shitcoins and NFTs. So when this implodes there won't be any collateral at all to rely on.
- when a company goes bust you still have shares your share -- no one wants to pay for them with dollars.
- when tether implodes you still have your tether, but you can't turn it into dollars because there aren't any dollars to convert it too.
Even if you don’t keep any money in a bank, banks collapsing would still hurt you. The stock market crashing hurts more than just people who own stock.
As an example, let's say Capital One has been fractional banking (as they all do) but for some reason people get paranoid about it and there is a run on the bank. Everyone tries to withdraw money Capital One doesn't have. As long as the govt doesn't step in and socialize losses on the back of the taxpayer, you're left with a bunch of people who had "deposits" at Capital One that are now non-existent because Capital One doesn't have any money left. Those people are of course hurt, but the person who only banks with Chase would be hurt how?
Also, Chase customers start worrying about the security of their money, and they start to withdraw from Chase faster than Chase debtors pay off their loans
But looking at the low percentages of equity on banks balance sheets I think one bank run would easily jump over to other banks just because of the fear that they might happen
The more apt comparison here would be something along the lines of the recent run up in TSLA being the result of purchasing from the infinite margin bug from Robinhood a while back. It would turn out the demand wasn't real, only there because it was free.
The implications for Bitcoin and other crypto also purchased with Tether, or with Bitcoin are a lot bigger than you'd imagine.
https://anchor.fm/aviv-milner/episodes/The-Tether-Situation-... at 30:57
* Price of BTC/USDT ETH/USDT explodes as people try to exchange Tether to another liquid asset
* BTC and ETH start to drop on non-Tether exchanges as people sell and try to get out to fiat currency
* Tether collateralises futures contracts, when BTC/USDT spikes, some strange behaviour may happen in derivatives based on Tether.
* Tether allegedly is a meaningful percentage of the commercial paper market, if those assets are seized, it may affect that market.
* Some S&P500 companies have a lot of Tesla on their books. As BTC/USD drops, that would impact their stock price, and potentially the index overall.
* Some shadier crypto exchanges may go under or abscond with client funds in the confusion.
A lot of this could happen in a matter of minutes.
You could imagine a similar flight to safety happen if Tether was revealed to not have the reserves they claimed to and were unable to redeem client funds.
Fun times!
Agreed. Tether is special though because it's very big and (imo) very sketchy.
So it's more of a "too big to fail - banks" company goes down than some random company. Thankfully other stablecoins are gaining ground
Bitcoin's high but natural volatility is not the same thing as the price collapsing due to the system itself fundamentally breaking. For example, the Global Financial Crisis was the result of the system itself fundamentally breaking, not natural volatility, and its blast radius was immense.
Tether or other major stablecoin collapsing due to being exposed as a fraud, or a fractional reserve with no reserves, or similar, would be more analogous to the GFC. And the blast radius could be worse than any of Bitcoin's 80% drawdowns, both economically and wrt to regulatory and legal attention.
Deflationary coins on the other hand are super insidious, they can get hoarded on a wider scale to the point of displacing productive investment in the economy. With deflationary coins it's not the volatility that's dangerous, it's the lack of it creating gridlocks in other investment markets.
This happened before when there was attempts at stabilizing gold and it caused the Great Depression: https://benoitessiambre.com/specter.html
I worry about this too. Essentially, new money creation can go toward financing three objectives - production (manufacturing & innovation), consumption, or asset speculation.
If you have a financial system that’s financing mainly production, and somewhat consumption, you achieve widespread and equitable growth without inflation. This is the ideal. It’s how the Japanese rebuilt their economy after WWII, based on the theories of Osamu Shimomura, focusing new money creation on production.
But if your financial system is financing mainly consumption, you get inflation without growth.
And if it’s financing mainly asset speculation, you get financial instability and crisis, wealth concentration, and inflation.
This is all from Richard Werner’s work and research [1][2].
Deflationary cryptocurrency, at least in its early days, is financing mostly asset speculation.
However, that may be an unavoidable part of bootstrapping a new kind of money technology. But as your blog mentions, at some time in the future it will reach a steady state, no more rapid appreciation, and then what.
One of the big public debates is about whether transaction fees alone will be enough to finance mining and thus security of the network, after both the mining subsidy ends and the price appreciation levels off.
Another less public debate is how “HODLers” may then need to reinvest more of their gains into building value-adding services for the network to continue economic growth, despite the individual incentive being to hoard.
I don’t think the story has been completely written on deflationary cryptocurrencies, and am still watching to see how they deal with this eventual problem. But the sound money religion surrounding some of them is preventing an honest assessment of these problems.
They stopped because the collapse of Bear Sterns and Lehman Brothers made them realize that anyone could be next and they all had massive counterparty risk with each other. Why lend to someone who could be bankrupt literally the next day?
They all had taken on massive leverage, collateralized with mortgage-backed securities the ratings agencies said were high quality. But those MBO's weren't and began defaulting en-masse, correlated in ways both the ratings agencies and the banks either didn't understand or willfully ignored.
If central banks and governments hadn't stepped in to provide emergency liquidity support, interbank loans would have defaulted en-masse and the entire system gone bankrupt and collapsed. That's what it looks like when a financial system breaks - it literally stops working, activity ceases, like a core dump or blue screen of death.
Natural volatility happens all the time even when the financial system is not broken or breaking. It's just the price discovery process in action, where different buyers and sellers with different views on the future value of the things are trying to find the best deal. Price shocks can be part of it, abrupt movements in price due to some event, but as long as the underlying mechanics of the system continue working smoothly, it's not an example of the system breaking.
I'm not sure any technology can solve the fundamental problem, but the post-Great Depression regulatory regime did for decades until it was dismantled in the 80s and 90s. It's no surprise that less than a decade after Graham-Leach-Bliley dismantled the last bits of Glass-Steagal in 1999, that we get another financial crisis similar to the Great Depression. Glass-Steagal mostly worked, and served to decentralize the banking/investment banking/insurance industry.
No idea about the rest, but I'm buying.
Conceptually I think this has gained critical mass. i.e. There are enough people with enough belief to make crash to zero unlikely
People who don't understand the technology would flee, thinking it was just a fad, those that do understand it would stay, stack up and wait a few years.
Credit cards have a really peculiar, fascinating and turbulent history. The original credit card was nothing like what we have today. Yet here we are.
I can easily see everyone rolling their eyes at and being dismissive of the original credit card idea.
Can crypto follow the same path?
What will it be in 20 years? 50?
Fast transfers, trusted partners, regulation, audits, identity verification, fraud prevention, backing, sound money. All these things are important and valuable, and while our current system is really flawed in some ways (in particular the control of politicians over money supply and the monetisation of debt), cryptocurrencies do not offer a solution to the most pressing problems and introduce too many of their own.
I think the difference with crypto is that over time as more people look under the veil the number of naysayers grow, whereas with online shopping the naysayers have gone extinct (maybe RMS uses only cash or something).
Last night I stumbled across a group freestyle rapping and hung out for a bit. At one point one of the rappers talked about putting money into AMC and how it was a bumpy rollercoaster of a ride.
It really put a face on the other side of a lot of these cryptos and meme stocks. It’s entirely possible the fellow was a savvy investor (he certainly could freestyle very well) however judging by how his posture went from exuberant and confident to deflated as soon as he mentioned AMC in his own freestyle I’m fairly confident he bought in at the top.
And it certainly didn’t surprise me that at my local stomping grounds I’d be hearing the dismayed crewing of the fleeced.
Some people holding cash* would get hit, but there's no real magic to starting a 1-1 backed stablecoin. Someone will fill the space, since it's obviously needed.
They specifically describe their loans as "secured loans (none to affiliated entities)". There's no such annotation on their "commercial paper", giving the impression that this category (which amounts to slightly under 50% of their overall holdings) may consist in large part of loans to other crypto exchanges, possibly in the form of Tether tokens.
I choose to believe that what circle and coinbase are doing is creatinng a lot of liquidity by taking coinbase cash and turning it into USDC but at some point a lot of those USDC are being made the same way as tether, is just not real money comming into the ecosystem from either retail or institutions, but just imaginary money that is traded back and forth by coinbase bots to keep the price moving on their exchange
Market makers need mechanisms to move money around and manage risk. When tether did not exist, all this would have been painful, but equally painful for all market makers. This is fine.
Tether created a maybe-good-enough mechanism for bridging conventional money into crypto. Once it existed, then each market maker would have needed to make a decision: use it and get the benefit of it whilst losing sleep at night over its risks, or not use it, lose edge to your competitors, and close up shop. You may find that the market makers hate tether, and recognise it for what it is (wildcat bank) but feel compelled to use it to stay competitive.
The same could be said of crypto advocates who leave their "coins" on an exchange
If this was true, nobody would be talking about bitcoin.
Here in the real world, bitcoin is the whole system of people, institutions, and the actual money that every aspect of bitcoin is denominated in.
Answer: a lot, Tether is the unit of account. If something happens to it the crypto space explodes as the volume of real dollar trades in crypto is a fraction of Tether trades.
Its like if instead of buying stocks for money everyone bought and sold stocks using Enron shares.
Anyway, the idea of BitShares is (was?) to ensure stability of their crypto currency through futures contracts. You buy/sell futures contracts that peg their coin to another asset. This guarantees a certain payout at expiration.
For example, you can buy a contract that guarantees you receive (or must pay) the bitshares-equivalent of X USD when the futures contract expires. (You can also have contracts that guarantee the bitshares-equivalent of X ounces of gold, etc.)
So the future (smart) contract itself acts like the fungible stablecoin, even though it's not backed by the actual asset. And it doesn't rely on a trusted third-party. Rather, its stability relies on the futures speculator market that trades these futures contracts.
Such a concept seems like it doesn't have to be limited to bitshares, but can be generalized into a smart contract traded on blockchains like Ethereum, etc.
https://benshieldsblog-blog.tumblr.com/post/165101127465/let...
https://drive.google.com/file/d/0B9li-Wu3-bPEWEswQVdIOHVKTmM...
every single one of them. Many times over.
I think everyone knows, because, c'mon. But everyone thinks they are the smarter one and will be the ones fooling others and making money. Which makes this article, and yours, pointless, because, everyone already knows that.
Some cryptos have value beyond that, like ETH, because the Ethereum network itself has intrinsic value, and ETH is the only thing you can use to pay the Gas fees if you want a program running on the network.
Side note: Aren’t there tokens that sort of have a kind of stored gas? Like, you can cash it in to get a refund of some of the gas cost of the transaction?
WRT the gas fee thing: yes, technically you can send a miner whatever you want in order to incentivize them to include your tx in a block, but the only thing baked in is ETH. Additionally, after the London hard fork (slated for release next month), EIP-1559 will be live which changes the fee system to become a "burn" fee system rather than a "tip to miner" fee system, which will force all fees to be paid in ETH (and algorithmically determined, rather than somewhat arbitrarily picking a fee that you hope is high enough for miners to include your tx).
The theory around "prices people are willing to pay for ease of transactions" seems probably not that tricky,
the theory around "the value people will assign to a good based on ease of transfer of that good" seems like it would be more complicated and confusing.
The value of a PayPal share is tied to the expected future profit of PayPal, to how much transaction fees will be total, and how much costs will be.
This is a distinct question from the value that a user assigns to the ability to make transactions using PayPal, which, I suppose corresponds to the demand curve of how many transactions/ how much is transacted, given different transaction fee sizes.
Of course, an analogous demand curve should also apply to bitcoin (or what have you).
But this demand curve doesn’t seem enough to give an explanation for what price to expect. (Not just “it doesn’t explain the actual price” but rather, I don’t see how it by itself would explain any price.)
If you’re buying gold you’re not purely depending on finding another sucker to buy your gold. You can sell it to any one of the countless manufacturers or jewelry makers using it every day. If the price crashed too much, these would probably just increase their inventory of gold in anticipation of a future price increase, which would itself drive up price. If the price stayed low they can lower prices on the goods they’re making, increasing demand for gold, stabilizing the price.
That’s why cryptocurrency is not digital gold. There are no such mechanism setting a fundamental floor for how low the price can go.
In traditional finance all water has been wrung out, but in crypto relatively unsophisticated versions of strategies like arbitrage can be quite successful. Traditional finance institutions are more sophisticated and have more resources than their crypto equivalents. I really think traditional finance orgs need to realize they can employ the same skills to the crypto space with a much lower investment for the same returns because the space is so immature.
In both cases the thing doesn't blow up if the debt is collateralized with something that keeps appreciating against inflation. It can go on forever, but people whose savings are decimated might get angry at some point.
I am beginning to think that it would be worse if USDT went over the peg rather than under! Therefore, it would not surprise me if the Tether FUD might be intentional - otherwise Tether might start "collapsing" the wrong way.
In defi it's never the nominal value, but the current value, so it would be very clear that your collateral would unlikely be liquidated. You can also use something like USDC for the collateral for even more safety. (I think you can already see some evidence of this strategy since the interest rates for USDT are always higher)
The scenario where all the collateral would be liquidated would be if Tether broke its peg and went up. That would be a disaster. (Also called a "short squeeze")
2. If USDC goes to 0, then Dai has 50 cents backing, USDC has 0.
Definitely not ideal to have such high exposure to one coin though
On tether are people worried about this conversation
… Tether: we go back so long jp, here’s some more junk bonds . You like this collateral
JPMorgan: we are not interested in taking it anymore . Liquid on the run or mbs. We may be friends but we are friendly in the federal funds market, not repo . Post collateral or I’ll Kill your operation and shut you out of repo.
Tether: but fed put! ‘’’
Cause I don’t think it ever happens
So the 4% backed Tether could not really be true if you think about it. Or am I missing something?
“But the Fed wont bail it out in a run or market crash, even though it will work more perfectly, for that reason I’m out”
Worse than a shark tank episode