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Yeah agree, at least in the case of a crypto which is literally just $ in -> coin out, no caveats, hold the $ and do nothing with it till withdrawal.

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?

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It could only fail in the cryptocurrency sense, in that, you're going to be offering less than 2% gains (as in, whatever you can get for a long-term bulk deposit minus operating expenses) when your competitors are offering 20%. This means, for you, no Lambo.

yeah my assumption is you would need to be a platform like coinbase or something where the added convenience for people trading on your platform was the benefit you got from it and it just not costing much was sufficient

This is exactly why Coinbase does have its own asset back reserve stable coin called USDC. Well, to be specific, its a consortium of companies to which Coinbase is on of.

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.

Negative rates could make it fail.

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