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A simple question. Is there any reason not to put a Fed backed stablecoin on Ethereum and the other major blockchains? Even if you're crypto-skeptical, what is

A simple question. Is there any reason not to put a Fed backed stablecoin on Ethereum and the other major blockchains? Even if you're crypto-skeptical, what is the downside? In a world where Tether didn't have mass adoption, I can see why you might oppose it. But Tether and other stablecoins already exist and are widely used. DeFi already trivially interacts with fiat prices. We also know that Tether poses a serious, potentially systematic risk. The Fed could put it out of business overnight just by deploying a simple ERC20 token tracker.

toomuchtodo 5y ago
Because there's no benefit over a central system. If you trust the central bank (which a vast majority of participants in the financial system do), you don't need distributed anything. Blockchains are for trustless systems. The US financial and capital systems are built on legal and regulatory trust. Your smart contract will never override a judge or a regulatory body. The federal government need not deploy a crypto token in order to kill Tether. They will simply regulate it out of existence. It is clear this is the path we're on from Yellen's statements and the nomination of Gary Gensler to the SEC (who previously taught about cryptocurrency systems at MIT) [1]. Globally, China is cracking down hard, and Europe seems to be preparing to do so. None of this should be unexpected to an educated scholar of history and nation state mechanics. > It is important to note that a CBDC might not be the only way to address some of these problems; for example, in the US we might improve financial inclusion by requiring commercial banks to provide free, no-minimum accounts to users [2] [3], or by limiting or eliminating fees, as these were some of the reasons listed when the US unbanked were asked why they don’t have bank accounts. So, instant payments are coming in the next 18 months [3] (it is actively in testing currently with a handful of participants), and free accounts for everyone is a stroke of legislative pen. What's blockchain solving? [1] https://www.youtube.com/watch?v=EH6vE97qIP4 https://www.youtube.com/watch?v=EH6vE97qIP4 (MIT 15.S12 Blockchain and Money, Fall 2018, Instructor: Prof. Gary Gensler) [2] https://www.congress.gov/bill/116th-congress/senate-bill/3571/text https://www.congress.gov/bill/116th-congress/senate-bill/357... (Banking for All) [3] https://www.federalreserve.gov/paymentsystems/fednow_faq.htm https://www.federalreserve.gov/paymentsystems/fednow_faq.htm (FedNow Instant Payment system, 2023 GA)
- craigc 5y ago
  I agree that running it on top of another ledger like ETH or BTC makes no sense. That said, the idea of trusting a central bank that is completely unaccountable to the public or even to the Government is crazy to me.
  - icf80 5y ago
    This is how the Fed is run, they need the power to issue money whenever there is need without oversight.
    - mastax 5y ago
      "Without oversight" is stronger than reality as Trump's threatening of Powell illustrates. It is true that there is a strong culture of a politically independent, technocratic Fed. However this is a relatively recent invention by Volcker in the 80s. Volcker was pretty convincing about it's merits, hence it's survival, but even he was threatened by Reagan to not raise rates during the re-election campaign.
    - pbak 5y ago
      I'd ask "whose oversight is avoided ?", and "whose isn't ?". You are supposing the Fed's deciding committees are acting fully independently (wittingly or not) within their mandate. AFAIK the process isn't exactly transparent, even ex post facto. Similarly, we've seen last 12 years there's more than one way to skin a cat - issue "money" at the fed level - than just printing. They invented at least 3 mechanisms since. That being said, it's not entire clear to me how current tokens/coins solve that conundrum without losing some major desirable/necessary "macro" features and flexibility.
  - jjoonathan 5y ago
    Sure, go ahead, make the federal reserve more politically accountable -- and watch as inflation spirals out of control because the tool to combat inflation (raising interest rates) is political poison. Just how poisonous? Well, what have you heard about presidents Carter and Reagan?
- 5y ago
BrianOnHN 5y ago
How is that not the same as the Fed endorsing the Ethereum Blockchain?
Kalium 5y ago
> A simple question. Is there any reason not to put a Fed backed stablecoin on Ethereum and the other major blockchains? Even if you're crypto-skeptical, what is the downside? Without a substantial benefit that advances the Federal Reserve's core mission, there would seem to be no reason to do it. "Why not?" is one approach, and a perfectly valid one! It's perhaps often not how central banks approach decisions though.
graeme 5y ago
The blockchain is massively energy inefficient with high transaction costs. That seems like sufficient reason not to put actual economic transactions on the blockchain. Regulation and criminal penalties is sufficient for dealing with the frauds of the world. The answer to Madoff wasn’t “outcompete him” it was jail.
icf80 5y ago
They need total control. Why would they want to do that, that will make the price of ETH to skyrocket. The Fed will never run on blockchain, imagine someone guessing the private key. The Fed needs total control and this is good. All the transaction will pass through them and no one else.
- unabridged 5y ago
  The US government really doesn't use this much capital control in the current financial system. Look at the fx markets, look at all the dollar denominated bonds and paper issued by foreign companies and governments. They don't need to control each transaction, they just want to know where each transaction is coming & going. >The Fed will never run on blockchain, imagine someone guessing the private key. This is not a worry, if they lost a key they could just rollback to a previous good state and replace with a new token. This happens frequently on ethereum.
herendin 5y ago
I can think of at least two potential downsides Fear of losing control in future. For example Ethereum presently seems to be quite secure based on the potential reward of an attack vs the assets that might be deployed to attack Ethereum. But if a Fed-backed stablecoin relies on Ethereum, then a very expensive attack on Ethereum could become more attractive to an adversary. And how about the risk of an accidental coding error by Ethereum developers in a future update? Fear of lending legitimacy to other cryptocurrencies and tokens. Their values would explode if the Fed issued an ERC-20 token on the Ethereum blockchain
randomhodler84 5y ago
Because ethereum is hopelessly broken, inefficient, unscalable tech. You do not want your entire currency running on it. If it moves to PoS, it will be even worse, with frequent chain reorgs causing tx reversing and contract balance non-determinism. If you want to see a vision of broken eth, just look at polygon.
bitcurious 5y ago
Central bank controls rates, not gas.
kipchak 5y ago
For Architecture 7 which is similar they call out the reversal of the DAO hack as an example of giving over control to other groups being potentially undesirable. I'm not sure how likely something like that negatively affecting a fedcoin would be, but I can see them wanting as much control of the ecosystem as possible.
runbathtime 5y ago
A dollar is not a stablecoin period. A stablecoin isn't just a number on a ledger and it isn't a physical dollar. It is a really bad idea from a privacy perspective. Physcial cash is better, the fact that bitcoiners like this idea means they aren't really for privacy and stuff like that. Also blockchain has many design flaws including that they can be attacked and there is only 'rough' consensus about the order of transactions. It is a no good terrible idea.
dalbasal 5y ago
So... I don't quite understand all the implications of a "fedcoin." Isn't it basically creating an alternative USD, which the Fed becomes obligated to keep in parity with regular USD? What happens if a proverbial Soros messes starts exchanging these at massive rates? Does the Fed need to start printing USD (or stablecoin) to meet the demand? Parity is a hard problem. That's why we abandoned fixed exchange rate currency systems, for the most part. Also, if Tether is anything to go by, demand for stablecoins is sky high already. The day the Fed decides to issue Fedcoin, demand could be trillions. The Fed would be receiving ^I could be totally off. Haven't thought about this much. Please don't bite me.
XorNot 5y ago
The US Federal Reserve has no interest in holding a whole lot of random cryptocurrencies. Tether doesn't really work - letting you trade arbitrary cryptos into tethers means the backing company is holding arbitrary cryptos it hopes to resell for more tethers.
- unabridged 5y ago
  Tether doesn't hold arbitrary crypto (except a small amount to pay transaction fees on the blockchain). They are just a window where you can exchange tether tokens on the blockchain for USD in a bank account. The exchange of tether tokens with other crypto is decentralized and handled by the participants.
headmelted 5y ago
Because then the Fed is exposing itself to the mess that is Ethereum (and honestly, blockchain tokens in general). In order to produce a token on a given blockchain as a central government, you’re by implication saying that the blockchain itself is legitimate. In the case of Ethereum this would be disastrous. As an example - What happens if people start putting this Fed-backed token into solidity contracts? You can’t wave it away from court and say “this is funny money and has no legal standing” if someone raises a dispute when you (the government) issued the token. You likewise can’t start treating Ethereum contracts as legally valid because they are utterly unfit for that purpose for literally innumerable reasons.

toomuchtodo 5y ago

Because there's no benefit over a central system. If you trust the central bank (which a vast majority of participants in the financial system do), you don't need distributed anything. Blockchains are for trustless systems. The US financial and capital systems are built on legal and regulatory trust. Your smart contract will never override a judge or a regulatory body. The federal government need not deploy a crypto token in order to kill Tether. They will simply regulate it out of existence. It is clear this is the path we're on from Yellen's statements and the nomination of Gary Gensler to the SEC (who previously taught about cryptocurrency systems at MIT) [1]. Globally, China is cracking down hard, and Europe seems to be preparing to do so. None of this should be unexpected to an educated scholar of history and nation state mechanics. > It is important to note that a CBDC might not be the only way to address some of these problems; for example, in the US we might improve financial inclusion by requiring commercial banks to provide free, no-minimum accounts to users [2] [3], or by limiting or eliminating fees, as these were some of the reasons listed when the US unbanked were asked why they don’t have bank accounts. So, instant payments are coming in the next 18 months [3] (it is actively in testing currently with a handful of participants), and free accounts for everyone is a stroke of legislative pen. What's blockchain solving? [1] https://www.youtube.com/watch?v=EH6vE97qIP4 https://www.youtube.com/watch?v=EH6vE97qIP4 (MIT 15.S12 Blockchain and Money, Fall 2018, Instructor: Prof. Gary Gensler) [2] https://www.congress.gov/bill/116th-congress/senate-bill/3571/text https://www.congress.gov/bill/116th-congress/senate-bill/357... (Banking for All) [3] https://www.federalreserve.gov/paymentsystems/fednow_faq.htm https://www.federalreserve.gov/paymentsystems/fednow_faq.htm (FedNow Instant Payment system, 2023 GA)

craigc 5y ago
I agree that running it on top of another ledger like ETH or BTC makes no sense. That said, the idea of trusting a central bank that is completely unaccountable to the public or even to the Government is crazy to me.
- icf80 5y ago
  This is how the Fed is run, they need the power to issue money whenever there is need without oversight.
  - mastax 5y ago
    "Without oversight" is stronger than reality as Trump's threatening of Powell illustrates. It is true that there is a strong culture of a politically independent, technocratic Fed. However this is a relatively recent invention by Volcker in the 80s. Volcker was pretty convincing about it's merits, hence it's survival, but even he was threatened by Reagan to not raise rates during the re-election campaign.
  - pbak 5y ago
    I'd ask "whose oversight is avoided ?", and "whose isn't ?". You are supposing the Fed's deciding committees are acting fully independently (wittingly or not) within their mandate. AFAIK the process isn't exactly transparent, even ex post facto. Similarly, we've seen last 12 years there's more than one way to skin a cat - issue "money" at the fed level - than just printing. They invented at least 3 mechanisms since. That being said, it's not entire clear to me how current tokens/coins solve that conundrum without losing some major desirable/necessary "macro" features and flexibility.
- jjoonathan 5y ago
  Sure, go ahead, make the federal reserve more politically accountable -- and watch as inflation spirals out of control because the tool to combat inflation (raising interest rates) is political poison. Just how poisonous? Well, what have you heard about presidents Carter and Reagan?
5y ago

BrianOnHN 5y ago

How is that not the same as the Fed endorsing the Ethereum Blockchain?

Kalium 5y ago

> A simple question. Is there any reason not to put a Fed backed stablecoin on Ethereum and the other major blockchains? Even if you're crypto-skeptical, what is the downside? Without a substantial benefit that advances the Federal Reserve's core mission, there would seem to be no reason to do it. "Why not?" is one approach, and a perfectly valid one! It's perhaps often not how central banks approach decisions though.

graeme 5y ago

The blockchain is massively energy inefficient with high transaction costs. That seems like sufficient reason not to put actual economic transactions on the blockchain. Regulation and criminal penalties is sufficient for dealing with the frauds of the world. The answer to Madoff wasn’t “outcompete him” it was jail.

icf80 5y ago

They need total control. Why would they want to do that, that will make the price of ETH to skyrocket. The Fed will never run on blockchain, imagine someone guessing the private key. The Fed needs total control and this is good. All the transaction will pass through them and no one else.

unabridged 5y ago
The US government really doesn't use this much capital control in the current financial system. Look at the fx markets, look at all the dollar denominated bonds and paper issued by foreign companies and governments. They don't need to control each transaction, they just want to know where each transaction is coming & going. >The Fed will never run on blockchain, imagine someone guessing the private key. This is not a worry, if they lost a key they could just rollback to a previous good state and replace with a new token. This happens frequently on ethereum.

herendin 5y ago

I can think of at least two potential downsides Fear of losing control in future. For example Ethereum presently seems to be quite secure based on the potential reward of an attack vs the assets that might be deployed to attack Ethereum. But if a Fed-backed stablecoin relies on Ethereum, then a very expensive attack on Ethereum could become more attractive to an adversary. And how about the risk of an accidental coding error by Ethereum developers in a future update? Fear of lending legitimacy to other cryptocurrencies and tokens. Their values would explode if the Fed issued an ERC-20 token on the Ethereum blockchain

randomhodler84 5y ago

Because ethereum is hopelessly broken, inefficient, unscalable tech. You do not want your entire currency running on it. If it moves to PoS, it will be even worse, with frequent chain reorgs causing tx reversing and contract balance non-determinism. If you want to see a vision of broken eth, just look at polygon.

bitcurious 5y ago

Central bank controls rates, not gas.

kipchak 5y ago

For Architecture 7 which is similar they call out the reversal of the DAO hack as an example of giving over control to other groups being potentially undesirable. I'm not sure how likely something like that negatively affecting a fedcoin would be, but I can see them wanting as much control of the ecosystem as possible.

runbathtime 5y ago

A dollar is not a stablecoin period. A stablecoin isn't just a number on a ledger and it isn't a physical dollar. It is a really bad idea from a privacy perspective. Physcial cash is better, the fact that bitcoiners like this idea means they aren't really for privacy and stuff like that. Also blockchain has many design flaws including that they can be attacked and there is only 'rough' consensus about the order of transactions. It is a no good terrible idea.

dalbasal 5y ago

So... I don't quite understand all the implications of a "fedcoin." Isn't it basically creating an alternative USD, which the Fed becomes obligated to keep in parity with regular USD? What happens if a proverbial Soros messes starts exchanging these at massive rates? Does the Fed need to start printing USD (or stablecoin) to meet the demand? Parity is a hard problem. That's why we abandoned fixed exchange rate currency systems, for the most part. Also, if Tether is anything to go by, demand for stablecoins is sky high already. The day the Fed decides to issue Fedcoin, demand could be trillions. The Fed would be receiving ^I could be totally off. Haven't thought about this much. Please don't bite me.

XorNot 5y ago

The US Federal Reserve has no interest in holding a whole lot of random cryptocurrencies. Tether doesn't really work - letting you trade arbitrary cryptos into tethers means the backing company is holding arbitrary cryptos it hopes to resell for more tethers.

unabridged 5y ago
Tether doesn't hold arbitrary crypto (except a small amount to pay transaction fees on the blockchain). They are just a window where you can exchange tether tokens on the blockchain for USD in a bank account. The exchange of tether tokens with other crypto is decentralized and handled by the participants.

headmelted 5y ago

Because then the Fed is exposing itself to the mess that is Ethereum (and honestly, blockchain tokens in general). In order to produce a token on a given blockchain as a central government, you’re by implication saying that the blockchain itself is legitimate. In the case of Ethereum this would be disastrous. As an example - What happens if people start putting this Fed-backed token into solidity contracts? You can’t wave it away from court and say “this is funny money and has no legal standing” if someone raises a dispute when you (the government) issued the token. You likewise can’t start treating Ethereum contracts as legally valid because they are utterly unfit for that purpose for literally innumerable reasons.