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Comment by legutierr | Hacker News Reader

Do you really think that Circle and Coinbase are spending USDC reserves on their own behalf? Do you really have so little faith in the US financial regulators that you think they would allow publicly traded companies to steal their customers' money in such an obvious fashion?

And what do you mean by "much like traditional banks in fact - there is no uncertainty that eventually they will go bankrupt"? Are you saying that all banks eventually go bankrupt? When should we expect Barclays to go bankrupt, now after having existed for 300 years? When should we expect Bank of New York to go bankrupt, now after having survived for 250 years?

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I suppose I could just write "Yes". USDC will probably change their policy somehow to enable fractional reserves at some point since the incentives to do so in the future are huge.

Also a company surviving for a long time is not an especially solid predictor of future lifespan. The list of financial institutions founded at the same time that didn't survive is so large nobody bothers to keep track and the management today is (in the style of the ship of Theseus) completely different from the historical decision makers.

Coinbase makes more money by being a trustworthy exchange than by skimming the funds from the USDC reserve.

Not if no one’s trading crypto because the hype cycle has died out.

There is no way any institution powered by humans can be trusted to sit on a couple of billion (or trillion) dollars in liquid assets and leave them alone for long periods of time. Are they trustworthy today? Maybe. 10 years? Maybe. 30? No. 100? Very emphatic no.

Some bright spark will notice that they don't need all these untouched reserves and will do something with them, increasing the risk and, eventually, getting hit with a bank run.

If in 10 years from now we are still as dependent from the USD as we are today, I will safely consider all of crypto a failed experiment.

There should be by then other mechanisms to get liquidity and that can represent the economic output of the world. It could be a basket of CBDCs from multiple countries, or tokenized (and legally standing) representations of bonds, titles and property. But the current system is far from the final design.

There's no gold in fort knox

A couple of billion in liquid assets is a pretty low bar that includes lots of corporate treasuries that hold custodial accounts that aren’t nearly as regulated as a bank.

Basically every sizable payment processor for instance meets that bar and it’s incredibly rare to have a scandal with those institutions.

I'm not saying there will be a scandal, I'm saying they won't leave assets sitting around the way people seem to want a model stablecoin to.

Fractional reserve banking isn't a scandal, it is routine business.

They are not a bank to make loans. They are custodians of money minted and backed by the US government.

IIRC Circle was planning to get a full bank license to have USDC being backed 100% by reserves at the FED. That could nuke the traditional banks because who would want to hold their money as IoUs at an institution with single digit backing when there is no upside compared to holding it in USDC.

What’s the upside of holding it in USDC?

Converting it to UST and getting 20% yearly returns on your stablecoins! ... Sorry, I wrote this comment last month, did something happen in the meantime?

Everyone in this space "plans to" do something better than "trust us bro". Just not right now.

> who would want to hold their money as IoUs at an institution with single digit backing when there is no upside compared to holding it in USDC

Convenience, security? The backing doesn't matter, your bank account is insured. Why do people keep cash in bank accounts instead of under their mattress.

Holding USDC yourself is risky, you expose yourself to hacks. Most people don't know how to manage their crypto keys securely.

Is this satire? I can't even tell any more.

Under a fractional reserve system they would simply lend the money, not spend it as you earlier said.

Surely the implication is not that they are spending them but behaving like banks and lending out the underlying capital.

But that’s not how banks work. They don’t lend out the capital of depositors. Rather, when they lend money, they record a receivable from the borrower, and at the same time credit the borrower’s account at the bank. Bank lending creates money.

Yes, things are mostly virtualized, but if what you say were true than then it would be impossible for a bank run to collapse a bank.

Money in your account a debt the bank owes you. It's not money you can spend until after you withdraw it and the bank has liquidity to honor the withdrawal.

https://en.m.wikipedia.org/wiki/Fractional-reserve_banking

banks lend out capital because the return interest more than makes up for risk (not least because they pool risk)

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