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Can someone explain the need for and uses for a stablecoin in the world of cryptocurrency?

• toomuchtodo 8y ago
  The desire to represent USD (ie stable value vs wildly volatile crypto) outside of the traditional banking system without the usual compliance (know your customer) and controls (anti money laundering) required of such financial instruments. Fake dollars that track real dollars.
  • dpflan 8y ago
    Thanks for explaining! Is the hope then that a stablecoin is the last step before cash out or that stablecoins would be the more widely accepted for use in the "real world" than Ethereum, Bitcoin, etc? As in, stablecoin could actually be more stable if it were deemed acceptable for normal transactions (i.e. don't buy pizza with Bitcoin, buy it with stablecoin X).
    • defen 8y ago
      The sole purpose of Tether is to sell your Bitcoin (or whatever cryptocurrency) for "dollars". The quotes are important because these "dollars" are not real dollars that you can actually do anything with; they're just a number. Imagine if you had a million dollars in your bank account but there was literally no way to use those dollars to purchase any real-world goods or services. That's what tethers are. Why would you do this? Maybe you think Bitcoin prices are going to drop and you want to "lock in" your dollar value. When you want to actually get real dollars, you have to use your tethers to purchase Bitcoin, then transfer the bitcoin to a real exchange that does real KYC (Gemini, Coinbase, etc), then sell on that exchange for real dollars, which can then get transferred to a real bank account.
      • tim333 8y ago
        You can change your USDT to real USD at Kraken.
        • defen 8y ago
          Good to know! I assume they do proper KYC? Do they exchange at 1:1 or do they take a percentage?
          • nostrademons 8y ago
            It's a market, but has generally been trading (and continues to trade) at very close to 1:1. It broke the peg last November when there were rumors then of Tether's insolvency, going to down $0.85:1 at one point.
          • tim333 8y ago
            Proper KYC, regulated, based in SF, competitive rates. Just now they quote $0.9694. Usually it's nearer $1 but I guess people are selling a bit. Commission is like 0.16%.
            • ac29 8y ago
              It should be noted that that are not registered with the State of New York, and have already been subject to investigation: https://en.wikipedia.org/wiki/Kraken_(company)#New_York_Attorney_General_Inquiry https://en.wikipedia.org/wiki/Kraken_(company)#New_York_Atto...
    • tim333 8y ago
      Using a stablecoin to buy pizza is a theoretical application which has yet to happen to the best of my knowledge. Facebook is rumoured to be working on a stablecoin currency which might bring regular use to consumers, perhaps.
• roywiggins 8y ago
  If you want to sell crypto coins quickly, getting dollars is hard. You have to go through banks, or trust that the "USD" in your crypto exchange account is really there. Getting crypto tokens out of an exchange is pretty easy, but you're just jumping from one volatile asset to another. So someone had the idea that you could create a coin that would retain its value but you could easily swap for crypto coins.
  • dpflan 8y ago
    Thanks for explaining!
• lawn 8y ago
  It's prominent use case is as a workaround for shady exchanges who don't want to touch USD, for regulatory reasons, so instead they use "USDT" (Tether backed USD). Some people look to stablecoins to avoid the volatility of crypto. Unfortunately stablecoins aren't really what cryptocurrencies are about, they're supposed to be without a trusted third party, yet stablecoins has a third party issuer who can for example refuse to redeem your coins. I personally think they're a big waste of time at best and scams at worst (like Tether).
  • dpflan 8y ago
    Thanks for explaining!
• patio11 8y ago
  Bitfinex's initial need for them is simple: they have a very, very lucrative business, which is allowing speculative demand and supply to meet and charging fat fees for matching them. This business requires speculators to be able to move money in and have the expectation of getting money out. Bitfinex could not credibly provide that after they lost the ability to clear USD-denominated wires when Wells Fargo cut them off (technically, declined to be an intermediary bank for their Taiwanese banks' wires) for AML/KYC compliance issues. So they took what was then a fun little crypto side project and got people to believe it was the next best thing to a fiat onramp. This, somewhat incredibly, worked. Then the rest of the crypto economy glommed onto the fact that this is really useful for them, because tether was much more AML/KYC friendly (in the sense that you could use it when your name was Ima Moneylaunderer) than USD-denominated rails typically are, and it fulfilled a liquidity-preserving function similar to casino chips. The cryptocurrency community produces essentially no value via sale of services outside of the community, so the balance of payments always has to satisfy "We can only pay out as much hard currency as people have deposited." Prices only keep going up to the extent that folks don't try to withdraw the money. Tether encourages people to realize gains but keep their gains on the table. (The community thinks that the main use case is facilitating inter-exchange liquidity/arbitrage but given sufficiently well-capitalized arbitragers tether provides no benefit over "We are capable of keeping a ledger of our activities in a database of our choice.") Those are the main reasons why. I strongly suspect that the community, once it realized that Tether was imperiled, brought several "competing" stablecoins to market because they both a) realized the systemic utility of stablecoins and b) were attempting to avoid the entire ecosystem vanishing in a nuclear fireball as tether unwound. Who knows, maybe they'll succeed.