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Comment by Animats | Hacker News Reader

Stop him before he kills again.

Look at the afterlife of LUNA. That tanked trying to support his stablecoin. So, a way was found to undo the crash, sort of.[1] You thought blockchains were immutable? No. Rename old token something else. Create new token called LUNA. Initialize new LUNA with balances from old LUNA as of 7 May 2022, referred to in the hype as the "pre-attack" date.

So what happened? New LUNA crashed. Opened around US$20, now around US$3.

[1] https://docs.terra.money/docs/migration/exchange-migration.h...

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Hard to find a reason for new LUNA to exist now that the stablecoin idea did not work and collapsed.

Nothing different than all the other platforms out there like Ethereum, Solana, Polygon now.

Expect price to slide even further https://www.coingecko.com/en/coins/terra its $2.9 now, surely everyone have learnt the lesson

Algorithmic stablecoins probably (almost certainly) do not work, but other types of stablecoins should

The only kind of stablecoin that can work 100% of the time is one that's backed 100% by the currency it purports to maintain a peg to. Anything less than that cannot work 100% of the time. And that can be ok, but at minimum, the only one I'd touch with a ten-foot pole would be audited (AFAIK only the Gemini dollar is), and hold itself to the same standards as a proper money market fund.

The problem is, you can't get rich off that.

None of your bank balances are 100% backed.

Bank balances are actually >100% backed.

They aren't 100% backed in liquid USD owned by the bank. If that amount isn't enough during a bank run, federal insurance kicks in, to cover the rest.

Which is why not a single deposit dollar was lost in a bank collapse in the United States over the past, what... 40 years?

The crypto space can barely claim that sort of thing for 40 days.

> not a single deposit dollar was lost in a bank collapse

The federal reserve will print money in order to inject liquidity into banks. This means they are creating money out of nowhere, inflating the currency, essentially taxing everyone holding USD in order to maintain the illusion that banks are solvent.

That's not how deposit insurance works. The FDIC has a $125B fund (the BIF) that banks pay into, to insure against a default. If that's somehow not enough, the FDIC does have a $100B credit facility with the Fed.

However, in the event of an actual, real-wold bank collapse, the Office of Thrift Supervision (OTS) will take ownership of the bank and sell the book to someone else. That's how WaMu's collapse in 2008 was mitigated (WaMu -> OTS -> JPMorgan Chase) without ever drawing on the BIF let alone the credit facility at the Fed.

Remember, the fractional reserve is where the supply of currency in the economy comes from so this is a pretty big misunderstanding of modern monetary policy. Dollars are backed by the obligation to repay the fractional reserve loans that created the dollars in the first place, and the entire social system on which it is built.

https://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008

> As part of national fiscal policy response to the Great Recession, governments and central banks, including the Federal Reserve, the European Central Bank and the Bank of England, provided then-unprecedented trillions of dollars in bailouts and stimulus, including expansive fiscal policy and monetary policy to offset the decline in consumption and lending capacity, avoid a further collapse, encourage lending, restore faith in the integral commercial paper markets, avoid the risk of a deflationary spiral, and provide banks with enough funds to allow customers to make withdrawals.

> The Federal Reserve created then-significant amounts of new currency as a method to combat the liquidity trap.

Your article and body is completely unrelated to deposit insurance, which is the case you were trying to make.

As for the bailouts you were alluding to, they were managed at least in the US by the treasury, not the fed, and they were loans, not grants - that have since been repaid yielding $100B in profit, with more to come.

Fiscal policy and monetary policy are different things managed by different entities. Any new money that was created to support the stimulus was unrelated (after all the treasury could have apportioned any money) and has since blinked out of existence as the loans have been repaid.

If a bank has more assets than liabilities, your balance is 100% backed. All non-failed banks have more assets than liabilities, therefore…

And the banks in the USA are backstopped by FDIC, which will step in up to $250k.

Bank shenanigans have happened in the past, but at least the smaller accounts survived unscathed.

https://en.wikipedia.org/wiki/Washington_Mutual

https://en.wikipedia.org/wiki/HomeFed_Bank

(Somehow my family got caught in both of those, we weren't very good at picking banks heh)

And the FDIC is backstopped by the Fed. They have a $100B line of credit there.

In the WaMu case actually no money was lost by anyone - and they didn't even touch the Bank Insurance Fund. The Office of Thrift Supervision took control of WaMu and sold it JPMC.

In addition to the FDIC backstop mentioned by some of the other responding comments, there's also another significant factor here which is that the U.S. banking system is ultimately backed by the strength of the U.S. military. I think this serves as something like an inductive base case that is more important than it might seem at first glance.

In practise, people aren't going to try and withdraw 100% of the coins to USD. As another commenter pointed out, we would have the same problem in banks if everyone came to withdraw all of their money at the same time. It's probably not as risky as Terra. I agree that we should wait for auditing though.

With rising interest rates the party issuing the stablecoin has an opportunity to get rich with the yield of the collateral. The question why would people want to buy large amounts of a non-yielding stablecoin.

> the Gemini dollar is [audited]

Is it?

https://news.ycombinator.com/item?id=31423873

To the best of my knowledge (and I'm well known as a hater) they are actually audited by auditors. [1]

> "Audit reports of the GUSD reserve are published monthly by an independent registered accounting firm, BPM LLP."

[1] https://www.gemini.com/dollar

To quote the comment I linked to:

> GUSD's site claims audits - under a heading titled "Review the Gemini dollar reserve-funds independent accountant audits" but links to attestations (example: https://assets.ctfassets.net/jg6lo9a2ukvr/3ZfEIugZkOLsArm4JK..., "conducted in accordance with attestation standards").

Good lord. Thanks for letting me know.

I'm still amazed that this whole algorithmic stablecoin hype as really managed to make Tether look reputable in comparison.

"Well yes, we might be pulling most of our money out of thin air, but at least we're not pulling all of it out of nothing like the new guys do".

Based on that, I wouldn't be surprised if the next thing is that something even more sketchy and handwavy than algorithmic stablecoins will appear and continue the scam.

Self-collateralized stablecoin futures?

Multi-pegged multi-chain coins with auto-arbitrage?

Probabilistic stablecoins?

I have no idea...

Even better is the other coins (like Celsius) pulling money out of Tether's thin air. Impressive!

Why not just make the next one obvious and call them 'Holy Stablecoins' ...

If you squint a bit it almost looks like a derivative of a derivative, and the underlying assets are already over-leveraged.

And the only reason to use a stablecoins is to obscure your financial transaction.

> Hard to find a reason for new LUNA to exist now that the stablecoin idea did not work and collapsed.

Except there is no more fervent pursuit than the pursuit of the greater fool. So that race will continue until laws finally catch up and close the staggeringly massive incentives to continue to lie, cheat and steal from those who believe themselves one step removed from the greatest fool.

I guess it's more likely that he'll soon fake his death somewhere in South East Asia like Quadriga's CEO.

Those alleged orphans aren't going to allegedly save themselves while providing a convenient cover story for why you allegedly died in a notoriously corrupt jurisdiction.

amid all of this, people have completely forgotten about the South African brothers who ran away with $3.6B of investor funds from their now-defunct exchange [0].

I'm done with crypto. Scamming is so easy that its almost incentivized.

0: https://www.coindesk.com/business/2022/01/11/south-african-p...

Almost???

Well, "Fool me once shame on you, fool me twice..."

There's no "undoing a crash" by putting good money behind bad money.

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