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Comment by unyttigfjelltol | Hacker News Reader

No, pegs are nonsense. If you want something USD-denominated, buy USD. The cardinal sin committed was pegging in the first place, which always was doomed to failure because the scale of the effort would attract either a bank run or raid, guarantied.

Let's say you're a hedge fund looking for a one-way bet that will profit massively in a crypto crash (that stablecoins can't survive) and has no downside except carrying costs. Enter Tether, Terra, etc. Risk of loss at initial sale of 1, very low because tokens will not increase in value to 1.5 or 2. Profit potential? 100%. Everyone with a dash of creativity and a fund probably already is short these coins and has been for some time. "The Big Short" of 2022.

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There are only two ways to hold USD: physical cash and database entries at the Fed.

The former is really inconvenient, especially if you want to transfer money. The latter is only available to a select few companies.

Everything is else at most assets denominated in (= pegged to) USD.

Does your critique apply to all these other categories as well? Why or why not?

"sure, my house's foundation is made of cardboard, but have you considered that the empire state building could also be destroyed in a large enough earthquake?"

Exactly! Great analogy.

This suggests that we need to look into the engineering details of a building (or peg arrangement) to determine whether we can trust it, instead of just declaring all building (or all pegs) 'nonsense'.

Pegs fail at the worst possible time. You can transfer or store value via oak tokens flown by trained pigeons, because that might be convenient (to you) and doesn't involve the Fed. But if someone tells you the token/pigeon method has the same attributes as a bank-to-bank USD wire, that person would be mistaken. The methods would be no closer to equivalence if one were to stamp "USD" on the oaken rounds and train the birds to collect a receipt.

As long as the guys who issue the token have sufficient assets to redeem them, and regularly redeem them to any comer, I don't see much of a problem.

If there's oak and pigeons involved, that doesn't change much---apart from being might inconvenient.

The problem algorithmic stable coins is that the backing is either non-existent or at best really suspect.

Tether is a bit better in that they at least claim to have real world backing, but they don't tell you what it is, so you can't trust it.

Btw, the backing for a token denominated in USD doesn't have to be USD.

Eg most banks back their deposits with all kinds of assets and bonds, not just physical cash (or balanced at the Fed).

Having a few reserves in USD on hand is important, but in the longer run it's more important that the worth of your backing assets is reliably higher than your liabilities. The difference between the two is your equity cushion.

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