I don't understand why Coinbase is feeling such a crunch. They are just middleman in buying and selling. Their advantage is supposed to be that they make money whether crypto goes up or down. How can they screw this up?
An honest bank or exchange would simply keep your coins stored safely for you. But many places aren't honest, and make their money not from the transaction fees but by lending out the coins you've got stored there to someone else. As long as people don't all ask for their coins back at the same time, this works great for them. Your coins will be entered into some investment scheme, to make them return a percentage rather than just sitting there doing 'nothing'.
One does have to be careful however not to lend out those coins to someone who just runs clean off with them, or invest them in some scam that accidentally tanked to zero. Otherwise that money they claim to hold may not exist any more, which causes a problem if the customers ever ask for their money back all at once.
They see something really bad on their books that's separate from their core business. Just like how Lehman Brothers was a profitable bank that got shredded by one risky trading strategy.
These stablecoins have been devoured one by one, and each time they fall more people start trying to get their money out. USDC will experience a run and it might not be survivable without liquidating user account holdings, which will be a massive extinction event for retail crypto.
I doubt USDC is undercollateralized. I don't doubt that there are situations where it could depeg, but I don't think anyone ought to be going to jail if it does.
Given that their business is just a “buy sell” platform, they are trimming around to get just that
They have lots of other features like “NFTs, lending” etc and other investments in their UX (separating out to currency vs smart contracts vs defi) I’m sure all that A/B testing to get that will be squeezed now too
USDC: fully collateralized by cash or cash equivalents held in US banks - basically a money market fund
Terra: partially collateralized by crypto assets + algorithmic magic
Tether: like USDC but not held in US banks, and the actual collateral may be partial or of lower quality
Dai: overcollaterelized by crypto assets + algorithmic magic
These are really distinct things and your risk model for each of them should be different.
When money market funds were all about to break the buck in 2008 the Treasury department stepped in with a $50 billion insurance program and the Fed started buying commercial paper to prop them up. Will they do the same for USDC?
"The order further finds that Tether and Bitfinex’s combined assets included funds held by third-parties, including at least 29 arrangements that were not documented through any agreement or contract, and that Tether transferred Tether reserve funds to Bitfinex, including when Bitfinex needed help responding to a “liquidity crisis.”"
They pay people in fiat currency, their expenses are denominated in fiat currency. It doesn't matter if they traded 1M bitcoins daily 6 month ago and still trade 1M daily today, their dollar-denominated fees on that trade has plummeted.
rather than “i wanna buy 1 bitcoin, regardless of price”.
atleast that’s how i think of things. in terms of dollars invested. not coins desired.
same with stocks. i say i wanna 5k in Coke stock, not 121 shares.
That's only part of the trading though. Volatility isn't measured in that way either, so as volatility goes down-- or stays the same as coin prices go down-- Coinbase still loses money. It's usually measure in the % of the coin traded. So volatility could remain stable at, say, 2% but when the dollar denominated market cap is 50% lower than it was 6 months ago then Coinbase is collecting 50% less in fees. In order for revenue to remain the same, volatility would have to double.
People that had $10k invested already and kept it in the market now have much less than $10k. They may still have 10 ETH depending on when they bought in, but when they trade those ETH Coinbase is making 75% lower in fees than if they traded them 12 months ago.
Coinbase simply cannot make the same revenue in dollar denominated fees when the dollar denominated value of those trades goes down, and it has gone down a lot.
volume driven by new money coming in will be reduced by the phenomenon i mentioned (price down, less hype, less money coming in).
So if we break volume down in 2 groups the first would experience what you’re saying and the second would experience what i’m saying. It’s the same with stocks but to a much lesser extent, especially because 401ks and institutions are required to buy no matter what
Not sure what percent of volume is each case.