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
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.
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.
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.
I stay away from Tether completely as it has a shaky past and unknown ties with China and exchanges.
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.
Full disclosure: I did not find BlockFi's brief descriptions of their risk management strategies to be comforting.
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!
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...
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.
“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.
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.
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.
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.
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.
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."