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Comment by fleddr | Hacker News Reader

That's just a misunderstanding of why (most) people use stablecoins in the first place. It's not ideological, it's practical.

When you sell crypto and want to exchange it for "real" money, say USD, some exchanges don't support that, they only support crypto to crypto conversions. On exchanges that do support it, it's sometimes slow and often comes with a fee. Both the exchange and your bank may impose arbitrary limits on it. It may create a taxable event.

By comparison, a crypto to crypto conversion (say BTC to USDC) is instant, often free, and without much limitation.

If actual USD had none of the above limitations, nobody would need or use a stablecoin. It's a utility, not some bet against the dollar.

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That's not a limitation of USD, it's a limitation of sleazy crypto exchanges. If I sell stock through my stockbroker, I can have funds in a bank account within hours. You ought to be able to sell BTC and get funds in your account in Chase or Barclays via wire transfer within hours.

But no. Crypto exchanges hate to pay out real money. They don't even like paying out cryptocurrencies to external wallets. They want you to just bet within their closed system.

Real brokerages don't care whether you're buying or selling. They get commissions either way. Crypto exchanges have a strong bias towards your buying what they're selling.

The exchanges don't want (or pretend to ignore) the Know Your Customer (KYC) rules, which your brokerage does not.

So your brokerage is fine sending you the funds immediately. They also are fine with the audits, etc that are required to prove that they're not playing sillybuggers with your stocks or funds.

Just a side note, but it's funny how the Patriot Act is commonly decried by everyone as an overreach of government power & invasion of privacy.

But, when you mention these KYC laws (which were put into place in the US by the Patriot Act), no one bats an eye and just assumes KYC rules are reasonable.

Party > Policy

The Patriot Act is a broad-ranging piece of legislation, and the anti-money laundering provisions in Title III are less controversial than other titles.

What is unreasonable about brokerages and crypto exchanges being subject to KYC and AML regulations? How is that at all comparable to the government being able to eavesdrop on my private communications and violate my 4th amendment rights without a warrant?

Financial transactions are private communications.

This is becoming an increasingly rare sentiment, and oddly even on HN. Thank you.

You can simultaneously believe that financial transactions are private communications, and also that a securities broker being required to verify their customer's identity pursuant to KYC and AML regulations is reasonable. Your post is very vague (since the comment you're giving thanks to focused on a semantics "gotcha" and completely avoided the actual point) so I'm curious as to why you think KYC/AML regulations are invalid and brokerages and centralized crypto exchanges shouldn't be subject to them in the light of "private financial transactions".

And how does that make KYC unreasonable?

KYC is the reason we have an archaic banking system while the rest of the world leap frogs us.

Tough to solve when petrodollars are still the reserve currency globally.

Every country I’ve lived in across continents has KYC & AML. Not that it solves corruption, but it’s the bare minimum for functioning societies.

Do tell us which countries have no KYC regulations and are leapfrogging the rest?

In fairness it took me about 2 months to withdraw from an "instant access" account around the new year, because my bank demanded documents that don't exist in the country I'm living in. They also refused to even stop paying me interest that creates a tax liability, so I'm going to have to file a tax return to report less than £2 of interest this year.

>If I sell stock through my stockbroker, I can have funds in a bank account within hours.

Wait, what? I'm pretty sure you're exaggerating there. Stocks have a two day settlement period. (I know because that knowledge gets firehosed every time Robinhood/GME comes up.)

Last year when I sold stock in one account (Wealthfront), for the proceeds to deposited into another, it took four business days (edit: using ACH). When I complained on social media, my finance friends said that was typical. Now, it might have been faster with a wire, but it's not the hours you talk about.

>That's not a limitation of USD, it's a limitation of sleazy crypto exchanges.

It would still be an issue if you want to convert to USD purely on the blockchain because you're interacting with multiple smartcontracts. The USD would need to be a cryptocurrency that lives there.

Robinhood didn't have enough cash on hand for the business they are in.

It's not that brokers are required to wait for settlement. They can pay out as soon as the transaction is logged. They have the option of delaying until settlement, but big customers don't like that, so, usually, they don't. Online-only brokers tend to be sleazier about this.

So, in other words, if you want cash quickly, you can borrow against an asset? (In this case, the unsettled proceeds of the stock sale.)

Good news: you can do that with smartcontracts too! (e.g. Compound/AAVE)

No, the broker is borrowing against their own assets. They already did the transaction. They just haven't been paid for it yet. It's their accounts receivable problem, not the customer's. That's what it means to be a broker, rather than an exchange.

Since brokers usually have transactions flowing in both directions, it's usually a wash.

Except that’s not “what being a broker is”, because not all brokers offer that, and not to all clients. And if you can remember back to your original comment, you were calling exchanges sleazy for not having insta-withdrawal (which they can’t in the regulated markets because of settlement time), and now you recognize this is a service provided by brokers as an abstraction on top of the actual exchange, not what said (non-shady) exchange actually offers.

Furthermore, the broker is taking a risk by extending that credit. If it were riskless, there wouldn’t be the 2 day settlement period or the requirement to post collateral (whose necessity everyone accepts with an eyeroll at those who don’t get it on the Robinhood/GME threads).

Using TD Ameritrade I can close out positions and get paid by EOD.

ETrade and other brokers are similar (though the first outbound payment may take extra time since they need to run KYC checks).

How about someone on any other country that does not use USD?

Aside from some smaller countries in South America and others that fully adopted the USD for their economy, you can not get exchange other assets for USD without significant overages.

Not sure this makes sense. I can exchange USD for my local currency, GBP (including physical notes) for significantly less in commission and bid/offer spread than crypto exchanges charge for crypto to USD.

Try the same with the Brazilian Real or the Argentinian Peso.

Also, try doing that with more than 10k USD.

Also, try sending it to someone overseas.

Yes - countries with capital controls and/or corruption problems make life harder in many ways. But I'm not sure I understand why stablecoins make that any less of a problem when compared with holding USD in a US based account - unless the point is to avoid AML/KYC requirements.

Same for larger amounts and sending money internationally - I've done both quite frequently, and it's much cheaper to do than using crypto would be.

In a global economy, it is a lot easier to acquire/transact/hold stable tokens than actual USD, that is the point. If all you care about is the developed bubble, crypto makes little sense.

> unless the point is to avoid AML/KYC requirements

That's the entire raison d'etre of these stablecoins.

Also, try smuggling some cocaine into any country.

Right, because an immigrant working in the US and helping their family to buy a house in their home country is exactly the same as being a drug dealer.

If you're an immigrant working in the US, the rules don't apply to you?

Even though I could just tell you that blindly following rules is a trait of morons and authoritarians who have a control fetish, or go on a diatribe about "legal != moral"... notice how I didn't say anything about not following the rules. The point was about the cost of doing large transfers with crypto vs a traditional bank or currency exchange shop. You can report the crypto transactions just the same, you know?

(Maybe it is time to change HackerNews' name to something more reflective of the current audience. What do you think of "Conformist 'R Us"?)

Of course you didn't say explicitly, you implied it... since if you add the bureaucratic costs of international money transfers, then crypto is much more expensive than a wire transfer, it would make absolutely no sense to use crypto if you followed the rules.

> since if you add the bureaucratic costs of international money transfers it will be more expensive

That is plain, utterly, provably wrong. You have no idea of what kind of fees a bank will charge to exchange a wire of tens of thousands of dollars.

> it would make absolutely no sense to use crypto if you followed the rules.

Some of the rules are very specific at about the source and means of the funds. E.g, some taxes in Brazil are applied only for purchases done through credit cards. Others apply for financial operations between different banks. It is not illegal (and much less immoral) to know about the loopholes that allows you to avoid paying the exorbitant fees.

> provably wrong

A distributed system that employs a consensus mechanism where service providers compete by wasting as much electricity as possible is provably less expensive that a centralised system where providers compete by trying to become more efficient at providing services?

Then prove it.

Nice gaslighting. We were talking about the cost of sending a transaction vs the fees that a bank will charge to make an international transfer.

Now, if you really want to talk about the cost of blockchains: Ethereum's transition to PoS will mean a 10000x reduction in electricity consumption. If you look at the total number of validators vs the required power to run one, the most pessimistic estimation puts the cost of securing the whole network at $8M/year. That would be less that the amount that banks spend on physical security of their armored cars alone.

Ethereum doesn't use PoS. We're not discussing science fiction or hypothetical scenarios, here. We are discussing the reality of crypto-currencies vis-a-vis the banking industry.

As I mentioned, when you remove trade barriers, such as the EU did, the cost of international transactions falls to zero. This is because 1) the technology that banks use to transfer money is efficient, and 2) competition drives prices down to the average cost per transactions (which is near zero, thanks to 1). Now, in the crypto-currency industry you do have competition among crypto-currency transmitters, but you don't have an efficient technology to transfer crypto-currencies, instead you have a technology that performs horrendously in terms of cost-effectiveness, so transacting in crypto-currencies will always be more expensive than using banks. If this is the case, why do international transactions sometimes cost more if you use a bank? I already explained, it's because governments require banks to perform a series of checks therefore incurring additional costs that they pass on to customers. Transmitters of crypto-currencies don't perform these checks, and therefore they don't incur these extra costs, but of course this results in transactions that are not compliant with financial laws and regulations, and so the end-user will likely have to spend additional money laundering the funds and evading law enforcement. If you say that you can prove me wrong (this is what 'provably' means), then prove me wrong.

There is no science fiction about PoS, the transition is well under way and it is a matter of a few months.

> when you remove trade barriers, such as the EU did, the cost of international transactions falls to zero.

See, the whole point of crypto is that it gives us a globally interconnected trade network. If I just want to send money to someone in the EU, then of course I will just use SEPA. But SEPA means absolutely jack shit for someone trying to merely send money to a place where these basic freedoms are not granted.

Why should people should put up with the artificial barriers, when there is a parallel network that can work better for them? Do you think they can just be waiting until the powers-that-be at their local sphere to reach enlightenment and remove the barriers? I think it is a lot more efficient if we continue to work on a competing alternative for the people, at the very least to keep the goverments in check.

Yes, you do not live in a place with rampant corruption and/or capital controls.

As far as I know, every country in the world has capital controls.

So it is just a matter of how hard you like the boot stomping on your face, huh?

The idea that promoting a tool intended to undermine governing institutions, democratic and undemocratic alike, will result in a world with less oppression is one of the dumbest pitches the crypto community has come up with so far.

the argument is that some people have value in holding dollars. if stablecoin enables getting people those dollars cheaper than they could get them before, that is good for those people.

As I was saying, some people have value in holding cocaine.

Okay?

Please read https://news.ycombinator.com/item?id=31463534 before creating more strawmen.

I'm not sure why the comment was worded "some exchanges" but notably, this is the only way that a DEX (distributed exchange) can work. A DEX exchanges crypto directly on the blockchain between wallets/accounts via smart contract. These are literally just dapps (distributed apps) and no company needs to be involved; they are the most open exchanges of all.

So you can get settled by your stockbroker during a weekend?

Most payments providers will not settle during weekends and most will settle at T+2 or T+1. Instant settlements and weekend settlements are basically unheard of in the financial and payments worlds, trust me, I work in this world.

Stable coins allow almost instant settlement and weekend settlements, that's why merchants and individuals are interested in them.

Stablecoins aren't settlement - even with fiat backed stablecoins, you're an owner of a portion of the most junior debt of a private company.

You can pay with them, but you need to convert to fiat to settle.

You can sell VOO at midnight and transfer the money to your bank account? I don't think so or at least I'm not sufficiently privileged to do so.

> If I sell stock through my stockbroker, I can have funds in a bank account within hours

What brokerage are you using that ignores days-long settlement times? The only way you're actually getting this is a margin account in the background, and that comes with its own risks and limitations.

And even then, it takes days for ACH to clear, or fees for wires or debit deposit.

>If I sell stock through my stockbroker, I can have funds in a bank account within hours. You ought to be able to sell BTC and get funds in your account in Chase or Barclays via wire transfer within hours.

This sounds false on several levels. Stock settlement occurs 2 days after the trade executes. Then transferring the money from the brokerage to the bank account via ACH takes 3 business days. Some brokerages may call the cash settled after 1 day, but the ACH still takes multiple days to land in your bank account.

Wire transfers often come with fees outside of Credit Unions who may generously waive it but the cutoff time is 5PM EST at best and in some cases earlier than that, otherwise you need to wait until the next business day.

Maybe they're in a country with a bank transfer system that doesn't suck. In most of the OEDC there are free transfers that take <2 hours even in the worst case.

The exchanges that don't support cashing out direct to your USD bank are unlicensed and unregulated and they're dealing in Tether to skirt the KYC and AML requirements that a real financial business has to have. Those exchanges deal in scam coins that are pure pump and dump. Those exchanges don't have to keep client funds in reserve.

This is not the point. Even the most legal/regulated have to ACH/wire cash.

If you’re a trader and want to raise your cash portion of a portfolio it’s much faster/easier/cheaper to hold stablecoins. The cost is that it’s riskier.

I don't know what you mean, for instance because Gemini follows all the regulations, I can hold USD cash in my account and it's even FDIC insured. Wiring back to a checking account is an option, but I can keep liquidity at the ready without dealing in stablecoins.

You're ignoring distributed exchanges like Uniswap. They only deal in crypto-crypto because they exist only on the blockchain.

>It may create a taxable event.

What’s the difference in tax liability from trading your BTC for dollars vs. a stablecoin?

I’m aware that there are places where you can exchange crypto for crypto that won’t report it to the IRS, but that doesn’t change whether it is a taxable event.

By the way, there’s no statute of limitations for tax fraud.

In some countries, crypto-for-crypto transactions are surprisingly really not taxable events!

I guess you could try to argue it is a 1031 exchange (but that's now real estate only, basically). I suspect it's much more that less-than-fully-compliant exchanges will only show "inputs and outputs" and not any trades in-between.

https://www.irs.gov/businesses/small-businesses-self-employe...

The IRS has offered clear guidance that these sorts of exchanges are taxable events. You could argue all you want, but ultimately it is taxable.

It's been discussed several times... Many people are "trapped" into cryptos and can not get out (for example because their bank will close their account and kick them out if they do anything crypto related). So in several countries it's only when you sell for a currency that is legal tender that it's a taxable event. It's the case in France and, if I'm not mistaken, it's been clarified that it's now also the case in Germany.

It makes sense in a world where people are taking a very big risk by selling for a "stable" coin. For the last thing you'd want is people selling BTC for Luna / UST, and then owing the state, say, 100 K EUR, only to then see Luna going to zero. Some of these people would have their lives ruined if the taxable event happens before they're able to cash out to a currency that is "real".

If anything the Luna / UST fiasco as shown to many that it makes sense to only tax when something is sold for a real currency and not for monopoly money.

>Some of these people would have their lives ruined if the taxable event happens before they're able to cash out to a currency that is "real".

Sure this is a downside of tax law on the US, but it’s not unique to crypto. Suppose you sold one stock and used the proceeds to buy another stock, which then went to zero. It doesn’t matter whether you went to cash at some point, or if somebody exchanged the stocks with you directly. Either way, you owe taxes on the gains in the initial investment. Depending on timing, the gains and losses might cancel each other out, or you might end up with a tax liability in some year. You still need to report it.

This is a special case of an even more general problem: “I was rich, paid taxes, then later became poor.” A lot of the time, the tax man is unsympathetic.

A significant usage of stable coins is also as margin for crypto derivatives contracts.

But ultimately for the same reason gp stated. It’s easier for the exchange to deal in all crypto

The phrasing here seems to imply that exchanging one cryptocoin for a stablecoin should NOT create a taxable event. That's clearly not a long term reasonable expectation to hold as it's an obvious loophole all tax authorities will be looking to shut in the longer term.

Why should it, though? It's still just another cryptocurrency at the end of the day. The government shouldn't be looking for their vig until you exchange for legal tender, and I don't see how a third-party organization promising a specific exchange rate for the token changes that.

How is it a loophole? Tax applies to your capital (gains) denominated in USD.

Example 1: I deposit 10K USD and buy BTC for it. After a while I sell the BTC and get back 15K USD. I've now gained 5K in USD, which is taxable.

Example 2: I deposit 10K USD and buy BTC for it. Next I swap the BTC to ETH, a stablecoin, or any other crypto token. I've gained nothing in USD. I still have 10K USD worth of crypto. I didn't sell crypto, so there should be no tax.

Unless...you formally acknowledge a stablecoin to be representative of USD. Which may have all kinds of complicated implications.

It's not just about central exchanges. A stablecoin lets you use on-chain exchanges like Uniswap, loan money on chain, etc.

(I don't think there's a tax advantage though. I'm not a CPA but my understanding is that in the US, any exchange of one token for another is a taxable event.)

Will the utility persist as governments ramp up compliance requirements on those exchanges? So far they've largely flown under the radar. But eventually they will be forced to do more to comply with AML/KYC and tax reporting rules.

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