Report on Stablecoins [pdf]
home.treasury.gov
home.treasury.gov
Can Tether survive a net outflow? Probably not. They don't have the collateral.
Dai is really a derivative of Etherium. Dai is backed by Etherium at 150%. So value in Dai is at risk if the price of Etherium drops more than 1/3. Etherium dropped by half back in May 2021, but recovered. DAI could have crashed at that time if it faced a net outflow. It didn't, though.
The real question is what happens in the next recession.
Luckily for Paolo & friends, their terms of service clearly state that they do not ever have to offer redemptions of USDT for dollars. Or even whatever IOUs and bits of string they may or may not have in reserve.
Out of all the stable coins its the most likely to withstand a "run" because they do not have to pay you if you ask. In fact if you're a US person, you're not eligible at all. If you're not a US person, it's at their discretion to deem you a "customer." Even if they do that, they can delay your withdrawal arbitrarily. Even if they don't do that, they can pay you out with whatever is actually in their backing. [1]
What would get destroyed in a run is every other crypto, as folks desperately try and exchange their USDT for something they can sell at a fiat-backed exchange. The Crypto-USDT pairs will quickly go no-bid, and as people rush for the narrow exits at fiat exchanges, prices will plummet.
[1] tether.to/legal
That same thing will happen if crypto has a major run. The exchanges already conveniently "go down" when Bitcoin dumps even now. Every single time, it's become a running joke. If we had a serious Tether blow-up or BTC move that would rock the boat, everything would get locked down and you'd have no way to buy back your Tether short for pennies on the dollar. When tril/billions are on the line, ain't no way you're getting your millions, especially in this unregulated wild west.
To this point specifically: is there any proof this is malicious? Amazon, Facebook, Google have all had outages before; shouldn't we apply Hanlon's Razor when a cryptocurrency exchange fails to serve requests during a massive traffic spike?
Like, this happens with currencies that are pegged to the dollar. The government that's supposed to be maintaining the peg starts to run out of dollars and starts limiting dollar redemptions. People turn to the black market to obtain dollars. The price of a dollar (in that currency) goes up. The value of the currency (again in dollars) drops. Now the peg is broken.
Tether the company could walk into the sunset with whatever they're holding- they can just honor "friends and family" withdrawals, but that doesn't prevent the coin going to zero for everyone else. It actually makes it even worse for the currency: suppose it's collateralized at 50%. Tether could honor withdrawals at 50 cents on the dollar, force every holder to take a 50% haircut. The price might settle to something less than $1 but more than $0 and continue on.
But if they abscond with the money instead, the currency will have even more reason to drop to nil.
Individuals will be told they're not customers by Tether (this happened on Twitter a while back, someone set out to prove you could and Tether stonewalled them, so he deleted his account). They're offered a piddly USDT:USD market pair on a few exchanges, like Coinbase and Kraken, as a distraction. There, they can sell their USDT to folks trying to buy it (for instance, to fund a DeFi position) or the exchange obo Tether, Inc. to keep the charade going.
Only institutional parties like exchanges, Alameda and Cumberland are "deemed customers" and they'll never redeem because they know they can't.
Everyone's in on this. I think only a court-ordered exchange liquidation could possibly end the game, like a Binance collapse for instance.
Being unable to redeem your USDT for dollars - regardless of reason (because Tether is out of money or Tether is refusing) - is what causes the run and the crash.
An entity that is holding a bunch of cash but refusing to honor IOUs it has issued will find that the value of those IOUs will rapidly approach zero. Permanently. Even if it laters starts honoring those IOUs, the IOUs have lost their utility forever and the price will remain at/near zero.
History has shown that this does not happen in crypto. Even for coins like Bitconnect and Confido that plainly turned out to be scams, there were still buyers long after the news was revealed. People like to bet on dead cat bounces, or some kind of news after the fact that redeems the coin.
I think what you mean is the Crypto-USDT pairs will go no offer (i.e. no USDT bid) as people turn to dump crypto against a fiat leg.
When you start using something like BTC as your unit of account and stop measuring your net worth with a shrinking fiat yardstick you'll realise this.
Fiat onramps will become less and less necessary. We'll hold everything in crypto and buy a bit of fiat from time to time when some backward merchant or hyperinflated backwater country requires it...
In contrast, imagine investing in, say, a new fast-food franchise joint. They money you put in there is used to acquire assets that are used to produce goods that people will pay to consume. If it's a well-run business, the value of the outputs will be more than the value of the inputs, making it a positive-sum effort.
When you own a share of Square (or Visa, or PayPal) each time a transaction takes place on their network, a portion of that transaction (revenue minus costs) accrues to the company - and by extension increases the intrinsic value of your share. The transaction revenue is spent on furniture, on R&D, on employees and on buffing up their cash position. As a shareholder, you benefit from every single transaction made on their network.
On the other hand with cryptocurrencies like Bitcoin, as a holder of Bitcoin you are a customer not an owner. You lose money on every transaction. That value accrues to miners, and by extension, your local PE firm re-opening a fossil fuel power plant or the Kazakh coal mining complex.
Square shares ~= Hut8 shares.
Bitcoin ~= a Starbucks gift card you hope appreciates in value when Starbucks sells more coffee. Currently there are enough, uh, savvy investors who think it should, so it does. In accounting terms, it won't though because that benefit accrues to shareholders of mining companies, which you are not. You hold a gift card. One that costs money to spend so must be worth less than face value.
Bitcoin is a strongly negative sum MLM, or if you agree with jstolfi, a Ponzi scheme with a fresh coat of paint. [1] The network currently costs $60M per day to operate. That's $21B per year in new money that has to come in to prop up the price. [edit](And all that money goes to burning coal and throwing away mining hardware).
[1] https://www.ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin...
There is no societal benefit to buying, holding, selling a crypto currency.
The thing that could provide societal value is smart contracts - but that has nothing to do with crypto. Visa (or Stripe) could implement smart contracts in javascript on top of their platform and society gets pretty much all of the benefits without needing any of the crypto.
Money transfer services do convey money from one person to another, and along the way they may provide additional services. But the focus there is on the service provided. I don't just put money into my American Express card in hopes that I somehow get more money back later; their job is to give money to merchants I patronize while protecting us both from certain problems and risks.
What I'm talking to is more along the lines of poker games and Ponzi schemes, both of which "just move money around" in the sense that no more money comes out than goes in, even though certain individuals may do better than others.
Buying a cryptocurrency as an "investment" is much more like the latter than the former.
People make the fundamental mistake thinking these things are investments, they aren't, it's just currency or forex speculation that we are doing here.
This is one of the things I find hilarious about cryptocurrency discussions. When I point out it isn't a good asset, people argue it's really a currency. When I point out it's a bad currency, people argue it's an asset. I'd love it if you all could get together and agree on what it's supposed to be good for and just leave the rest of us out of it.
But addressing your point directly, it's bad as a currency. It was launched in 2009 as e-cash, and for a while people argued it was going to be a great medium of exchange. Now, more than a decade later, Bitcoin is doing what, 100m transactions per year? Most of which are not real economic transactions for goods and services. Venmo, which started around the same time, does over 2 billion. M-Pesa, a "digital money" solution the same age does 15 billion. US credit transactions? 45 billion. Debit? 75 billion per year. And unlike Bitcoin, most of those are what people would call real transactions. Bitcoin's real use as a currency/payment system is a rounding error.
Anyhow, as others point out, actual major currencies are backed by very sophisticated organizations dedicated to maintaining the value of those currencies. Which are in turned supervised by national governments, most of which are democratically elected.
For Bitcoin, at best you have a set of shadowy organizations manipulating the market to their own advantage. E.g., reasonable people suspect that Tether is behind quite a bit of Bitcoin price appreciation. They have been proven to be liars about what they're doing and how much money they have. This is great for creating hype and volatility, but it's very much not what you want in an actual currency.
Is a decentralized, public ledger not a good people will pay (via cryptocurrency) to consume?
I'm no Crypto fan, but this is wrong.
Plenty of new coins get minted which are redeemed for real money. This is basically the credit creation cycle[1] as seen in traditional banking (where banks create money by lending the same deposit out multiple times simultaneously) except in this case there is often no equivalent of a deposit (except sort-of staking in some cases).
[1] https://www.economicsnetwork.ac.uk/archive/starkey_banking
Let us imagine instead that you want to invest in Burger King. You buy some shares in Restaurant Brands International (QSR). When you own those shares, what does that actually mean - how is that connected to the purchase of burgers?
I think share ownership is often a better metaphor for many cryptocurrencies than fiat currency. Especially when considering shares like Tesla, Hertz, or GameStop.
Where does the value of a share come from? Can a company steal all your money? What actually records your share ownership? How are profits calculated, and how do you get them?
But if you buy a Bitcoin, you own no productive asset and therefore are entitled to no profits. At one point the theory was you could trade it for something useful, like other currencies. But it's a pretty bad currency, so people mostly have stopped pretending it is useful for that.
There are answers to the rest of your questions, which are complicated and depend on exchange and jurisdiction, but people can look up the details if they want.
I mean, just think about how hard the Enron execs had to work to defraud their investors! They had to come up with a novel scheme to hide losses, collude with their accountants to avoid detection, and some of them even had to spend some time in prison. Yesterday, I read about an NFT scam where the anonymous developer just transferred funds to his personal wallet and then disappeared.
Even a small cash out will cut the value to pieces.
Sure: securities can go up, or down, in price almost arbitrarily. But they largely can't go below zero (aka: bankruptcy law protects against that), and they can't really go below the expected profits of the company (because shareholders are entitled to those profits. Worst-comes-to-worst, the shareholders can demand dividends and cash out through those means)
A lot of companies are 20x or 30x, or more of their expected profits (representing maybe 20 years of profits is roughly the fair price for a typical company's stock price). There are exceptions, especially in growth stage companies (where "profits" is now "expected profits" of the far future: the shareholders believe the company is onto a good idea and are willing to pay more on the hopes that the company becomes very large in the future).
Tether is a real risk, I agree.
> Everything real has been exfiltrated through electricity bills, taxes and early adopters selling, the entire crypto economy is a hollow shell, leveraged on retail deposits.
Yeah, but that's not untrue for banks. Conceptually, a bank's job is to store money for depositors. That has a real cost, so theoretically you should have to pay for banking service. We know that banks make that money back from lending the money with interest (profiting off interest). This lending behavior is theoretically possible for individuals to do while skipping banks, but it is not practical at scale. So, basically depositors "pay" with opportunity cost - and since the world fiat currencies have inflation, this is essentially paying the devalued difference of money.
Crypto is similar... it costs real money to maintain the deposits - aka POW to secure the ledger. Instead of lenders' interest paying the cost, it is paid by deflation by depositor by more currency being circulated. Not too different than fiat-at-banks.
Crypto also is potentially more egalitarian since anyone can mine (at a small scale at least) to potentially make some small income, and certain complex financial actions can be done for "free-ish" in contracts (conditional swaps/lending, escrow, multi-sig transactions).
DAI didn't collapse because the drop in Ethereum value wasn't sudden. As the price falls, bots are allowed to liquidate your debt and keep the overall collateral ratio healthy.
So, a conservatively managed Maker CDP's regularly are collateralized to the tune of 300% if not more.
It'll have to collapse on exchanges with more sellers than buyers, and to determine how that happens you need to actually understand what specific mechanism underlies how the peg is maintained.
I suspect Tether is all crypto-backed debt issuance which is denominated in real $USD which gives the counterparty incentive to maintain the peg on exchanges.
It'll likely fall apart when crypto falls apart and exchanges have already failed and those counterparties have already gone broke. Tether imploding will probably come after crypto is in the middle of a collapse and be more of a symptom and an accelerant. I doubt that Tether detonating will be the first sign of trouble.
I think it's worth distinguishing here between Tether the company and Tether the coin. Tether the company isn't automatically destroyed by a net outflow for the reasons you mention, but if they are indeed not fully backed, a net outflow could certainly break the peg and kill the coin as we know it.
Assuming a power distribution of coins across accounts, it's likely that 99% of tether accounts don't meet the 100,000 $USDT threshold to cash out. If you have a coin, where 99% of people/accounts aren't allowed to cash out that reeks of scam.
You can come up with tons of smoke to disguise it, and the whole "well you have to sell on another exchange, but prices there will be propped up due to 'arbitrage'" disguises and delays things nicely. But fundamentally it is propped up because people can't get out directly. There is no fair price discovery right now on Tether w.r.t. USD.
And yes, the fact you can't cash out directly shows that it is a scam, yet counterparties are willing to continue to do business with them. That again suggests that the mechanism isn't that simplistic.
And I don't doubt that Tether will collapse very quickly, but I don't think Tether is the det cord that sets off the collapse. Tether is the ricketty-ass foundation that causes the entire building to slide over and take out multiple downtown city blocks of collateral damage. The det cord is going to simply be a bubble followed by a panic collapse in the price. The blasting charges that then go off will be a bunch of major exchanges and counterparties to Tether going under. Then Tether implodes as a mechanism for the contagion to spread and wipe out pretty much everyone else.
If DAI price ever loses peg and goes to eg 0.90 anyone with open positions immediately starts buying a shitton of them and closing their position, because they just got a 10% discount on paying off their debt, sending the peg back.
If the price ever goes to 1.10, anyone with free capital around immediately starts minting new coins and floods the market with them, because they just got an instant 10% bump on the size of minted capital, sending the peg back.
If it starts falling to $.99 then $.98 then $.95 then $.90.. you have to decide if it’s really a dip or the end.
Well, there was a recession just last year and the stock market / BTC market went crazy.
The real question is what happens in the next market downturn (specifically the cryptocoin market downturn, since these "stablecoins" look like they're "stable" only because of assumptions underlying the cryptocoin markets). The cryptocoin markets don't necessarily match up with the general economy.
Ultimately this is because central banks are in the driver's seat for asset prices these days. It's been trending that way since the Greenspan Put in the 90's. The economic fundamentals matter, but not as much as the monetary policy backdrop; after all, if there's more cash chasing the same number of shares, it can't help but drive up stock prices. Similarly, low borrowing rates reduce the equity risk premium, drive up growth valuations, etc.
So really, the real test for crypto is when the monetary policy regime shifts. But to be honest with you, I don't see that happening. Maybe inflation finally forces the issue -- but then there's the fact that inflation will drive flight to alternative assets anyway.
Probably because the govt/Fed is printing more money.
It's happened a few times before and they're fine
>Dai is a stablecoin cryptocurrency which aims to keep its value as close to one United States dollar (USD) as possible through an automated system of smart contracts on the Ethereum blockchain. [...] Dai is created from an overcollateralized loan[.]
https://support.gemini.com/hc/en-us/articles/360056367771-Ar...
I.e. if someone mints 100 dai with 150 worth of ETH and the price of ETH drops then anyone can acquire dai and use that dai to access the collateral.
Through that mechanism the supply of dai should contract not the spot price. The bigger worry is that they allow minting Dai from USDC which could freeze their assets
The reality is that crypto is not essential—it’s convenient and has potential but it’s value is backed by what? Other financial assets are backed by stuff like voting rights in a company or a physical asset.
Hence: people will dump crypto first.
I suppose Ethereum is different because it is backed by the functionality provided by the distributed Turing machine and all applications which rely on that. So the folks who wouldn’t pull their money out would be product owners who rely on the blockchain as a revenue stream.
My question would be who holds the price up high? Institutions or the broader public holdings of ETH?
Oxygen, heat, water, food. In that order. At least crypto is 'backed' by math. I expect the currency to dump will be related to who, and not what, is backing each asset class.
IMO, the basket is too heavily weighted towards centralized stablecoins like USDC. I rotated some of my MKR holdings to Terra/Luna, which may have a better peg mechanism (although it is similar to Titan, which exploded).
Me too!
Djed doesn't seem to be vulnerable to the former. (Reserve coin holders transparently give up liquidity for their yield. Though, as the paper admits, reserve coin holders are subject to run mechanics.) It would be to the latter.
Still, fascinating stuff.
I worry there target release date of 2042 seems extremely aggressive for them based on past performance and some of there research might not be relevant by the time it comes out.
A massive inflow of capital to crypto, bitcoin in particular.
They may have their own issues, but the certainly don't have Iron's
Many so-called "gold bugs" and "Austrian School economists" predicted the transition to a non-convertible dollar would surely lead to monetary and economic disaster... but so far, they've been wrong: Things have actually worked remarkably well for half a century.
Could Bitfinex pull off something like that? I'm not sure, but I wouldn't rule it out 100%.
[a] https://www.federalreservehistory.org/essays/gold-convertibi...
I kind of preferred the algorithmix approach !
What you want is a thick equity cushion.
Dai is now backed by a lot more tokens than just Ether, and 150% is really the minimum to avoid liquidation (145% now).
OP doesn't realize that DAI has sailed through falls in ETH value of far more than 50% (I think the worst was over 90% in 2018)
OP, despite his obvious great intelligence, doesn't realize that another, stronger question about DAI would be the potentially-worrying linkage to USDC etc to provide stability (though critics should note that even before that stability module, PSM, was introduced it had never deviated by more than 1%, AFAIK)
Seeing that this is, despite all those errors and omissions, the top comment here, is extremely dispiriting
> To address concerns about payment system risk, in addition to the requirements for stablecoin issuers, legislation should require custodial wallet providers4 to be subject to appropriate federal oversight. Congress should also provide the federal supervisor of a stablecoin issuer with the authority to require any entity that performs activities that are critical to the functioning of the stablecoin arrangement to meet appropriate risk-management standards.
> To address additional concerns about systemic risk and concentration of economic power, legislation should require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities. Supervisors should have authority to implement standards to promote interoperability among stablecoins. In addition, Congress may wish to consider other standards for custodial wallet providers, such as limits on affiliation with commercial entities or on use of users’ transaction data.
AKA StableCoin operators should be banks. (Stable Coins will be bank notes)?
https://en.wikipedia.org/wiki/Wildcat_banking
Spoiler alert: there's a reason we had 150 years without wildcat banks.
What do you call an institution that takes deposits and lends them out, such as by buying ""commercial paper"" that Tether repeatedly talks about? A bank. (Or possibly a money market fund)
> Stable Coins will be bank notes.
Exactly.
Overall I get the sense that the government is still people/organization centric and cannot wrap its head around a future where reality is determined by computer code and people are bit players in the script.
"""Stablecoins that are purportedly convertible for an underlying fiat currency are distinct from a smaller subset of stablecoin arrangements that use other means to attempt to stabilize the price of the instrument (sometimes referred to as “synthetic” or “algorithmic” stablecoins) or are convertible for other assets. Because of their more widespread adoption, this discussion focuses on stablecoins that are convertible for fiat currency."""
I'm sure that the distinction will be lost on whatever press cycle or legislative output this report generates.
IMO, a lot of ambiguous laws and polices create different outcomes for similar inputs, and that should not be the case of legal systems and institutions. Money is perhaps the first of the government aspects to be easier to express in decentralized code, but I won't be surprised to see this as only the beginning of a trend. Think autonomous cars replacing drivers and other interesting similar developments.
I get that it's pretty natural that people would consider it a bad thing for people to hand over power to computer code. It makes perfect sense if you consider yourself not as a person but as a collection of electrical impulses floating around in your brain, though. Computers are the same thing, they just transmit those electrical impulses millions of times faster.
Uh, no? Computers aren't people.
One is that they broke down stablecoins into the following activities:
* Governance
* Management of Reserve Assets
* Custody of Reserve Assets
* Settlement
* Distribution
Just because one, more, or all of those functions are managed by smart contracts does not mean that the others cannot be regulated. Regulation may be the requirement to have regular contract audits for example and, in the case of Dai, the Maker Foundation would be responsible for adhering to those regulations.
Second, I don't think the writers of this paper perceive nearly as large of a risk from algorithmic stablecoins as they do institutions which claim to maintain asset backing in the normal financial system. The former have the transparency of the chain as a backing, and that transparency makes the currency peg safer. The latter have no transparency and regularly seek to obscure, which makes them extremely dangerous as they grow in scope.
DAI has a market cap of ~$6.5b and the transactions happen on chain. USDT has a market cap of ~$70.3b and has 0 transparency. It is clear where regulation should be focused.
Its not fiat-stable, which is probably their focus. fiat-stable coins are basically crypto bank notes:
https://en.wikipedia.org/wiki/Banknote
Also,
> a future where reality is determined by computer code and people are but players in the script.
Corporations are "things" in a legal sense - but they're still managed by people, created by people and owned by people. DEFI contracts and orgs are still made by people, and sometimes also managed by people. You can probably be held liable and tied to your misbehaving contract.
If you just publish it github - thats probably a good defense (linux T isn't to blame for all bad things that ran on linux).
If you publish a smart contract in a way that enables people to start using it, then that may not be covered. While its different than actively running an API/Service that needs continuous/paid hosting, its probably a grey area at best.
Conversely, people in government tend to view crypto folks as senselessly computer-centric and unable to view macroeconomics as the result of human interaction.
There is no such thing as value without exchange. That's a definitional thing. Coins themselves are just numbers.
The internet and computers, despite being very complicated tools, are still just made by humans to serve humans.
I suggest you ask yourself which humans want the outcome you described and why.
As opposed to a reality determined by physics? Perhaps you're referencing AI overlords? I suggest that you may not understand the purpose of states. Even algorithms are the expressions of people.
Perhaps you can explain what you meant in a way that I'll more easily understand?
When you put it like that, it does sound a bit creepy.
So for what grandparent poster was referring to, stablecoins collateralized by digital assets, all the collateral is provided by users and all the stablecoins issued were caused by users providing collateral. Those users clearly do not run the autonomous program, no different than a depositor at a bank is not responsible for the bank when they ask for a loan from the bank. There is nobody to sanction, and there is no way to disable the autonomous program that accepts collateral and issues collateralized stablecoin loans.
Also, within EVMs (a type of development platform, growing category of blockchains), the users do not have a record of an IP address (although the node they connect to can record it, to mitigate that the user can run a relaying node from their personal computer. relaying nodes forward to validating nodes. no nodes in an EVM have knowledge of other nodes IP address and no nodes are even aware of which node saw a transaction first). And regarding the tracing of their onchain address, a user can provide collateral from a virgin address funded by other autonomous programs like Tornado which sufficiently mix funds. The programs and the regulators are not capable of factoring in our opinion about that.
"Stablecoins that are purportedly convertible for an underlying fiat currency are distinct from a smaller subset of stablecoin arrangements that use other means to attempt to stabilize the price of the instrument (sometimes referred to as “synthetic” or “algorithmic” stablecoins) or are convertible for other assets. Because of their more widespread adoption, this discussion focuses on stablecoins that are convertible for fiat currency."
So many of these threads are filled with comments of the form “well why do we actually need a blockchain for that? Can’t we just do the thing with centralized databases?”
But the point is after 50 years the centralized databases haven’t built those systems. Smart contracts, and instant finality transfers, and a public identity tied to private keys could all exist on ACH. Yet they only happened when blockchains came along.
Blockchains aren’t a technical innovation, they’re a sociological innovation. They remove the responsibility of a centralized administrator if shit hits the fan. Visa won’t allow smart contracts in its network, because it has too much to lose. In Ethereum if the DAO breaks there’s no one to sue. Result smart contracts exist in Ethereum but not Visa.
Same story holds true with the Internet. Do we really need a decentralized network designed to withstand a nuclear war? Surely a single telco network could just as easily serve up websites. Except it never did. The Internet won because it was permissionless and therefore innovation occurred much more rapidly.
I'd argue that they remove the liability of a centralized administrator but not necessarily the need for administration. This is why you see coins/tokens with some kind of voting scheme. Will be interesting to see if at some point in the future we see voting rights as presenting a liability.
This is a feature, not a bug.
Legal risk holds back a ton of innovation from taking over processes normally governed by nature, which we can't sue, to those governed by people and institutions, who we can sue. It prevents us from taking risk, even if we know we can probably solve the problem better than nature.
You can't sue a decentralized system, because there's no throat to choke.
For a stable coin to actually be worth $1, there has to always be someone ready to give me $1 for 1 stable coin. I see no guarantee of that over time for DAI. No different than other stable coins.
> Legislation should address the risks outlined in this report by establishing an appropriate federal prudential framework for payment stablecoin arrangements.29 In particular, with respect to stablecoin issuers, legislation should provide for supervision on a consolidated basis; prudential standards; and, potentially, access to appropriate components of the federal safety net. To accomplish these objectives, legislation should limit stablecoin issuance, and related activities of redemption and maintenance of reserve assets, to entities that are insured depository institutions.
> The standards to which these [insured depository] institutions are subject include capital and liquidity standards that are designed to address safety and soundness and, for the largest banking organizations, also include enhanced prudential standards that address financial stability concerns. Under the Federal Deposit Insurance Act, insured depository institutions also are subject to a special resolution regime that enables the orderly resolution of failed insured depository institutions by, among other mechanisms, protecting customers’ insured deposits, and according priority to deposit claims over those of general creditors, and limits any potential negative systemic impacts in the event of bank failure.
I suspect that we're going to very quickly (by legislative standards) find out which stablecoins are backed by real currency and which are "backed by real currency." I'm betting short-term there'll be some issues with liquidity, especially on smaller exchanges. But longer-term, having the gaps filled in by stabler stablecoins can't hurt.
Also there's a possibility that whatever coins decide to comply end up spending their reserves on humans-in-the-loop to ensure compliance, thereby giving an advantage to the noncompliant coins.
Something analogous to this happened where I'm from: We voted to legalize recreational cannabis, but most people still use the black market because regulatory burdens put the legal shops at too great of a disadvantage to be competitive.
Where the hell could it go if it gets an official stamp of approval by the US government?
The market is way more robust now, especially now that Ethereum is so huge and provides way cleaner alternatives like DAI and USDC.
In practice, non-algorithmic stablecoins like Tether have very little transparency. I hope in the long run the market will gravitate towards algorithmic stablecoins like DAI.
The only time I can ever see a cryptocurrency being worth it is if you do not have any central authority you can trust. If we ever get to the point where you can't trust the courts to somewhat reasonably protect your money, then I think we have worse problems. Especially since you wouldn't have any physical protection from the legal system.
Anonymity might seem redundant to you and other people who "have nothing to hide". However, in a slightly more dystopian reality -e.g. when we are forced to use CBDCs- the government might choose to block you from using your hard earned money because you posted a criticism of the president on twitter.
> has no insurance
What do you mean by that? Insurances are services not protocols
> no safeguard against volatility
That’s a weird thing to say in a thread about stablecoins
And after ten years, there isn't one actual application of cryptocurrencies except for speculation and crime.
I'd say this criticism was mostly fair up until about two years ago. Within the last two years, the actual applications have flourished.
For example, have a look through this list https://defipulse.com/
If you remain skeptical, that's fair. The good news is, Ethereum is reaching adulthood this year by switching to proof of stake and launching the web of layer-2 networks. Within another three years or so, the "actual applications" will become so ubiquitous as to be impossible to ignore.
Traditional financial institutions also more or less shuffle USD around. Crypto is that.
Remittances - https://en.m.wikipedia.org/wiki/Remittance
There is a vast market for efficient, fast, and affordable methods of transferring money/wealth across political boundaries. Blockchain/crypto seems to be filling that niche for many people, myself included, without "speculation and crime" being a factor. There is no "remittance app" for it because you can do it with your pick of various widely available crypto coins and exchanges.
Anyone else find it bizarre that the solution to slow payments might turn out to be distributed ledgers based on proof of work? It feels like the last thing you'd expect - especially since we're starting from a position of managing money through trusted centralised authorities. It's actually really weird we can't settle payments in seconds already.
You get that too with proof of stake. Bitcoin really only has the branding of being the first mover, and as such as a strong chance of remaining the digital gold (not a digital currency that’s fast and easy to transact)
Crypto continues to help nobody and achieve nothing in the real world. This administration has been criminally slow in shutting it down, lobby is strong.
You’re like a doomsday predictor that will never see a doomsday happen.
No real value? The AAVE crypto platform alone already holds more value ($23B) than the entire market cap of Ecuador’s stock market ($11B). The AAVE platform is literally more valuable than a country.
AAVE is just one of many applications built on the Ethereum network. It speaks nothing of Uniswap, Maker, Yearn, Balancer, USDC, Compound, and many others.
Bitcoin alone secures over 1 Trillion dollars.
The AAVE platform consists of individuals lending recently printed tokens to each other to buy other recently printed tokens in what is essentially a zero sum game with no connection to the real world unless they can convince outsiders to pay even more money for some of the tokens.
The fact the latter is notionally valued at higher than the former pretty much underlines the OP's point about the lack of "real value" underpinning the whole thing...
Casual "investors" sell their portfolios for hard cash when markets start crashing, which in turn induces others to sell. And if you're sufficiently leveraged, you're forced to sell - no mater how much belief you have in your investments.
Crypto posts on HN seem to be a hotbed for these sorts of hyperbolic, wholly unsubstantiated and objectively false comments. I wish i understood what the motivation was for these sorts of replies.
Cryptoclowns can't use the it's too early excuse anymore.
But they choose to listen to a handful of man children running around promising world peace via a distributed database.
It's kind of surprising how little progress has been made.
It is absolutely possible to use privacy-respecting low-fee tokens to purchase ebooks, purchase "no advertisement" article reads, or subscribe to periodicals.
Even something like Taler is better than Visa and Mastercard. I would love to know why lwn.net, ars, or the register don't try. I would absolutely pay $0.25-$2.00 per read for the ~50 articles I read per month on these websites.
Micropayments for tech readers seems like a good place to start. Tech readers use ad blockers, but are also willing to try new tools with janky UX.
Basically, people hate microtransactions. They hate the very idea of paying per article. They don't want to do it.
Ars, among many other sites, offers yearly subscriptions with various benefits (such as no ads) and that business model has worked well for them for many years.
[1] https://www.penny-arcade.com/comic/2001/06/22/magic-its-what...
Explains the constant bullshit you see on this forum whenever crypto is mentioned.
None of those actively today use/settle stablecoins publicly?
No but they settle financial transactions today, and the SEC is basically saying there should be no difference.
This report is from the Treasury. Not the SEC.
Also, the SEC doesn't regulate financial transactions. Just securities and exchanges. The SEC has argued that stablecoins are securities. That is an interesting argument, and I sort of see both sides of it, but somewhat unrelated to this paper.
Most people in the US in the space just use Coinbase and in practice use that just like any other bank.
Bitcoin was literally created due to bailouts. Just read the genesis block of Bitcoin.
https://www.forbes.com/sites/jasonbloomberg/2019/03/01/is-ri...
Interesting.
The blockchain is public, so they see benefit in being able to audit it.
Who would want tether if you can get government backed USD stable coins?
People who wanted to hold USD outside of the US's jurisdiction, for one. I suspect this is one reason that apparently “more legitimate” stablecoins haven't caused huge Tether outflows.
Tether could end all of their "FUD" if they ever published such a report.
Circle's reporting: https://www.circle.com/en/usdc#transparency (edited to change audits --> attestations)
I see Tether heading towards collapse, not legitimacy, and any actual increase in transparency would just hasten the collapse.
How does this interact with the concept of algorithmic stablecoins? Not every stablecoin is simply backed by deposits.
Relegated to a footnote (just like Jeffery Snider at Alhambra Partners talks a lot of the typical chatter by frbny et al wrt the (euro)dollar system gets relegated to footnotes and nick named the phenomena "footnote dollars") on page 4:
"Stablecoins that are purportedly convertible for an underlying fiat currency are distinct from a smaller subset of stablecoin arrangements that use other means to attempt to stabilize the price of the instrument (sometimes referred to as “synthetic” or “algorithmic” stablecoins) or are convertible for other assets. Because of their more widespread adoption, this discussion focuses on stablecoins that are convertible for fiat currency."
i.e we'll pretend that people cant swap dollar denominated non centralized corporate issued stablecoins for any kind of fiat at the floating rate of the denomination of the stablecoins underlying to the fiat in typical fx markets (also ignoring that higher amount of those other stable coins are being used in defi protocols relative to their supply than the centralized ones).
So of course, those like FEI, FRAX and others will get ignored.
(Only a real Sherlock Holmes could notice something this subtle. I eagerly await my upvotes!!)
I remember investing in Microsoft in the 90s and Apple when the iPhone came out and also telling lots people that I thought Windows 98 was really great and that the iPhone was a huge deal, but the primary reason I told people those things was not because of my investment in the stocks, rather I invested in the stocks because I thought those things were true.
Why hasn't the US government regulated all these coins out of existence? I feel like it's turning into a systemic risk to our economy given how much money is being turned towards them.
1) Anyone can send a stablecoin to anyone without any permission. People do it currently at a large scale. That is not acceptable to the governments because it takes a crucial element of control away from them.
2) Unlike bitcoin, all stable coins have a single point of failure - a bank account that holds funds can be frozen, a CEO of a company can be arrested.
That's why all centralized stable coins will be decommissioned sooner or later.
I'll leave it to you to decide whether this preferential treatment is better than the current lax regulation.
I don’t know how this crypto shit will ever end. It’s basically speculation that there will always be a greater fool to buy your coin. Zero fundamentals. Can this really go on forever? Or will there be an ultimate bag holder at some point?
However, I would love to see an explanation on how the treasury recommendation of regulating stablecoins as banks should apply to (what I see as beneficial) "algorithmic"/DAO stablecoins.
The treasury's continued omissions, ignoring the real elephant in the room Maker, will only confuse regulators instead of addressing the "hard problem" of Maker.
There are gorging differences between a centralized and "trusted" service like Tether and the algorithmic, automatic, decentralized, and trustless Maker.
This is a lot of handwaving and sure they can make Coinbase stop supporting USDT but that's not going to do it.
The money is already missing, it is only a question of when the market realizes it.
It's better the Tether market crash now than after it's grown even more. This will suck for the folks that lose money, but it was going to hurt at some point.
https://www.reddit.com/r/CryptoCurrency/comments/qjhv42/anch...
What if this guy is right? "They are not afraid that criminals will use it; they're afraid that all the rest of us will use it." - Andreas M. Antonopoulis
>I've been using Anchor + Mirror to get ~40% APY
>It's not as degen as the other Defi, but it's very low risk
This just screams scam to me.
Is this always technically true? Or are they sometimes just (inserting word) *purportedly* designed to do that?
It’s worse than the rail road trusts in the 20s
As well, very many countries of the world "peg" their currency to the USD.
From https://www.investopedia.com/terms/c/currency-peg.asp :
> Countries will experience a particular set of problems when a currency is pegged at an overly low exchange rate. On the one hand, domestic consumers will be deprived of the purchasing power to buy foreign goods. Suppose that the Chinese yuan is pegged too low against the U.S. dollar. Then, Chinese consumers will have to pay more for imported food and oil, lowering their consumption and standard of living. On the other hand, the U.S. farmers and Middle East oil producers who would have sold them more goods lose business. This situation naturally creates trade tensions between the country with an undervalued currency and the rest of the world.
> Another set of problems emerges when a currency is pegged at an overly high rate. A country may be unable to defend the peg over time. Since the government set the rate too high, domestic consumers will buy too many imports and consume more than they can produce. These chronic trade deficits will create downward pressure on the home currency, and the government will have to spend foreign exchange reserves to defend the peg. The government's reserves will eventually be exhausted, and the peg will collapse.
> When a currency peg collapses, the country that set the peg too high will suddenly find imports more expensive. That means inflation will rise, and the nation may also have difficulty paying its debts. The other country will find its exporters losing markets, and its investors losing money on foreign assets that are no longer worth as much in domestic currency.
https://en.wikipedia.org/wiki/List_of_countries_by_exchange_...
Is this the game:
(A USD / B USD) * X = (C LD / D LD)
Perhaps "All of the World’s Money and Markets in One Visualization" could be updated to indicate which of the depicted assets are stablecoins and which are derivatives? https://www.visualcapitalist.com/all-of-the-worlds-money-and...
Are there some historical examples of centralized economic planning resulting in currency devaluation and subsequent directly resultant unrest?
Edit: Love the immediate fear downvote. No one wants to hear their gold is really just shiny dirt.
If you'd please review https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here, we'd appreciate it.
We detached this subthread from https://news.ycombinator.com/item?id=29072552.
(p.s. This is just about comment quality and HN guidelines - not any position on the underlying topic)
You are free to express your opinion though, but please mark it as such and make at least a small effort to explain how you reached it as otherwise your post is not adding value to the conversation.
In the beginning, buyers buy into a ponzi scheme because of a story that the creators are telling about their scheme. As time goes on, people buy in because the early investors are making a ton of money, as the value of the asset begins to skyrocket. Later on, people buy in because of previous hype, even though returns are actually beginning to level off, people don't notice. In the end, returns start to go negative, and the asset plummets, because nobody else has any reason to buy the asset anymore.
With bitcoin the theory goes: In the beginning, buyers buy into bitcoin because of the vision and idea of a decentralized currency made by an anonymous hacker on the internet. As time goes on, people buy in because the early investors are making a ton of money, as the value of the asset begins to skyrocket. Later on, people buy in because of previous hype, even though returns are actually beginning to level off. In the end, however, due to the properties of the currency, and its penetration throughout the population, people continue to buy even though there is little profit to be made anymore. It has been shown to be a better long term store of value than fiat currency, but with similar liquidity, unlike other assets with higher returns such as bonds and real estate. It can be easily transferred around the globe and is highly divisible, making it useful for payments large and small, avoiding complex VISA networks and regulatory red tape. Due to its enforced scarcity, it isn't possible to create any more of it, and so it maintains its high price rather than simply being overproduced back down to a lower valuation.
Out of curiosity, what would it take to change your mind on this? Is there not even a single dollar of real value in the crypto world?
Of course this is a trivial problem to solve with smart contracts, if you can have things like real-life identity and real-life money mapped to them.
While I don't think any of the crypto stuff out there today solves any of these problems realistically, at least Ethereum sure looks like an experiment in that direction.
That a lot of people are getting rich speculating on crypto absolutely triggers my FOMO, and sometimes my disdain (cf. certain NFT sales) -- but I definitely wouldn't call it worthless.
Some day we may have free, secure, trustless escrow via smart contracts, and a bunch of other neat stuff. I think that's unlikely to be on any of the current networks, but I also think we'll get it decades earlier because of them.
And the fact that millions of people are willing to pay 60000 USD for one of these coins proves that they aren't really "worthless".
Is the dollar worthless because you can't use it to buy the same things you could buy in 1995 with the same amount?
That social credit, and money, and everything we hold dear and true is just narrative we've crafted around ourselves to cope with the uncaring void that is the cosmos.
So -- my guess -- people are probably going to keep thinking that things are valuable so long as everyone else around them does. And technically everything can be reduced to nothing more than a set worthless human brain farts.
Edit: except for your values of course. Whoever you are, your values are certainly meaningful, and your life is a story that really matters.
More importantly: we _HAVE_ to understand the market dynamics here. What's going on is very human and very important to realize.
Matt Levine from Bloomberg has a very simple explanation: the cryptocoin world has discovered "senior debt vs junior debt", and are using this concept to create stablecoins.
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The issue is, the rest of the world _REMEMBERS_ 2008, and what happened the last time we relied upon the senior/junior debt split. The concept is simple:
Junior debt is high-risk. Senior debt is low-risk. Through the use of structuring your economy around this concept, your junior debt "supports" senior debt.
A stable-coin, is simply the senior-debt on some other cryptocoin.
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Lets take BTC for example. Lets say I want to "create" a stablecoin out of BTC, despite its widely varying valuation. Lets say I set up a senior set of notes: it stays at $1 as long as BTC stays above $10,000.
But what about all the "risky part" ? Well, someone out there in the world wants to bet it all on the risky part. When BTC rises from $10,000 to $50,000, they want to make $40,000 with $0 investment. Because the "senior" guy already took the risks for $10,000 and below, I can now offer the "rest of the gains" to the junior guy, who can play with all the values of BTC above $10,000 (except, without having to pay any money in the first place).
When BTC goes up to $20,000, the junior guy spent $0 and made $10,000. Senior guy still has $10,000.
When BTC goes up to $50,000, junior guy now has $40,000 and senior guy has $10,000.
This sounds hypothetical, but its in fact very similar to how the stablecoin TITAN / IRON was structured, with Titan as the "senior" stablecoin and Iron as the junior.
Now just wrap it all up in a smart contract, maybe tie the concept to Ethereum (or whatever other cryptocoin suits your fancy), and you too can reinvent senior/junior debt structures and pretend you're a genius.
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You see? Senior is "just" the stablecoin guy. Junior is the WSB idiot who might lose all of his money.
Or in other terms: your CDO of CDOs is truly and 100% secure. You may have a pile of shit, but you can extract stable values out of it.
Or at least, so went the theory of 2008 housing crisis, CDOs, and CDSes and all that. We know where that went however.
It hasn't even been 13 years and everyone's forgotten about the underlying assumptions that broke the market in the 00s.
Do you have any hands on experience with crypto ?
Can't say we didn't see this coming.
This is good for crypto as it opens the doors for mainstream and institutional adoption at higher levels.
Plus, stable coins should be regulated and audited. Looking at you tether.
However the sole existence of stablecoins and crypto is due to the fact that legacy, corrupt financial institutions and irresponsible government fiscal policies present the biggest risk to people wellbeing.
So all these "risk" talks is a prerequisite for more taxes and more regulations that will only accelerate the natural evolution away from outdated, corrupt, centralized legacy institutions.