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.. so this can be whatever, valued by whomever, said to be worth so and so many USD?
by apples_oranges 5y ago
.. so this can be whatever, valued by whomever, said to be worth so and so many USD?
- huntertwo 5y agoand when whatever asset backing it crashes for whatever reason, we will see the modern run on the bank.
- JohnJamesRambo 5y agoI assume they are invested in ultra low risk assets. Have those sort of things ever crashed? I can see where they are coming from, because even Apple doesn’t really keep literal cash laying around, I assume no one does. https://www.quora.com/Where-do-large-companies-like-Microsoft-and-Apple-keep-their-cash https://www.quora.com/Where-do-large-companies-like-Microsof...
- dalbasal 5y agoWhy do you assume that? Apple's cash reserves and are not the same thing as a stablecoin reserves. One is cash that a company owns, like Apple, and their shareholders own it along with the rest of the company. The other is the cash reserve backing an etherealized USD bank account. It's an "other people's money" problem. That's kind of the interesting part, to me. USDT is, a "private money" in a more real sense.. or at least different. As long as coin prices float, no one owes anyone anything. A stablecoin implies a price guarantor, a currency peg operator. If things play out the fun way, stablecoins get sansacked by WSB's version of George Soros. Then, in the next iteration, CoinBanks are offering fixed interest accounts.
- huntertwo 5y agoI also assume they are ultra low risk, but I also assume they are higher risk than USD or US Treasury bonds. For example, USDT is backed significantly by "commercial paper". Commercial paper does have a default risk, see https://en.wikipedia.org/wiki/Commercial_paper#Defaults https://en.wikipedia.org/wiki/Commercial_paper#Defaults
- JohnJamesRambo 5y agoThat’s a great link thank you.
- nonameiguess 5y agoThe commercial paper market crashed in 2008.
- buildbuildbuild 5y agoAssuming people can know which assets are backing it.
- relax88 5y ago“Commercial paper” (aka IOUs from crypto exchanges)
- huntertwo 5y agoAnother assumption is that people can go to Coinbase and reclaim their USD fast enough to cause a run on the bank. While anybody with a Coinbase account can do USDC->USD conversion on the fly, Coinbase ultimately controls the speed of withdrawals and conversions.
- thatguy0900 5y agoAs long as everyone keeps playing pretend I guess it doesn't really matter
- pmorici 5y agoThink of it as a synthetic derivative. They are investing in something like treasuries or commercial paper denominated in dollars but maintain a dollar peg. Less of a scandal and more of a honesty in advertising thing I would guess.
- dalbasal 5y agoI'm not sure that's less of a scandal. Sounds a lot like dollarization, but on a small, private scale. They have a war chest, containing stuff other than USD, that can be used to defend their dollar peg. So... what? When demand is high issue/sell USDT, and when demand is low liquidate securities, buy dollars to cash out USDT sellers? One side of that equation is notably different to the other. It's a totally different game if you keep all outstanding cash on hand, in USD and can answer the question "what if everyone want to sell their stablecoins today?"
- herman-rogers 5y agoIf everyone wants to sell their USDC today they wouldn't be able to liquidate fast enough.
- pmorici 5y agoI don’t really see how it’s different than a money market account in that regard. So long as they are investing in appropriate assets they should be able to liquidate them in a reasonable time w/o too much problem.
- pmorici 5y agoGUSD / Gemini USD stable coin takes that approach. They deposit the funds in State Street Bank and they are even FDIC insured per user. It really depends what you are using the stable coin for wether that would matter to you. If you only use it to move between exchanges and don’t hold them for extended periods the risk is minimal in my view. The scenario where you might prefer the GUSD model is when you are depositing in an account to get yield for an extended period when using BlockFi or Gemini Earn.
- rattlesnakedave 5y agoThis is a bad faith comment. It's very likely not "whatever." It's probably dollar equivalents and low risk investments denominated in dollars.
- dalbasal 5y agoIn that case, why not hold dollars? Regardless, the curious/frightening thing about these stablecoins is what tf is going on in their "central bank" ops room to stabilize them.
- makomk 5y agoThere's no such thing as just holding dollars when operating at this kind of billion-dollar scale. Even if you could, say, find a bank that would let you just keep that amount in an account with them, the bank would have to do the same things behind the scenes (along with, typically, some riskier stuff) in order to back those dollars. It just isn't a meaningful concept.
- dalbasal 5y agoExactly, sort of, lol. That's why institutions that do this are usually banks. This isn't just a large company holding liquid assets. These are reserves backing what is, mechanically, a USD account. IDK what the explicit promises, if any, exist. Either way, there can be a run. This is banking, not business.
- deleted 5y ago[deleted]