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Zero risk likely doesn't exist, especially not without the backing of a lender of last resort. In practice many stable coins are similar to money market funds

by tonfa 5y ago

Zero risk likely doesn't exist, especially not without the backing of a lender of last resort. In practice many stable coins are similar to money market funds or eurodollar banking, so mechanisms and risks are somewhat well known.

dalbasal 5y ago
My point was the even with such a backing (central banking), currencies have failed to maintain a fixed exchange rate. That's why more currencies free float today. I guess i'm basically asking how stablecoins could be immune to something the GBP isn't/wasn't imune to. ..Could be some part I'm missing. Don't know much about stablecoins.
- cinquemb 5y ago
  Stablecoins (over collateralized, 1:1 collateralized, etc) on chain do float. They rely on arb or other incentives to keep them near a peg. They are only immune to the degree that the market mechanics in place surrounding each of them in particular to incentivize people to keep them pegged. Can't wait for people to start complaining about uncollateralized decentralized stable coins that will eventually be even more leveraged against other stablecoins that are backed fully by USD deposits (or over collateralized by crypto assets, or even USDT [can hear the screams and pearl clutching now lol]) where there is no specific entity to go after like Tether Ltd… Im glad for this all, because I think we are quickly approaching the point where we will no longer be trapped in bailoutistan… where risk will need to get priced in and over capacity/ team save-zombie-companies/ bad trades at tradfi bank desks and overall malfeasance (and failure to hedge against such) will be punished severely.
  - jkhdigital 5y ago
    You’ve got a great point here; decentralized finance has no villain (except perhaps the contract creators, but they don’t have your money) so when things go south there’s no one to blame except yourself. The only solution is to stop participating an unsustainable system, and when enough people choose to do so we might get back to an economy based on reality rather than derivatives.
    - cinquemb 5y ago
      As much as I agree with what you are saying, wrt > rather than derivatives. I don't think this will go away, just that we'll find ourselves in a new steady state where those who can enable better management of the derivatives through decentralized protocol's will become more in charge (to the degree anyone can be in charge if a after deployment of contracts, operation is mainly done through incentivized contract function for management of the protocols that any one can call, and the core logic of the contracts cannot be modified without redeployment of new contracts) of resource allocation.

by tonfa 5y ago

dalbasal 5y ago

My point was the even with such a backing (central banking), currencies have failed to maintain a fixed exchange rate. That's why more currencies free float today. I guess i'm basically asking how stablecoins could be immune to something the GBP isn't/wasn't imune to. ..Could be some part I'm missing. Don't know much about stablecoins.

cinquemb 5y ago
Stablecoins (over collateralized, 1:1 collateralized, etc) on chain do float. They rely on arb or other incentives to keep them near a peg. They are only immune to the degree that the market mechanics in place surrounding each of them in particular to incentivize people to keep them pegged. Can't wait for people to start complaining about uncollateralized decentralized stable coins that will eventually be even more leveraged against other stablecoins that are backed fully by USD deposits (or over collateralized by crypto assets, or even USDT [can hear the screams and pearl clutching now lol]) where there is no specific entity to go after like Tether Ltd… Im glad for this all, because I think we are quickly approaching the point where we will no longer be trapped in bailoutistan… where risk will need to get priced in and over capacity/ team save-zombie-companies/ bad trades at tradfi bank desks and overall malfeasance (and failure to hedge against such) will be punished severely.
- jkhdigital 5y ago
  You’ve got a great point here; decentralized finance has no villain (except perhaps the contract creators, but they don’t have your money) so when things go south there’s no one to blame except yourself. The only solution is to stop participating an unsustainable system, and when enough people choose to do so we might get back to an economy based on reality rather than derivatives.
  - cinquemb 5y ago
    As much as I agree with what you are saying, wrt > rather than derivatives. I don't think this will go away, just that we'll find ourselves in a new steady state where those who can enable better management of the derivatives through decentralized protocol's will become more in charge (to the degree anyone can be in charge if a after deployment of contracts, operation is mainly done through incentivized contract function for management of the protocols that any one can call, and the core logic of the contracts cannot be modified without redeployment of new contracts) of resource allocation.