Stablecoin Mechanics 2: Tether-Celsius

>If you want a "legitimate stablecoin", get a savings account and/or money-market account and/or money market fund.

In my state, I can walk into a bank and legally carry a concealed firearm without any ID whatsoever -- and yet not be allowed to open an account and put $20, even with a valid US passport (it doesn't show proof of address).

Want to put a damper on stablecoins? End KYC/AML/FATCA. If you can be trusted to carry a gun in the bank you ought to be trusted to put $20 into a new account.

Acceptable to me. Consumer/investors just need to be more discerning and pragmatic. There is nothing wrong with risk. There is something wrong with obsessing over there being no risk till you get duped by a fantasy you wanted to hear.

Fortunately, many crypto interest rates are really just shares of a revenue stream - usually transaction volume where some value is being extracted - and this revenue collection velocity is repackaged as "interest rates" because it is familiar to passive-income obsessed people. on top of that, the "rates" are juiced by the issuance of an additional new token. So that will remain attractive as a human and capital coordination mechanism.

Don't get me wrong, they can still be scams. The only difference is that unlike a typical ponzi, it is possible to have a sustainable and profitable business model with a stable coin.

Basically, the reason is that the Government print a lot of money which result in high/hyper inflation, but then create all these obstacles for the locals to run transactions in more stable currencies (e.g. USD). The locals use Stable coins to facilitate transactions that would otherwise be very hard or impossible to perform in local currencies (e.g. buying a house).

This is the core issue.

Note that you can't go to Tether and demand your $1 back as an individual. You would have to use an exchange and hope that you can trade 1 Tether for 1 dollar on an exchange where you can cash out.

Note that the company that owns Tether also owns and exchange, which further opens the door for a lot of fraud and shenanigans as they co-mingle exchange deposits with their Tether reserves. It's possible for exchanges to run for a long time without actually having 100% of funds in reserve as long as the customers don't all withdraw their funds at the same time.

In other words: A hypothetical fraudulent stable coin could "work" for a long time, until it suddenly doesn't work at all and the value plummets.

If you want to call this a Ponzi scheme, then you have to be fair and consistent and call the dollar system "the other Ponzi" scheme too (because your 1 dollar purchasing power is not the same as todays).

What's weird is that crypto folks often complain about people printing money and causing inflation. But that's the whole crypto ecosystem. If something can be used as currency, it doesn't matter if the U.S. government is printing one dollar and handing it to somebody so that they can buy goods or if a crypto project is printing one NotDollar that has the same amount of worth and can be used to buy the same amount of things.

The problem is not one of theoretical possibility, the problem is one of perverse incentives. Tether's operators have no reason not to go to Vegas and put all that money on a coin flip. Heads they win, tails their 'clients' lose. They'd be idiots to not do something like that.

There are still some risks (company will get hacked, executives will go rogue, banks won't be prepared for a major run) but these are fundamentally the sort of risks that the US banking industry has some experience with. These risks have nothing to do with what's going on at Tether: they don't seem to be regulated at all.

A: "...an unregulated, impossibly opaque fractional reserve system."

Answering your own questions, well done. :)

In either case offering a price in USDC for example would meet your needs. Your customers can pay in crypto but what you get is essentially the same as dollars (excluding transaction fees), so goods can be priced the same in crypto and cash and you're not exposed to crypto volatility on your holdings for the most part.

So if you have a use case for businesses to price things in a stablecoin, then it follows that there are use cases for people to get stablecoin to use and therefore usecases for creating stablecoins, exchanging them for other crypto etc.

This is functionally similar to selling the stocks in your brokerage account but keeping the cash in your brokerage firm, with the addition of brokerage firm’s total cash being publicly reported in real time. It is unlikely that number goes down because people dont really withdraw from their brokerage accounts, they continue to add more cash and wait for opportunities.

Not because Tether is fully solvent, there are just a lot of straight up ponzi schemes and various other scams and frauds that have collapsed first. Tether having any % of actual dollars makes them more resilient to market pressure than schemes with zero real backing.

What they don't know, as someone involved in this space, is that Tether is insanely profitable. Putting the legality of their business aside, Tether generates mad yields on their assets; which made them able to absorb lots of losses. It's profitable business and that's why they keep doing it.

Also Tether is not completely the wild west as some people here assumes. They have lots of scrutiny from different US government institutions. The US could have shut them down overnight but they didn't. The US probably had its reasons for that.