Is it really that hard to defend a peg? As long as you don’t spend the money people give you, you’ll have 1:1 dollars to stable coin. Then you can earn interest on the dollars.
All of these stablecoins may have started legitimate, but realized that nobody could tell the difference between backed coins and unbacked coins. So they kept creating unbacked coins and had enough capital floating around daily to cover the required daily maintenance of the peg.
It all works swimmingly until the music stops, then you cash out your billion bitcoin wallet and disappear to a tropical island somewhere.
"These uncollateralized digital assets, which attempt to peg the price of a reference asset using financial engineering, algorithms, and market incentives, are not stable at all but exist in a state of perpetual vulnerability"
http://www.wakeforestlawreview.com/2021/10/built-to-fail-the...
Yes, cause the government is so much better at this stuff.
Yeah, this is somewhat hard to do, especially if you want...
> Then you can earn interest on the dollars.
to be true for a meaningful amount of money.
This also assumes that you originally had the dollars to back the stable coin in the first place, which is a somewhat dubious assertion for many purported stable coins.
My impression is that many pegs don't work this way, but to the extent one did I kind of don't see how it could fail?
As you described, theyre incentivized to properly hold and maintain the reserve assets because A) They are exposed and liable to US laws (Coinbase is a public US company) B) They reap the benefits of having a native stable coin for the users on their respective platform.
The lure of fractional reserve banking is strong. Crypto ideologues don't seem to get this because they think crypto is immune from the same forces that create monetary inflation. Just because it's not fiat, doesn't mean that economic actors don't have an an incentive to take profit any which way they can.
Can you really, while maintaining liquidity and taking low risks?
These two conditions are important, because if you buy risky assets, then you can end-up below 1:1 when markets decline, and if you hold illiquid assets, then it doesn't really matters that you have the asset at all, as you cannot defend the peg with illiquid assets.