> Stable Coins will be bank notes
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)
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)
I agree with you, broadly, though I have to comically point out that Tether was absolutely also originating loans.
A decentralized derivatives protocol can lend its credit balance (and fractions of its stablecoin balance, if it exists at all at the point when a position is opened) to a decentralized liquidity pool when there is demand by end users to open a position (ex. a user can deposit frax to buy options/forwards/interest rate swaps/etc against a liquidity pool while the exchange allows the pool to borrow collateral into existence [and destroyed when the users position is closed, modulo the type of derivative the user bought]) without the liquidity pool providing all or any the collateral to back the position if it ends up moving against the liquidity pools exposure.
Such a protocol can also issue debt against their stablecoin flows in accordance the protocol code, that can also float on a dex at a premium or a discount and also be used as collateral in other decentralized stable coins that allow for differing collateral underlying (like some decentralized credit/debt backed stablecoins out there now, or allow themselves to be collateralized by any combination of ERC20 underlying).
New units of stablecoins are being created out of thin air, but the catch is that they can only be used on the exchange (technically, it could be spent else where if other contracts wanted to use it), and if there is a shortage of actual stablecoins when someone tries to withdraw their credit balance, they will receive debt tokens that are redeemable from the exchange for stablecoins at an interest (collateral requirements will be raised for all actors if credit balance > stablecoin balance, and lowered when the opposite is the case).
> What do you mean by 'borrow collateral into existence'?
In this case, in order for the credit balance for an address to increase typically, a user will need to deposit stablecoins into the exchange and their credit balance gets incremented by the same amount (their credit balance is used to buy derivatives).
However, in the case where a liquidity pool is borrowing from the exchange, the credit balance is increased for the liquidity pool without stablecoins being deposited by the pool (typically a pool will need to have stablecoins deposited into it by liquidity providers in order for the credit balance of the pool to increase, the credit balance of the pool is used as collateral write/buy derivatives).