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Comment by echelon | Hacker News Reader

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echelon

As I understand it, stablecoins are three things:

1. a means of bypassing US sanctions

2. a means of bypassing the US dollar / Western order during international trade

3. a means of transacting without Visa, Mastercard, Chase; cutting out banks and fintechs and their margins.

Stablecoins are pitched to investors as #3, but are more frequently used as #1 and #2.

If stablecoins catch on and can build a large network, it poses a real threat to American hegemony. You wouldn't need the dollar for international trade or settlement. You could trade, move large balances, etc. in stablecoins and never need to hold dollar reserves.

It's wild to see the US funding and developing this tech.

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I see this take a lot, and there's some truths to it, but I'd like to take the other side of the argument.

These stablecoin issuers are enormous buyers of US treasuries: "Tether Holdings owned $97.6 billion worth of US Treasuries in June 2024, a new high. Hence, Tether now owns more US Treasuries than the governments of Germany, the United Arab Emirates (UAE), and Australia. Hence, Tether is now the 18th largest holder of US Treasury bonds" (https://medium.com/coinmonks/tether-usdt-is-the-third-larges...)

Dollars are also more dominant as a reserve currency in stablecoins (~97%) than they are in real-world trade (https://digitalchamber.org/stablecoinreport/).

I.e., we see stablecoins as extending dollar dominance, not reducing it.

Weren't tether's numbers sort of shady?

Thought experiment: how much USDT is made unredeemable every year? including through lost private keys, freezing related to sanctions, etc

If you think 1% is a reasonable number, that’s 1BN per year at current market cap. Tethers been around for 10 years. Dead funds also compound.

Let’s say Tether was grossly insolvent (ie only had 50% of reserves) for the first 10BN in market cap (in other words, for the first 5 years of their existence). In addition to the 6BN+ of interest income they earn every year, there’s 1BN of reserves that will never get redeemed added every year

If Tether was insolvent before, they just need time to change that

I’m doubtful these numbers are realistic, but a more conventional explanation is that stablecoins can earn interest on conservative investments (like treasuries) but don’t pay interest, which should be profitable enough if they don’t get too greedy.

This is very roughly similar to banking. It’s an unregulated bank, but it’s not inevitable that they’ll implode.

Short answer: yes but not anymore.

They have a shady past but quickly realized they had lucked into a WILDLY profitable business. That first 10% of their existence is debated constantly and is what you see referenced constantly online when Tether is labelled as shady.

They make a disgusting amount of money and it keeps snowballing. This annoys people who want them to implode for earlier crimes.

For context they are more profitable than Blackrock.

.. how are they profitable? Market making? Tbill interest? TX fees?

> Tbill interest

or similar. They have $100bn dollars and their only job is not to lose any of it.

In this interest rate environment they’re basically printing money.

Giancarlo literally prints these tokens from his laptop. The ultimate profit scheme.

It’s individualism. Wild, but not so surprising to me. For instance, I want people to be able to choose what OS they use on their computers and I’d be happy to see more desktop and laptop computers sold without Windows included even if it hurts the US economy.

So, you take a cryptocurrency with a parent company able to freeze any account with all the funds instantly because they don't like it

And this company is US-based

And you use it to avoid US-sanctions

I'm really not sure that it works like that

That’s a bad take.

The biggest usage of stablecoins would be as a hedge on crypto itself. Don’t like where the current market, park it without needing to off-ramp and then on-ramp again when the conditions change.

And now that you’re in crypto-land 24/7, no need to skip weekend movements because offices are closed or accounts don’t get updated until Monday morning.

Stable coins hold dollars (bonds usually) IIRC they are amongst the largest US bond holders

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