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Comment by SilverBirch | Hacker News Reader

A lot of "stable" coins have always looked a bit shakey, but as long as the music keeps playing no one has to face reality. It doesn't matter if the coins aren't backed as long as no one asked for the backing. Now with BUSD... there's nothing to do left but ask for the money back. They can't mint any more so at best there will be a net outflow, at worst people will panic and run for the exit. So this is really going to test whether Binance wants to come up with $16Bn to keep this all afloat.

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Like all good Ponzi schemes, they work until they don't.

The crypto exchanges have a handy benefit of being able to block withdrawals in multiple ways, including 'technical issues' or 'verification issues' etc.

Problem is at some point (I.e. when they can't print tokens out of thin air any more) they still have to convince others to put new money in and it just becomes shuffling deck chairs on the Titanic...

Do they have a choice? The claims they've made (fully backed by cash equivalents, separated reserves safe even in bankruptcy, always available for 1:1 redemption) [1] will be considered fraud if they don't redeem all $16Bn.

1: https://www.binance.com/en/blog/ecosystem/understanding-busd...

My argument if I were Binance would be that no reasonable person would have seen these statements and believed them or took them at face value so they don’t have to abide by them.

I'm not sure "your honour, it's so obvious that we're scammers that we can tell as many lies as we like and do whatever we like with people's money" has a particularly high success rate as a legal defence...

Presumably elbigbad is thinking of cases like Tucker Carlson [1], Elon Musk [2], Sidney Powell [3], and Elon Musk again [4], all of whom have successfully defended themselves in court by claiming no reasonable person would have believed what they said.

I don't know whether such a defence would work for cryptocurrency scammers - it's certainly not the lowest risk option IMHO.

[1] https://www.businessinsider.com/fox-news-karen-mcdougal-case... [2] https://www.reuters.com/article/us-musk-lawsuit-idUSKBN1YA13... [3] https://www.theguardian.com/us-news/2021/mar/23/sidney-powel... [4] https://www.theguardian.com/technology/2023/feb/03/elon-musk...

Big difference between libel claims being ruled non-serious and "it's not crime if the people we stole from should have expected our statements to be fraudulent" though.

(And it's not exactly a low risk defence for libel and defamation either. It worked for Alex Jones until it didn't)

Binance doesn't have to come up with anything, it is a white label solution managed by Paxos.

Sort of - there are two versions of BUSD that people use interchangeably.

Paxos issues one, and Binance issues the other.

Are you sure about that, and if so, do you have any sources?

I'm almost certain that there's only BUSD [1], issued by Paxos. What would be the other version?

[1] https://etherscan.io/token/0x4Fabb145d64652a948d72533023f6E7...

Your misconception is the exact reason SEC took this action:

There are two different BUSDs, one by Paxos on the Ethereum netowrk and one is a BUSD based derivative on other chains such as BSC.

https://www.binance.com/en/blog/ecosystem/understanding-busd...

Very interesting, do you have any sources on this being the reason for SEC's actions?

As far as I understand this, this is "just" wrapping/bridging – "just" in quotation marks because that often does carry counterparty risk if not done in a trustless way.

Is the issue that Binance is acting as a secondary custodian (holding Ethereum BUSD, issuing BSC BUSD) for a Paxos-issued (holding USD, issuing Ethereum BUSD) asset, and that that activity is not regulated by the NYDFS?

I beleive the latest reports now include specification that the issue is with the Binance pegged BUSD.

>Is the issue that Binance is acting as a secondary custodian (holding Ethereum BUSD, issuing BSC BUSD) for a Paxos-issued (holding USD, issuing Ethereum BUSD) asset, and that that activity is not regulated by the NYDFS?

yes

to make matters worse, AFAIK there is also revenue share beteween the two

Does that make the $16 billion hole go away?

I think it is fair to note the ["as directed by" the New York Department of Financial Services] part of the article.

While it does seem likely that stablecoins are shakey, most financial instruments look a bit shakey. Stocks, bonds, rental houses, etc are actually all pretty unreliable looking to a new entrant. I've had to coax some friends and family into the share market and it involves making a lot of reassuring noises as they imagine their money disappearing into the den of hucksters. If this stablecoin fails, we should note that it failed after the regulators effectively required it to fail.

And, out of a feeling of obligation, the USD looks shakey. The powers that be are printing dollars like a drunken sailor, the backer of the USD is insolvent and clearly not going to pay back their debts in real terms. There is a Russia-China-Iran axis forming that would be quite happy to see the dollar become less important in world trade. This is not a recipe for success. I personally object to stable coins more because they are pegged to something that looks unreliable rather than the (presumed high) risk of the stablecoin collapsing.

I don't think 'insolvent' means what you think it means. So long as the US can service the debt it's not really insolvent.

Ah yes, the real problem with people selling assets they lie about being backed with dollars is the dollar itself.

And if it turns out they lied about keeping dollars to back the coins and actually spent them all on coke and hookers, the real blame for the failure will lie with the regulators telling them to stop

Spoken like somebody who can't do risk assesment.

> Stocks, bonds, rental houses, etc are actually all pretty unreliable looking to a new entrant

I mean .. yes, there are ways you can lose your money with these. "The value of your money may go down as well as up". It probably is reasonable for a new entrant to be extremely cautious, especially if people are marketing a "scheme" at them.

> the backer of the USD is insolvent

Objectively false.

> and clearly not going to pay back their debts in real terms.

This doesn't matter and doesn't stop people buying T-bills.

Tip for extremely cautious retail investors: https://www.investopedia.com/terms/t/tips.asp ; the nearest you'll get to "guaranteed never to lose money".

> There is a Russia-China-Iran axis forming that would be quite happy to see the dollar become less important in world trade.

And I'd like a pony. China and some also-rans aren't going to dislodge the dollar if the Euro can't, especially as two out of the three are sanctioned off world trade and the remaining one has to do most of its trade .. with the US. In dollars. And has a nonexportable currency.

I don't have a comment about the USD itself but w.r.t. major banks U.S. regulators have been very invasively auditing risky asset holdings since 2008 and turned up the heat in the past few years in the wake of the rise of fintechs and crypto. Both are major contributors to allowances for losses. U.S. regulators have a gun to the head of each major financial institution that has exposure to either and they don't take crap from them.

I don't know how people come up with the ridiculous idea that a dollar shortage somehow signals weakness as people seek substitutes.

What they fail grasp is that the participants in question have almost no dollars left to spend. They seek alternatives not because they want to get back at the dollar and screw the USA, they do it because they have no other choice. Money substitution doesn't happen for political reasons it happens because of monetary reasons. There isn't enough money.

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