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Comment by unyttigfjelltol | Hacker News Reader

Always and everywhere banking has faced precisely this problem, which is the original reason for bank regulation and deposit insurance-type backup.

If you encounter an unregulated or irregular market participant doing anything that looks like banking, buyer beware-- on average, over time, you're not getting your money back.

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I feel like cryptocurrency markets and investors are painfully “re-learning” the lessons of a hundred years ago.

It seems that reinventing finance works out about the same a rewriting a big software project. You think you'll get rid of a lot of nasty code, but then you realize all that ugliness was there for a reason and you're just rediscovering all the edge cases again the hard way.

But in doing so, you bring that latent knowledge back into the minds of living people who can rethink the solutions in the face of the modern ecosystem and clean out the cruft that truly has no modern purpose.

Do you think no one in finance has thought about financial regulations until crypto came around? I can assure you there were (and are!) many people paid quite a lot of money to “rethink the solutions in the face of the modern regulatory ecosystem and clean out the cruft that truly has no modern purpose”. One of the reasons securities regulations are “expensive” to comply with is because they’re constantly changing. Why are they constantly changing? Because we’re rethinking how, when, and whether the various regulations ought to be implemented.

The regulations implementing Federal securities laws are perhaps the most nimble, iterative, and “listen to your users” driven regulations in the US.

Certainly no one in finance ever thought about programmatic regulation of a currency. But your comment is of the type that has the premise "everything that could ever be thought of has been thought of before". Well obviously that isn't true. And it also isn't true that everything that has been thought of and not done is not doable.

Certainly? How certain are you of this?

I am not so certain.

I don't think that, no. Still, different people with different toolboxes will come up with different solutions.

Except that now its even worse, because we are throwing a whole lot of electricity and advanced manufactured goods (computer chips) into it, which currently has large negative impacts on the rest of civilization.

This is an interesting point, what does it mean when it is gray?

Comments get grayer as they are further downvoted.

I think the problem is that people think they are reinventing finance when the only thing that changed is the currency.

There exist algo stablecoins too though.

Highly underrated comment

"Extraordinary Popular Delusions and the Madness of Crowds" (1841) is still worth reading. You get to see the first versions of the classic large-scale scams. John Law's bank, the South Sea bubble, tulipomania. Scams go much further back, but mass-market scams had to wait for mass communications. Newspapers powered the first round of large-scale scams.

Most scams today are very similar to some classic scam mentioned in that book. There's not that much innovation.

Kids should be taught the classics in school - the short con, the long con, the big store, the pigeon drop, the badger game, the protection racket, the bait and switch, the Ponzi scheme... The list is not that long.

Personal finance should be a subject in schools, and scam awareness should be one of the topics covered. The long-term economic benefits would be huge.

At the most basic level, some entity is making statements about their financials (like “we have X in reserves”) and nobody can check this. If a liar can make financial statements and be believed, and nobody checks, they can do anything.

It’s odd that cryptocurrency was designed to work without trust and yet many people are so trusting.

This is why substantial organizations have 3rd party audits and reviews.

All of this stuff has known solutions, but people don't like what the solutions would show.

> At the most basic level, some entity is making statements about their financials (like “we have X in reserves”) and nobody can check this

This is not a problem unique to stablecoin providers. Every company with a large number of stakeholders (e.g. public companies, bond issuers, companies that manage assets on behalf of their clients, etc.) faces the same problem.

The traditional solution to this is to have a widely-trusted third party, like a big four CPA firm, examine the company's books and operations and provide an audit. It's still possible to defraud auditors (there used to be a "big five CPA firms" before Enron blew up and brought down Arthur Andersen, and more recently Wirecard made EY look pretty bad), but it's a lot harder than defrauding people who don't get a detailed look at your operations. The reason to go with a big four accounting firm is that the firm's reputation with the public is substantially more valuable than any particular client relationship.

> At the most basic level, some entity is making statements about their financials (like “we have X in reserves”) and nobody can check this.

USDC seems to be doing it just fine?

https://www.centre.io/usdc-transparency

> Top five accounting services firm Grant Thornton LLP issues attestations each month on the US dollar reserves that back the USDC tokens in circulation.

Attestations, but I believe no true audits.

USDC does seem better, but the last attestation is from April and there are reports that they've been running late a while [1]. That's not as bad as the competition but still seems very bad, given that stability is what they do? Especially since they haven't explained what happened as far as I can tell.

On the other hand, it looks like USDC's market cap doubled in less than two months, so I guess that's good for them?

[1] https://news.bitcoin.com/usdc-attestations-run-late-raising-...

Yup. If one can make money now by pushing off problems for the future, oversight is vital. Otherwise we guarantee problems in the future. Banks are a great example. As are investment companies; Ponzi schemes are one easy way for those to go wrong.

One non-governmental way to do that is audits. Which is why Tether's lack of serious audits is so concerning. They claimed to be cash-backed for a long time but wouldn't prove it. Once the NYAG force them to open up, it's clear they were lying.

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